24 October, 3, 7, 8 November, 15 December 2006 — …2008-2-4 · WHITE v SHORTALL SUPREME COURT OF NEW SOUTH WALES — EQUITY DIVISION CAMPBELL J 24 October, 3, 7, 8 November,

WHITE v SHORTALL

SUPREME COURT OF NEW SOUTH WALES — EQUITY DIVISION

CAMPBELL J

24 October, 3, 7, 8 November, 15 December 2006 — Sydney

[2006] NSWSC 1379

Contract — Trusts — Shares — Evidence — Taxation — Succession — Whether testfor intention to enter contractual obligation is subjective or objective — Measure ofdamages for breach — Time of essence provisions in contract — Objective orsubjective test for creating trust — Equitable compensation for breach of trust —Principles for calculation of equitable compensation for breach of trust — Trusts forpart of debt — Identification of shares on share-by-share basis or otherwise —Burden of proof of payment being loan — Timing of evidence given late in case andits significance — Capital gains tax and its operation when trust declared part oflarger holding of shares — Specific legacy of number of shares out of larger holdingof shares executor’s assent — (UK) Companies Act 1862 — (CTH) Corporations Act2001 — (CTH) Income Tax Assessment Act 1936 — (CTH) Income Tax AssessmentAct 1997 — (NSW) Securities Industry Code — (CTH) Taxation Administration Act1953 — (NSW) Uniform Civil Procedure Rules 2005.

The parties had been in a domestic relationship for several years prior to final separationand the commencement of this litigation. The defendant, a shareholder in a companyknown as Unitract Pty Ltd, wanted to raise public share capital through a publicly listedcompany known as Musgrave Block Holdings Pty Ltd. An agreement was made betweenboth companies on 11 July 2002 for acquisition by Musgrave of all the shares of the othercompany. Musgrave changed its name to Unitract. At the same time the Australian StockExchange (ASX) imposed a restriction condition on the shares of Unitract which expiredon 1 November 2004. For the period from 1 November 2004 until 1 May 2005 all of thedefendant’s shares in Unitract, and for the next 6 months thereafter, 500,000 of thedefendant’s shares in that company were subject to a voluntary escrow. Over the next 6months the plaintiff gave several amounts comprising a total figure of $47,600 to thedefendant which she claimed were loans. The allegation was also made by the plaintiff thatthe defendant had agreed to make good to her a loss of about $10,000 on another sharetransaction. There was agreement between the parties that some of these payments weremade to the defendant, but not all of them.

The question arose as to whether or not any such payments were by way of loan to thedefendant from the plaintiff. The defendant had offered to hold a certain number of sharesin Unitract in trust for the plaintiff, with a view to transferring them to her after thecompany had been floated. This offer was accepted by the plaintiff.

Several questions had to be determined by the court in the matter.The arrangements between the parties were further complicated by the receipt by the

plaintiff of an amount of $20,000 on 28 August 2002. The defendant persuaded theplaintiff to give him that money to invest in the shares of Unitract. In exchange for suchan investment the defendant wrote a letter in which he declared that he wanted 222,000shares transferred to the plaintiff if he were to die.

The plaintiff sought equitable remedies for an alleged contractual breach, such remediesto include equitable compensation for the defendant’s failure to transfer the shares to heras agreed.

Held, with a verdict in favour of the plaintiff:

654

(i) As a matter of fact, the plaintiff would probably have sold the shares by January 2004if the defendant had transferred them to her. As a whole the evidence of the plaintiff wasmore consistent and reliable than the defendant’s, and was accepted as such.

(ii) On the question of the type of intention necessary to create a trust, the law is settled.However, the subjective intention of the settlor is critical for a declaration of trust. Suchsubjective intention may be apparent from objective circumstances. The factual evidencewas sufficient in this case for an inference to be drawn of an intention of the parties todeclare a trust and enter into a contract.

(iii) The common law would have regarded the contract between the parties as one inwhich time was of the essence, given the nature of the subject matter of the contract, whichconsisted of shares in a newly listed company.

(iv) The defendant breached his obligation under the contract to transfer the shares toher upon her request.

(v) Compensation for breach of contract was assessed at $548,452, which wascalculated on the basis of the value of the shares which were not transferred.

(vi) While there is no doubt that shares can be held on trust, the question arises whetheror not only some of a particular parcel of shares can be the subject of a trust. A trustcreated in this manner is not void for uncertainty. Just as a testamentary legacy of anumber of shares would be valid, so too is the trust of 222,000 shares in this case.

(vii) The nature of a company share was defined as a chose in action, being a right toa specified amount of the share capital of a company. This definition is contained in theCorporations Act 2001 (Cth) also. There is no significance in the fact that shares areunnumbered, provided that they are fully paid up and are of equal rank.

(viii) In this case the declaration of trust was of a fund, with the shares being held forthe plaintiff and the defendant.

(ix) This situation was distinguished from that where a person purports to hold part ofmoneys in a bank account in trust for another party.

(x) The measure of damages for breach of trust is identical to that for breach of contract.(xi) The question arose as to whether or not the stock exchange listing rules prevented

the transfer of shares by the defendant to the plaintiff as agreed in the contract, and underthe trust. The defendant had entered into a restriction agreement as required by the stockexchange rules. In the court’s view a declaration of trust of any of the 1.5m securitieswould have been a breach of cl 1 of the restriction agreement. Such a breach would haveto be remedied by enforcement action by Unilife, and not the ASX. The AustralianSecurities and Investments Commission can also take enforcement action. Unitract, andnot the defendant, would have been in breach of an obligation under the listing rules if theshares were the subject of a declaration of trust or were transferred by the defendant to theplaintiff in accordance with the trust.

(xii) Nevertheless, if the defendant were found to be in breach, the court would have nomore than a discretionary power to enforce the rules. In this case the shares in questionwere subject to a holding lock when the defendant declared a trust over them. Thevoluntary escrow imposed on the shares by the defendant had no legal recognition in theASX listing rules.

(xiii) Equitable compensation for breach of trust is assessed by reference to what thesituation would have been if the trustee had performed his duty. In this case such anamount is calculated on the basis that the shares could have been transferred at any timeafter 1 November 2004. This figure was assessed as $266,400.

(xiv) Verdict and judgment for the plaintiff for $548,452, being the amount of damagesfor breach of contract.

Hyhonie Holdings Pty Ltd v Leroy [2004] NSWCA 72; Lord Strathcona SteamshipCo Ltd v Dominion Coal Co Ltd [1926] AC 108; Re Clifford [1912] 1 Ch 29; SydneyFutures Exchange Ltd v Australian Stock Exchange (1995) 56 FCR 236; 128 ALR417; 16 ACSR 148; Target Holdings Ltd v Redferns [1996] 1 AC 421; (1995)17 ACSR 582, followed.

Kauter v Hilton (1953) 90 CLR 86, cited.

WHITE v SHORTALL60 ACSR 654 655

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Hunter v Moss [1994] 3 All ER 215; [1994] 1 WLR 452, discussed.

Browne v Dunn (1893) 6 R 67, referred to.

Application

This was a dispute between two parties who had been involved in a domesticrelationship for some years and had rather complicated financial dealings inwhich several payments of money had allegedly been made by the plaintiff to thedefendant in exchange for which the defendant had allegedly made promises ofa transfer of shares to the plaintiff in a newly listed company. The matter involvedan alleged breach of contract and breach of trust by the defendant, for whichequitable compensation was sought by the plaintiff.

K Ryan and P Castley instructed by Stephen Bottrill Solicitors & Attorneys forthe plaintiff.

G Curtin and D Jenkins instructed by Middletons for the defendant.

[1] Campbell J. This is primarily a claim for damages for breach of a contractrelating to transfer of shares, and to enforce a trust over those shares.

[2] It raises the following issues:(a) Did the plaintiff make seven loans of money to the defendant, on the

basis that they would be secured by certain shares that the defendantwould hold in trust for her? I conclude that the plaintiff made the sevenpayments of money to the defendant that she asserted she made, that thefirst five of them were not loans when originally made, and that theparties came to agree that the amounts of money that the plaintiff hadprovided to the defendant would be treated as in effect the purchaseprice of shares that the defendant would hold in trust for the plaintiff.

(b) Did the parties contract that 222,000 shares would be transferred to theplaintiff on the plaintiff’s request after 1 August 2003? I conclude thatthey did.

(c) Independently of that contract, did the defendant show an intention todeclare a trust of 222,000 shares for the plaintiff, on terms that they weretransferable to the plaintiff after 1 August 2003? I conclude that he did.

(d) Did the plaintiff request transfer of the shares soon after 1 August 2003?I conclude she made such a request soon after 11 August 2003.

(e) Did the plaintiff tell the defendant in January 2005 that she did not wantto receive the shares? I conclude she did not.

(f) What damage has the plaintiff sustained by reason of the defendant’sbreach of contract? I conclude $548,452.

(g) Is the trust that the defendant purported to declare one that is invalidbecause it has insufficient certainty of subject matter? I conclude it isvalid.

(h) What equitable compensation is payable to the plaintiff by reason of thedefendant’s failure to transfer the shares to her when asked? I concludethat, subject to issue (j) below, the quantum is the same as the damagesfor breach of contract.

(i) Has the plaintiff established that certain shares held by RogerWilliamson or Merkaba Ltd are held on trust for the defendant?I conclude she has not established this.

AUSTRALIAN CORPORATIONS AND SECURITIES REPORTS656 NSWSC

(j) Does the fact that the shares in relation to which the trust was declaredwere restricted securities at the time of declaration of the trust, underwhich the shares could not be transferred from the defendant until after1 November 2004, affect the remedy to which the plaintiff would beentitled for breach of trust? I conclude that it does, by requiring thequantum of the equitable compensation payable to the plaintiff to bemeasured by reference to the value of the shares held on trust, at a timeafter the expiry of the restriction.

(k) Does the fact that, after declaration of the trust, the defendant imposeda “voluntary holding lock” on his shareholding, affect the remedy towhich the plaintiff would be entitled for breach of trust? I conclude itdoes not.

(l) Has the plaintiff made out any breach of fiduciary duty, independentlyof a breach of trust? I conclude she has not.

(m) Has the plaintiff established an estoppel by convention concerning theexistence of a trust? I conclude she has not.

Part A — facts

The relationship between plaintiff and defendant

[3] In 1999, the plaintiff was either divorced or separated from her husband,and had the care of their two children, Jackson and Maverick, then aged aboutfive and seven. Throughout the time that is relevant to this case, she has had fewfinancial resources of her own.

[4] In the course of 1999, she developed a relationship with the defendant, aman with considerably more financial resources than the plaintiff had.He arranged, in August 1999, for the plaintiff to move out of the old house thatshe had been living in, that was in a state of disrepair, and into more suitableaccommodation at Mermaid Beach. The defendant paid the rental for that newaccommodation, and various other household expenses.

[5] In January 2000, the defendant moved into that rented house at MermaidBeach.

[6] After a brief separation, the plaintiff and the defendant began living togetheronce again at Alcorn St, Suffolk Park in March 2002.

[7] By the end of June 2002, the defendant was making arrangements to acquirean option to purchase a property in Cooper’s Shoot Rd, Byron Bay. By this time,the defendant wished to marry the plaintiff. The location of the land at Cooper’sShoot Rd was influenced by the plaintiff’s desire to live somewhere near herparents.

[8] Over the period from August 1999 until May 2005 the defendant paid largesums of money towards the household and general living expenses of theplaintiff. He paid the rental of the premises in which she lived, paidapproximately $20,000 of the purchase price of a new car that was registered inthe plaintiff’s name, paid telecommunications bills and electricity bills, paidmedical expenses for the plaintiff and her sons, and paid numerous otherhousehold expenses. He took the plaintiff on a holiday to Mexico, London andHong Kong for a month in December 1999/January 2000, and on another holidayto the Maldives from 30 July to 11 August 2003. He is able to provide vouchersdemonstrating expenditure on such items of the order of $230,000 over the periodfrom August 1999 to May 2005. It is likely that his actual expenditure exceededthat amount.

WHITE v SHORTALL (Campbell J)60 ACSR 654 657

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The launch of Unitract Ltd

[9] The defendant was a shareholder in a company called Unitract Pty Ltd. Thatcompany had the benefit of a patent application relating to a syringe, the needleof which would retract automatically and permanently inside the barrel once thesyringe had been used. That was thought to be advantageous in preventing spreadof infection arising from re-use of syringes or needlestick injuries. Theshareholders in Unitract Pty Ltd set about arranging for a public share capitalraising by a company that would exploit the patent.

[10] The chosen vehicle for making the initial public offering was MusgraveBlock Holdings Pty Ltd (Musgrave), a company that was already listed on thestock exchange, but whose shares were suspended. On 11 July 2002, anagreement was entered between Musgrave and Unitract Pty Ltd, under whichMusgrave would acquire from the shareholders in Unitract Pty Ltd all theirshares. In return Musgrave would issue shares in itself to the former shareholdersin Unitract Pty Ltd and certain other people nominated by Unitract Pty Ltd. Thatagreement was conditional upon Unitract issuing shares in itself to raise$400,000 by 19 July 2002, a further capital raising (by means of an issue of 11mshares at 20c each) occurring no later than 11 October 2002, Musgrave issuinga prospectus by no later than 12 September 2002, and reinstatement of quotationof the shares occurring on or before 15 October 2002. The agreement providedfor the defendant selling the 1.5m shares he held in Unitract Pty Ltd, and beingissued with 1.5m shares in Musgrave. At the time of completion of theagreement, Musgrave would change its name to Unitract Ltd. I will sometimesrefer to Musgrave as “Unitract”.

