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Sino Iron Pty Ltd v Palmer (No 3)

 

[2015] QSC 94

Reported at [2015] 2 Qd R 574

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Sino Iron Pty Ltd & Anor v Palmer & Anor (No 3) [2015] QSC 94

PARTIES:

SINO IRON PTY LTD
ACN 058 429 708
(first plaintiff)
and
KOREAN STEEL PTY LTD
ACN 058 429 600
(second plaintiff)
v
CLIVE FREDERICK PALMER
(first defendant)
and
COSMO DEVELOPMENTS PTY LTD
ACN 010 793 790
(second defendant)

FILE NO:

BS6791/14

DIVISION:

Trial

PROCEEDING:

Application

DELIVERED ON:

4 May 2015

DELIVERED AT:

Brisbane

HEARING DATE:

26-27 November 2014; 29 January 2015

JUDGE:

Jackson J

ORDERS:

The order of the court is that:

  1. Paragraphs 50 to 100 of the amended defence are struck out.
  2. The plaintiffs’ claim is dismissed.
  3. Any application for costs is to be made by submissions in writing not exceeding seven pages in length on or before 10 days from the date of these orders.
  4. Any responsive submission is to be made in writing not exceeding seven pages in length on or before 10 days from receipt of the applicants’ submissions.

CATCHWORDS:

EQUITY – TRUSTS AND TRUSTEES – IMPLIED TRUSTS – CONSTRUCTIVE TRUSTS – COMMON INTENTION – where the plaintiffs and a company controlled by the first defendant (“Mineralogy”) were parties to Facilities Deeds for the development, administration and maintenance of facilities to be constructed for a port – where the Facilities Deeds contain clauses requiring a budget and contributions to an administrative or sinking fund – where the Facilities Deeds required Mineralogy to open a bank account to receive contributions ­ where the Facilities Deeds provided that the funds were to be spent only for identified purposes – where the Facilities Deeds provided for Mineralogy to account to the plaintiffs for the funds –­ whether the funds in the bank account held by Mineralogy were held on trust for the plaintiffs

EQUITY – TRUSTS AND TRUSTEES – IMPLIED TRUSTS – CONSTRUCTIVE TRUSTS – KNOWING PROCUREMENT OR INDUCEMENT OR KNOWING RECEIPT – where the first defendant is a director of the second defendant – where the first defendant drew two cheques on the bank account ­ where the cheques were paid – where the payments  were not made for permitted purposes– where the plaintiff alleges that the payments were made in breach of trust – where the plaintiffs allege that the defendants are liable in equity on the basis that they had knowledge of the breach of trust – whether knowledge of the existence of a trust is a requirement of liability

PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER UNIFORM CIVIL PROCEDURE RULES AND GENERALLY – PLEADING – DEFENCE AND COUNTERCLAIM – where the defendants plead an unclean hands defence to the plaintiffs’ claims for liability against parties to alleged breaches of trust  – where the defendants’ unclean hands defence was struck out – where the defendants were given leave to replead the defence – where the amended defence alleges additional facts in support of an unclean hands defence – whether the amended defence should be struck out as not sufficiently arguable

Civil Proceedings Act 2011 (Qld), s 58

Uniform Civil Procedure Rules 1999 (Qld), rr 159(2), 159(3), 171

Alleyn v Darcy (1854) 4 I Ch R 199, cited

Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) & Anor (2000) CLR 588; [2000] HCA 25, applied 

Australian Super Developments Pty Ltd v Marriner [2012] VSCA 171, referred to

Australian Super Developments Pty Ltd v Marriner [2014] VSC 464, followed

Bahr v Nicolay (No 2) (1988) 164 CLR 604; [1988] HCA 16, cited

Balog v Independent Commission Against Corruption (1990) 169 CLR 625; [1990] HCA 28, considered

Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; [1968] UKHL 4, considered

Barlow Clowes International Ltd (In Liquidation) v Eurotrust International Ltd [2006] 1 WLR 1476; [2005] UKPC 37, considered

Barnes v Addy (1874) LR 9 Ch App 244, followed

Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26, cited

CITIC Pacific Pty Ltd v Mineralogy Pty Ltd [2014] WASC 358, referred to

Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24, cited

Commonwealth Bank of Australia v Barker (2014) 312 ALR 356; [2014] HCA 32, applied

Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; [1975] HCA 8, followed

Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460; [1967] HCA 3, cited

Eaves v Hickson (1861) 30 Beav 136; 54 ER 840, cited

Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175, considered

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

Fyler v Fyler (1841) 3 Beav 550, 561-562; 49 ER 216 , cited

Gosper v Sawyer (1985) 160 CLR 548; [1985] HCA 19, followed

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6, followed

Hasler v Singtel Optus Pty Ltd (2014) 311 ALR 494; [2014] NSWCA 266, followed

Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547, considered

Jessup v Queensland Housing Commission [2002] 2 Qd R 270; [2001] QCA 312, followed

Kauter v Hilton (1953) 90 CLR 86; [1953] HCA 95, applied

KBH Construction v Lidco Aluminium Products Pty Ltd (Unreported, Supreme Ct of NSW, Common Law Division, Giles J, 27 June 1990, No. 12903 of 1990), considered

Korda & Ors v Australian Executor Trustees (SA) Ltd (2015) 317 ALR 225; [2015] HCA 6, followed

Mineralogy Pty Ltd v Sino Iron Pty Ltd [2013] WASC 194, related

Mineralogy Pty Ltd v Sino Iron Pty Ltd [2014] FCA 1326, related

Nicholson v Morgan (No 3) [2013] WASC 110, referred to   

Parkview Qld Pty Ltd v Commonwealth Bank of Australia [2013] NSWSC 79, considered

Puma Australia Pty Ltd v Sportsman’s Australia Ltd [No 2] [1994] 2 Qd R 159, referred to

Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia & Ors (1991) 30 FCR 491; [1991] FCA 344, considered

Re Schebsman (dec’d) [1944] Ch 83, applied

Saloman v Saloman & Co Ltd [1897] AC 22; [1896] UKHL 1, referred to

Sino Iron Pty Ltd & Anor v Palmer & Anor (No 2) [2014] QSC 287, related

Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61; [2008] UKHL 48, considered

Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; [1988] HCA 44, cited

Twinsectra Ltd v Yardley & Ors [2002] 2 AC 164; [2002] UKHL 12, followed

Wilson v Darling Island Stevedoring and Lighterage Co Ltd  (1956) 95 CLR 43; [1956] HCA 8, cited

COUNSEL:

A Bell SC, M Thangaraj SC and S Free for the applicants/plaintiffs

S Couper QC and D Atkinson for the respondent/defendants

SOLICITORS:

Allens Linklaters for the applicants/plaintiffs

Hopgood Ganim for the respondents/defendants

  1. JACKSON J: On 8 August 2013 the first defendant, Mr Palmer, drew a cheque on the account of Mineralogy Pty Ltd (“Mineralogy”) at the National Australia Bank No. 16-939-3487 styled “Port Palmer Operations” (“the bank account”), payable to the second defendant, Cosmo Developments Pty Ltd, in the sum of $10,000,000.
  1. On 2 September 2013, the first defendant drew another cheque on the bank account payable to Media Circus Network Pty Ltd (“Media Circus”) in the sum of $2,167,165.60.
  1. Both cheques were presented and paid by the bank to the payees (“the challenged payments”).
  1. The plaintiffs, Sino Iron Pty Ltd and Korean Steel Pty Ltd, allege that the challenged payments were made by Mineralogy in breach of trust. They claim that the first defendant procured or assisted in Mineralogy’s breaches of trust, or knowingly participated in them. They allege that the second defendant knowingly received the $10,000,000 payment.
  1. Against the first defendant, the plaintiffs claim declaratory relief that he dishonestly procured or was involved in or assisted Mineralogy’s breaches of trust or knowingly assisted Mineralogy in its dishonest and fraudulent breaches of trust and that he is liable to account to the plaintiffs, as constructive trustee, in relation to the payments.
  1. Against the second defendant, the plaintiffs claim a declaration that it is liable to account as a constructive trustee to Mineralogy, for the $10,000,000 payment, and that the second defendant received that payment in breach of trust and with knowledge of (Mineralogy’s) breach of trust.
  1. Against both defendants, the plaintiffs further claim a declaration that they are entitled to an enquiry in relation to any profits made or benefits derived by the defendant and, if so advised, to elect for an account of profits or alternatively equitable compensation.
  1. The hearing of liability issues began on 26 November 2014. It was agreed that not all issues of liability could be resolved in the days that had been set down to hear them. The difficulty was created by a plea of unclean hands raised in the defence. The plea was raised late. The plaintiffs applied to strike it out. On 26 November 2014, I ordered that it be struck out but gave leave to replead the relevant paragraphs. Consistently with the philosophy of the Uniform Civil Procedure Rules 1999 (“UCPR”), I ordered that the trial proceed on the balance of the issues of liability raised on the pleadings, so that it would be adjourned after hearing the evidence on those issues, to await determination of whether an unclean hands defence would proceed to trial. 
  1. As matters turned out, the defendants filed an amended defence again raising an unclean hands defence. The plaintiffs made a second application to strike out the relevant paragraphs of the amended defence. It was heard on 29 January 2015. These reasons for judgment deal with the hearing of the liability issues and the second application to strike out the unclean hands defence.
  1. A curious feature of the case is that shortly before the hearing began, Mineralogy paid to the plaintiffs, and they accepted payment of, a sum including an amount of $12,167,000 on account of the challenged payments. Neither the plaintiffs nor the defendants disclosed that fact to the Court at the time. By 29 January 2015, it was apparent from the material filed after the earlier hearing that payment of $12,167,000 had been made.
  1. Notwithstanding the payment, the plaintiffs persist in their claim against the defendants on the footing that they might still elect to claim interest under s 58 of the Civil Proceedings Act 2011 (Qld) for an amount that exceeds the jurisdiction of the District Court.  As well, they submit that they are entitled still to an inquiry in relation to any profits that may have been made by the first or second defendants so as to be able to elect for an account of profits if so advised.  I observe that no claim for interest is made by the plaintiffs in the claim or statement of claim up to this point.  Rule 159(3) of the UCPR requires that if a party intends to apply for an award of interest the party must allege particulars of the interest in the party’s pleading.
  1. Apart from the unclean hands defence, the issues for determination may be divided in two. First, were the funds in the bank account held by Mineralogy on trust for the plaintiffs? Second, if they were held on trust, are the defendants liable to the relief claimed against them?
  1. Another unusual feature of the way in which the matter proceeded was that the defendants made a number of concessions when the hearing of the liability issues began. For clarity, I have reorganised the order in which they were made.
  1. Paragraphs 71 and 72 of the statement of claim allege that Mineralogy did not have any need to incur expenses in relation to the Port, or for Port management services at the Port, as referred to in the Facilities Deeds. Paragraph 23 of the defence alleges that on 1 June 2013 Mineralogy agreed with Qld Nickel Ltd (“QNI”) that QNI would provide services and discharge the responsibilities of Mineralogy pursuant to the Facilities Deeds for a fee of $12,000,000 and that $12,000,000 of the challenged payments was made in payment of that fee. The defendants abandoned par 23 of the defence.
  1. Only if I find that the challenged payments were made from funds held on trust, the defendants made three other concessions. First, they concede that the challenged payments were made by Mineralogy in breach of trust. Second, if I also find that the first defendant had knowledge of the trust, they concede that the first defendant procured the breaches of trust constituted by making the challenged payments. Third, if those findings are made, they concede that the plaintiffs do not need to prove that the breaches of trust were fraudulent or dishonest or that the first defendant in procuring the breaches of trust acted fraudulently or dishonestly in order to obtain the relief they seek, subject to any other defences (it would seem the unclean hands defence) not being accepted.
  1. The defendants submit that the consequence of those concessions is that any question of fraud or dishonesty, either by Mineralogy as trustee, or by the first defendant, has no further relevance. Accordingly, they submit that the only issues which remain live questions are: was there a trust? Did the first defendant by any of the recognised tests of knowledge know there was a trust? Are the plaintiffs disentitled to any relief because of “unclean hands”, as a defence?
  1. For their part, the plaintiffs refused to accept these concessions. They persisted with the tender of evidence intended to prove that Mineralogy’s breach of trust was dishonest and fraudulent and they seek findings of dishonesty against the first and second defendants.

Facts

  1. The material facts relied upon by the plaintiffs for the existence of a trust are largely not in dispute but should be set out in the following findings.
  1. Each of the plaintiffs and Mineralogy are parties to a deed relating to the approval, development, administration and maintenance of facilities to be constructed on an area at or near Cape Preston in Western Australia. The deed between the first plaintiff and Mineralogy is called the “Sino Iron Facilities Deed”. The deed between the second plaintiff and Mineralogy is called the “Korean Facilities Deed”. The Sino Iron Facilities Deed (as amended) and the Korean Steel Facilities Deed (as amended) are in near identical terms. Together, I will describe them as “the Facilities Deeds”. Each of the first plaintiff and second plaintiff is defined therein as “Company”.
  1. Each of the Facilities Deeds provides:

 

(a)By recital D, the parties have agreed to enter into a contract in respect of the procedures for the approval, Development, operation, administration and maintenance of Facilities in the Preston Area, on the terms and conditions of the Deeds.

 

(b)By clause 5:

 

“Mineralogy may establish an Administrative Fund at any time after the Commencement Date, Mineralogy must use the Administrative Fund only to:

(a)pay Administration Costs and the day to day expenses of operating, maintaining and repairing Approved Facilities; and

(b)reimbursing (sic) Company and Third Parties for operational, maintenance and repair work they have carried out to Approved Facilities which is approved by Mineralogy;

(c)any other matter needed to establish, maintain and operate Approved Facilities for Company, Mineralogy and/or Third Parties.”

 

(c)By clause 7.1, Mineralogy may prepare an annual budget for Administration Costs before the start of each Production Year and give the Company a copy of such budget.