[11] The Australian Stock Exchange (ASX) imposed a condition on Unitract’sshares being quoted. That condition required that the defendant’s 1.5m shares (aswell as certain other shares of promoters and people connected with thepromotion) would be restricted securities. In broad terms, that restrictionprohibited dealing in the shares to which it applied, meant that the particularshares to which it applied were not quoted on the stock exchange (and so couldnot be sold by an on-market transfer), and were subject to a “holding lock” thatwas designed to prevent any transfer of the shares being registered. (I consider itin more detail at [312] below.) For the defendant’s shares, that restriction wouldbe for 2 years from the date of listing. Quotation of Unitract’s shares was in factachieved on 1 November 2002. Hence the restriction on the defendant’s 1.5mshares expired on 1 November 2004.

[12] From 1 November 2004 to 1 May 2005 all 1.5m of the defendant’s shares,and from 1 May to 1 November 2005, 500,000 of the defendant’s shares havebeen subject to a “voluntary escrow”.

The first six payments by the plaintiff to the defendant

[13] The plaintiff had a cheque account with the ANZ Bank at Bundall. Sheasserts that seven amounts drawn on that account were lent to the defendant.Those amounts are:

Payment No Date $ Agreed bydefendant

1 21 March 2001 1000 x


2 11 April 2001 5000

3 11 April 2001 5000

4 11 April 2001 5000 x

5 31 July 2001 1600 x

6 2 September 2002 10,000 x

7 17 March 2003 20,000

Total 47,600

As well, she says that the defendant agreed to make good to her a loss ofaround $10,000 that she sustained when she arranged for shares in Peptech Ltdto be sold to raise funds to enable her to make loan No 6. One way the plaintiffput her case was that the defendant had borrowed these amounts from her, andpromised that the loans were secured by shares in Unitract.

[14] The defendant agrees that payments 1, 4, 5 and 6 were made to him.He does not agree that payments 2, 3 or 7 were made to him. Further, he disputesthat any of the payments were loans. He says that those payments that he admitsthe plaintiff made, were made as contributions to their joint living expenses, notas loans.

[15] Bank statements of the plaintiff establish that her account was debited, onor very soon after the date of each alleged loan, with the amount of each allegedloan. The only alleged loans concerning which either party tenders a photocopyof the cheque, or the cheque butt, are payments 1, 4, 5, 6 and 7.

[16] When there is a payment of money by A to B, and the sole question fordecision is whether that payment is a loan or a gift, the onus of proving it is a loanlies on the person who so asserts: Heydon v Perpetual Executors, Trustees andAgency Co (WA) Ltd (1930) 45 CLR 111; 37 ALR 65; Coshott v Sakic (1998)44 NSWLR 667 at 671.

[17] The plaintiff’s evidence about the first alleged loan is:

The defendant wrote the cheque out and said to me words to the effect of:

“I need $1,000.00. Sign this cheque for me.”

I do not know the purpose for which he used this money.

[18] I accept the plaintiff’s evidence concerning the writing of this cheque, andwhat was said at the time. However, that does not, in my view, establish a loan.There are no words of loan. By that time, the parties had been living in a de factorelationship for over 1 year. The defendant had been paying the vast bulk of thehousehold expenses. There is nothing surprising or unlikely in the plaintiffhaving made money available to the defendant when he asked for it, withoutthere being a loan. I am not satisfied, concerning this transaction, that at the timethe payment was made there was any intention to enter legal relations at all.

[19] The plaintiff’s evidence about the circumstances in which the second, thirdand fourth alleged loans were made is as follows:

On 11 April 2001 I made three payments of $5,000.00 each to the Defendant. The firstpayment was by way of an ANZ cheque from my account being chequenumber 500015, which was written on 9 April 2001. The second payment was by wayof cashing an ANZ cheque number 500016 in the amount of $5,000.00 for theDefendant. The third payment was by way of ANZ cheque number 500017 which wasdrawn in favour of the Defendant’s WA Bank Visa card. At the time the Defendant saidwords to the effect of:


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“I need $10,000.00 in cash but I do not want a cheque for this amount. Sign 2 chequesfor $5,000.00 each. I do not want to have to fill out the disclosure forms required ifI cash a cheque for $10,000.00.”

To the best of my recollection, I was with the Defendant when he cashed the twocheques for $5,000.00 each, although I do not know the purpose for which theDefendant used this money.

[20] It is the payment of $5000 to the defendant’s Visa card account that thedefendant admits receiving. By April 2001, the plaintiff was an additionalcardholder on the defendant’s Visa card. It is not established to what extent, if atall, the plaintiff actually used that card.

[21] I accept the plaintiff’s evidence about the making of these three payments.For the same reasons as I have given concerning the first alleged loan, I am notsatisfied that the plaintiff has discharged the onus of establishing that any of thepayments made on 11 April 2001 were loans.

[22] Initially, the plaintiff’s evidence about the making of the fifth loan was:

On 31 July 2001 I made a payment of $1,600.00 to the Defendant by way of cashingANZ cheque number 001081 which was written on 25 July 2001, for the Defendant.The Defendant wrote out the cheque and said words to me to the effect of:

“I need $1,600.00. Sign this cheque for me.”

After the defendant had denied in his affidavit that he had written out that cheque,and exhibited a copy of the four cheques that he admitted receiving, the plaintiffaccepted that it was her handwriting on the cheque, “and that I made an error inparagraph 4(iv) of my affidavit sworn 28 August 2006”. If the plaintiff wrote outthe cheque herself, that makes implausible the words she attributed to thedefendant on that occasion. I do not accept that the defendant said such words.Further, even if the plaintiff’s initial version had been correct, that would not havebeen enough to establish that it was agreed that there would be a loan, for thesame reasons as I have given concerning the first alleged loan.

[23] On 14 and 16 November 2001, soon after the plaintiff had received$20,000 from her former husband, the plaintiff’s parents purchased two parcelsof shares in Peptech Ltd, 4800 shares in all, for a total outlay of $19,972.31. Theshares were purchased through a broker, Mr David Missen, of Bell Securities.He is the same broker who acted for the defendant. These shares were treated asthough they were the plaintiff’s.

[24] The plaintiff’s account, in her affidavit of 28 August 2006, of how thepayment on 2 September 2002 came to be made is as follows:

Prior to me making this payment to the Defendant, the Defendant said to me words tothe effect of:

“I need $10,000.00 for payment of part of the deposit on land which I am purchasingat Coopers Shoot. I know that you bought $20,000.00 worth of Peptech shares. If youlet me sell them and lend the proceeds of sale to me, I will repay you the $20,000.00which you originally used to purchase the shares so that you do not make a loss. I willmake this repayment to you by way of $20,000.00 worth shares in Unitract at20 cents per share.”

[25] In her affidavit in reply of 31 October 2006 she confirmed her earlieraccount, and added:


… he said “I need this for the purchase of the Cooper’s Shoot property” and he said“I will treat the loss on your shares as a loan which will make your loans to me totalabout $40,000.00”.

[26] The cheque by which this payment was made was filled out by thedefendant, and signed by the plaintiff. The defendant originally wrote that thecheque was payable to “Underline Pty Ltd”, but above that the defendant wrote“Please pay cash” and the plaintiff signed the alteration.

[27] The broker’s contract note establishes that the 4800 Peptech shares weresold on 21 August 2002, and produced total net proceeds of $10,586.26.

[28] By July 2002, some difficulties had re-emerged in the relationship betweenthe plaintiff and the defendant. Around 31 July 2002 the plaintiff first attended aconsulting psychologist, Mr Kieran Riordan, about various difficulties she wasencountering, including in her relationship with the defendant. She continued tosee Mr Riordan from time to time until May 2005. The defendant paid the feesassociated with those consultations, at least so far as consultations occurring after16 September 2002 are concerned. At a time she puts at “before August 2002”she had told the defendant that she did not want to marry him, but in September2002 she was still wearing an engagement ring he had given her, and she was stillcontemplating an ongoing domestic relationship with him.

[29] The defendant denies the plaintiff’s account of the circumstances ofpayment of $10,000 in September 2002. According to him, at the time of handingover the cheque the plaintiff said: “I would like to contribute towards the cost ofthe land and the house so that I can feel it is my home and not just yours”.He says he did not need $10,000 from the plaintiff. The cheque account ofUnderline International Pty Ltd, that he used to fund ordinary living expenses,had a deposit of $10,000 made to it on 2 September 2002. This might be theplaintiff’s cheque, but it is not possible on the evidence to make a positivefinding, and if it was the plaintiff’s cheque one wonders why the defendant hadthe cheque altered to be payable to cash. That account of Underline InternationalPty Ltd on 2 September 2002 also had another amount, of $59,500, deposited toit. The trust account ledger of the solicitor who acted for the defendantconcerning acquisition of the Cooper’s Shoot Rd property shows one amount of$19,982.80 identified as “deposit moneys” passing through the trust account inJuly 2002, and a further amount of $49,980.80 identified as a “deposit” passingthrough the trust account in March 2003, but nothing passing through the trustaccount between those times. The defendant was incurring architectural fees inconnection with the proposed house at Cooper’s Shoot Rd, but the evidence doesnot disclose when those fees became due. At least some of the architectural feeswere paid, but the evidence does not disclose when. In this situation, it is notpossible to make any positive finding about what the defendant did with the$10,000 he received in September 2002.

[30] I will defer making findings about the basis on which the $10,000 was paidin September 2002 until other factual matters have been recounted.

[31] The relationship between the plaintiff and the defendant broke down inOctober 2002. Around that time, they concluded that they should separate, butthey did not separate immediately. They discussed the defendant providing someform of financial assistance to the plaintiff, because she did not have any incometo support herself and her two sons. It was he who offered to provide support —it is not as though she had to drag a promise out of him. He told her he waswilling to pay for the rent on the home for a period of time, and some other


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expenses such as medical expenses, and the boys’ tutoring and sports expenses.He also indicated his willingness to continue to pay for her counselling withMr Riordan. At no time during those discussions did the plaintiff assert that thedefendant owed her the various amounts that she had paid him prior to that time,and which she now alleges were loans.

[32] That the defendant made this offer of financial support is consistent withhis treatment of the plaintiff throughout the relationship — concerning financialmatters, he was considerate and generous.

[33] Various of the notes that Mr Riordan made in the course of counsellingsessions were admitted as business records. Some care needs to be exercised inusing those notes, because Mr Riordan himself makes clear that he was not tryingto maintain a complete record of things said to him in the course of consultations,and he recognises that sometimes — particularly when emotions were runninghigh in the consultations — the notes might be simply inaccurate. Even so, someof his notes assist in clarifying the facts.

[34] On 24 August 2002, Mr Riordan made some notes at a conference with theplaintiff. He said concerning them:

Louise White came to me hysterical and deeply distressed and very — it was like in ahysterical or distressed manner, described me money that was outstanding with Alan.And I jotted down some notes which have absolutely no — well, to my mind I wouldn’tguarantee their accuracy in terms of those numbers there on the page, okay?

[35] When the notes were made under those circumstances, I would not drawanything from them beyond the fact that on that day the plaintiff asserted that thedefendant owed her money, that an amount of $10,000 was at least part of it, andthat it had something to do with the Cooper’s Shoot land. I note that thisconference was 3 days after the Peptech shares were sold.

[36] On 16 September 2002, the plaintiff told Mr Riordan that she wantedfinancial support — a solid commitment, written down.

[37] On 28 September 2002, Mr Riordan made a note, in the course of aconsultation with the plaintiff “my $10,000 invested in the land now”. Aftercross-examination of both the plaintiff and Mr Riordan, I am satisfied that theimport of that note is not that the plaintiff told him that she had made aninvestment of $10,000 in the land. Rather, it is that she had told Mr Riordan thatshe had provided $10,000 to the defendant, and that he had invested it in the land.

[38] In her affidavit in reply, of 31 October 2006, the plaintiff gives manydetails, that she had not previously given, concerning conversations about moneyor shares that she had with the defendant. That evidence includes:

From as early as August 2002, the Defendant would say words to the effect of:

“I will hold shares in trust for you.”“You are going to be a wealthy woman when you get your shares.”“You will be able to buy a house for you and the boys with the money that you willreceive from the shares.”

At various times when the Defendant asked me for money, before the float of Unilifehe would say words to me to the effect of:

“I need your money so that I can buy shares in the company before it floats. I am ableto buy shares at the promoter’s rate of four cents per share.”

Since floating Unitract has changed its name again, to Unilife Medical SolutionsLtd. It is Unitract that the plaintiff refers to as “Unilife”.


[39] She says that at the time of handing over the cheque for $10,000 inSeptember 2002 he said to her:

I am holding the shares in trust for you and once the company is floated, I will transferthe shares to you.

The defendant at about October 2002 rarely talked of anything else other than thesubject matter of Unilife shares, as the company was about to float. The defendant oftensaid words to the effect:“You will be a rich woman when you get your $40,000.00 worth of shares. You will beable to buy a house.”

Later on in about the middle of November, he said to me words to the effect of:

“I made five million dollars last Friday from the shares.”

[40] She also says that:

When discussing the shares with me, the defendant would always say, “I am holdingthese in trust for you Louise”.

and:

The defendant had said to me about his calculation of about $40,000 in loans to him,that “I will be able to get in before the float and buy shares at four cents each”.

[41] In November 2002, the defendant and plaintiff moved to a differentresidence, at unit 25, The Links, 76 Broken Head Rd, Byron Bay. These premiseswere rented, with the defendant still paying the rent.

[42] On 6 January 2003, the plaintiff and the defendant separated.

[43] Pursuant to leave to give oral evidence on a topic that her affidavit of28 August 2002 had dealt with in inadmissible form, the plaintiff said that aroundChristmas 2002 she received a $20,000 payment from her former husband.In early January 2003, she says that she had a conversation with the defendant asfollows:

He said … “I want you to think about a deal I’m going to propose to you. If you giveme the $20,000 I will, in turn, give you shares at 90 cents a share and I want you to thinkabout this because it is a good deal for you as the shares are trading at a dollar twentyso you are making a profit” and he brought up that conversation a number of times, whata deal it was for me, telling me — he said — Alan said, “you know this is a good dealfor you”.

Q — And when you say he brought up that again was that in person or over thetelephone? A — Stressed in person but it was reiterated over the phone.

[44] Mr Riordan’s notes of a session with the plaintiff on 5 February 2003include the entry:

$40,000

[200,000 shares] In Alan’s name until he can sell

[July 2003/4] …? Anytime as needed?

Also on 5 February 2003, immediately below the note just quoted, Mr Riordanwrote, “Tax issues? Centrelink issues?”

[45] Mr Riordan’s evidence concerning the topic of that note was:

Louise is concerned about money, amongst other issues she is bringing to this session,roughly, I am not sure if it was 200 or more than that, but at least around 200,000 shares.She is saying in Alan’s name until she can sell in July 2003/4 anytime as needed. I am


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not sure what the tax issues are or Centrelink issues are if I cash these shares or achieveownership of these shares in that tax year. That is one of her worries. That is what Ithink it means.

Q — Does the figure $40,000 bring back any memory in calculation of the 200,000shares? A — It is obvious to me that Louise associates — she checks in with me thatthe $40,000 equates to 200,000 shares held in Alan’s name on her behalf. That is whatshe is saying to me in this session.

[46] Mr Riordan had earlier explained:

Q — Can I just ask you were the tax issue and Centrelink issues concerning LouiseWhite? A — Yeah, recently separated single mum, wondering how she’s going to gether life together and considering tax and Centrelink issues, around when she has accessto it is written 200,000 shares in July.

Q — I think the dates after July are 2003/2004? A — Yes, she was working out whatearnings were in the tax years in 2003/2004. I remember in this and other sessionssaying go to your accountant and get advice about this. Obviously it is of stress, it iscausing anxiety for you and it an issue you need to take to the appropriate professionaladvisor.

[47] I accept that evidence of Mr Riordan.

[48] After the plaintiff and the defendant had separated, but prior to 17 March2003, the plaintiff wrote the defendant an undated letter that asked the defendantfor assurance that he would honour an agreement she said he had made in anearlier session with Mr Riordan, concerning payment of the first year’s rent, andfor the next 2 years half the rent, providing particular types of benefits for theboys, and paying for her ongoing sessions with Mr Riordan. She said:

Please re-affirm your stated commitment as I need asurety [sic] & a basis for budgetingand planning right now.

[49] That letter says nothing about shares held on trust, or any alleged loans,but I do not regard that as something that detracts from the plaintiff’s case. Theletter had one topic, namely seeking reassurance about a particular agreementpreviously made about the defendant assisting with her ordinary householdexpenditure, when there was an immediate need for the plaintiff to know whatincome would be available to her for those purposes in the immediate future.

[50] Some indication of the state of relations between the plaintiff and thedefendant at that stage comes from the ending of the letter:

Maverick & Jax send their love.

Hoping you are well and not too jetlagged.

Love to you always.

Louise X.

[51] At the plaintiff’s request, the defendant agreed to attend one counsellingsession with Mr Riordan. That counselling session took place on 17 March 2003,at Mr Riordan’s office. Early in the session he asked each to state their goals forthe session. For the plaintiff, he recorded: “clarity re Alan’s $ support postseparation and question of shares held by him that are ‘mine’: no security. nopaperwork”. His note about the defendant’s goal was: “Ditto re above”, plus atopic relating to the emotional side of their relationship. He records, at one stage,the plaintiff saying “want support with boys, rent, ‘transition’” and “what youowe me and when I can get it”.

[52] His notes of 17 March 2003 also record:


[Alan] + [Louise] agree roughly on a few issues:

1. $25,000 shares to each boy from July ‘03

2. [Louise] to ring [Alan] for big bills with boys up to Uni age. Then [Alan] dealdirect with boys,

3. [Alan] agrees — 100% rent up to 450 p.w. 1yr + 50% rent two further years.

4. medical tuition sports education expenses [Alan] happy to contributesignificantly.

[Louise] “Nervous re no security with my shares” “They are in your name — I have nosecurity. What if you die?”

[Alan] Agrees to write letter indicating what shares are held in trust for Louise. Explainsavailable in August ‘03.

[53] Mr Riordan amplified that note in oral evidence, saying:

Louise was concerned there was no paperwork with shares held by him on her behalf.That is one of Louise’s major goals, was for that session to clarify that and achievepaperwork on that.

[54] The defendant gives a lengthy account, extending over approximatelythree pages of his affidavit, of the events of 17 March 2003. It is to the followingeffect. The plaintiff was very distraught through the meeting with Mr Riordan,and the defendant was also very upset. The plaintiff at various times expressedconcern that he would abandon her and not pay her rent or help her, and that shewould end up on the street. He tried to reassure her, by pointing to the way thathe had provided for her during the relationship. Mr Riordan then said “yes butwhat happens if you die, she has nothing in writing to give her security that therent would continue to be paid for a reasonable time”. Up to that time there hadbeen no mention of Unitract shares. The defendant said that he would be willingto put something in writing to give the plaintiff some level of comfort.Mr Riordan then suggested “why not agree to issue shares to cover the level offunding that would give Louise some comfort if you died? Then the executor willhave something in writing.” The defendant enquired how many shares theplaintiff would expect, to which Mr Riordan said “Well I understand Louisecontributed some money to the household while you were in a relationship, sowhy not use the amount of shares that are of similar value to that?” When thedefendant said he had no record of how much she might have contributed, theplaintiff then said “It’s about $40,000, I estimate it would be approximately222,000 shares”. Mr Riordan enquired whether the defendant would be willing toput that in writing for Louise, and he agreed. The defendant continues:

At that time I was aware that Unilife shares were trading at approximately $0.90 pershare. At the time, however, I was upset, and this conversation was taking place in anemotionally charged atmosphere. I desired to assist the plaintiff with some expenses fora reasonable time given her financial circumstances and apparent distress. For thosereasons, together with the statement to the effect that any document concerning theshares was to be some form of comfort to her, I agreed with this proposal.

[55] The defendant says that he did not calculate the figure of 222,000 shares,and that he adopted that figure because that was the number that the plaintiffsuggested to him. He says he did not consider that he was undertaking any legallybinding obligation, and:

I did not give any thought to the fact that the value of 222,000 at that time was some$200,000, well exceeding the figure given to me as being the approximate total of the


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plaintiff’s contributions. Nor did I consider how the value of those shares mightcompare to the total of my expected future contributions for the plaintiff’s rent and otherexpenses.I was aware, although I cannot recall thinking of it at the time, that I would not be ableto transfer any of my shares to the plaintiff after 1 August 2003 but before 1 November2004 because of the mandatory escrow applying to my shares.

[56] According to the defendant, Mr Riordan virtually dictated the terms of adocument, which the plaintiff signed then and there.

[57] According to the plaintiff, at Mr Riordan’s office:

Alan said — I am holding $40,000 worth of shares at 20 cents a share and $20,000 at90 cents a share — and Alan calculated that — I calculated that to be 222,000 shares.Q — When you used the words “I calculated that to be 222,000 shares” were youreferring to Alan or yourself? A — Alan.Q — At that stage had you paid him the $20,000 that was mentioned there? A — NoI had not.

She says no letter was written at Mr Riordan’s office.

[58] According to the plaintiff, she and the defendant then returned home, to theLinks. There, the defendant said he would not write the letter until she signed acheque for $20,000 over to him. The defendant then wrote out, in the plaintiff’schequebook, a cheque dated 17 March 2003, marked “Please pay cash”, in thesum of $20,000.

[59] The cheque is in evidence, and it is common ground that all of the writingon the face of the cheque, apart from the signature, is that of the defendant. Thecheque butt relating to the cheque is also in evidence. It is entirely in thedefendant’s handwriting, and reads:

17/3/03.Alan.$20,000.

[60] The face of the cheque bears a stamp showing it as being processed by thebank on 18 March 2003. The plaintiff’s cheque account pass sheet also recordsthe cheque as being presented on 18 March 2003.

[61] According to the plaintiff, it was when she had signed and handed over thecheque on 17 March 2003 that the defendant wrote out a document that is ofcentral importance to the plaintiff’s case. That document is undoubtedly in thehandwriting of the defendant, and signed by him. Now, it reads as follows:

Louise White,25 THE LINKS.BYRON BAY.NSW 2481 17/3/03.Dear Louise,THIS LETTER IS TO CONFIRM THAT I AM HOLDING IN TRUST FOR YOU222,000 UNITRACT SHARES. THESE SHARES WILL BE TRANSFERRED TOYOUR NAME AND CONTROL, AT ANY TIME THAT YOU REQUEST, AFTER1/AUGUST/2003. IN THE CASE OF MY DEATH, THE ABOVE TRANSFER OF222,000 UNITRACT, TO YOUR NAME, WILL BE AUTHORISED BY MYEXECUTOR, STEVEN SHORTALL.I FURTHER COMMITT TO MAKE AVAILABLE 25,000 UNITRACT SHARES, FORFINANCIAL SUPPORT FOR [AS] EACH [AS] BOTH MAVERICK AND JACKSON,ON OR AFTER 1/AUGUST/2003.[ALAN SHORTALL].


ALAN DENIS SHORTALL.18/3/03.[AS].

[62] The plaintiff says that the defendant wrote that letter when she had justsigned the cheque made out to the defendant for $20,000. She says that asoriginally written, the final sentence included the phrase “for each Maverick andJackson”, that on 18 March 2003 the defendant amended that phrase to read “forboth Maverick and Jackson”, and that on 18 March 2003 he initialled thatalteration, on either side of the “each” that he had crossed out, dated thedocument “18/3/03” at its end, and also initialled that dating. The defendant leftthe original of the letter with the plaintiff, and she has had possession of it eversince.

[63] Mr Riordan, in evidence, denied that he was present when the documentcame into existence, denied that he suggested the wording to Mr Shortall, andsays that the first time he saw the document was when the plaintiff brought aphotocopy of it to his attention, in distress, in about August 2003. He says thatin the course of the counselling session on 17 March 2003 the defendant:

… expressed a sincere desire to offer a generous level of support to Louise whilst shemade a transition into independence as a sole mother.

[64] Mr Riordan says:

My clear recollection in that session, I asked both parties to get independent legalcounsel for any financial agreement they would come to post separation.

[65] After his suggestion, on 17 March, of legal advice:

Q — Was there any response from either of the parties? A — I do recall Alan sayingthat won’t be necessary because he’s CEO or director and he’s got lots of experience inthese matters and they can sort that out for themselves.

Digression regarding procedure

[66] I interrupt the narrative to record here some matters concerning theprocedural history of this case that are relevant to assessments of credit. Theproceedings were begun on 12 May 2006 with the filing of a summons in court,and the seeking of short service of it. An application for expedition was made,that resulted in Young CJ in Eq on 29 September 2006 fixing it for hearing beforeme for 1 day on 24 October 2006. At that stage his Honour noted:

No amendment to the Statement of Claim is proposed. Note that all the evidence is filed.

[67] By that stage, the plaintiff had filed two affidavits-in-chief, one made on11 May 2006, and the other on 28 August 2006. Both affidavits containedmaterial that was clearly inadmissible concerning critical parts of the plaintiff’scase.

[68] At that stage, the defendant had filed only an affidavit that was ultimatelynot read at the trial. On 20 October 2006, after advice from counsel who had onlyrecently been briefed, the defendant swore another, and more detailed, affidavit.

[69] When the matter came on for hearing before me on 24 October 2006, thedefendant sought leave to read the affidavit of 20 October 2006. It was necessaryto seek that leave, because Brereton J, on 25 August 2006, had directed that thedefendant not be entitled to rely, without leave of the court, on any affidavitevidence that had not been served by 21 September 2006. I granted the leave, on


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the basis that it was necessary for the late affidavit to be read to enable the realissues to be decided. That resulted in an adjournment, during which the plaintiffswore, on 31 October 2006, an affidavit in reply to the defendant’s affidavit of20 October 2006. In that affidavit in reply she gave evidence of numerous mattersrelevant to her case for the first time.