 

(d)By clause 1.1, ‘Administration Costs’ means:

 

“(a)insurance premiums;

(b)insurance broker fees;

(c)excesses on insurance policies;

(d)management fees and other costs payable by Mineralogy to any party;

(e)fees and other costs payable to an auditor or accountant appointed by Mineralogy;

(f)costs and disbursements for stationery, postage, photocopying and related management costs; and

(g)any other costs incurred by Mineralogy which are not costs for Shared Facilities according to clause 17.1 and the Shared Facilities Register.”

 

(e)By clause 7.2:

 

“Budgets for administration costs

 

Mineralogy may include in a budget for Administration Costs:

 

(a)how much money it will need during the next Production Year for its Administration Costs;

(b)money (other than Administrative Fund contributions) expected to be received in the next Production Year for Administration Costs;

(c)itemised details of the costs for each item of Administration Costs;

(d)the proportion which Company and each Third Party must contribute to Administration Costs for the next Production Year;

(e)the amount of the proportion which Company and each Third Party must contribute to Administration Costs for the next Production Year; and

(f)any other matter Mineralogy deems appropriate.”

 

(f)By clause 7.4:

 

“Budgets for Administrative Fund and Sinking Fund

 

Mineralogy must prepare budgets for the Administrative Fund and the Sinking Fund on a reasonable basis and must use its best endeavours to prepare budgets that are consistent with the reasonable operating costs and capital replacement requirements of the Facilities.”

 

(g)By clause 8.1, Mineralogy shall levy Company the contributions it will need for its Administrative Fund for each Production Year 120 days in advance and Company must make payment no later than 60 days before the commencement of each Production Year.

 

(h)By clause 8.2(a), the amount of contributions for the Administrative Fund must be the amount determined by Mineralogy in the budget for Administrative Costs under clause 7.2 plus a margin of 5% and Company’s contribution shall be calculated according to the formula stated in that clause.

 

(i)By clause 9.2(a), Mineralogy must keep separate records and account separately at Company’s costs for, inter alia, Administration Costs.

 

(j)By clause 10:

 

“10.1Reconciliation

 

Within three months after the end of each Production Year (or more often it (sic) determined by Mineralogy), Mineralogy must reconcile the amount of contributions it has received from each User against the use by (or benefit to) each User of each Shared Facility. The purpose of the reconciliation is to ensure that a User pays for their proportion of actual use of (or benefit derived from) each Shared Facility over the reconciliation period (regardless of the apportionment of costs in the budget for the reconciliation period). In the reconciliation, Mineralogy must identify:

 

(a)whether Company has overpaid any contributions and the amount of overpayment; and

 

(b)whether Company have [sic] underpaid any contributions and the amount of underpayment, based on the Company’s actual use of (or benefit derived from) Shared Facilities during the reconciliation period.

 

10.2Refunds by Mineralogy

 

Within 14 days after it carries out the reconciliation, Mineralogy must refund to Company any contributions Company has overpaid during the reconciliation period.”

 

(k)By clause 13.1:

 

Mineralogy must:

(a)establish and maintain a bank or building society account or accounts in its name;

(b)deposit all contributions and any other money paid to Mineralogy into its bank or building society accounts.”

 

(l)By clause 13.2:

 

“Mineralogy may place money in an interest bearing deposit account at a bank or building society. If the account earns interest, Mineralogy may treat it as surplus funds and return it to any Third Party or maintain such fund in the relevant fund as additional security or for future use.”

 

(m)By clause 15(a):

If, at the end of a Production Year, the Administrative Fund has unspent amounts, those unspent amounts shall be refunded to Company and any other company that has contributed to the Administrative Fund in proportion to their respective contributions to the Administrative Fund … during the Production Year, provided that such unspent amounts are not required:

(i)to be spent in the following 3 months; or

(ii)for environment rehabilitation plans which have been developed by Mineralogy in accordance with Legislative Requirements or are required for the operations and are provided for in the budget for the relevant Production Year.”

 

(n)By clause 16:

“16.1 When does this clause apply?

 

This clause applies:

 

  1. If Mineralogy has made payments to service providers, Government Authorities or other parties, including payments for the provision of services or the replacement of Approved Facilities, from its Administrative Fund or Sinking Fund or from payments made directly by Company and Third Parties; and
  1. The service provider, Government Authority or other party refunds to or reimburses Mineralogy for some or all of those payments.

16.2     Obligation of Mineralogy

If Mineralogy receives a payment under this clause, Mineralogy may, reimburse the payment to whoever contributed towards the payment or maintain such amount in the relevant fund.

16.3     Calculating the amount of reimbursement

Mineralogy may reimburse payments under clause 16.2 to Company and Third Parties in shares proportional to the payment made by them.”

 

(o)By clause 1.1, “Approved Facilities” means, inter alia, Approved Company Facilities.

 

(p)By clause 1.1, “Approved Company Facilities” means any one or more Company Facilities approved by Mineralogy in accordance with clauses 3 or 4.

 

(q)By clause 1.1, “Company Facilities” means any one or more of the Facilities described in the Company Development Proposal from time to time to enable Company to export Company’s Product for the purposes of the Company Project, or any item or land being used by Company for any purpose related to the Company Project or Company’s operations.

 

(r)By clause 1.1, “Facilities” means any one or more of the:

 

(i)Marine Facilities (being the port to be developed at Cape Preston, including jetties, loading and unloading facilities and related infrastructure and any additional requirements of Mineralogy in accordance with sound operations of the Cape Preston Port);

(ii)Transport Facilities (being corridors, from Company’s mine on the Project Area to or around Cape Preston, for power lines, pipelines, roads, bridges, causeways, railways, pipelines and maintenance facilities and other facilities necessary for Company’s Development Proposal or Third Party Development Proposals or any other Approved Development Proposal);

(iii)Preston Facilities (being rail and rail unloading facilities, materials handling, conveyors, stock piles, stackers and reclaimers, desalination plants, power transmission lines, power plants, pipelines, marine facilities, jetties, tugs, causeways, ship loaders, port facilities, including but not limited to navigational aids, beacons, lighting, railway, roads and other appropriate infrastructure for the development of port facilities necessary to export hot briquetted iron and/or direct reduction iron, pellets produced from Iron Ore and/or concentrated forms of Iron Ore or Magnetite Ore not exceeding 72% Fe); and

(iv)any other Facilities approved by Mineralogy from time to time.

 

(s)By clause 1.1, “Shared Facilities” means the Facilities identified by Mineralogy in the Shared Facilities Register as facilities which may service more than one user.

 

(t)By clause 22.1, Mineralogy must operate and maintain the Shared Facilities on behalf of the users.

 

(u)By clause 32.1, the Facilities Deeds shall be construed exclusively in accordance with the Laws for the time being in force in the State of Western Australia.

  1. In all relevant dealings between Mineralogy and the plaintiffs:

 

(a)CITIC Pacific Mining Management Pty Ltd (CITIC) acted on behalf of both plaintiffs; and

 

(b)Mineralogy and the plaintiffs conducted themselves on the footing that there was one Administrative Fund, contributions to which were regulated by the Facilities Deeds.

  1. On or about 22 February 2010, consistent with its obligation under clause 13.1 of the Facilities Deeds, Mineralogy caused the bank account to be opened.
  1. Port Palmer is a name used by Mineralogy and the first defendant to describe the port at Cape Preston.
  1. On the dates appearing below, CITIC, on behalf of the plaintiffs, made contributions to the Administrative Fund by making the following payments into the bank account (“Administrative Fund contributions”):  

Date

Amount

1 April 2010

$1,800,000.00

25 June 2010

$1,500,000.00

4 March 2011

$3,936,354.35

17 January 2012

$5,546,917.53

23 November2012

$13,471,392.17

 

  1. The Administrative Fund contributions were made following the issue of invoices by Mineralogy to CITIC on behalf of the plaintiffs in respect of budgeted Administration Costs for calendar years 2010, 2011, 2012 and 2013.
  1. The Administrative Fund contributions were made under cl 7.4 of the Facilities Deeds.
  1. At the time of the challenged payments, the first defendant, as signatory of the Facilities Deed, and as a director of Mineralogy, had knowledge of the terms of the Facilities Deeds.
  1. At the times when the Administrative Fund contributions and the challenged payments were made, Mineralogy maintained, in addition to the bank account, another bank account or other bank accounts for the purpose or purposes of its business.
  1. With a few minor exceptions, the Administrative Fund contributions were the only funds contributed to the bank account before the challenged payments were made.
  1. The exceptions included two amounts payments for royalties owed by the plaintiffs to Mineralogy. Mineralogy had directed that the royalty payments were to be made into another bank account. The two payments were deposited into the bank account because of an administrative error on the part of one of the plaintiffs’ or CITIC’s agents. There were some other small credits which appear to be clerical errors and were immediately cancelled or reversed.
  1. After 2 September 2013, and after the bank account had become overdrawn, Mineralogy made a deposit totalling $1,150,000 into the bank account.

Plaintiffs’ submissions

  1.            In detailed written and oral submissions, the plaintiffs developed a number of propositions about whether the Administrative Fund contributions were held in the bank account by Mineralogy on trust. They submit that there should be no general reluctance to infer an intention to create a trust and there is no need for particular caution in drawing an inference that a trust was intended. They submit that there is a greater readiness on the part of Australian courts to discern an intention to create a trust, relying on the view of the authors of Jacobs’ Law of Trusts in Australia.[1]
  1. The plaintiffs rely on the following indicia of a trust: first, a prescribed, dedicated or exclusive purpose for the use of the contributed funds; second, a requirement that the funds be kept separate from other moneys; and, third, an obligation to account for the funds to the plaintiffs.  They place particular reliance on the conceptual model of the “Quistclose trust”,[2] as a relevant species of trust. 
  1. Relying on those propositions, the plaintiffs make detailed submissions about the operation of the clauses of the Facilities Deeds set out above. First, they submit that although cls 7.1 and 7.2 refer to a budget for Administration Costs and cl 7.4 refers to budgets for the Administrative Fund, their subject matter is the same. They submit that the concept or notion of Administration Costs and the object of the Administrative Fund overlap and that the use of the expressions “Administrative Fund” and “Administration Fund” in cl 8.2 supports that conclusion.
  1. As an overarching summary, the plaintiffs submit that the transactions provided for in the clauses of the Facilities Deeds set out above involve payment in advance for services to be provided, with a refund of advances not spent on providing particular identified services and costs. The commercial objective is to put Mineralogy in funds to enable it to provide the services. The amount to be advanced is to be fixed by a budget given to the plaintiffs beforehand to allow their comment or complaint but without a right to reject the budget. The advances are to be paid into a bank account opened for that purpose. Separate records are to be kept of the moneys received into and paid out of the fund so created and an annual accounting and reconciliation of receipts and payments is to occur. Any surplus is to be paid back to the plaintiffs. Alternatively, if the money advanced is insufficient, Mineralogy can call for the shortfall. Interest earned on the moneys in the fund is to be paid to the plaintiffs, or held in the fund to be spent on an allowable purpose.
  1. The plaintiffs submit that the whole tenor of the relevant provisions is that the fund constituted by the contributions is to be maintained so that only authorised payments can be made and the unspent balance is to be returned to the plaintiffs. Therefore, the fund is to be kept separate and distinct from Mineralogy’s own moneys. The last point is strengthened by the express requirement that a bank account be opened for the receipt of the advances and by the provision that payment for the services is to be made from the bank account.
  1. The plaintiffs submit that cl 5 of the Facilities Deeds evinces the intention that the moneys advanced are only to be expended for exclusive and specific purposes.
  1. Next, the plaintiffs submit that the requirement that Mineralogy keep separate records and accounts bespeaks a requirement that the Administrative Fund is to be kept distinct, as do the mechanisms for budgets for Administration Costs, the Administrative Fund and the Sinking Fund to be prepared in advance and requiring contributions based on the budgets.
  1. The plaintiffs particularly rely upon the requirement under cl 13.1 of the Facilities Deeds that Mineralogy open a separate account. They submit there would be no occasion to require the opening of a separate account for the Administrative Fund if it were intended that Mineralogy be entitled to use any contributions as it saw fit and to mix those contributions with its other funds. They submit that the separation of the funds in the bank account is inconsistent with Mineralogy having any absolute entitlement to them. They further rely on the provisions in cl 13.2 of the Facilities Deeds that interest earned on an interest bearing deposit is to be returned, or maintained in the Administrative Fund as additional security for future use, and cl 16 of the Facilities Deeds that refunds from government authorities or third party service providers are to be held in the Administrative Fund or refunded to contributors.
  1. Penultimately, the plaintiffs submit that the provisions in cls 15 and 16 of the Facilities Deeds for the return of surplus funds and for amounts to be returned to the fund reinforce the fact that there are strict restrictions on the use to which Mineralogy can apply contributions to the Administrative Fund and that Mineralogy is not at liberty to treat them as its own.
  1. Lastly, the plaintiffs submit that the whole context of the requirement to make contributions to the Administrative Fund informs the characterisation of the funds held in the bank account as moneys held in trust because expenditure from the Administrative Fund (or the Sinking Fund for that matter) is to be for the benefit of the users of the Port facilities. In that sense, the provisions of the Facilities Deeds may be seen to contemplate Mineralogy’s use of the funds for the benefit of the users of facilities at the Port who contribute to the funds. The requirement for adjustment among the users does not operate inconsistently with that.