[70] As was inevitable as soon as objection was taken, central parts of theplaintiff’s affidavit-in-chief were struck out. I then granted leave for the plaintiffto give evidence on those topics orally. As well, oral evidence was also receivedfrom the plaintiff on some topics on which she had not given affidavit evidenceat all.

[71] Frequently, it is very damaging to the credibility of a plaintiff’s case ifimportant evidence relating to it emerges only late in the course of evidence. Thereason for this is that the court is usually justified in assuming that the legalrepresentatives of a plaintiff embarking on something as significant andpotentially expensive as Supreme Court litigation will properly proof their client,obtain from their client all relevant details of the story relevant to the case, andinclude that material in affidavits-in-chief.

[72] I cannot make that assumption in the present case. The plaintiff’sevidence-in-chief was so clearly inadequate it could not have been properlyprepared. The statement of claim pleads evidence (contrary to r 14.7 of theUniform Civil Procedure Rules 2005 (NSW)), and claims something unknown tothe law, namely an interlocutory declaration. Notwithstanding the assurancegiven to Young CJ in Eq, in the course of the trial the plaintiff sought, and wasgranted, leave to amend her statement of claim in significant ways. At the end ofthe trial the plaintiff sought leave to make yet another amendment to thestatement of claim which leave was refused.

[73] The case was originally set down for 1 day. The first day’s hearingconcluded at 2.30 pm, because of the adjournment that I have mentioned. Whenthe hearing resumed, it continued for a further 3 days. On each of those 3 daysthe hearing concluded after ordinary court hours — at 4.30 pm, 4.50 pm and5.25 pm. Even with those extended hours, the plaintiff’s counsel needed to makehis submissions-in-reply in writing. The plaintiff’s counsel sought to callMr Riordan to give oral evidence, as a witness-in-reply, when on at least sometopics he should have been a witness-in-chief. The evidence of Mr Riordan thatwas really in chief was ultimately received only because the defendant could notpoint to any prejudice in its having been given out of the usual order. In fairnessto the plaintiff’s lawyers, though, I should say that the reason why no affidavitfrom Mr Riordan was filed, was because he felt that his obligations ofconfidentiality to his clients precluded him from giving an affidavit or statementwhen there was no legal compulsion for him to do so. Even taking into accountthat part of the extra length of the trial arose from the defendant’s late affidavit,I have difficulty in seeing how a lawyer who understood what was involved in thecase could have thought it would have been concluded in 1 day.

[74] The plaintiff was cross-examined about why she had not included in anyof her affidavit evidence mention of the defendant asking for $20,000 at any timeprior to the counselling session on 17 March 2003. Her answer was, in substance,that she did not have an answer, and didn’t realise it was important to put it inthe affidavit. I accept that her response is truthful.


Findings on central factual matters

[75] I accept the plaintiff’s evidence in [24] above about the circumstances inwhich the payment of $10,000 was made on 2 September 2002. While thedefendant talked about that $10,000 being “lent”, the conversation makes clearthat what he was proposing was not a “loan” of the conventional type. Rather,what he was proposing was that if she paid him the money, he would in returncause her to have $20,000 worth of shares in Unitract at 20c per share. That isin substance a purchase, even though he called it a loan.

[76] I accept that, possibly at the time of making the advance of $10,000 fromthe Peptech shares, and more likely than not prior to the time of the float on1 November 2002, the defendant told the plaintiff, in substance, that all themoney she had provided to him, which he quantified at $40,000, would be treatedas loans — and that he made clear that what he meant was “loans” of the sametype and on the same basis as he had proposed concerning the proceeds of saleof the Peptech shares. At some stage, and prior to 5 February 2003, the defendanthad stated to the plaintiff the result of the calculation that was involved inapplying that basis to $40,000, namely, that he would hold 200,000 shares in trustfor her.

[77] I do not accept the defendant’s account of the meeting on 17 March 2003,nor his account of how the document sued on came into existence. I accept theevidence of Mr Riordan and the plaintiff on those matters. At Mr Riordan’s office,on 17 March 2003, the defendant clearly stated that the shares he held in trust forthe plaintiff were ones that could be transferred in August 2003.

[78] I am not prepared to accept uncorroborated evidence of the plaintiff aboutthe precise date that particular conversations occurred — she has demonstrated,and herself admits to, some unreliability concerning dates. However, apart fromthe precise dating, I accept that conversations of the general type that she deposesto, about shares (in general), and 200,000 shares in particular, being held in trustfor her, occurred. In general, I find her a credible witness. I also accept that, inthe early months of 2003, the defendant proposed to the plaintiff that if she wouldprovide him with another $20,000 he would hold shares for her on the basis thatthey cost 90c each.

[79] The defendant gave evidence with clarity, precision, and confidence.Unfortunately some of it is inconsistent with other independent evidence that Iaccept. Other parts of it are unusual, and tell the sort of story that requires veryclose scrutiny before it is accepted. In these circumstances, I do not regard hisuncorroborated word as sufficient to discharge an onus of proof, save concerningmatters that, by reference to other established facts, have a very real possibilityof being correct.

[80] The defendant’s evidence (at [54] above) that at 17 March 2003 the priceof Unitract shares was approximately 90c is wrong. On that day, the closing priceof the shares was $1.23. The lowest closing price they had achieved during thewhole of March 2003 was $1.12, on 7 March 2003. By contrast, in January 2003the shares ranged between a closing price of 62c on 2 January 2003 (a day ofcomparatively low trading volumes, hardly a surprise at that time of the year) toa high of 91c on 14 January 2003. On all days bar two in January 2003 their pricewas below 90c. Thus, it seems to me unlikely that the defendant would have said,in January 2003, “it is a good deal for you as the shares are trading at $1.20”, asthe plaintiff contends: at [43] above.


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[81] The shares (which had been offered in the float at 20c) had closed at 24con the first day of listing, 1 November 2002. Thereafter, the trend of share priceswas steadily up. I accept that, before he would sign an acknowledgement ofholding 222,000 shares in trust, he insisted on being paid the $20,000 that wasneeded to notionally pay for the additional 22,000 shares. He actually signed theletter only after he had her cheque for $20,000.

Events after execution of the document of 17/18 March

[82] Relations between the plaintiff and the defendant continued to be cordial,even affectionate, after the letter of 17/18 March 2003 was signed. The defendantcontinued to visit the plaintiff and stay with her from time to time. He took heron a holiday in the Maldives between 30 July and 11 August 2003. That holidaycost him of the order of $40,000, and his itemisation of the expenses suggests itwas quite luxurious. During their stay in the Maldives, the defendant said to theplaintiff words to the effect of:

You are a rich woman now Louise.You will be able to set yourself up in a home for you and the boys when we get back.Trust me Lou, I’ll take care of everything for you.Have you thought about where you would like to buy a house.There is no need to worry about anything Louise, I will sort out the transfer of shareswhen we get home.

[83] After their return, the defendant spoke to the plaintiff about the shares, andsaid words to the effect of:

I will look after things with your shares.

I will make sure that they are transferred to you, you will be a rich woman and can buya house. Trust me.

[84] Soon after their return from the Maldives, the plaintiff asked him totransfer the shares to her, but he did not do so. The following conversationensued:

DEFENDANT: “It’s not the right time to transfer the shares now Louise”.

PLAINTIFF: “But I need these shares as you have promised so that I can sell them.I need this money”.

DEFENDANT: “I can’t transfer the shares to you now, I will give you some money forChristmas”.

[85] That response was not an indication of a permanent inability, or anunwillingness to transfer the shares. Rather, as the plaintiff said in oral evidence,the theme of his reply was “I can’t do it right now, I am too busy, I have too muchgoing on, don’t worry you will get your shares”.

[86] The defendant continued to subsidise the plaintiff’s rental, and pay otherexpenses connected with her and her children, in the way he had said he would.An indication of the state of relations between them is that in September 2003 hegave her a new mobile phone. He responded, on 22 September 2003, to amessage in which she thanked him for it, saying:

I miss you and no matter what we will always be soul mates, in my mind. You still havea large part of my heart in your hands. I miss you.

Love, Alan.

While in the Maldives, though, he had told her he would be taking anotherwoman to his son’s wedding.


[87] On 29 October 2003, an electronic transfer of funds to the plaintiff’s bankaccount occurred, in the sum of $5000, accompanied by the message “love AlanShortall”. On 12 December 2003, another electronic transfer of $5000 was madeto her account, this time accompanied by the message “happy Christmas AlanShortall”. These were amounts additional to the financial benefits he hadpromised in March 2003.

[88] In about the middle of January 2004 the defendant rang the plaintiff andtold her that there would be a newspaper story published which would be criticalof him. He said, “if Ben Hills contacts you, you are to deny everything. I cannottransfer the shares to you now as everyone is watching me”. He also said to her“tell anyone who asks not to sell their shares, the price will probably drop, butit will go up again”. Ben Hills is the journalist who wrote the newspaper story.

[89] On the weekend of 17–18 January 2004 the article that the defendant hadbeen talking about appeared in the Sydney Morning Herald. It was critical of boththe defendant, and of Unitract. It raised allegations that Roger Williamson, whoheld about 24% of the shares in Unitract, was someone about whom very littlewas known or could be found out.

[90] The plaintiff continued to make requests, through 2004, for the transfer ofthe shares.

[91] By January 2005, the plaintiff had discovered that a form of transfer ofshares could easily be downloaded from the Internet. She downloaded one, filledout her own name and address on it, signed it, and posted it to the defendant witha letter saying:

Dear Alan,Here is the form I said I would send down to you for the transfer of my shares. Not sureif you are going to give me the boys their shares as promised or not. I am thinking thatit would be easiest to only go through this process once. But as it really is up to you Iam unsure where I stand on this matter.My account number with Commsec is [account number].I hope you can get to this soon. Also hope your trip to the States was fun. Take care.Love.Louise.

Did the plaintiff say she no longer wanted the shares?

[92] The defendant did not reply in writing to that letter.

[93] He says he telephoned the plaintiff, expressing surprise about her askingfor a transfer of shares. When she reminded him that he had signed a letter forher previously, he says he told her that he had only provided it on the basis thatit would provide some comfort that he would continue to pay the rent and herexpenses for a reasonable period of time, or in case he died. According to him,he said it was never considered to be in any way additional.

[94] He also asserts that the plaintiff then said to him:

My circumstances have changed since I sent the letter and I no longer want anythingfrom you because I am being investigated for social security fraud.

[95] I do not accept any of that evidence of the defendant.

[96] Even after January 2005, the defendant continued to pay certain expensesof the plaintiff. He paid amounts that she debited in the period 21 March–9 April2005, to a Visa Gold Card. He continued to pay fees to Mr Riordan forconsultations the plaintiff had between 26 January and 1 May 2005.


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[97] The plaintiff denies that there was any mention of fraud by Centrelink toher, and denies that she said anything about fraud to the defendant. I accept thosedenials.

[98] She accepts that she “had been queried” by “the Department” (who I taketo be Centrelink), but the only letter she received was one that said “yourParenting Payment Single will stop after 8 February 2005 because you are nowa member of a couple and no longer want to receive this payment fromCentrelink”, and went on to tell her about her appeal rights concerning thatdecision.

[99] Four passages in Mr Riordan’s notes were cross-examined on concerningthis topic of whether the plaintiff told the defendant that she was beinginvestigated by Centrelink for fraud. One of them was his note on 5 February2003 “tax issues? Centrelink issues?”. I have already made findings about thecircumstances of the making of that note at [45]–[46] above.

[100] The second is a note he made on 4 November 2003 “Centrelink notsorted out”. The third is a note made on 15 June 2004 “5 letters from Centrelink”.The fourth is a note made 13 February 2005 “rang Allan — explained beinginvestigated. Don’t want to involve Allan”.

[101] Mr Riordan explains the second and third of these entries by saying:

There was an ongoing issue in counselling with regards to the standing firm andpersistent in order to achieve from the Child Support Agency (CSA) in relation to herex-partner Steve in coming up with the money in, income in terms of support for herchildren.

And;

It reached a head in late 04 with Louise and the Child Support Agency and what —actually, I remember now. It was what Steve was saying he was giving to her, Louise,was far more than what she was actually getting and that affected her Centrelinkpayments. There was some argy bargy with Centrelink which related to her, yeah, thelack of financial support from her partner.

[102] Mr Riordan’s explanation of the note of 13 February 2005 is:

I think that note is saying: I rang Alan. I have explained to him that Centrelink areasking me some difficult questions and Louise is explaining to Alan I don’t want to dragyou into this. That would be a reasonable interpretation.

I accept this evidence of Mr Riordan.

[103] The plaintiff’s evidence, when cross-examined about “5 letters fromCentrelink”, was “it is actually child support agency, not from Centrelink”, thatshe did not write any letters to Centrelink in about January/February 2005, butthat “I went into Centrelink and filled out the appropriate form the day after thegentleman rang me”. I accept that the plaintiff told the defendant, in aroundFebruary 2005, that she had been queried by Centrelink, to which he replied“I can’t transfer them to you now as I don’t want to get mixed up in anyinvestigation”. The plaintiff did not agree that the shares should not betransferred.