           Defendants’ submissions

  1. The defendants submit that a trust does not necessarily arise merely because money is provided for a particular purpose.
  1. The defendants submit that by cl 24(b) of the Facilities Deeds the Port facilities are acknowledged to be vested in Mineralogy and Mineralogy undertakes the obligation to operate and maintain the facilities. The defendants submit that the Administrative Fund structure provides for payments by users of the facilities to Mineralogy, consistently with Mineralogy’s obligation to incur expenditure with respect to the operation and maintenance of the facilities. The contributions are to defray those operating and maintenance expenses. The mechanism provided is for the cost to be defrayed in proportion to the benefit a user receives, by reference to the volumes of product they ship through the Port.
  1. The defendants submit that the provisions for budgets and reconciliations are required because the actual amount of the expenses to be incurred cannot be calculated with precision in advance. Seen in that way, those provisions do not point to the user retaining any beneficial ownership of the sums contributed. The sums contributed are not paid on behalf of a user to meet the user’s liabilities to third parties.
  1. The defendants also submit that the indefinite nature of the expenses Mineralogy is to incur has the consequence that contributions cannot be held on trust for the intended payees. They submit that this is not a trust where the funds held in the bank account are held on trust for intended payees with a secondary or resulting trust in favour of the contributors. The defendants submit that the arrangements provided for under the Facilities Deeds are not capable of constituting a trust of that kind.
  1. The defendants submit that cl 14.4 of the Facilities Deeds provides that Mineralogy may recover unpaid contributions and any other money owed to it as a debt. They further submit that cl 23.3 of the Facilities Deeds provides that the plaintiffs are not entitled to set off any amounts owing under any contract with Mineralogy in reduction of any contribution they are liable to pay for the Administrative Fund or Sinking Fund. They submit that those provisions are inconsistent with the contributions being held in the bank account by Mineralogy on trust.
  1. The defendants submit that the express provision in cl 13.1(b) of the Facilities Deeds, that Mineralogy must deposit not only contributions but “other money paid to Mineralogy” into its bank or building society accounts, anticipates that other money will be mingled with the contributions in the bank account, inconsistently with the contributions being held on trust. They submit that royalty payments due and owing by the plaintiffs to Mineralogy might be deposited to the bank account. Any account established or maintained under cl 13 is to be viewed as a clearing point, not a separate account to hold contributions to the Administrative Fund as trust funds.
  1. Further, the defendants submit that the provisions for reconciliation are inconsistent with a trust. Pursuant to cl 10.1 of the Facilities Deeds, the reconciliation is to occur up to three months after the production year. The outcome is to be a refund of overpaid contributions or a further payment by the plaintiff if there has been an underpayment.
  1. The defendants submit that these provisions permits the plaintiffs’ contributions to be applied to meet another party’s share of the Administration Costs, with adjustment to be made later. They submit that arrangement is inconsistent with the sanctity of trust property.
  1. Penultimately, the defendants submit that although overpaid contributions are to be refunded in certain circumstances, nothing requires that the moneys to be refunded are to be those paid by the plaintiffs or either of them. The account is to receive the contributions but also other money paid to Mineralogy and other users’ contributions. It follows that the moneys returned may come from a different contribution or source. The provisions do not require that a particular contributor’s contributions be kept quarantined.
  1. Finally, the defendants submit that, on the proper construction the Facilities Deeds, Mineralogy is entitled to receive payment from the bank account as its own money and to pay money out for its own purposes. Where the plaintiffs pay money by way of contributions they are contractually entitled to see that an equivalent sum is applied for the purposes under cl 5 but they do so by way of reconciliation of the Administrative Fund. They do not have the interests of a beneficiary under a trust in respect of the funds in the bank account

           Subsequent conduct

  1. The plaintiffs submit that subsequent conduct is admissible evidence upon the question of whether the parties intended to establish a trust.
  1. They rely upon the fact that the Administrative Fund contributions were the only moneys paid into the bank account, with irrelevant exceptions. They submit that later payments by Mineralogy or on its behalf are not relevant. There was no suggestion that in making the Administrative Fund contributions, the plaintiffs sought any assurance from Mineralogy that the contributions would be kept separate from Mineralogy’s other moneys beyond the terms of the Facilities Deeds. Nor was it suggested that Mineralogy made any representation that it would do so beyond the terms of the Facilities Deeds.
  1. The defendants submit that subsequent conduct may not be considered in ascertaining whether or not there was a trust of the Administrative Fund contributions. It submits that in determining whether or not a trust is created the court is construing the two written contracts and the parol evidence rule denies recourse to evidence of subsequent conduct in construing a written contract.
  1. In reaching my conclusions, I have not found it necessary to resolve the dispute as to the admissibility of subsequent conduct. That is because I do not consider that the fact that Mineralogy did not mix its own monies in the bank account with the Administrative Fund contributions is relevant to whether or not Mineralogy was obliged not to do so as a contractual obligation under the Facilities Deeds.

           Principles to determine the existence of a trust

  1. It may seem surprising that there might be uncertainty about whether there is a trust in circumstances like the present. By and large, the relevant principles are not in doubt. And there are many reference points in the decided cases which can be deployed by way of analogy in reasoning to a positive or negative answer. Yet, I acknowledge at the outset that the accepted principles must be deployed carefully. Learned writers in this field of discourse have recognised the difficulties. The authors of Jacobs’ Law of Trusts in Australia have lamented that it “is difficult to understand about the cases… how the principles… can lead to such bewildering multifarious results.”[3]
  1. One relevant example may serve to show that deep in the case law there are difficulties that are not easily solved. The most recent High Court case dealing with whether or not an implied trust should be found was decided only weeks ago (and after the decision in the present case was reserved): Korda & Ors v Australian Executor Trustees (SA) Ltd.[4]  The questions in that case were whether the proceeds of sale of timber produced from trees grown under a forestry investment scheme or the proceeds of sale of the land used to grow the trees were held on trust for the investors in the scheme.  The answers to those questions depended on the terms and incidents of the arrangements contained in or evidenced by a number of contracts and deeds.  Keane J referred to a well-known judgment of McPherson A-CJ in Jessup v Queensland Housing Commission.[5]  The judgment has been referred to before in the High Court in a cognate context.  No doubt, that is because of the respect accorded to McPherson A-CJ’s views on equitable principle. 
  1. A passage from Keane J’s reasons in Korda deals with the significance of provisions for the keeping of records as follows:

“Jessup v Queensland Housing Commission is again of assistance. In that case, McPherson JA considered provisions, at least as rigorous as cl 8, for the keeping of records of moneys received by a putative trustee, and said (at [9]):

‘[9]All of these are or resemble obligations like those imposed by equity on a trustee in similar circumstances. In the end, however, they tell against rather than in favour of the existence of a trust. If [the provider] as settlor had intended to create a trust, it would have been simple to have said so, instead of descending to the detail it did in the Agreement; or, if the reason for including the detail was to point up the specific obligations of [the recipient] as trustee, it would have been cautionary to have done both. It is true, said du Parcq LJ in Re Schebsman, that:

“by the use possibly of unguarded language, a person may create a trust, as Monsieur Jourdain talked prose, without knowing it, but unless an intention to create a trust is clearly to be collected from the language used and the circumstances of the case, I think that the court ought not to be astute to discover indications of such an intention.”

If the purpose of [the provider] was to inspire the poetry of trusts, it is odd that it chose to express itself in common law prose.’”[6]

  1. The reasons of du Parcq LJ in Re Schebsman (dec’d)[7] have been referred to with approval in a number of earlier High Court cases.[8]  It is not necessary to unravel the work of Moliere to grasp the meaning of his Lordship’s metaphorical reference to Monsieur Jourdain talking prose without knowing it.[9]  But McPherson A-CJ’s additional juxtaposition of the “poetry of trusts” and the expression of “common law prose” is perhaps not so clear.[10] 
  1. It may lie in his Honour’s earlier statement that if a trust is intended it is simple enough to say so. That is done by using express language that the putative trustee is a trustee of the particular assets that are to be held on trust for the identified beneficiaries or class of beneficiaries. If that is what his Honour meant, however, the question is begged. The question is what impliedly creates a trust, short of express language? It cannot be answered by saying “express language”.
  1. The parties in the present case relied on very many cases in support of their respective submissions. It is neither practical nor would it be helpful to deal with most of them in these reasons.
  1. The starting point for analysis, in my view, is that the relevant field of discourse is that relating to a finding, by inference, that the parties intended that there should be a trust as a species of implied trust. In particular, short of a finding that there was a trust over the funds held by Mineralogy in the bank account, the plaintiffs do not contend for a fiduciary relationship between them and Mineralogy. Cases of that kind may be put to one side.
  1. The leading statement as to the requirements for either an express or implied trust is to be found in Kauter v Hilton,[11] expressed by Dixon CJ, Williams and Fullagar JJ as:

“…the established rule that in order to constitute a trust the intention to do so must be clear and that it must also be clear what property is subject to the trust and reasonably certain who are the beneficiaries.”[12]

  1. These requirements were later described by the High Court as “the three certainties”.[13]  The parties’ submissions focussed exclusively on the first requirement as to a clear intention to constitute the trust.

           Structure of the parties’ relationships

  1. If there is a trust, some obvious consequences follow. A beneficiary has a right to the due administration of the trust and, except in a discretionary trust, an equitable proprietory interest in the trust assets. Subject to the terms of any trust instrument, a trustee has the powers of a trustee and the duties and responsibilities of a trustee. They are conferred and imposed both by equity and by statute. The trustee must adhere to the terms of the trust, in exercising the powers of the trustee and in dealing with the trust assets. Failure to do so is a breach of trust, subject to defences I need not mention.
  1. As applied to this case, if there is a trust of the Administrative Fund contributions to the bank account, the defendants concede that the challenged payments were made in breach of trust by Mineralogy.
  1. Next, if there is a breach of trust, a stranger to the trust who is involved in a dealing with the trust assets is potentially subject to the rights or interests of, or may incur personal obligations to, the beneficiaries. The position of a stranger to the trust is often associated with the statement of principle made by Lord Selborne LC in Barnes v Addy.[14] In this case, the plaintiffs allege that the defendants are liable to them on that basis. In addition, they allege that the first defendant is liable for knowingly inducing or procuring the alleged breaches of trust.
  1. As both parties’ submissions accept, whether or not there is a trust turns on a close consideration of the arrangements constituted by the contracts comprised in the Facilities Deeds. However, the analysis is also informed, in my view, by keeping in mind the structure of the relationship, rights and obligations which those contracts create.
  1. The commercial objective of the Facilities Deeds is to provide for the construction and use of facilities to receive, unload, handle and load mining products to be shipped from a port at Cape Preston, Western Australia. A contextual fact is that the plaintiffs and Mineralogy are associated in the development and conduct of mining operations to extract and produce iron ore from mining leases or tenements in Western Australia for transport by rail to the port for shipping.
  1. Second, the Facilities Deeds provide in detail for the plaintiffs to have access to areas for the purpose of constructing the proposed facilities.
  1. Third, the Facilities Deeds provide that after construction of the facilities, Mineralogy is to operate the port and the facilities’ operation shall “vest” in Mineralogy. The plaintiffs are to be users of the facilities who acquire services including port services from Mineralogy. It is in that context that the Facilities Deeds provide for contributions to be made to the bank account by the plaintiffs to fund Mineralogy’s activities in carrying out Mineralogy’s obligations to operate the port and to provide the facilities and the services.
  1. Fourth, the contributions which comprise the Administrative Fund must only be used for identified purposes and costs.
  1. Fifth, from that context, the subject matter of cl 5 of the Facilities Deeds emerges. The identified purposes and costs are for operational, maintenance and repair work carried out to the Approved Facilities or any other matter needed to establish, maintain and operate the Approved Facilities and Administration Costs. The Administration Costs are insurance costs, management fees and other costs payable by Mineralogy to another person, accounting and office management costs and other costs incurred by Mineralogy not for Shared Facilities.
  1. This is a simplified summary. It may be too simple. But it serves to identify some features of the structure of the relationship between the plaintiffs and Mineralogy that either resemble or differ from the relationships considered in other cases.
  1. Take a Quistclose trust as an example.  In that case, Q lent money to R to fund a dividend declared by R to be paid to R’s shareholders.  The loan contract provided that the loan was only to be used for that purpose and that R should deposit the loan funds into a separate account from which it would be disbursed to the shareholders.  Before the dividend was paid R went into liquidation.  The question was whether the funds held by R in the bank account were subject to a trust.  It was held that they were.  The purpose of the loan had failed.  Q retained a beneficial interest in the funds in the bank account that were recoverable from R’s banker.
  1. There is some resemblance to the arrangements in the present case. In Quistclose, had the funds been paid from the bank account to the shareholders in payment of the dividend, Q would have retained no interest in the money in the hands of the recipients.  The relationship between Q and R would have been lender and borrower only.  But when the purpose of the loan failed, it was held that Q retained a beneficial interest in the funds of which R was the trustee.  That conclusion was reached by analogy with case law dealing with loans made by a person to an insolvent person for the restricted purpose of paying the insolvent person’s creditors.  The species of the relevant trust was analysed by Gummow J in Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia & Ors,[15] in my view correctly, as “an express trust with two limbs rather than an express trust in favour of the shareholders and a resulting trust in in favour of [Q] which arose by reason of an incomplete disposition by [Q] of the whole of its interest in the money lent to [R].”[16]
  1. In the present case, if funds in the bank account are used in accordance with cl 5, the plaintiffs retain no interest in the money in the hands of the recipient. Their argument must be that, until that point, they retain a beneficial interest in the funds of which Mineralogy is the trustee.
  1. There are differences between the structure of the arrangements in the present case and those in Quistclose.  First, the contributions in the present case were not a loan.  Second, there was no failure of the purpose for which the contributions were made.  In this case, the contributions were in the nature of a pre-payment on account of expenses to be incurred.  The expenses were to be incurred by Mineralogy in carrying on its business.  It was not doing so on behalf of the plaintiffs.  Rather, they had agreed to pay Mineralogy for expenses Mineralogy was to incur (or in a limited respect they might incur with Mineralogy’s approval). The plaintiffs had agreed to pay for those expenses by the mechanism of contributions to the bank account, supported by Mineralogy’s promise to use the funds only for the agreed purposes or costs, to be followed by an account of the expenditure at the end of the period and reimbursement of the surplus to the plaintiffs or payment of any shortfall to Mineralogy.
  1. Jessup is closer factually to this case than Quistclose.  However, the reasoning requires some analysis.  The Queensland Housing Commission (“QHC”) was a Government agency established in 1945 to assist with the provision of housing to Queenslanders.  It was responsible for the construction and provision of suburbs of houses in Brisbane in a post-war environment, although it continued to exist long after that.  It was abolished in 2004.
  1. The events in Jessup concerned a governmental program administered by QHC, named the Home Assist Home Secure Program.  It provided eligible persons with information, advice and other services in relation to home maintenance, repairs, modifications and security.  The target group were older or disabled people and other pensioners who wished to continue living in their own homes.  QHC entered into a contract with an incorporated association, Cairns Career Training Inc, (“CCT”) to provide services by way of coordination and supervision and to see to the carrying out of the work for the program.  QHC made funding payments to CCT under a formal contract described as a funding agreement.  The payments were used by CCT to fund its expenses by way of wages, motor vehicle expenses and administrative expenses.
  1. CCT was wound up in insolvency. The question was whether the funds in CCT’s bank account attributable to funding payments not yet spent were held on trust. The funding agreement did not expressly provide that the funds were held on trust, but contained a number of provisions similar to those in the Facilities Deeds in this case.
  1. First, the funding agreement provided that CCT accepted that it was responsible for the proper expenditure of taxpayer money. Second, it provided that the funds were to be provided in instalments and were to be spent within the funding period of 8 months for specified purposes for the locations of Cairns and two other nearby towns. Third, it provided that all funds provided must be deposited to a nominated account at an approved financial institution and retained in the account. Fourth, it provided that all income generated by CCT under the funding agreement and all interest earned on the funds must be deposited in the nominated account and used only for the specified purposes. Fifth, it provided that CCT must immediately return unspent funds at the end of the period to QHC. Sixth, it provided that CCT must organise its accounting system so that so that the income expenditure assets and liabilities for each amount of funding could be accurately identified.
  1. McPherson A-CJ (with whom the other Judges agreed) held that these arrangements did not constitute a trust. His Honour’s starting point was that the funding agreement was a formal contract designed to impose enforceable contractual obligations. In approaching the question whether a trust was to be inferred, his Honour found it “difficult to ignore the fact that in all the lengthy and detailed provisions of the Agreement there is nowhere any reference to the existence of a trust at all.”[17]  He acknowledged that the agreement imposed obligations characteristic of trustees, as summarised above. But he held that “they tell against rather than in favour of the existence of a trust.”[18]  The reason was that it would have been simpler to say that a trust was intended, in which case the obligations of a trustee would have been implied, instead of descending into the detail in the funding agreement.  Because the funding agreement said “too much rather than too little”, there was “not much room or reason to imply any further intention beyond what was expressed.”[19]
  1. Second, his Honour found that it was significant that the funding agreement said “nothing to the effect that the other money not derived from QHC may not be deposited, and so intermixed, with those funds.”[20]  On other evidence, it appeared that the omission was not accidental, so that his Honour found that the alleged trust instrument “deliberately refrains from prohibiting any such intermixing of funds.”[21]  Such a requirement had existed under earlier agreements but had been deleted by the time of the funding agreement.  Referring to the duty of a trustee to keep trust funds separate and not to mix them with money from other sources as “a hallmark duty of a trustee”,[22] McPherson A-CJ held that a deliberate refraining from prohibiting the intermixing of funds was an indication that no trust of the funding payments was intended.[23]
  1. Lastly, McPherson A-CJ held that if CCT was a trustee of QHC in carrying out its functions in relation to the Home Assist Home Secure Program, then as trustee it would have been entitled to indemnity payable out of the trust assets for liabilities properly incurred and a possible further right to indemnity from QHC personally. QHC’s right to the return of unspent funds at the end of the period was inconsistent with those rights of indemnity.
  1. With all respect, some of this reasoning must be further considered. As previously stated, in my view, the failure to expressly provide that there is a trust is the occasion for ascertaining whether an intention to create a trust is to be inferred, not a reason, per se, to reject the inference. By the time of Gosper v Sawyer,[24] it was possible for Mason and Deane JJ to say that under common law and equitable principle in Australia:

“The contractual relationship provides one of the most common bases for the establishment or implication and for the definition of a trust.”[25] (emphasis added)

  1. It is a relevant fact that parties do not expressly mention a trust in a detailed contract prepared with the assistance of lawyers. However, in my view, detailed contractual provisions that are consistent with the obligations of a trustee do not necessarily speak strongly against an inference of an intention to create a trust. The contrary view is a variant of the principle expressed in the latin maxim “expressum facit cessare tacitum.”  Although the laws for the interpretation of instruments, whether they be statutes or contracts, recognise such reasoning, it is often a weaker factor than other factors.[26]  In the context of statutory interpretation, the High Court said in Balog v Independent Commission Against Corruption:[27]

“However, that maxim, whilst a valuable servant is a dangerous master and it is necessary to seek confirmation in the broader context of the whole Act.”[28]

  1. In the context of contractual interpretation, there are other relevant statements. For example, in Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas),[29] Lord Hoffman said:

“I suppose it can be said of many disputes over interpretation, especially over implied terms, that the parties could have used express words or at any rate expressed themselves more clearly than they have done.  But… the court is engaged in construing the agreement to reflect the liabilities which the parties may reasonably be expected to have assumed and paid for.  It cannot decline this task on the ground that the parties could have spared it the trouble by using clearer language.”[30]

  1. Quistclose and other cases show that there can be a trust of funds provided on loan or of goods supplied as if on credit without it following, as well, that the recipient is carrying on a business as trustee for the putative beneficiary.  Where the funding agreement does not empower or provide for the putative trustee to carry on business on behalf of the putative beneficiary or beneficiaries, the possible indemnity of a trustee for properly incurred debts of a trustee carrying on such business does not necessarily speak clearly to whether the funds provided are held on trust.  In the present case, in any event, there is a contractual right in Mineralogy to recover any shortfall under cl 8.8 of the Facilities Deeds, following the accounting mechanism and reconciliation process.
  1. On the other hand, in my view, it is a critical point that there is no provision (or other obligation) prohibiting the mixing of funds in the accounts of the putative trustee. The point is irresistible when it further appears, as it did in Jessup, that the omission is deliberate.  The strength of the consideration that there is no requirement not to mix funds – a “hallmark”[31] of the duties of a trustee as McPherson A-CJ described it - appears in other cases of highest authority.[32]  In my view, it explains both the decision in Jessup and it provides the answer in the present case.
  1. It is not necessary to essay the numerous cases as to the general significance of the absence of a provision prohibiting the mixing of funds. Most recent among them is Korda.  Each of the judgments in that case held that the absence of such a requirement from the contractual relations of the parties in that case was an important or dispositive element in favour of the conclusion that no trust was intended.   Thus, French CJ held that “the milling company was not required to keep the sale proceeds intact as a fund.”[33]  Hayne and Kiefel JJ held that “the amounts which Forest Co and Milling Co received could and would be mixed with the company’s own moneys and that payments due from Milling Co to Forest Co and from Forest Co to the Trustee Co would be made out of the relevant company’s own moneys.”[34]  Gageler J held that “one contractual omission [was]… decisive.  It is the acknowledged absence of any contractual indication that Forest Co and Milling Co should hold the proceeds separately from other moneys of their own.”[35]  Keane J held that “[a] significant textual consideration is that no provision in any of the relevant documents required either the forest company or the milling company to create and maintain an account separate from its general funds to safeguard the timber proceeds from the vicissitudes of their business… these provisions [of the tripartite deed] fell far short of requiring that the moneys invested by covenantholders not be used as part of the assets of the forest company”.[36]
  1. In Jessup, there was no express contractual provision prohibiting the mixing of the funds provided and other moneys in the funding account.  The point does not appear to have been argued, but as a matter of contract law, there would have been no implied term to that effect.  First, such a term is not necessary, in accordance with the general principles for the implication of an implied term ad hoc or as a matter of fact.  The remaining contractual provisions worked perfectly well to provide for a system of funding, expenditure and refunding, as a matter of contractual obligations and debt.  As well, in Jessup, evidence was received as a matter of context to show that an anti-mixing contractual provision had been included in prior contracts between the parties and that its omission from the funding agreement was not a mistake.
  1. Of course, if it is concluded that there is a trust, the obligation not to mix trust funds follows, at least in most cases. But absent an express or statutory trust, the obligation must be found in some other source, so as to support the inference that a trust is intended. Where the relationship of the parties is otherwise contractual, it must be sourced in the express or implied contractual terms.
  1. In the present case, there is no express provision prohibiting the mixing of contributions and other moneys in the bank account. The plaintiffs did not submit that such a term should be implied as a term of the contract comprised in the Facilities Deed. Absent an express or implied term, the plaintiffs did not identify the source of an obligation not to mix other funds with the contributions in the bank account.
  1. Instead, the plaintiffs submit that the maintenance of a fund with the incidents provided for in cls 8.8, 13, 15 and 17 of the Facilities Deeds suggests that it is to be separate and distinct from Mineralogy’s other moneys. The plaintiffs further submit that the suggestion is strengthened by the requirement that an account be opened for receipt of the advances and payment for the authorised expenses and other factors. Most of the factors relied upon were present in Jessup.  In particular, the plaintiffs rely on cls 13.2 and 16 as inconsistent with Mineralogy having any absolute entitlement to the funds.  
  1. Clause 13.2 permits but does not require Mineralogy to place money in an interest bearing deposit. Mineralogy may treat the interest as surplus and return it or maintain it for additional security or for future use. Either way, the interest earned on the money is to the benefit of the account of the contributor and not for Mineralogy’s benefit.
  1. Clause 16 provides that a refund from a payment to a service provider, Government Authority or other party is to be reimbursed to the contributors towards the payment in proportion to the payment made by them or to be maintained in the relevant fund. Again, the refund is to the benefit of the contributor not Mineralogy. However, cl 16 does not deal with the legal or equitable entitlement to the money in the bank account.
  1. A contractual obligation to make a refund of an accounting surplus or to use the surplus for one period for the purposes of the fund during the next period does not speak to whether Mineralogy’s own money must not be mixed with the contributors’ money in the bank account before payment.
  1. There was a similar interest provision in Jessup,[37] that interest earned was to be deposited to the nominated account and used for the specified purposes. That clause did not lead to the conclusion that the money of CCT could not be deposited into the account.  In this case, there is a question how cl 13.2 would operate if interest were earned on an interest earning deposit account into which both the contributors and Mineralogy’s money were deposited.  The plaintiffs submit that cl 13.2 would require that the whole of the interest is to be returned or maintained as additional security for future use.  They submit that it is implicit that only contributions by the plaintiffs are to be placed in an interest bearing deposit account under cl 13.2.
  1. As previously stated, these submissions fall short of a positive submission that there is an implied term under the Facilities Deeds that Mineralogy not mix its own moneys with the contributions of the plaintiffs in the bank account. In Commonwealth Bank of Australia v Barker,[38] the High Court said:

 

“Implication of a term in fact in a contract, by reference to what is necessary to give it business efficacy, was described in Codelfa as raising issues “as to the meaning and effect of the contract”.  Implication is not “an orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision”. It is nevertheless an “exercise in interpretation, though not an orthodox instance”. The implication of terms in fact was also characterised in Attorney General of Belize v Belize Telecom Ltd as an exercise in construction. Lord Hoffmann, delivering the judgment of the Privy Council, said (at [22]):

[22] … it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.”[39] (footnotes omitted)

  1. An analogous question has arisen in the context of retention funds under a building contract. In KBH Construction v Lidco Aluminium Products Pty Ltd[40] the funds were “held” by a contractor under a subcontract with a supplier.  In the contractor’s insolvency, the court had to consider whether the funds were held on trust.  The contract expressly provided that the “interest of the builder in the amount so retained shall be fiduciary as trustee for the sub-contractor but… without any obligation on the part of the builder to invest the same or account for any advantage he may derive from the money so retained.”  There was another provision authorising the builder to have resort to the retention moneys in certain circumstances.  Giles J held that on the principle of Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales[41] there was an implied term to “appropriate and set aside the retention moneys as a separate fund”.[42]
  1. In Parkview Qld Pty Ltd v Commonwealth Bank of Australia[43] funds were to be provided and held as security under a contract between a proprietor and a contractor.  The contract provided that the parties held the retention, security or proceeds thereof “on trust”.  The proprietor was debt funded by a bank.  Progress payments were made directly from the facility provided by the bank to the contractor.  The amount of the security was deducted from progress payments but not deposited or credited to a separate account to be held by the proprietor on behalf of the contractor.  Stevenson J held that based on the provisions of the building contract and a number of English cases “it was an implied term of the building contract that [the proprietor] was obliged to set aside and retain a separate trust fund equal to the funds it retained from progress payments.”[44]
  1. In Re Kit Digital Australia Pty Ltd (in liq)[45] the plaintiff alleged that the defendant was an agent for the plaintiff in making a contract with an alleged principal to supply services. The defendant was to invoice the principal for the services in its own name based on a 5 per cent mark-up on an invoice from the plaintiff to the defendant.  Upon payment by the principal, the defendant was to deduct the 5 per cent and pay the balance to the plaintiff.  The plaintiff alleged an implied term of an oral contract that the defendant would retain the payments from the principal, less the 5 per cent, on trust for the plaintiff.   The implied term was based on an express oral term that the defendant would not use the payment for any purpose other than payment of the plaintiff’s invoice for the services, less the 5 per cent fee.  Black J held that the contract was not one of agency.  The defendant had agreed to hand over an equivalent sum to that paid by the alleged principal, less the 5 per cent mark-up, after it was paid.  However, the defendant had not agreed to create and had not created a separate account to keep those funds separate from it own funds.
  1. In the present case, in my view, it would not be correct, as a matter of contract law, to imply a contractual term, as an ad hoc or term implied in fact, to prohibit mixing by Mineralogy of contributions and other moneys in the bank account. It is not necessary that there be such a term. The remaining provisions of the Facilities Deeds work perfectly well as a matter of contract without it.
  1. Lastly, the plaintiffs invoked commercial necessity as a ground for inferring the intention to create a trust. In Eslea Holdings Ltd v Butts[46] Samuels JA said that “[c]ommercial necessity is relevant because it goes to support the existence of the intention requisite for the constitution of the trust”,[47] referring to Schebsman (at 104).
  1. In Trident General Insurance Co Ltd v McNiece Bros Ltd,[48] Mason CJ and Wilson J said that:

“In divining intention from the language which the parties have employed the courts may look to the nature of the transaction and the circumstances, including commercial necessity, in order to infer or impute intention.”[49]

  1. However, in Korda, it was accepted, although it was apparently conceded, that “commercial necessity” is not made out merely because it is considered necessary to find an intention to create a trust to commercially protect the putative beneficiary.[50]
  1. Given the similarity between the circumstances of the present case and those analysed in Korda, it does not appear that “commercial necessity” is a factor of assistance in analysing whether the Administrative Fund contributions were held on trust.
  1. In my view, it follows that the Administrative Fund contributions made to the bank account were not held on trust by Mineralogy, because the contractual obligations of Mineralogy did not extend to an obligation not to deposit into and thereby mix other moneys in the bank account.