A final request for transfer

[104] It is common ground that the plaintiff and the defendant saw each otherin Sydney on the day of Unilife’s annual general meeting, in November 2005.I accept that, after the meeting, the plaintiff telephoned the defendant and askedwhen he would transfer the shares, to which the defendant replied “I will do itfirst thing tomorrow morning”.


[105] He did not do so.

[106] On 15 November 2005, a solicitor who the plaintiff had engaged wrote tothe defendant saying:

Dear Mr Shortall,

Declaration of Trust — Louise White

I act for Louise White who has sought my advice regarding Unilife shares. These sharesare held in Trust by you, and owned beneficially by her in accordance with theDeclaration of Trust signed by you on 18 March 2003.

Pursuant to the provisions of that Declaration, Ms White now requires that you transfer247,000 shares in Unilife to her. 222,000 of these shares she will hold as beneficialowner, and the remaining 25,000 she will hold as Trustee for Maverick and JacksonWhite.

I look forward to receiving a Standard Transfer Form executed in favour of Ms White.

[107] The defendant did not reply to that letter.

Would the plaintiff have sold the shares?

[108] The plaintiff asserts that if she had received the shares in August 2003 shewould have sold them with the exception of $60,000 worth at that time. She saysthat she would have sold them all after the defendant called her in January 2004,and the Sydney Morning Herald article appeared.

[109] Mr Curtin, counsel for the defendant, submits that I should not acceptthat evidence. First, Mr Curtin reminds me that evidence given by a person, aboutwhat he or should would have done if some event in the past had happeneddifferently, needs to be looked at with caution. In Cackett v Keswick [1902]2 Ch 456, a case about a material omission from a prospectus, Farwell J said(at 463–4):

Now, it cannot be enough for a man to swear that he would not have entered into thecontract if he had known something that was concealed from him. It is easy to be wiseafter the event, and many men can honestly persuade themselves when a company hasfailed that they would have been influenced by a circumstance which in all probabilitywould have made no impression whatever on their mind when considering aninvestment or speculation.

[110] Farwell J is not there saying, however, that such testimony should not beaccepted. Rather, he is saying it is not sufficient in itself. He goes on to say(at 464):

… if the Court sees that the fact omitted is of such a nature that it might reasonablydeter, or tend to deter, the ordinary investor from entering into the contract, this issufficient. It is in great measure an inference of fact to be drawn by the Court or a juryfrom the circumstances of the case … It would no doubt be matter of comment if aplaintiff was not called nowadays to swear that the fact omitted would have deterredhim from contracting; but neither his testimony nor his absence is conclusive.

[111] That decision was upheld by the Court of Appeal (the judgmentscommencing at [1902] 2 Ch 471), on grounds that did not depend upon how theplaintiff’s evidence of how he would have reacted in a hypothetical situationshould be treated.

[112] Mr Curtin also reminds me that in Rosenberg v Percival (2001) 205 CLR434; 178 ALR 577; [2001] HCA 18, a medical negligence case concerning failureto warn of a slight but foreseeable risk, McHugh J said (at [26]):


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[26] … human nature being what it is, most persons who suffer harm as the result of amedical procedure and sue for damages genuinely believe that they would not haveundertaken the procedure, if they had been warned of the risk of that harm.

[113] Mr Curtin also points out that Kirby J, in Rosenberg v Percival at [158]referred to his own remarks in Chappel v Hart (1998) 195 CLR 232; 156 ALR517; [1998] HCA 55. There, in considering whether in a medical negligence casethe court should adopt a “subjective” approach to causation of damage whichlooked at what the particular patient’s response would have been had properinformation been given, or an “objective” approach, which looked at the responseof a reasonable person in the patient’s situation, Kirby J said (at [7]):

[7] … The subjective criterion involves the danger of the “malleability of therecollection” even of an upright witness. Once a disaster has occurred, it would be rare,at least where litigation has commenced, that a patient would not be persuaded, in hisor her own mind, that a failure to warn had significant consequences for undertaking themedical procedure at all (where it was elective) or for postponing it and getting a moreexperienced surgeon (as in this case). Yet, these dangers should not be overstated.Tribunals of fact can be trusted to reject absurd, self-interested assertions.[Footnotes omitted]

McHugh J in Chappel v Hart at [32], footnote 64, made similar remarks.

[114] In Seltsam Pty Ltd v McNeill [2006] NSWCA 158 at [115]–[123]Bryson JA, with whom Handley and Tobias JJA agreed, held that evidence by awitness of what he or she would have done, if some aspect of the past hadoccurred differently to the way it in fact occurred, is admissible, though its weightshould be carefully assessed because (at [121]):

[121] … Observations on the limited value, and self-serving and hindsight nature ofevidence of this kind have considerable force.

[115] One objective circumstance that Mr Curtin points to concerns the way inwhich the plaintiff acted concerning some Unitract shares in a superannuationfund that she and her former husband were involved in. That superannuation fundobtained around 520,000 shares in Unitract when it floated. The plaintiff and herformer husband were the trustees of that fund. The former husband made all thedecisions in relation to that fund, and was the sole signatory on the bankaccounts. The plaintiff did not obtain control of the fund by herself untilSeptember 2005. Unitract shares in the superannuation fund were not sold until16 June 2005 (when 130,000 were sold), 10 August 2006 (when a further 378,000were sold) and 11 August 2006 (when 10,500 were sold).

[116] The plaintiff contacted her former husband in January 2004, after theSydney Morning Herald article, and discussed the movement in the share priceof Unitract. However, she did not suggest, or ask, that he sell the shares inUnitract that the fund held. At that time relations between the plaintiff and herformer husband were difficult, and she was reluctant to say anything to him at all.

[117] As well, the plaintiff explains her reason for not asking her formerhusband to sell the Unitract shares as being that the fund bought the shares as along-term investment.

[118] If the defendant had transferred 222,000 shares to the plaintiff in August2003, it cannot be concluded that the plaintiff would have dealt with those sharesin the same way that the superannuation fund dealt with its shares in Unitract.In the last few months of 2003, the situation that the plaintiff was in was that ofa single mother, with two children to look after. While the defendant had said he


would pay the whole of the rent for a year, and half of the rent for 2 years, on herpremises, she was close to the end of the time when his full rental subsidy wouldexpire. She and the defendant had previously discussed a possibility that, whenshe got her shares, she would buy a house for herself and the boys. Housing washer single greatest need.

[119] The price of Unitract shares had trended upwards in the first half of 2003.On 3 January 2003, the first day on which the volume of trades exceeded 100,000in the year, the closing price was 65c. From 9 April 2003, the price wasconsistently above $2, and reached its highest point at $2.93 on 18 August 2003.Thereafter, the trend was down until the end of 2003, but not markedly so — thelowest price achieved in that period was $2.06 on 9 October 2003 (a day whenan unusually large number of shares traded) and in December prices were in arange from $2.23 to $2.55. The appearance of the Sydney Morning Herald articlecoincided with the price dropping from $2.17 on 16 January 2004 to $1.87 on19 January 2004. Thereafter, the trend of prices was down until 17 March (whenit reached $1.35), but the price then recovered somewhat, to $2.12 by 4 May2004. After that, the trend has been continually down. The share price had sunkbelow $1 by 26 October 2004, below 70c by 18 March 2005, below 60c by23 June 2005, below 50c by November 2005, and have continued a generaldownward trend until, on 1 November 2006 the price was 22c.

[120] The agreement between Musgrave and Unitract Pty Ltd (at [10] above)provided for the company to have an issued capital of over 66m shares. Theentire on-market trading history of the company since flotation is in evidence,and suggests that even if a sale of 222,000 shares occurred on a single day, thatwould not have a significantly depressing effect on the share price.

[121] If the plaintiff had received 222,000 shares in August 2003, and the shareprice had been rising from its high on 18 August 2003, I think it possible that theplaintiff may have held onto the shares at least for another few months. Her needfor money would be acute when the defendant’s full rent subsidy ceased, inJanuary 2004. However, when the trend of the price was down, and the timewhen the plaintiff’s need for money would become particularly pressing was onlya few months away, it seems to me likely that if she had received the shares on1 August 2003, or promptly after she first asked for them, she would have soldthem by mid-September 2003. There was some volatility in the market pricearound that time. Two dollars and fifty-five cents is a fair estimate of the amountshe would have received for the shares, taking into account that a small amountof brokerage would have been payable.

[122] I see no reason to reject the plaintiff’s admission that she would not havesold $60,000 worth of the shares at that time. No explanation was given inevidence of where that figure came from, but I note that it is approximately equalto the amount of money that she paid to the defendant in the course of therelationship, and up to 17 March 2003, including the loss made on sale of thePeptech shares. Thus, it is approximately equal to what amounts to the purchaseprice of the 222,000 shares that the defendant agreed to hold on trust.

[123] It seems to me that the plaintiff was likely to have sold such Unilifeshares as she kept within a few days of appearance of the Sydney Morning Heraldarticle. The defendant had told her before the article had published that the shareprice would probably be detrimentally affected. He had also told her that the pricewas likely to recover, but in my view it is likely that the plaintiff would not haveseen herself as able to afford the risk that it might not recover. As well, if the


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share price recovered, there were shares in the superannuation fund that had beenbought at the float price, and that would benefit from any such recovery.

[124] In my view, the remaining shares would be likely to have been sold bythe end of January 2004. Given the range of prices over the period from 19 to30 January 2004, a fair estimate of the price that would have been realised is$1.80 per share.

Part B — intention to enter legal relations

[125] The defendant submits that there was no intention to enter legal relationsin the execution of the document dated 17 and 18 March 2003, or in any of theconversations that immediately preceded its execution.

[126] In assessing that submission, one needs to bear in mind that (as Mr Ryanput it in address) there are “two limbs of the plaintiff’s case, the declaration oftrust and the promised transfer of the shares after the 1 August”. Mr Ryan submitsthat “we have this declaration of trust sitting on top of a contract or promise totransfer the shares for consideration”.

[127] When one considers whether there is an intention to enter legal relations,the objective theory of contract formation has the consequence that thoseobjective circumstances from which an observer would reach a conclusion aboutwhether contractual relations were intended or not, play a significant, andpossibly exclusive, role. The reason for putting it that way is that subjectiveintention can be relevant to whether a contract is formed, in the sense that it canstop what would otherwise be a contract from being a contract — as when thereare words which on their face are sufficient to amount to a contract, but bothparties know that the other does not intend to contract, as happens withplayacting. As well in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd(1985) 2 NSWLR 309 at 330–1 Mahoney JA says that it is “relevant” that partiesintend to enter a contract, although his Honour gives no guidance as to how orby reference to what principles that relevant information is applied.

[128] So far as the type of intention that is needed to create a trust is concerned,the law is settled, for a judge of first instance in New South Wales, by thedecision of the Court of Appeal in Hyhonie Holdings Pty Ltd v Leroy [2004]NSWCA 72. In that case Hodgson JA (with whom Mason P and Handley JAagreed) accepted, at [43] the following statement made by Bray CJ inRe Lamshed [1970] SASR 224 at 239:

It is clear law that despite the unambiguous words of the declaration the trustapparently created by them can be rebutted by evidence of a contrary intention(Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178). But the onus is onthose who seek to prove such an intention and strong evidence is required for thepurpose (In Re Steele [1925] SASR 272). Many cases were cited to me where this hadbeen done successfully. In some of these cases the depositor was alive and gaveevidence of his own intention and was believed (Jolliffe’s case; Starr v Starr [1935]SASR 263). In other cases when the depositor was deceased there was evidence ofspecific declarations made by him during his life time (Winter v Grady (1921) SR(NSW) 686 at 691), though sometimes these related to the interest only and the truststood as to the principal (Kauter v Hilton (1953) 90 CLR 86; Re Armstrong (Deceased)[1960] VR 202 at 206). And in some cases the trust was held to be rebutted after thedeath of the depositor by evidence entirely or largely circumstantial (In Re Appleby’sEstate (1930) 25 Tas LR 126; Re McGuire, Deceased (1937) 41 WALR 120; Teasdalev Webb (1940) 57 WN(NSW) 151; Abbot v Miles (unreported, Supreme Court of SouthAustralia, Napier, CJ, 12 May 1952); Jeffrey v Miles (unreported, Supreme Court ofSouth Australia, Mayo J, 10 December 1952).


[129] In other words, so far as declaration to create a trust is concerned, it is thesubjective intention of the settlor that is critical. Even so, frequently thesubjective intention is ascertained, as a matter of evidence, by inference fromobjective circumstances.

[130] In my view, there was both an intention to contract, and an intention todeclare a trust, in the present case.

[131] During the relationship, the defendant had been particularly generous tothe plaintiff. Even though it was in October 2002 that they decided to separate,they did not actually separate until January 2003, and in the period beforeseparation they discussed in some detail, and with assistance from Mr Riordan,what their future relations would be, including financial relations. It was duringthat period that the float of Unitract occurred. The evidence provides no basis forbelieving that the defendant’s view was anything other than that the companywould be a success. There is nothing unusual in the defendant putting to theplaintiff the proposition that he would treat the money that she had caused to beinvested in Peptech shares as a loan to him, in return for which she would havesome Unitract shares. Throughout the relationship, the plaintiff had beensensitive about the fact that she could make no financial contribution. Thedefendant had said to her “your place is in the home Louise. It is your job to stayat home”, and “if you get a job, it will be the end of our relationship”, but shewas still concerned that she was not making a financial contribution.