           Required knowledge of breach of trust

  1. As stated previously, the defendants concede that if the Administrative Fund contributions were held on trust, Mineralogy acted in breach of trust in making the challenged payments.
  1. Notwithstanding my finding that the Administrative Fund contributions were not held on trust, I will consider whether the defendants had the requisite knowledge or notice to be liable for any breach of trust by Mineralogy. I do so for two reasons. First, if the defendants’ submissions on this question are accepted, it would be an independent ground for dismissing the plaintiffs’ claims. Second, if I am wrong on the trust question it is appropriate in the case of any appeal that I make at least the minimum findings that would be necessary to otherwise resolve the proceeding.
  1. Although the second defendant has a separate legal personality from the first defendant under the principle of separate corporate personality inherent in the decision of Salomon v Salomon & Co Ltd,[51] the first defendant was at all material times the sole director of the second defendant, the sole signatory on the bank account and the person who signed the cheques drawn to make the challenged payments.  Accordingly, as matter of fact, it is the first defendant’s knowledge that I must consider.
  1. The extent of the knowledge required for the second defendant to be liable for the $10M payment is not necessarily the same as that required for the first defendant to be liable for either or both of the challenged payments.
  1. On the one hand, the second defendant’s liability for the $10M payment turns on the knowledge or notice required for the liability of a stranger to a trust under the first limb of Barnes v Addy.[52]  On the other hand, the first defendant’s liability for either or both of the challenged payments turns on the knowledge or notice required for the liability of a person who knowingly procures or induces a breach of trust or who “assists with knowledge in a dishonest and fraudulent design on the part of the trustees.”[53]
  1. The defendants dispute that the first defendant knew there was a breach of trust, on the ground that he did not know Mineralogy held the Administrative Fund contributions on trust. Following their abandonment of the defence pleaded in par 23 of the defence, they do not submit that the payments were not made in breach of contract. They do not go so far as to suggest that the first defendant did not know that the payments were made in breach of contract. His allegation and withdrawal of the allegation that there was a contractual basis for the payments or that they were made for port management services are completely unexplained. So was his apparent attempt to manufacture evidence to show that there was a written contract of a similar kind, although neither of the defendants relied on that document in defence of the plaintiffs' claim. There is circumstantial evidence to support the finding by inference, which I make, that the first defendant knew that the payments were made in breach of Mineralogy’s promises to pay only the authorised costs and reimbursements under cl 5 of the Facilities Deeds. In particular, at the times of the challenged payments, I find the first defendant knew that:
  1. the terms of the Facilities Deeds included that the Administrative Fund was to be used solely for the authorised costs and reimbursements;
  1. the approximate amount of the balance of the bank account before the challenged payments were made;
  1. the balance was derived from contributions made by or on behalf of the plaintiffs;
  1. the $10M payment to Cosmo was not an authorised payment; and
  1. the $2,167,000 payment to Media Circus was not an authorised payment.
  1. Still, the defendants submit that I should not find that the first or second defendants knew that the challenged payments were made in breach of trust because the first defendant did not know that the Administrative Fund contributions were held by Mineralogy on trust. The defendants submit that the knowledge required must be at least that the primary wrongdoer, the trustee, does not have a beneficial entitlement to the funds. In the present case, it would mean that the first defendant must know that the plaintiffs had a beneficial interest in the Administrative Fund contributions held in the bank account.

           Knowledge for liability for procuring or inducing a breach of trust

  1. Starting with the first defendant’s liability as a person who procures or induces a breach of trust, there is no question that the first defendant procured or induced Mineralogy to make the challenged payments as a matter of factual causation. He signed both the relevant cheques. Is it enough for liability that the first defendant knew the relevant facts as to the basis on which the Administrative Fund contributions in the bank account were held and that he knew that the challenged payments were made in breach of the requirements of the Facilities Deeds as to how those funds were to be utilised? Or is it required as well that he knew that the Administrative Fund contributions were held on trust?
  1. There is very little case law that assists in answering the question as to the required knowledge of the breach of trust in the case of liability for knowingly procuring or inducing a breach of trust. That is not surprising. This separate species of equitable liability was largely ignored during the 20th century.  Text writers and Judges focussed on the liability of a stranger to a trust under the two limbs of Barnes v Addy.  Until Charles Harpum’s luminous article, “The Stranger as Constructive Trustee”,[54] the separate strand of cases dealing with those who knowingly procure or induce a breach of trust was largely forgotten.
  1. Their existence was judicially acknowledged and their significance authoritatively reinstated in Australia by the decision of the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd.[55]  This strand of cases is distinguished from liability under the second limb of Barnes v Addy because the trustee’s breach may be innocent, although the procurer or inducer’s role is a knowing one. Nevertheless, until very recently, there had been no analysis of the required knowledge for liability of the procurer or inducer.  That dearth of authority inevitably led to comparison with the level of knowledge required for liability under the second limb of Barnes v Addy, where the trustee’s breach of trust must also be a dishonest and fraudulent design, under Australian law.
  1. Fortunately, the gap was recently explored in a comprehensive analysis by Sloss J in Australian Super Developments Pty Ltd v Marriner.[56]  That was a case heard on remitter from the Victorian Court of Appeal in Marriner v Australian Super Developments Pty Ltd.[57]  Both cases contain relevant statements of principle.  However, I gratefully adopt and follow the analysis of Sloss J without repeating it extensively.  For present purposes, it is enough to re-state her Honour’s conclusions about this species of liability that:

“… for strangers to be held accountable in circumstances where they have knowingly induced or immediately procured breaches of duty, the adverb ‘knowingly’ applies to both the inducement and procurement limbs.”[58]

“…the principle underlying Eaves v Hickson type liability is that a stranger ‘who acts in a manner that is inconsistent with a trust of which he is cognisant, thereby causing loss, or obtaining for himself an unmerited gain, should be accountable’, and the foundation of the liability is ‘the stranger’s deliberate act in bringing about either directly or indirectly, a breach of trust.’ Thus, for accessorial liability to be established, it seems clear that the stranger must be aware of the nature of the funds in question; that is, that the funds are trust funds held for a beneficiary. Knowledge of the nature of the funds necessarily carries with it knowledge that the payment the stranger has induced or procured is a breach of trust.”[59]

“the ‘knowledge’ requirement should be treated as being the same as that which applies under the second limb in Barnes v Addy. Accordingly, knowledge of circumstances which would put an honest or reasonable person on inquiry would not make a third person liable for inducing a dishonest breach of trust, but each of the following would be sufficient to establish the requisite knowledge: (1) actual knowledge; (2) a deliberate shutting of one’s eyes to the breach; (3) a calculated abstention from making enquiries which an honest and reasonable person would make; or (4) actual knowledge of the facts which, to a reasonable person, would suggest a breach of trust.[60]  (citations omitted)

  1. See also Hasler v Singtel Optus Pty Ltd,[61] where Leeming JA said:

“On the one hand, the liability of a person who induces or procures a trustee to commit a breach of trust does not turn on the quality of the breach. There is no requirement that the breach of trust be of sufficient gravity to answer the description of ‘dishonest and fraudulent design’… [but] there is no occasion for a principle pursuant to which the trustee would be liable for breaches of trust which are not dishonest or fraudulent, but the person who induced those breaches would escape liability.”[62]

  1. Before dealing with the facts, it is convenient to consider the legal elements of the knowledge required for the second defendant’s liability.

           Knowledge for liability under the first limb of Barnes v Addy

  1. It is still true to say that the law in this country as to the degree of knowledge required for liability under the first limb of Barnes v Addy is not completely settled.  This is a subject that I have considered in a paper published within the last year.[63]
  1. For the purpose of this case, the question is relatively more focussed, as previously stated. Is it enough for liability that the second defendant through the first defendant knew the relevant facts as to the basis on which the Administrative Fund contributions in the bank account were held and that he knew that the challenged payments were made in breach of the requirements of the Facilities Deeds as to how those funds were to be utilised? Or is it required as well that he knew that the Administrative Fund contributions were held on trust?
  1. To the extent that the question has been considered in other cases, the answers to those questions would seem to be “yes” and “no” respectively. But things are not altogether clear.
  1. Twinsectra Ltd v Yardley & Ors[64] raised questions which resemble some of the questions in this case.  The defendant solicitor had received a payment into his trust account on behalf of a client from another firm of solicitors.  The other firm had previously acted for the client in a property purchase.  They had received funds from T as the proceeds of a loan on condition that they only be paid out to settle the purchase.  Contrary to the condition, they paid the funds to the defendant.  The defendant paid the money away on the client’s instructions. The first question in Twinsectra was whether the condition on which the first firm of solicitors received the funds created a Quistclose trust over them.  That question was answered “no” by the trial Judge but the answer was reversed on appeal.
  1. The second question in Twinsectra was whether the defendant was liable under the second limb of Barnes v Addy, where dishonesty is required.  Lord Hoffmann held that:

“[t]he necessary state of mind may be found to exist simply on the fact that he knew perfectly well that he was helping to pay away money to which the recipient was not entitled.”[65]

  1. Yet, on the facts, the defendant was found not to have been dishonest, although he knew that the funds had been received by the other firm on the condition that they only be applied in the purchase. What is the explanation? Lord Hutton said:

“The judge may have been influenced by the consideration that as he did not find that [the] undertaking created a trust [the defendant] would not have realised that he was dealing with trust property.”[66]

  1. This is arguably consistent with the view that actual knowledge of the trust is required for second limb liability. Lord Slynn agreed with Lord Hutton. Lord Steyn agreed with both Lords Hoffman and Hutton.
  1. Lord Millett was in dissent. His Lordship dealt more extensively with the question of the required knowledge. His Lordship specifically addressed whether it was enough that the defendant knew the facts constituting the trust or whether he must also have appreciated that they did so. His Lordship held that “knowledge of the arrangements that constitute the trust is sufficient; it is not necessary that the defendant should appreciate that they do so.”[67]  However, as a dissenting opinion, His Lordship’s view is not authoritative.  As well, it is directed to liability under the second limb of Barnes v Addy.
  1. In a later case, Barlow Clowes Ltd v Eurotrust Ltd,[68] Lord Hoffman, on behalf of the Privy Council, returned to the question of knowledge of the trust or breach of fiduciary obligation in a second limb of Barnes v Addy case.  His Lordship said:

“In Brinks Ltd v Abu-Saleh (No 3) Rimer J expressed the opinion that a person cannot be liable for dishonest assistance in a breach of trust unless he knows of the existence of the trust or at least the facts giving rise to the trust. But their Lordships do not agree. Someone can know, and can certainly suspect, that he is assisting in a misappropriation of money without knowing that the money is held on trust or what a trust means: see the Twinsectra case at para 19 (Lord Hoffmann) and at para 135 (Lord Millett). And it was not necessary to know the ‘precise involvement’ of Mr Cramer in the group's affairs in order to suspect that neither he nor anyone else had the right to use Barlow Clowes money for speculative investments of their own.”[69] (footnotes omitted)

  1. However, while Twinsectra was a Quistclose trust case, Barlow was not.  One of the alternative breaches considered in that case was a breach of fiduciary obligation by a director of a company misusing the company’s funds. 
  1. In Australia, the leading cases as to the requisite knowledge for liability under the second limb of Barnes v Addy are Farah Constructions Pty Ltd v Say-Dee Pty Ltd[70] and Consul Development Pty Ltd v DPC Estates Pty Ltd.[71]  Neither of those cases raised a question whether the defendant must know that there is a trust, when there is not an express trust.  To some extent, Consul presents an analogy for the purposes of the present case.  In that case, the agent G acted in breach of his fiduciary duty to W (and W’s company DPC) in placing opportunities to purchase properties before C.  However C believed from what G had said that W was not interested in purchasing the relevant properties.  Accordingly, the trial Judge held that C did not have sufficient knowledge of G’s breach of fiduciary obligation to W.  Gibbs J said of the knowledge required:

“On the other hand, it does not seem to me to be necessary to prove that a stranger who participated in a breach of trust or fiduciary duty with knowledge of all the circumstances did so actually knowing that what he was doing was improper. It would not be just that a person who had full knowledge of all the facts could escape liability because his own moral obtuseness prevented him from recognizing an impropriety that would have been apparent to an ordinary man. However, for reasons that will appear, it is unnecessary for me to express any concluded view on these questions and I assume for the purposes of this case, but without finally deciding, that the formulation of principle on this point in the Selangor Case was correct.”[72]

  1. Stephen J (with whom Barwick CJ agreed)[73] said:

If a defendant knows of facts which themselves would, to a reasonable man, tell of fraud or breach of trust the case may well be different, as it clearly will be if the defendant has consciously refrained from inquiry for fear lest he learn of fraud. But to go further is, I think, to disregard equity's concern for the state of conscience of the defendant.”[74]

  1. In Farah the High Court said:

“It is not necessary to go beyond the considered dicta of the three members of the majority in Consul … [t]hose dicta are based on the numerous cases in the past, and conform with the numerous later authorities, in which the traditional understanding of the first limb of Barnes v Addy has been affirmed.”[75]

  1. From that, it might be thought that the High Court was saying that “knowledge” of the misapplication is required. However, throughout their reasons for judgment in referring to first limb liability the High Court otherwise referred to “notice”. For example, they said:

“… Lord Selborne LC’s expression was ‘receive and become chargeable’.  Persons who receive trust property become chargeable if it is established that they received it with notice of the trust.”[76] (emphasis added)

  1. Farah left unresolved whether a recipient of trust property must have knowledge or notice that the property is trust property and that it is received in breach of trust for liability under the first limb of Barnes v Addy.  As appears above, that question was not truly canvassed in Consul. But since the mid-1980s it has been a regular focus of different Judges and academics alike.  In 2012, in Grimaldi v Chameleon Mining NL (No 2),[77] the Full Court of the Federal Court of Australia said:

 

“The extent of discord both within and between common law jurisdictions as to what should be taken to be the contemporary burden of the principles enumerated by Lord Selborne is marked to the point of being Babel-like:…”[78]

  1. The Full Court of the Federal Court went on to consider the required knowledge for liability under the first limb of Barnes v Addy in Grimaldi.  Their detailed analysis of the point is clear and their acknowledgement that the High Court did not settle the controversy in Farah is telling.  They continued:

 

“…None the less, from at least the 1990s and in the wake of the Baden classification, judges had begun in recipient liability cases to generalise from what had been said both by Gibbs J (at CLR 398; ALR 252) and by Stephen J (at CLR 412; ALR 264) with whom Barwick CJ agreed, about the insufficiency of traditional, or category (v), constructive notice — though not of category (iv) notice — as a basis for personal liability. To allow that, as Stephen J commented, would be ‘to disregard equity’s concern for the state of conscience of the defendant’… cited cases.

 

There is, in other words, an established line of judicial decision and opinion both at first instance and in intermediate courts of appeal spanning at least 20 years adhering to the view taken in the above cited cases. We do not consider that that view is plainly wrong and should be rejected. On the contrary!”[79]

  1. I propose to follow that view.
  1. That approach is consistent with another relatively recent case of liability under the second limb of Barnes v Addy: Nicholson v Morgan (No 3).[80]  In that case Edelman J held:

Thirdly, although the subject matter about which the Bank must have knowledge is the dishonest and fraudulent design involving a breach of the trust to which the NAB Claimants are beneficiaries, it is not necessary that the Bank know of every detail of the dishonest and fraudulent design. To adapt what was said by Lord Hoffmann for the Privy Council in Barlow Clowes International Ltd v Eurotrust International, it is arguable that a person can know that he or she is assisting in a dishonest misappropriation of money to which another person has rights without knowing that the money is held on ‘trust’ or even knowing what is meant by a trust.”[81] (citations omitted)

           Conclusions on the required knowledge for the liability of the first and second defendants

  1. I find that the first defendant’s knowledge was sufficient to make him liable for knowingly procuring or inducing the alleged breach of trust by Mineralogy.
  1. I find that the second defendant’s knowledge was sufficient to make it liable under the first limb of Barnes v Addy for knowing receipt of the alleged trust property constituted by the receipt of the $10 million payment.
  1. In my view, it was not necessary for either species of liability that the first defendant knew that the plaintiffs had a beneficial interest in the funds held in the bank account when the challenged payments were made. It is enough that he knew, in general, of the provisions of the Facilities Deeds for contributions to be made to the Administrative Fund, how they were to be dealt with under the provisions of the Facilities Deeds and that the challenged payments were made in breach of the contractual obligation to pay only the authorised costs and reimbursements under the Facilities Deeds.
  1. I reach that view having regard to the cases mentioned above. To require that a defendant must actually appreciate that the relevant facts constitute a trust in law would favour the legally ignorant over the legally aware, when the facts and knowledge otherwise are identical. In my view, the preferable principle is that liability is engaged by the relevant factual knowledge.
  1. In view of those findings, it is unnecessary for me to go further. It is not necessary to make a specific finding of dishonest or fraudulent design by Mineralogy, through the first defendant, or of dishonest assistance with knowledge by the first defendant. There are reasons why, in my view, I should not do so. First, such findings could cause significant reputational damage to the first defendant, but they are not necessary in order to resolve the liability of the first or second defendants as a matter of fact and law. Second, the way in which this case has been conducted does admit of the possibility that the plaintiffs seek not only to obtain the relief claimed in the proceeding but also to embarrass the first defendant at the same time.

           Unclean hands

  1. As mentioned previously, on 26 November 2014 I ordered that pars 50 to 56 of the defence to the amended statement of claim be struck out. See Sino Iron Pty Ltd & Anor v Palmer & Anor (No 2) [2014] QSC 287.  At the same time, I gave leave to the defendants to replead the subject matter of pars 50 to 56 in an amended defence.
  1. On 12 December 2014, the defendants filed an amended defence pursuant to that leave, although they added to the subject matter. Paragraphs 50 to 99 now allege facts relied on by the defendants for their defence that the plaintiffs should be refused equitable relief because of unclean hands.
  1. Consistently with my reasons for considering whether the defendants had the requisite knowledge or notice to be liable for any breach of trust by Mineralogy, I will also decide whether the plea of unclean hands in pars 50 to 100 should be struck out of the amended defence.
  1. The plaintiffs apply to strike out pars 50 to 100 under r 171 UCPR. The ground of the application is that the facts alleged do not constitute a reasonably arguable basis for the equitable defence of unclean hands. In part, the plaintiffs support their challenge by adducing evidence of other facts about the relevant proceedings. Further, particular paragraphs, as part of the whole, are challenged based on other specific grounds of non-compliance with the rules of pleading.
  1. Without repeating what I said in Sino Iron Pty Ltd & Aor v Palmer & Anor (No 2),[82] I approach the legal questions upon the application for an order that the unclean hands defence in the amended defence should be struck out on the same basis as set out in pars [11] to [17], [34], [36] and [38] of those reasons.
  1. The essence of the unclean hands defence may be distilled from four paragraphs in particular. They are pars 57, 90, 91 and 99 as follows:

“57.From in or about mid to late 2012, the Plaintiffs and Citic have engaged in a campaign to improperly apply pressure to the First Defendant and Mineralogy for the purpose of compelling Mineralogy to agree to replace the Project Agreements with agreements, transactions or arrangements substantially more favourable to the Plaintiffs and Citic.

 

90.The effect of the matters referred to in paragraphs 59 to 89 herein has been to deprive Mineralogy of payments to which it is entitled under the Project Agreements and to prevent Mineralogy from utilising its rights under the Facilities Deeds for a monetary benefit.

 

91.(a)That effect was the purpose and intention of the Plaintiffs and Citic by engaging in the conduct                                         referred to in the said paragraphs.

 

(b)The Plaintiffs and Citic intended to apply pressure to Mineralogy to enter into agreements, transactions or arrangements substantially more favourable to Citic and the plaintiffs than the Project Agreements.

 

  1. In the premises, the Plaintiffs have commenced and conducted these proceedings as part of their campaign to apply illegitimate pressure to Mineralogy by applying illegitimate pressure directly to the First Defendant as the controlling shareholder of Mineralogy.”
  1. Summarising, the campaign is alleged to have been commenced and conducted by the plaintiffs' defence of four other court proceedings brought against them by Mineralogy and by the plaintiffs' conduct of this and one other proceeding.
  1. There are some obvious initial problems with pars 57, 90, 91 and 99. None of the conduct is alleged to have been directed to the second defendant. Second, neither of the expressions “improperly apply pressure” or “illegitimate pressure” is explained. I commented on a similar problem in the last iteration of the unclean hands plea.[83] Most of the conduct alleged consists of the defence or claim in other court proceedings between Mineralogy and the plaintiffs that are still on foot and have not been resolved.  The defendants seek to overcome that difficulty by alleging that the plaintiffs do not believe that their defences or claims in those proceedings have a sound basis.  The plaintiffs make the telling point that with one exception, the relevant proceedings have not yet been heard or decided.  Mineralogy is a plaintiff in most of those proceedings and defendant in the others.  However, it has not successfully applied for summary judgment or to strike out the defences or statements of claim.  So, the impropriety or illegitimacy alleged is that the plaintiffs are defending or bringing court proceedings.  On the surface, allegations of that kind could rarely, if ever, found a defence of unclean hands, for the reasons I have given previously.[84]  As I will explain below, the one concluded proceeding (the Royalty Component A proceeding) does not arguably support the pleaded case of unclean hands either.

           Paragraphs 52 to 56

  1. In these paragraphs, the defendants allege that between August 2011 and July 2012 the parties discussed a number of matters or possible transactions. The defendants allege that the object of the plaintiffs was to secure more favourable terms than those of the existing project agreements. The conduct relied upon is alleged to have occurred in a series of meetings. The meetings are alleged to have been “without prejudice meetings”. The subject matter of the meetings is summarised in par 54. In par 55, the plaintiffs’ object or purpose is alleged to have been disclosed by their position in the negotiations at the without prejudice meetings. In par 56, the defendants allege that no agreement was made at the meetings.
  1. In other words, the allegations are of negotiations at without prejudice meetings and the alleged purpose of the plaintiffs in those negotiations is that disclosed by the position they took at without prejudice meetings. Without prejudice privilege protects the content of the communications from being used in evidence in this proceeding. That privilege against tender of the communications is not overcome by alleging the fact of the communication in the defence. The plaintiffs have objected to those communications being relied upon. In my view, pars 52 to 56 of the amended defence should be struck out as alleging privileged communications.

           Paragraphs 59 and 60 - the Royalty Component A proceeding

  1. Clause 8 of each of the Mining Right and Site Lease Agreements (“MRSLAs”) provides for the payment by the relevant plaintiff to Mineralogy of a royalty known as “Royalty Component A” if magnetite ore is “taken”.
  1. In 2012, the parties were in dispute as to whether the plaintiffs had taken magnetite ore within the meaning of cl 8. Mineralogy started a proceeding in the Supreme Court of Western Australia claiming that the plaintiffs had done so. The plaintiffs defended the proceeding. The dispute turned on the proper construction of the written contracts comprising the MRSLAs.
  1. As the defendants allege in par 59(c) of the amended defence, on 21 May 2013 Edelman J decided the dispute as to the proper construction of the contract in Mineralogy’s favour: Mineralogy Pty Ltd v Sino Iron Pty Ltd.[85]   The consequence was that Royalty Component A was payable by the plaintiffs.  It appears that the amount in question before the time of the trial was about $400,000.
  1. As part of the defence of unclean hands in this proceeding, the defendants allege and rely upon the plaintiffs’ denial of “any obligation to pay the royalty from mid-2012”. That is something of an overstatement. The plaintiffs did not deny any obligation to pay the royalty. They denied that the point in the production process at which magnetite ore was “taken” within the meaning of cl 8 had been reached.
  1. In this proceeding, the defendants allege that the plaintiffs’ denial of the obligation to pay Royalty Component A was “untenable” and that “the plaintiffs did not believe that they had a sound basis to deny the obligation”.
  1. The allegation of absence of belief is an essential allegation for the alleged defence of unclean hands based on the campaign to improperly apply pressure to the defendants. No facts are alleged to found an inference that the plaintiffs had that belief for the purposes of r 150(2) UPCR, notwithstanding that my judgment striking out the earlier pars 50 to 56 specifically referred to non-compliance with that rule.
  1. In support of the submission that par 59 should be struck out, the plaintiffs relied on the 21 May 2013 judgment of Edelman J so as to show that his Honour’s view of the question of construction was that it was a bona fide dispute. The passages relied on show that was his Honour’s view.[86]  The defendants submit that whether or not the plaintiff’s denial was untenable does not depend on the view of Edelman J that there was a “good faith dispute”.  They submit that at trial of the unclean hands defence in this proceeding this Court will reconsider the question of construction and whether it was so untenable that the inference should be drawn that the plaintiffs did not believe they had a sound basis for the denial. The defendants’ counsel submit that this Court could form its view of the apparent strength of the relative legal arguments based on the written contracts alone.
  1. In my view, the plaintiffs’ conduct in defending the Royalty Component A proceedings does not support the existence of the alleged campaign or purpose. That the defendants were successful in the proceeding is not enough. A retrospective impression of the strength of the legal arguments will not without more support an inference that the plaintiffs did not believe that they had a sound basis to defend the proceeding. It would also amount to an undesirable collateral challenge to Edelman J’s view as between related parties.
  1. Paragraph 59 and 60 of the amended defence should be struck out.

           Paragraphs 61 to 67 – the Royalty Component B proceeding

  1. On 21 January 2013 Citic wrote to Mineralogy as follows:

“As has been mentioned to you in past discussions between the parties it is no longer possible to calculate Royalty Component B under the MRSLAs as a result of the discontinuation of the ‘benchmark’ or reference pricing system that underpins that component of the Mineralogy Royalty.

 

The purpose of this letter is to set out our views of the way in which the parties should approach this issue in light of those changes and their obligations under the MRSLAs.

 

  1. Calculation of Royalty Component B

 

Clause 8.2(a) of the MRSLAs sets out the way in which the Mineralogy Royalty is to be calculated. The Mineralogy Royalty is comprised of Royalty Component A and Royalty Component B.