[132] Even though he had, before they actually separated, made promises to herabout providing her with future support, by the time she wrote the letter referredto in [48] above the plaintiff was apprehensive about her financial future, andwanted a more solid assurance. I see nothing unusual, when the time came forthem to talk about how they would separate their lives, in the defendant agreeing,in substance, that the amounts that she had given him in the course of therelationship would be treated as loans (with some rounding up of the total of thesums paid), and applied in the acquisition, at a favourable rate, of shares inUnilife. Indeed, agreeing to wind up their financial affairs on that basis wasconsiderate and sensitive on his part, and it allowed him to confer a benefit on herin a way that did not yet again draw attention to her lack of financial resources.

[133] An agreement to provide the shares was confirmed in substance in frontof Mr Riordan, in a session where they had both stated, at its outset, that theyshared a goal of arriving at “clarity re Alan’s $ support post separation andquestion of shares held by him that are ‘mine’”. That was in a context where theplaintiff said one of the problems about them was “no security. No paperwork”.Mr Riordan says that at that meeting the defendant:

… expressed a sincere desire to offer a generous level of support to Louise whilst shemade a transition into independence as a sole mother.

[134] Even though there was agreement in principle on some of the topics thatwere discussed at the meeting — the various periodical payments that thedefendant would make, and assistance with particular types of bills that he wouldprovide — the plaintiff did not seek, and the defendant did not offer, any writtenagreement concerning those topics. However, concerning the shares, thedefendant agreed “to write letter indicating what shares are held in trust forLouise. Explains available in August ‘03”.


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[135] The defendant gives evidence, which seems to me inherently likely, that“I had, in my business career, become aware of trusts”. He accepts that hisbusiness experience “would include the meaning of the word trust in terms of itslegal significance”.

[136] On 29 September 2002, he had written a letter to the architect that he hadengaged in connection with the Cooper’s Shoot house, Mr Ian McKay. It said:

Dear Ian,Further to our recent conversation and also refering to your invoice 19/02.I wish to confirm that 200,000 shares in the company Unitract Ltd, soon to be listed onthe ASX, will be held in trust for you. These shares will be tradable by you at any timeafter the listing. This document is to also acknowledge the transfer of title of the200,000 Shares in Unitract to you. A deed of execution will be issued to you in the nottoo distant future, confirming your right and entitling you to execute the sale of suchshares at a time of your choice. I hope that this meets with your approval.

[137] I infer that this is a letter that the defendant drafted without legalassistance. It shows an understanding of one of the common features of a trust,namely the right of the beneficiary to call on the trustee to transfer the trustproperty, and the ability of the beneficiary to sell the shares held on trust whensuch transfer has occurred.

[138] The first sentence of the document the defendant signed on 17/18 March2003 on its face is clearly indicative of an intention to hold 222,000 shares ontrust. On its face it is not itself a declaration of trust made for the first time, butrather a confirmation that a trust already exists. It is unnecessary to decidewhether any of the conversations that the plaintiff and defendant had prior to oron 17 March 2003 are themselves declarations of trust — the letter is on its facea clear statement of intention that thenceforth 222,000 shares were held on trust.

[139] When the letter says that the transfer will be authorised by thedefendant’s executor if the defendant were to die, that is a powerful indication ofan intention to enter legal relations, as an executor can part with property of adeceased only for purposes of administration, to give effect to a provision of thewill, or in discharge of a legally enforceable obligation that the deceased hasentered during his lifetime. It is only the last of those possibilities that couldapply here. “Achieving paperwork” concerning the shares was one of theplaintiff’s stated objectives at the counselling session. A written statement of apurely moral obligation is of little use while the person making the statement isalive, and no use if that person has died (except possibly as an admission relevantin Family Provision Act 1982 (NSW) proceedings — but that possibility was notone that these parties had in mind).

[140] That the defendant left the letter with the plaintiff is also indicative of anintention to enter legal relations.

[141] I do not accept the defendant’s evidence that he did not intend to declarea trust, or that he did not intend to enter into a binding obligation to transfer222,000 Unitract shares to the plaintiff at any time she requested after 1 August2003.

[142] Part of what the defendant told the plaintiff, both at the counsellingsession with Mr Riordan and previously, was that the shares would be able to betransferred after 1 August 2003. It was in that context that the plaintiff paid$20,000 in return for an extra 22,000 shares. In my view there was a contractualobligation for the defendant to transfer 222,000 shares after 1 August 2003, whenthe plaintiff requested.


Part C — the breach of contract case

[143] The contractual requirement to transfer the shares upon request, after1 August 2003 was one in which, from the nature of the subject matter of thecontract, the common law would have regarded time as essential. Listed sharesin a newly listed company with no established business operations are the sort ofthing whose price can be quite volatile: compare Claydon v Green (1868) LR3CP511; Tadcaster Tower Brewery Co v Wilson [1897] 1 Ch 705 (sale of licensedpremises as a going concern); Harrington v Browne (1917) 23 CLR 297; 24 ALR1; [1917] HCA 36 (sale of livestock); K E Lindgren, Time in the Performance ofContracts, 2nd ed, Butterworths, Sydney, 1982, p 49–50.

[144] The defendant breached his contractual obligation to transfer 222,000shares in Unitract to the plaintiff upon her request. For the purposes of assessingdamages for that breach of contract, it does not matter whether the defendant everdeclared a valid trust over 222,000 Unitract shares. Nor does it matter whether allthe shares that the defendant held were, on 1 August 2003, subject to a restrictionon transfer — the shares that he promised to transfer were 222,000 Unitractshares, not 222,000 Unitract shares that were subject to a restriction on transfer.The plaintiff did not know, on 17 March 2003, that the shares of which thedefendant was the holder were the subject of a restriction on transfer until1 November 2004. (Indeed, she did not know that they were subject to arestriction on transfer of any kind, just that she could not have the shares until1 August 2003.) Nor does it matter whether Roger Williamson held any shares inUnitract on trust for the defendant, that the defendant could have used to transfershares to the plaintiff, or sold to acquire other Unitract shares in the market.

[145] The measure of damages for breach of contract is that sum of money thatwould place the plaintiff into the position she would have been in if the contracthad been performed.

[146] The plaintiff never articulated precisely what she meant when she saidthat, if the shares had been transferred to her, she would have sold them all“except for $60,000 worth”. The only realistic meaning, it seems to me, is$60,000 worth of shares, at the unit value that the shares had around the time oftransfer. The only other alternative is shares that had a cost price to the plaintiffof $60,000 — but that would be all of the shares, and that is clearly not what shemeant.

[147] At the price of $2.55 per share that I have adopted in [121] above,$60,000 worth of shares equates to approximately 23,530 shares. Thus, if thedefendant had performed his agreement, the plaintiff would have sold 198,470shares at $2.55 (thereby receiving $506,098) and a further 23,530 shares at $1.80(thereby receiving $42,354). The total loss she has suffered in consequence of thedefendant’s breach of contract is $548,452.

Part D — was there a valid trust?

[148] In case the Court of Appeal decides that I was mistaken in concludingthat there was a valid contract that had been breached, I turn now to considerwhether, even if there had been no contract between the plaintiff and thedefendant, there was nonetheless a valid trust.

[149] There is no doubt that a share can be held on trust. Lord Shaw said inLord Strathcona Steamship Co Ltd v Dominion Coal Co Ltd [1926] AC 108at 124:


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The scope of the trusts recognised in equity is unlimited. There can be a trust of achattel or of a chose in action, or of a right or obligation under an ordinary legalcontract, just as much as a trust of land.

[150] At the time the letter of 17/18 March 2003 was written the defendant wasregistered as the holder of 1.5m ordinary shares in Unitract. Mr Curtin submitsthat it is impossible to have a trust of some only of the shares of a particular classregistered in the name of a particular shareholder.

[151] In Kauter v Hilton (1953) 90 CLR 86 at 97 Dixon CJ, Williams andFullagar JJ reiterated:

… the established rule that in order to constitute a trust the intention to do so must beclear and that it must also be clear what property is subject to the trust and reasonablycertain who are the beneficiaries.

Those “three certainties” that are necessary for the existence of a trust arise fromthe sort of thing that an express trust is.

[152] Mr Curtin submits that in the present case trust property is not adequatelyidentified by saying that it is 222,000 of the 1.5m shares that the defendant heldin Unitract. Rather, the defendant submits, before one can identify the propertywith certainty, it is necessary to be able to state which 222,000 shares were heldon trust, and which were the remaining shares that were not held on trust.

Hunter v Moss

[153] On 21 December 2003, the English Court of Appeal (Dillon, Mann andHirst LJJ) delivered an ex tempore judgment in Hunter v Moss [1994] 3 All ER215; [1994] 1 WLR 452. That case concerned a company that had 1000 issuedshares, all of one class. The defendant held 950 of those shares. The Court ofAppeal treated the trial judge as having in substance found that the defendant haddeclared that he held 50 of those 950 shares on trust for the plaintiff. The courtdid not accept a submission that that purported trust was ineffective because itssubject matter was uncertain. Thus, Hunter v Moss is directly against thecontention that Mr Curtin puts.

[154] However, Mr Curtin points out that, as a decision of the English Court ofAppeal, Hunter v Moss is not binding on me, and is useful only to the degree ofthe persuasiveness of its reasoning: Cook v Cook (1986) 162 CLR 376; 68 ALR353; 4 MVR 161. He submits that the reasoning in Hunter v Moss is notpersuasive, and the conclusion it arrived at mistaken in principle.

The reception accorded to Hunter v Moss

[155] Very promptly after the decision in Hunter v Moss was delivered,Professor Hayton (as his Honour then was) criticised it as erroneous: D J Hayton,“Uncertainty of Subject-Matter of Trusts” (1994) 110 LQR 335.Professor Hayton later repeated that criticism in other publications: Underhill andHayton, Law of Trusts and Trustees, 16th ed, Butterworths, London, 2003pp 78–9; Hayton and Marshall, Commentary and Cases on the Law of Trusts andEquitable Remedies, 12th ed, 2005, paras 3–82 to 3–85.

[156] Professor Hayton is not the only critic of the decision. Professor Birks, inan article predominantly devoted to the Privy Council decision in Re GoldcorpExchange Ltd (in receivership) [1995] 1 AC 74; [1994] 3 NZLR 385 says inpassing, “One inference is that the Court of Appeal’s decision in Hunter v Mossmust be wrong”. (“Proprietary Restitution: An Intelligible Approach” (1995) 9(2)Trust Law International 43, at p 45.) H A J Ford and W A Lee, Principles of the


Law of Trusts, Law Book Co, 1990, pp 4–4054 to 4–4055 in para [4130] acceptsProfessor Hayton’s criticisms, at least in a situation where no value has beengiven for the purported creation of the trust. Ockelton, “Share and Share Alike?”[1994] 5 CLJ 448 criticises Hunter v Moss, saying, at p 450, “My claim toownership, whether legal or beneficial, is a nonsense unless I can say what it isthat I own, and, in consequence, that you don’t”. Hunter v Moss is also criticisedin P J Clarke, “Land Law and Trusts” in All ER Rev 1994 at pp 249–51.

[157] J D Heydon and M J Leeming, Jacobs’, Law of Trusts in Australia,7th ed, Butterworths, 2006 at [523] says:

… if there is no property upon which the trust can take effect, or if it is so described bythe settlor that it cannot be identified, there can be no trust. For example if a settlorleaves a $1000 to A and requests that if anything of it remains at A’s death, it be left tothe Sydney Hospital “what remains of it” is too vague a description to enable the courtof enforce any trust in respect of it. [citations omitted] Likewise, where the subjectmatter is an undifferentiated portion of a parcel of shares (Herdegen v FederalCommissioner of Taxation (1988) 84 ALR 271), or of a deposit in a bank account(Re Appleby’s Estate (1930) 25 Tas LR 126).

[158] In that same paragraph, Jacobs refers to Hunter v Moss as a “stronglycriticised decision”. The same passages appeared in Jacobs, 6th ed (1997)at [522].

[159] However, the decision in Hunter v Moss has its defenders. J Martin,“Certainty of Subject Matter: A Defence of Hunter v Moss” [1996]The Conveyancer 223 deals with some of the criticisms of Hunter v Moss in afashion Martin substantially repeats in Hanbury & Martin, Modern Equity,17th ed, para 3–023. Support also comes from Professor Goode in “AreIntangible Assets Fungible?” [2003] LMCLQ 379, and from S Worthington,“Sorting Out Ownership Interests in a Bulk: Gifts, Sales and Trusts”, [1999]JBL 1, at 13–21. Hunter v Moss was relied on without criticism in S Worthington,“Proprietary Remedies: The Nexus Between Specific Performance andConstructive Trusts” (1996) 11 JCL 1 at 22.