 

Royalty Component A is a flat rate of 30 cents per tonne of Magnetite Ore taken by Sino Iron and Korean Steel, subject to CPI adjustment. Royalty Component A is a relatively simple calculation by reference to the volume of Magnetite Ore taken by Sino Iron and Korean Steel.

 

However, the calculation of Royalty Component B in the MRSLA includes two variables, namely the ‘Pellet Price’ (PP) and the ‘Concentrate Price’ (CP).

 

The PP is defined as:

 

The prevailing published annual FOB price (expressed in US dollars per DMTU) per pellets established by the largest supplier or seller of pellets in Brazil for export multiplied by 68.1.

 

The CP is defined as:

 

The prevailing published annual FOB price (expressed in US dollars per DMTU) for Mount Newman fines for export multiplied by 68.1 and then further multiplied by 1.05.

 

Following the discontinuation of the benchmark or reference pricing system for iron ore in 2009, there is no longer a ‘prevailing published annual FOB price’ for Brazilian pellets or Mount Newman fines.  The annual benchmark pricing system has not been replaced with a comparable pricing system.  Instead, there are now many different indices that allow the pricing of shipments of seaborne traded iron ore products of different types for sale over periods of different duration.  None of those indices publish an annual price.

 

The MRSLAs make no provision for replacement indices in the event of the discontinuation of the annual benchmark pricing system.  Accordingly, based on the MRSLAs as currently drafted, CPM is unable to calculate the amount due to Mineralogy under Royalty Component B for Products it produces.  We also note that there appear to be errors in the current formula.  Some of the assumptions that that are inherent in the current formula are also incorrect.

 

We considered if clause 8.6 of the MRSLAs, (which requires the referral of disputes ‘as to the amount paid to Mineralogy’ to an Expert pursuant to clause 33) was applicable. However that clause does not authorise the Expert to re-write the MRSLAs to impose a new Royalty Component B determination mechanism in the event that Royalty Component B cannot be determined because the annual benchmark pricing system no longer exists.

 

  1. Proposed Resolution

 

We calculate that, whatever Royalty Component B could be ascribed for the purposes of an interim calculation in the absence of applicable indices, the aggregate of Royalty Component A and Royalty Component B would be less than the amount ‘pre-paid’ in December 2008 (ie, less the offset of Royalty Component A referred to in our 15 January Letter).  As such, no amount of Royalty Component B is currently due to Mineralogy and no tax invoice in respect of Royalty Component B is required to be issued by Mineralogy in this instance.  In the circumstances, neither Sino Iron nor Korean Steel is in breach of any obligation to pay Royalty Component B under the MRSLAs and Mineralogy is not entitled to issue any Notice of Default, as foreshadowed in your fax of 16 January.

 

What remains to be resolved is a methodology going forward with respect to the calculation Royalty Component B to establish the amount of Royalty Component B to be offset against the ‘pre-payment’.

 

Clause 38.5 provides a clear mechanism for dealing with any part of the MRSLAs that is unenforceable.  However, in our view, it is in the interests of the parties to explore in good faith discussions possible solutions to this problem.

 

In accordance with the obligation of good faith under clause 37.4 of the MRSLAs, CPM proposes that the parties meet with a view to endeavouring to agree upon and document an alternative mechanism for determining Royalty Component B.  As such, this matter will included in the list of issues to consider between Mineralogy and CPM at the upcoming meeting on 22-23 January 2013 in Melbourne.

 

CPM is confident that this matter can be resolved by negotiations in good faith and we look forward to receiving your confirmation that you agree with this approach.”

  1. The defendants allege in par 63 of the amended defence that the plaintiffs by that letter stated that they would not pay Royalty Component B. That is an inadequate summary of the letter. The plaintiffs did state that they were not in breach of any obligation to pay Royalty Component B. However, they also proposed good faith discussions with a view to endeavouring to agree upon an alternative mechanism for determining Royalty Component B.
  1. In 2013, Mineralogy started action 1808 of 2013 in the Supreme Court of Western Australia (“Royalty Component B proceedings”). In their defence filed in that action on 24 October 2014, the plaintiffs in this proceeding allege that the prevailing published annual FOB price, within the meaning of cl 8 of each of the MRSLAs, was one established through an annual benchmark pricing system that ceased to exist in about early 2010. Accordingly, they deny that Royalty Component B can be calculated.[87]  That question has not yet been determined one way or the other by the Supreme Court of Western Australia.  Nevertheless, in par 66 of the amended defence in the present proceeding the defendants allege that the plaintiffs' contentions in the Royalty Component B proceedings are untenable and that the plaintiffs do not believe they have a sound basis to deny the obligation to pay Royalty Component B.
  1. The defendants allege two facts as the basis for an inference that the plaintiffs do not believe they have a sound basis to deny the obligation to pay Royalty Component B. First, they allege that the plaintiffs did not make the allegation that the royalty was incapable of calculation until 21 January 2013. Second, they allege that the plaintiffs have made provision for a sum in excess of $147,000,000 as a current liability in their accounts for the year ending 31 December 2012.
  1. The relevant accounts are those of a holding company of the plaintiffs. The notes refer to the MRSLAs and the plaintiffs’ exposure to a liability for royalty payable on the amount of magnetite ore required to produce 6,000,000 tonnes of iron ore concentrate. That sum is said to be payable “if the conditions for payment are met and the exceptions are not applicable”. The note continues that “due to changes in the iron ore market the formula for determining the amount in the contract is not capable of calculation. In the event that a liability crystallises as a result of such clause a provision has been made for this liability as reasonably estimated by the group and as required by accounting standards. Therefore, the amount provided for in the accounts may differ from any eventual liability”. Taken in its context as disclosed by the note, the provision for the liability in the accounts is not a statement of belief that the amount is owed.
  1. The plaintiffs rely on the fact that the defendant at one point in the Royalty Component B proceedings admitted that Royalty Component B was not capable of calculation. The defendants have since withdrawn the admission. But the point is not avoided. The question is not who is right on the issue. The question is whether the defendants have an arguable basis for the allegation that the plaintiffs have no belief that they have a sound basis to deny the obligation to pay the Royalty B component.
  1. In my view, taken by themselves, the facts relied upon to support an inference that the plaintiffs do not believe they have a sound basis to deny the obligation to pay Royalty Component B are not a sufficient basis of fact to arguably support the alleged inference of belief.
  1. Paragraph 61 to 67 should be struck out.

           Paragraphs 68 to 71 – the Royalty Component B proceeding

  1. Paragraphs 68 to 70 of the amended defence allege that in their defence in the Royalty Component B proceedings the plaintiffs in this proceeding set up two further defences to Mineralogy’s claim in relation to Royalty Component B. The first further defence is that cl 6.3(b) of each of the MRSLAs is unenforceable as a penalty because it requires payment of a royalty on 6,000,000 tonnes of product irrespective of whether or not the plaintiffs have produced it. The second further defence is that Mineralogy is precluded from claiming Royalty Component B because the plaintiffs were prevented from performance.
  1. The defendants allege in par 71 that these defences are also untenable and that the plaintiffs do not believe they have a sound basis for those allegations.
  1. The only facts alleged as the basis for an inference of the absence of belief are contained in the particulars under par 71. Those particulars cross-refer to the matters pleaded in par 67. That is, they refer to the facts relied upon in support of the inference that the plaintiffs do not believe they had a sound basis to deny the obligation to pay Royalty Component B on the ground that the annual benchmark pricing system ceased in about early 2010.
  1. In my view, those facts are incapable of supporting the inference of the alleged absence of belief that there is a sound basis to contend that cl 6.3(b) is a penalty or that the plaintiffs were precluded from performance.
  1. Paragraphs 68 to 71 should be struck out.

           Paragraphs 72 to 84 – Breaches of the Facilities Deeds

  1. There is a dispute between the plaintiffs and CITIC on the one hand and Mineralogy on the other hand as to Mineralogy’s rights to possession of the Port, Mineralogy’s right to operate the Port and Mineralogy’s rights to grant approval for another prospective user, Australasian Resources Ltd to use the Approved Facilities.
  1. In 2013, Mineralogy started proceedings No WAD 110 of 2013 in the Federal Court of Australia in the Western Australian District Registry (“Port Possession proceedings”).[88]  By the statement of claim dated 12 December 2014, Mineralogy alleges that the plaintiffs in the present proceeding have denied and continue to deny Mineralogy’s right to operate and maintain the Facilities and have obstructed and continue to obstruct Mineralogy from operating the port.[89]  The plaintiffs in the present proceeding deny those allegations in their amended defence dated 13 February 2014.[90]
  1. Paragraph 75 of the amended defence in the present proceeding alleges that CITIC and the plaintiffs do not believe that the plaintiffs have a sound basis to deny Mineralogy’s rights to possess and operate the port. The facts alleged from which the inference of belief is to be drawn, other than the allegations of the breaches and the plaintiffs defence in the Port Possession proceedings, are that the terms of the Facilities Deeds are clear and express and that on 8 May 2006 CITIC made a press release that title to the Port facilities remains with Mineralogy.
  1. The press release is not a fact that arguably bespeaks that the plaintiffs do not believe that they have a sound basis of defence. It merely described the structure of the parties’ relationship as a matter of legal title and ownership. Clause 24 of the Facilities Deeds goes further, because it provides that Mineralogy or its subcontractor will be the operator of the Port and that the plaintiffs will comply with the By-Laws as amended from time to time by Mineralogy.
  1. However, pars 72 to 84 of the amended defence in the present proceeding do not grapple with the plaintiffs’ defence in the Port Possession proceedings. That defence is to the effect that the terms of the Facilities Deeds, properly construed and considered in the context of other terms, both express and implied, are an answer to Mineralogy’s alleged rights.[91]  The defendants submit that the resolution of whether the plaintiffs’ defence in those proceedings is untenable will require a careful consideration of the implied terms alleged and the construction arguments raised in those proceedings.  So it may, but that rather misses the point for present purposes.  Once it is accepted that a careful consideration by a court is required to resolve an argument as to an implied term or the proper construction of a contract, the only alleged factual basis for the allegation that the plaintiffs do not believe that they have a sound basis for their denials of Mineralogy’s alleged rights, as alleged in par 75, falls down.  The alleged state of mind is not the plaintiffs’ awareness that the defence may not eventually succeed. It is that it is so hopeless that the plaintiffs do not have any belief in it, in the context that it is part of a campaign to improperly apply pressure to the first defendant.  As in the case of the Royalty A proceedings argument, the inference appears to be one to be drawn only from the strength or weaknesses of the constructional arguments.
  1. In my view, the facts alleged to support the allegation that the plaintiffs do not believe in their denial of Mineralogy’s rights has a sound basis are not sufficient to arguably support the inference that the plaintiffs have that mental state or condition.
  1. Further, par 84 alleges that the plaintiffs by denying the validity of Mineralogy’s notice that it approved of the use of the Approved Facilities by Australasian Resources Ltd intended to prevent Mineralogy from obtaining benefits to which it was entitled.
  1. The defendants allege that the plaintiffs’ denial was a breach of contract but they do not allege that the plaintiffs do not believe that they were entitled to make the denial. In my view, it cannot therefore constitute conduct engaged in for the purpose of applying improper pressure to the first defendant.

           Paragraphs 85 to 89 – Option agreement

  1. The subject matter of these paragraphs is also the subject of action CIV 3012 of 2012 in the Supreme Court of Western Australia (“CPOA proceedings”) started by CITIC and the plaintiffs against Mineralogy and the first defendant. “CPOA” is an abbreviation for an option agreement made on 22 October 2008 between Mineralogy, the first defendant and CITIC called the “China Project Option Agreement”. Edelman J summarised its effect in Citic Pacific Ltd v Mineralogy Pty Ltd[92] thus:

 

“Under the Option Agreement, Mr Palmer and Mineralogy granted options to Citic, subject to various terms, to acquire companies that have allocations of resources or further allocations of resources. It provided, in broad terms, for Citic to have a First Option, which was defined in cl 1 as an option to acquire a Further Company which will have entered into Project Agreements with Mineralogy.

 

A 'Further Company' was defined to include a company where:

 

‘if [Citic] otherwise agrees, nominated by [Mr Palmer or Mineralogy] and wholly owned by Mineralogy and or [Mr] Palmer at all times since its incorporation, such company to be acceptable to [Citic] in relation to its trading, financial and tax history.’

 

Although it is not a clause pleaded, by cl 3.7, if Citic did not exercise all options by the expiry of the Option Period then the Option Agreement would automatically terminate. The Option Period is defined in cl 1.1 as the earlier of various dates. One of those dates is five years from the Commencement Date (31 March 2006), if Citic has not exercised the First Option. It is common ground on the pleadings that this period was extended by written variation to six years (ie to 31 March 2012).

 

By cl 3.2, the First Option could be exercised until 5:00 pm on 31 March 2012, but Mineralogy pleads that by a written variation this was extended to 14 April 2012.”[93]

  1. CITIC and the plaintiffs claim declaratory relief that the CPOA has not been terminated by Mineralogy and the first defendant and that it remains in force and effect.
  1. Mineralogy and the first defendant filed or served a minute of their proposed defence in the CPOA proceedings dated 22 October 2014.[94]  It admits that Mineralogy had asserted that the CPOA had been terminated and that the asserted termination was not valid,[95] but alleges that the option has lapsed.
  1. This may be contrasted with the allegations in pars 85 to 89 of the amended defence in the present proceeding. Paragraph 85 alleges that although CITIC exercised the option it has failed to pay in the order of $145M under the CPOA in respect of it. And par 89 alleges that CITIC failed to pay the consideration on a pretext. The pretext is not identified. Perhaps it is meant to be the allegation that CITIC untruly alleged that Mineralogy has not proposed a suitable “Further Company” within the meaning of the CPOA, cl 3.6(a).
  1. However that may be, the amended defence completely fails to grapple with the fact that Mineralogy defends the CPOA proceedings on the basis that the option is not in full force and effect and that Mineralogy’s case is that the consideration is not payable at all.
  1. The allegation of pretext is made in support of the defendants’ allegation that the plaintiffs have been improperly applying pressure to the first defendant. As further context, it is noticeable that these proceedings started by the plaintiffs in 2012 have been defended by Mineralogy and the first defendant to date. In Citic Pacific Pty Ltd v Mineralogy Pty Ltd,[96]  Edelman J attributed the delay up to 26 September 2014 to Mineralogy’s conduct.[97]
  1. In my view, the allegation of a pretext in support of the alleged purposes was one that required full pleading of the facts to support the inference of the pretext and purpose in this context. None is given. There is no attempt to comply with UCPR 150(2).
  1. In my view, paragraphs 85 to 89 should be struck out.