[160] G E Dal Pont and D R C Chalmers, Equity and Trusts in Australia, LBCInformation Services, Sydney, 3rd ed, 2004, para [16.65] supported Hunter vMoss, concluding that specific items need not be identified or separated from anypre-existing bulk held by the settlor where intangibles such as shares, money ordebt are the subject matter of the trust. The discussion of Hunter v Moss inMoffatt, Trusts Law Text and Materials 4th ed, 2005 at pp 166–7 appearsfavourable to Hunter v Moss.

[161] Lewin On Trusts, 17th ed, (2000) at pp 3–06 does not say outright that thedecision is wrong — rather that it “should perhaps be treated with reserve”, andthat:

Until the question is considered again by the Court of Appeal, however, the safestcourse must remain precision, and segregation of the settled assets. Alternatively, sharescan easily be given to the trustees by transfer and delivery of the certificate.

[162] T Villiers, “Certainty of Subject Matter in Trusts: The ControversyContinues” (1998-9) 9 Kings College LJ 112 is also cautious without beingoutright condemnatory. J D Heydon and P L Loughlan, Cases and Materials onEquity and Trusts, 6th ed, Butterworths, Sydney, 2002, p 520 refer to Hunter vMoss with no hint of criticism.


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[163] The decision has been followed by Neuberger J in Re Harvard SecuritiesLtd (in liq) [1997] 2 BCLC 369. As a first instance judge in the English judicialhierarchy, Neuberger J would in any event be found to follow Hunter v Moss.It has also been followed by Yuen J in the Court of First Instance, Hong KongSpecial Administrative Region, in Re CA Pacific Finance Ltd (in liq) [2000]1 BCLC 494.

[164] An application for leave to appeal to the House of Lords from thedecision in Hunter v Moss was dismissed. The dismissal of that applicationoccurred on 29 March 1994: Hunter v Moss [1994] 1 WLR 614(Lord Templeman, Lord Goff of Chieveley and Lord Woolf). Some academiccommentators have pointed out that this dismissal was before the Privy Councilgave its decision in Re Goldcorp Exchange Ltd, on 25 May 1994. However, thedismissal was after the argument in Goldcorp had concluded, on 30 November1993. While the advice of the Privy Council in Goldcorp was delivered byLord Mustill, who was not a member of the appeal committee that dismissed theapplication for leave to appeal in Hunter v Moss, Lord Templeman was a memberof the board in Goldcorp, and also of the Appeal Committee that dismissed theapplication for leave to appeal in Hunter v Moss.

[165] No Australian court appears to have considered the decision, or to havedecided the question with which it deals. In those circumstances, I must considerthe matter on the basis of general principle.

Is the reasoning in Hunter v Moss persuasive?

[166] In this part of the judgment I will refer to pages in Hunter v Moss by theirpagination in WLR. The part of the judgment in Hunter v Moss dealing with thepresent point runs from 457B to 459F. It starts uncontroversially by recognisingthat

• a trust requires certainty of subject matter;• a trust of personalty can be created orally;• if a settlor shows that he intends to create a trust by transferring property

to someone else to hold on trust, that will not be construed as anintention for the settlor himself to hold that property on trust;

• the maxim that equity will not perfect an imperfect gift has noapplication if there has been an effective voluntary declaration of trustof property that the settlor already holds; and

• a settlor who said “I declare that I hold 50 of my shares on trust for B”,without indicating what was the company whose shares he was talkingabout, would not have adequately identified the property that heintended to be the subject of the trust.

The analogy of specific legacies of shares

[167] Next, in Hunter v Moss at 457–8 Dillon LJ noted that a specific bequest,of a particular number of shares in a named company from a larger holding ofshares that the testator had in that company, was one that the testator’s legalpersonal representatives would be bound to carry into effect: In Re Clifford[1912] 1 Ch 29; In Re Cheadle [1900] 2 Ch 620. That is clearly good law.

[168] But Professor Hayton, at (1994) 110 LQR 335 at 338 points out that:

… there is a crucial difference between such a testamentary bequest, where undoubtedlythe testator has effectively divested himself of his legal and beneficial ownership, andan inter vivos declaration of oneself as trustee for another, where the disputed questionis whether or not the settlor has effectively divested himself of this beneficial ownershipin specific property.


[169] The crucial difference, according to Professor Hayton is:

It is elementary that a bequest is a perfect gift that is completed by the testator’sdeath. Thereupon, certain property, namely the testator’s whole estate, passes to theexecutor, who has full ownership without distinction between legal and equitableinterests therein, subject to fiduciary obligations to administer it by paying debts,expenses, taxes, etc, and then implementing the executory trusts of the testator to theextent that there is sufficient property left to satisfy such trusts. The intendedbeneficiaries only have an equitable chose in action until the executor has completed theadministration of the estate: Commissioner for Stamp Duties v Livingston (1965)AC 694.

[170] While that analysis of the position of the beneficiary in anunadministered deceased estate is impeccable, it does not go on to ask “yes, butwhat happens once administration is complete?” It will, of course, depend uponthe precise terms of the will in question, but at least sometimes a will willcontemplate that a specific asset be held, once administration is complete, by theexecutor in a new capacity as trustee. If there were to be a legacy of “200 of my500 shares in X Pty Ltd to A when he reaches 21, and the remaining 300 to Bwhen A reaches 21”, and if all executorial duties were complete well before Areached 21, would such a gift fail if the executor did not, before administrationwas complete, separate the shares into two parcels of 200 and 300 respectively?

[171] Of course, if Hunter v Moss was incorrectly decided, the solution to thatproblem may be to say that until the shares had been divided into the two parcels,the executorial duties were not complete. But that solution to the problem mightnot sit well with the law concerning assent to specific legacies.

[172] In George Attenborough & Son v Solomon [1913] AC 76 at 82–3Viscount Haldane LC said that an executor:

… is appointed by the will, but then, by virtue of his office, by the operation of law andnot under the bequest in the will, he takes a title to the personal property of the testator,which invests him with the plenum dominium over the testator’s chattels. He takes that,I say, by virtue of his office. The will becomes operative so far as its dispositions ofpersonalty are concerned only if and when the executor assents to those dispositions.It is true that by virtue of his office he has a general power to sell or pledge for thepurpose of paying debts and getting in the money value of the estate. He is executor andhe remains executor for an indefinite time … The office of executor remains, with itspowers attached, but the property which he had originally in the chattels that devolvedupon him, and over which these powers extended, does not necessarily remain. So soonas he has assented, and this he may do informally and the assent may be inferred fromconduct, the dispositions of the will become operative, and then the beneficiaries havevested in them the property in those chattels. The transfer is not made by the mere forceof the assent of the executor, but by virtue of the dispositions of the will which havebecome operative because of this assent.

[173] Other authority that an assent may be informal is Wise v Whitburn [1924]1 Ch 460 at 468–9. In keeping with the law that an assent can be informal, anassent can be in general terms, such as (where livestock were running on aparticular rural property called Newlands) to “the stock at Newlands”: Cramptonv Schmich (1904) 4 SR (NSW) 121. Further, it is possible for an executor toassent to a particular legacy, and thereby become trustee of the subject matter ofit, before all tasks of administration relating to the estate as a whole have beenperformed.


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[174] The remarks of Viscount Haldane in Attenborough v Solomon concernedspecific legacies of chattels. Chattels can include both corporeal chattels andchoses in action: Robinson v Jenkins (1890) 24 QBD 275 at 279; Rees v Green[1966] 1 WLR 1378 at 1383. However the great width of meaning that the word“chattels” can have makes it all the more important to consider the particularcontext in which it is used to decide whether, in that particular context, it bearsthe full width of meaning of which it is capable: Re Exmouth’s Annuity[1925] Ch 280 at 285 per Eve J.

[175] Barwick CJ, Mason and Murphy JJ in Easterbrook v Young (1977)136 CLR 308 at 320; 13 ALR 351 at 360–1 put it more generally than ViscountHaldane had done:

… so soon as the executor by use of his executorial powers has completed his tasks andassented to the benefactions, the testator’s will begins to operate and the powers of atrustee are activated in relation to the property then subject to the terms of the will.

[176] If that general proposition were right, if there were to be a legacy to aparticular person of a specified number of shares out of a larger holding, it is hardto see why, once the executor assented to the legacy, he would not thereafter holdthat number of those shares upon trust for the legatee. However, ViscountHaldane’s remarks in Attenborough v Solomon were made in a context where hisLordship was considering a legacy of corporeal chattels, the difference betweena specific legacy of a chattel and a specific legacy of a chose in action was notof any importance in Easterbrook v Young, and argument about the possibility ofan assent to a legacy of part of a holding of shares was not at the centre of thedebate before me. In those circumstances, I prefer not to rest a conclusion aboutthe validity of the trust involved in the present case on a consideration of howsuch a legacy operates once administration concerning it is completed.

Analogy of the inter vivos gift of shares

[177] Another analogy that Dillon LJ drew on in Hunter v Moss, at 458, is thecircumstance in which an effective gift inter vivos can be made of the equitabletitle in some of a parcel of shares. His Lordship said:

… if a person holds, say, 200 ordinary shares in ICI and he executes a transfer of50 ordinary shares in ICI either to an individual donee or to trustees, and hands over thecertificate for his 200 shares and the transfer to the transferees or to brokers to giveeffect to the transfer, there is a valid gift to the individual or trustees/transferees of the50 shares without any further identification of their numbers. It would be a completedgift without waiting for registration of the transfer. (See Re Rose (decd), Rose v IRC[1952] Ch 499; [1952] 1 All ER 1217; [1952] Ch 499.) In the ordinary way a newcertificate would be issued for the 50 shares to the transferee and the transferor wouldreceive a balance certificate in respect of the rest of his holding. I see no uncertainty atall in those circumstances.

[178] Re Rose did not concern the type of fact situation postulated by Dillon LJ.Rather, it concerned the execution of two transfers of a specific number of shares,each identified in the transfer by their individual identifying numbers (at 500 and501 of [1952] Ch 499), and duly stamped: at 506. The two transfers, togetherwith “the relative share certificates” (at 514, 515) were delivered to the intendingdonee. It was in that situation that the Court of Appeal held that there had beenan effective transfer of the beneficial interest in the shares prior to the transfersbeing registered.


[179] In these circumstances, in Re Rose is not sufficient to establish that thetransfer of 50 ordinary shares in ICI that Dillon LJ is contemplating would be acompleted gift before the individual identifying numbers of the shares werewritten into the transfer form.

[180] The High Court, in Corin v Patton (1990) 169 CLR 540; 92 ALR 1 statedby majority, though strictly obiter, that there can be an effective voluntaryequitable assignment of property transferable at law when the donor has doneeverything that only the donor has the power to do to transfer the legal estate,even if actions remain undone that lie within the power of the donor to do toadvance the transfer but that can equally well be done by someone else. Seeper Mason CJ and McHugh J at CLR 558–9 and 582; ALR 13 and 30 perDeane J. R P Meagher, J D Heydon and M Leeming Equity Doctrines and

Remedies, 4th ed, Butterworths, Sydney, 2002, para [6–155] expresses the view(with which I respectfully agree) that “overwhelmingly but perhaps notconclusively” Australian authority now supports the view of Griffith CJ in Anning

v Anning (1907) 4 CLR 1049; 13 ALR 709; [1907] HCA 13 that has thus beenaccepted by the majority in Corin v Patton. That view is consistent with thedecision of the English Court of Appeal in Re Rose, because in Re Rose it wasonly necessary to decide whether the transfer of shares was effective at a timewhen the only step remaining undone was for the company to register thetransfer.

[181] Another problem with Dillon LJ’s analogy of the ICI shares is that theprinciple upon which Re Rose was decided was that the transfer was valid inequity when the transferor had done everything in his power to transfer the legaltitle to the shares. If the company whose shares were sought to be transferred hadissued numbered shares, it would depend upon the constitution of the companyconcerned, and any applicable rules of the general law, whether an intendingtransferor was required to identify the particular numbers of shares that hewished to transfer before the company could register a transfer of part of hisshareholding. If, in the example being considered by Dillon LJ, the constitutionof ICI required a transferor of part of a shareholding to identify the individualidentifying numbers of the shares being transferred, that principle (as clarified inCorin v Patton) suggests that there would not be a valid inter vivos gift in thecircumstance being considered by Dillon LJ. Even if the handing over of atransfer of a particular number of shares, that did not state the individualidentifying numbers of those shares, was construed as conferring on the intendedtransferee an authority to fill in the blank in the form, it would still be thetransferor (by his agent, the transferee) who identified the particular shares thatwere intended to be transferred, and thus carried out the last step necessary to bedone to transfer the equitable title to those shares.

[182] Of course, if the constitution of ICI did not require the transferor to statethe individual identifying numbers of shares intended to be transferred, or if theshares involved did not have individual identifying numbers at all, the situationmight be different. Whether there had been a valid gift of part of the shareholdingof an intending donor would, presumably, depend on the facts about what werethe steps that only the donor could take to effect a transfer of part of hisshareholding. For these reasons, I do not find this analogy very persuasive.


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The analogy of a contract for sale of part of a mass of goods

[183] Next, Dillon LJ considered In Re London Wine Co (Shippers) Ltd [1986]PCC 121. That case concerned a dealer in wine that had large stocks of particularmakes and vintages of wine. It sold quantities of wine to customers, with the winebeing identified by make and vintage year. It gave customers a “certificate oftitle” for the wine purchased, charged the customers for storage and insurance ofthe number of cases purchased, but did not segregate or identify specific cases ofwine. Oliver J held that, without appropriation, of particular cartons to meet aparticular customer’s contract, legal title to the wine had not passed. On the facts,it could not have been said that the wine held by the company, and the wine sold,were so related that it must have been a particular and identifiable group of casesof wine that were sold by any particular contract.