           Paragraphs 92 to 98 – Purpose in starting and conducting this proceeding

  1. The subject matter of these paragraphs relates to the questions I previously considered in striking out paragraphs 50 to 56 of the original defence to the amended statement of claim in Sino Iron Pty Ltd & Anor v Palmer & Anor [2014] QSC 287.
  1. It is not necessary for me to repeat what I said there. For present purposes it is convenient to focus on three additional factual matters raised by pars 95 to 98.
  1. First, the defendants refer to a letter from CITIC to Mineralogy dated 20 March 2014. The letter made an offer to compromise other disputes and to purchase Mineralogy's interests under various project agreements made by the plaintiffs. The defendants allege that the offer was below market or true value, because it sought transfer of rights “worth billions of dollars for $88M”. There is, however, no proper pleading of the value of the things for which the offer was made.
  1. The defendants allege that the 20 March 2014 offer was grossly uncommercial and made in an attempt to take advantage the alleged illegitimate pressure referred to in the pars 50 to 89 of the amended defence.
  1. The defendants allege that the 20 March 2014 offer was in effect repeated on 30 October 2014.
  1. Second, the defendants allege that on a date just before the hearing of the liability questions in the present proceeding commenced, Mineralogy repaid and the plaintiffs accepted repayment of the amount represented by the challenged payments, namely $12.167M. The plaintiffs tendered evidence at the hearing on 29 January 2015 that showed that the relevant sum had been included in a payment received and accepted by them shortly before the hearing started. As previously mentioned, the plaintiffs submit they still have a substantial claim for interest or a right to an inquiry and to elect for an account of profits.
  1. The facts relied upon by the defendants in pars 50 to 56 of the original defence included that Mineralogy or its agent had sought to restore the alleged misused trust funds but that the plaintiffs had refused to accept that a payment to the bank account had that effect. They also refused Mineralogy's offer to vary the relevant agreements by abandoning the provisions that contributions be paid into the bank account and by repayment to the plaintiffs of their contributions to the bank account. Those facts are alleged in pars 98(a), (b) and (c) of the amended defence. It is not necessary to add to my earlier reasons about them.
  1. Third, the defendants make several additional allegations about the plaintiffs’ conduct of the present proceeding. They allege that the plaintiffs have little prospect of obtaining an account of profits of any substantial sum. That may or may not be so, but it does not answer the point that the plaintiffs still have a substantial claim for interest. It does not seem to me that the plaintiffs have acted improperly up to the present time in persisting with the possible alternative of electing for an account of profits.
  1. The defendants allege that the plaintiffs have persisted in making allegations of fraud or dishonesty that are unnecessary for the plaintiffs to obtain relief. In my view, to the extent that these allegations suggest misconduct by the plaintiffs in the conduct of their case, they should be rejected. From my earlier reasons, it appears that as a matter of law the required state of knowledge for some of the alleged causes of action was not clear. The plaintiffs should not be criticised for alleging fraudulent knowledge when that would or may have been required proof on some of the alternative available causes of action. I specifically find that the plaintiffs had a reasonable basis for making those allegations, although it has not been necessary to decide some of them.
  1. The defendants sought to avoid their exposure to findings upon those allegations by making the concessions I mentioned towards the beginning of these reasons at the outset of the hearing on 26 November 2014. I reject the defendants’ allegation that the plaintiffs’ failure to desist from their allegations of fraudulent conduct on that day or on the next day when the hearing of the issues of the defendants’ liabilities based on the first defendant’s knowledge in fact was reserved for decision, is conduct for which the plaintiffs can be criticised. Up to the morning of 26 November 2014, on the evidence, the defendants had made no such concessions and had persisted in an apparently unsustainable and possibly deliberately false plea that Mineralogy had made the challenged payments for an authorised purpose under an oral contract made between Mineralogy and QNI for the provision of port management services.
  1. In a similar vein, I reject outright the defendants’ allegations that the plaintiffs acted in any improper way in alleging in support of their case that at one point, probably in about May 2014, the first defendant falsely manufactured a document described as the “Port Management Services Agreement” to support a contention that there was a contract with QNI. The defendants allege that since they did not seek to deploy the document as genuine in any court proceeding, the plaintiffs’ conduct was in some way improper in seeking to rely on its false manufacture in support of their case in this proceeding. I reject that assertion. The unexplained creation of an apparently false contract of that kind was always relevant to the plaintiffs’ case as pleaded and considered above, in my view.
  1. The defendants allege that the plaintiffs’ purpose in persisting in allegations as to the first defendant’s fraudulent purpose and as to the false manufacture of the Port Management Services Agreement was to generate publicity adverse to the first defendant and thereby apply pressure to him. In my view, it is possible that the plaintiffs had that purpose but it does not seem to me that the defendants have any arguable basis for contending thereby that the plaintiffs commenced or continued this proceeding by applying illegitimate pressure to the defendant in such a way as to arguably sustain an unclean hands defence.
  1. In my view, pars 92 to 98 of the amended defence should be struck out. In substance, the position now is not different to that when I concluded that the prior iteration of the similar subject matter in the prior pleading was insufficient.[98]

           Conclusion on striking out the unclean hands defence

  1. Because I have formed the view that all of the prior mentioned relevant paragraphs supporting the plea of unclean hands should be struck out, it follows that pars 50, 51, 57, 58, 90, 91, 99 and 100 should also be struck out as unsupported.

Footnotes

[1] Heydon J & Leeming M, Jacobs’ Law of Trusts in Australia, 7th ed, LexisNexis, 2006, p 16. 

[2] So named because of the decision in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567.

[3] Heydon J & Leeming M, Jacobs’ Law of Trusts in Australia, 7th ed, LexisNexis, 2006, p 24. 

[4] (2015) 317 ALR 225.

[5] [2002] 2 Qd R 270.

[6] (2015) 317 ALR 225, 275-275 [228].

[7] [1944] Ch 83.

[8] See Wilson v Darling Island Stevedoring and Lighterage Co Ltd  (1956) 95 CLR 43, 67 ; Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460, 504 ; Bahr v Nicolay (No 2) (1988) 164 CLR 604, 618; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, 120, 147, 156, 169;  Byrnes v Kendle (2011) 243 CLR 253, 272.  In particular, see the references in Bahr v Nicolay (No 2) (1988) 164 CLR 604, 618; Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, 147 and Byrnes v Kendle (2011) 243 CLR 253, 272.

[9] From Moliere, “The Bourgeois Gentleman”, Act Two Scene 4.

[10] Although Deane J also alluded to the distinction between prose and poetry in a similar context in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, 147.

[11] (1953) 90 CLR 86.

[12] (1953) 90 CLR 86, 97;  See also Korda & Ors  v Australian Executor Trustees (SA) Ltd (2015) 317 ALR 225, 270 [204].

[13] Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) & Anor (2000) 202 CLR 588, 608 [42].

[14] (1874) LR 9 Ch App 244, 251-252.

[15] (1991) 30 FCR 491.

[16] (1991) 30 FCR 491, 500.

[17] [2002] 2 Qd R 270, 273 [8].

[18] [2002] 2 Qd R 270, 273 [9].

[19] [2002] 2 Qd R 270, 273 [10].

[20] [2002] 2 Qd R 270, 274 [10].

[21] [2002] 2 Qd R 270, 275 [12].

[22] [2002] 2 Qd R 270, 274 [12].

[23] [2002] 2 Qd R 270, 275 [12].

[24] (1985) 160 CLR 548.

[25] (1985) 160 CLR 548, 568-569.

[26] Compare Keane J in Korda & Ors v Australian Executor Trustees (SA) Ltd (2015) 317 ALR 225, 275 [229].

[27] (1990) 169 CLR 625.

[28] (1990) 169 CLR 625, 632.

[29] [2009] 1 AC 61.

[30] [2009] 1 AC 61, [26].

[31] The hallmark, in England, dates back to the charter granted by Edward III to the Worshipful Company of Goldsmiths, which was located in the Goldsmith’s Hall.  Hence, the use of the word “hallmark” as an official mark of excellence and a distinctive or striking feature.

[32] For example, Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) & Anor (2000) 202 CLR 588, 605 [34], citing McPherson JA’s reasons in Puma Australia Pty Ltd v Sportsman’s Australia Ltd [No 2] [1994] 2 Qd R 159, 162.

[33] Korda & Ors v Australian Executor Trustees (SA) Ltd (2015) 317 ALR 225, 240 [43].

[34] Korda & Ors v Australian Executor Trustees (SA) Ltd (2015) 317 ALR 225, 248 [84].

[35] Korda & Ors v Australian Executor Trustees (SA) Ltd (2015) 317 ALR 225, 253 [110].

[36] Korda & Ors v Australian Executor Trustees (SA) Ltd (2015) 317 ALR 225, 274 [225]-[226].

[37] Jessup v Queensland Housing Commission [2002] 2 Qd R 270, 272 [5].

[38] (2014) 312 ALR 356.

[39] (2014) 312 ALR 356, 364 [22].

[40] (Unreported, Supreme Ct of NSW, Common law Division, Giles J, 27 June 1990, No 12903 of 1990).

[41] (1982) 149 CLR 337, 347.

[42] KBH Construction v Lidco Aluminium Products Pty Ltd (Unreported, Supreme Ct of NSW, Common law Division, Giles J, 27 June 1990, No 12903 of 1990).

[43] [2013] NSWSC 79.

[44] [2013] NSWSC 79, [29].

[45] [2014] NSWSC 1547.

[46] (1986) 6 NSWLR 175.

[47] (1986) 6 NSWLR 175, 189.

[48] (1987) 165 CLR 107.

[49] (1987) 165 CLR 107, 121.

[50] (2015) 317 ALR 225, 242 [53], 248 [86], 252 [105], [108] and 257 [134].

[51] [1897] AC 22.

[52] (1874) LR 9 Ch App 244.

[53] Barnes v Addy (1874) LR 9 Ch App 244, 252.

[54] (1986) 102 LQR 114.

[55] (2007) 230 CLR 89, 159 [161], referring in footnote (237) to Fyler v Fyler (1841) 3 Beav 550, 561-562, 567-568 [49 ER 216, 221, 223-234]; Alleyn v Darcy (1854) 4 I Ch R 199, 209 and Eaves v Hickson (1861) 30 Beav 136, [54 ER 840].

[56] [2014] VSC 464.

[57] [2012] VSCA 171.

[58] [2014] VSC 464, [301].

[59] [2014] VSC 464, [302].

[60] [2014] VSC 464, [305].

[61] (2014) 311 ALR 494.

[62] (2014) 311 ALR 494, 510 [77].

[63] Jackson D, The First Limb of Barnes v Addy: A Taxonomy in Tatters, 2014 WA Lee Equity Lecture, 27 November 2014.

[64] [2002] 2 AC 164.

[65] [2002] 2 AC 164, 171 [24].

[66] [2002] 2 AC 164, 177 [42].

[67] [2002] 2 AC 164, 202 [136].

[68] [2006] 1 WLR 1476.

[69] [2006] 1 WLR 1476, 1484 [28].

[70] (2007) 230 CLR 89.

[71] (1975) 132 CLR 373.

[72] (1975) 132 CLR 373, 398.

[73] (1975) 132 CLR 373, 376-377.

[74] (1975) 132 CLR 373, 412.

[75] (2007) 230 CLR 89, 155 [147].

[76] (2007) 230 CLR 89, 141 [112].

[77] (2012) 200 FCR 296.

[78](2012) 200 FCR 296, [249].

[79] (2012) 200 FCR 296, [268]-[269].

[80] [2013] WASC 110.

[81] [2013] WASC 110, [80].

[82] [2014] QSC 287.

[83] Sino Iron Pty Ltd & Anor v Palmer & Anor (No 2) [2014] QSC 287, [29].

[84] See Sino Iron Pty Ltd & Anor v Palmer & Anor (No 2) [2014] QSC 287.

[85] [2013] WASC 194.

[86] [2013] WASC 194, [5].

[87] Defence to the Third Further Amended Statement of Claim, pars 58-64.

[88] Mineralogy Pty Ltd v Sino Iron Pty Ltd [2014] FCA 1326.

[89] Second Further Amended Statement of Claim, par 22.

[90] Further Amended Defence, pars 34-37.

[91] Further Amended Defence, pars 16-19 and 34(b)-34(g).

[92] [2014] WASC 358.

[93] [2014] WASC 358, [14] – [17].

[94] Minute of Proposed Fourth Further Amended Defence and Counterclaim.

[95] Minute of Proposed Fourth Further Amended Defence and Counterclaim, pars 43 and 44.

[96] [2014] WASC 358.

[97] [2014] WASC 358, [19]-[55].

[98] Sino Iron Pty Ltd & Anor v Palmer & Anor (No 2) [2014] QSC 287, [31].

Close

Editorial Notes

  • Published Case Name:

    Sino Iron Pty Ltd & Anor v Palmer & Anor (No 3)

  • Shortened Case Name:

    Sino Iron Pty Ltd v Palmer (No 3)

  • Reported Citation:

    [2015] 2 Qd R 574

  • MNC:

    [2015] QSC 94

  • Court:

    QSC

  • Judge(s):

    Jackson J

  • Date:

    04 May 2015

Litigation History

No Litigation History

Appeal Status

No Status