[184] Dillon LJ accepted the correctness of that decision, but distinguished it,saying (at 458):

It seems to me that that case is a long way from the present. It is concerned with theappropriation of chattels and when the property in chattels passes. We are concernedwith a declaration of trust, accepting that the legal title remained in the defendant andwas not intended, at the time the trust was declared, to pass immediately to the plaintiff.The defendant was to retain the shares as trustee for the plaintiff.

[185] I can readily accept that there were the differences to which Dillon LJpointed between the factual situation in In Re London Wine Co (Shippers) Ltd,and the factual situation in Hunter v Moss. But the method of the law involvesthe application of abstract principles of law to particular fact situations.Sometimes, factual situations that are in some respects vastly different aregoverned by a common legal principle. His Lordship does not, with the greatestrespect, explain why the undoubted differences to which he points are differencesthat make a difference to the legal outcome.

Cases said to require appropriation before a trust arises

[186] Next, Dillon LJ turned to Mac-Jordan Construction Ltd v BrookmountErostin Ltd (in rec) (1991) 56 BLR 1; [1992] BCLC 350. That case concerned abuilder who had a contractual obligation to a sub-contractor to hold amounts thatthe builder retained from progress payments as trustee for the subcontractor. TheCourt of Appeal held that, as a matter of law, and without any express words,such a clause required the builder to appropriate and set aside as a separate trustfund the various amounts retained. However, the builder did not do so.As Dillon LJ records in Hunter v Moss at 459:

It was common ground in that case that, prior to the appointment of the receivers,there were no identifiable assets of [the builder] impressed with the trust applicable tothe retention fund. At best, there was merely a general bank account.

[187] In that situation, I can readily accept that there was no trust property atall, because the fund had not been constituted. It was not as though there waseven a specific fund of money, part of which was said to be held on trust.

[188] Counsel for the appellant in Hunter v Moss used Mac-JordanConstruction as the basis for a proposition that no fiduciary relationship canattach to an unappropriated portion of a mixed fund, and that the only remedyavailable was a floating charge over the blended fund.

[189] Dillon LJ dealt with that argument at 459, as follows:

As I see it, however, we are not concerned in this case with a mere equitable chargeover a mixed fund. Just as a person can give, by will, a specified number of his shares


of a certain class in a certain company, so equally, in my judgment, he can declarehimself trustee of 50 of his ordinary shares in MEL. or whatever the company may beand that is effective to give a beneficial proprietary interest to the beneficiary under thetrust. No question of a blended fund thereafter arises and we are not in the field ofequitable charge.

[190] This reasoning, with the greatest respect, begs the question. It simplyassumes, or asserts, that it is possible for a person to declare himself trustee ofa particular number of the shares he holds in a particular company. It is becauseof the efficacy of the declaration of trust that “no question of a blended fundthereafter arises and we are not in the field of equitable charge”.

[191] That is the totality of the reasoning in Hunter v Moss. I do not, with thegreatest respect, find it sufficiently persuasive, for the reasons I have given, tosimply adopt it as the solution to the present problem.

[192] In particular, a significant part of the reasoning depends upon the drawingof analogies to transactions of a kind that have some similarities to, but also somedifferences from, a declaration of trust of part of a settlor’s holding of shares ina particular company. The difficulty with such analogies is that one cannot tellwhether the similarities are such that some common legal principle unites thedifferent transactions, or whether the differences are such that a different legalprinciple ought to be applied to them. While analogies can sometimes provideuseful support to a legal argument, in the present case it seems to me it ispreferable to look at the particular transaction under consideration, and toconsider both the type of property that it concerns, and the construction of thepurported dealing with that property — the declaration of trust.

Nature of the rights of a shareholder

[193] In Sydney Futures Exchange Ltd v Australian Stock Exchange (1995)56 FCR 236; 128 ALR 417; 16 ACSR 148 Lockhart J analysed the nature of ashare in a company as follows (at FCR 255–6; ALR 435–6; ACSR 166–7):

A share is a right to a specified amount of the share capital of a company, carryingwith it rights and liabilities when the company is a going concern and in the course ofits winding up. A share is a chose in action entitling its holder to the rights andsubjecting him to the liabilities provided by the memorandum and articles of associationand by legislation. In Borland’s Trustee v Steel Brothers & Co Ltd [1901] 1 Ch 279Farwell J described the nature of a share in the terms at 288:

“A share is the interest of a shareholder in the company measured by a sum ofmoney, for the purpose of liability in the first place, and of interest in the second, butalso consisting of a series of mutual covenants entered into by all the shareholdersinterest in accordance with s 16 of the Companies Act 1862. The contract containedin the articles of association is one of the original incidents of the share. A share …is an interest measured by a sum of money and made up of various rights containedin the contract, including the right to a sum of money of a more or less amount.”

This passage was approved by Lord Russell of Killowen in Inland RevenueCommissioners v Crossman [1937] AC 26 at 66.

The rights attaching to a share include the right to participate in dividends whilst thecompany is a going concern and the right to participate in the distribution of assetsavailable for the shareholders upon a winding up. They also include the right to receivecapital in excess of the company’s wants which the company resolves to distribute upona reduction of capital: Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW)(1948) 77 CLR 143 at 156 per Williams J.

In Colonial Bank v Whinney (1885) 30 Ch D 261 at 286-7 Fry LJ said:


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“What, then is the character of a share in a company? Is it in its nature a chose inpossession, or a chose in action? Such a share is, in my opinion, the right to receivecertain benefits from a corporation, and to do certain acts as a member of thatcorporation; and if those benefits be withheld or those acts be obstructed, the onlyremedy of the owner of the share is by action. Of the share itself, in my view, therecan be no occupation or enjoyment; though of the fruits arising from it there may beoccupation, enjoyment and manual possession. Such a share appears to me to beclosely akin to a debt which is one of the most familiar of choses in action; no actionis required to obtain the right to the money in the case of the debt, or the right to thedividends or other accruing benefits in the case of the share; but an action is the onlymeans of obtaining the money itself or the other benefits in specie, the right to whichis called in one case a debt and in the other case a share. In the case alike of the debtand of the share, the owner of it has, to use the language of Blackstone, a bare[semble bare] right without any occupation or enjoyment. A debt, no doubt differsfrom a share in one respect, that it confers generally a more limited right to the share,and once paid it is at an end, but this distinction appears to me immaterial for thepurpose now in hand.”

Although Fry LJ was in dissent in the Court of Appeal, the judgment of the majority wasreversed by the House of Lords and reported as Colonial Bank v Whinney (1886)11 App Cas 426.

Under the Corporations Law a share is personal property and is transferable ortransmissible as provided by the articles, and, subject to the articles, is capable ofdevolution by will or by operation of law: s 105(1).

Thus, shares in a company are personal property; but they are choses in action, notchoses in possession. Personal property may of course be partly in possession and partlyin action, for example, promissory notes and bills of exchange. The note or bill itself isa chose in possession, but the debt secured by it is a chose in action.

I agree with the following passage from Halsbury’s Laws of England, 4th ed, vol 35in para 1205:

“For general purposes, however, the expression ‘chose in action’ is now used inorder to distinguish those chattel interests which, unlike choses in possession, areincapable of transfer by delivery of the subject matter in the manner describedsubsequently [ie para 1253 et sec].”

[194] The precise statutory provisions referred to in this quotation are no longerapplicable. These days, the statute analogous to s 16 of the Companies Act 1862(UK) that confers the shareholder’s right to sue the company for breach of someof the rights that the shareholder has by virtue of being a shareholder is s 140 ofthe Corporations Act 2001 (Cth), which provides:

140 Effect of constitution and replaceable rules(1) A company’s constitution (if any) and any replaceable rules that apply to the

company have effect as a contract:(a) between the company and each member; and(b) between the company and each director and company secretary; and(c) between a member and each other member;

under which each person agrees to observe and perform the constitution and rules so faras they apply to that person.

(2) Unless a member of a company agrees in writing to be bound, they are not boundby a modification of the constitution made after the date on which they became amember so far as the modification:[does various things, none of which is presently relevant].

[195] The statutory provision that now states the nature of a share is s 1070Aof the Corporations Act, which provides:


1070A Nature of shares and certain other interests in a company or registeredscheme

(1) A share …:(a) is personal property; and(b) is transferable or transmissible as provided by:

(i) the company’s … constitution; or(ii) the operating rules of a prescribed CS facility if they are applicable;

and(c) is capable of devolution by will or by operation of law.

(2) Paragraph (1)(c) has effect subject to:(a) in the case of a company:

(i) the company’s constitution (if any); and(ii) any replaceable rules that apply to the company; and

(iii) the operating rules of a prescribed CS facility if they apply to the shareor interest; and

…(3) Subject to subsection (1):

(a) the laws applicable to ownership of, and dealing with, personal propertyapply to a share … as they apply to other property; and

(b) equitable interests in respect of a share, interest of a member in a company orother interest of a person in a registered scheme may be created, dealt withand enforced as in the case of other personal property.

[196] “CS facility” is an acronym that the Corporations Act uses for a clearingand settlement facility. Section 768A of the Corporations Act defines “clearingand settlement facility” as:

768A What is a clearing and settlement facility?(1) … a facility that provides a regular mechanism for the parties to transactions

relating to financial products to meet obligations to each other that:(a) arise from entering into the transactions; and(b) are of a kind prescribed by regulations made for the purposes of this

paragraph.

[197] Some of the rights to sue the company that a shareholder has exist simplyby virtue of having the status of shareholder, regardless of the number of sharesheld. Such rights include rights to receive the information that statute requiresshareholders to be given, the right to be given notice of and to attend at certainmeetings of the company, and the right to vote at certain company meetings.Other rights that a shareholder has to sue the company are ones that a shareholderhas proportionately to the number of shares held — such as the right to adividend, to a return of capital, or to vote on a poll at the meeting. Some of therights of a shareholder to sue the company arise by virtue of the contractcontained in the company’s constitution. Other rights of a shareholder to sue thecompany — including some very important ones — might arise directly bystatute (for example, rights to receive accounts and reports, to join in a requisitionof a company general meeting, or to appoint a proxy). Other rights that anyshareholder has in a company by virtue of the status of being a shareholder canarise from a contract arising separately to the company’s constitution (forexample, if the company in question holds itself out as willing to provide goodsor services to a shareholder at a special discounted price).

[198] Some of the rights that attach to shares are themselves inherentlyassignable, even in circumstances where the shares themselves are not assigned— it is possible to make an equitable assignment of the right to receive dividendsfrom a particular parcel of shares in particular years (by analogy with Shepherd


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v FCT (1965) 113 CLR 385; [1966] ALR 969), and possible to make an equitableassignment of the right to receive some particular measure of money on aparticular type of return of capital. Such assignments can take place only becausethe rights assigned are themselves treated as property. And the only type ofproperty they could be is choses in action. Thus, some of the rights that ashareholder has by virtue of being a shareholder are themselves items of propertythat are separate to the item of property that constitutes the share itself.

[199] And it is not only fractional rights in a share that are capable of beingseen as separate items of property. For rights of the type where the number ofshares provides the measure by reference to which a shareholder’s right againstthe company is calculated, the chose in action can be seen as being the right tosue the company to receive some particular type of benefit. For example, whenthe holder of 1000 shares in a company sues to recover a dividend that has beendeclared but is unpaid, there is just one action that the shareholder brings, torecover the dividend — there are not 1000 separate rights to be paid a dividend:compare Marlborough Harbour Board v Charter Travel Co Ltd (1989)18 NSWLR 223 at 231. In that way, the chose in action — the thing that the lawregards as a piece of property because it can be sued for — is the single right tobe paid the dividend, the measure of which is the number of shares held.

[200] Thus, even though s 1070A states that a share is personal property, it doesnot provide an exhaustive statement of the only property rights that there areconnected with shares. It is not as though the only way of dividing up the rightsthat a shareholder has to sue the company — and thus the choses in action thatthe shareholder has that are enforceable against the company — is on ashare-by-share basis.

Significance of identification of shares by individual numbers

[201] These days, the shares in many companies are held in unnumbered anduncertificated form. The power to have unnumbered shares arises under s 1070Bof the Corporations Act:

1070B Numbering of shares

(1) Except as provided in subsection (2), a company must ensure that each share inthe company is distinguished by an appropriate number.

Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).

(2) Despite subsection (1):

(a) if at any time all the issued shares in a company, or all the issued shares in acompany of a particular class:

(i) are fully paid up; and

(ii) rank equally for all purposes;

none of those shares is required to have a distinguishing number so long as each of thoseshares remains fully paid up, and ranks equally for all purposes with all shares of thesame class for the time being issued and fully paid up.

[202] In the present case, all the ordinary shares in Unitract are and at all timeshave been fully paid-up, and rank equally for all purposes, so s 1070B(2)(a)permits them to be unnumbered.

[203] Unitract’s shares are in fact unnumbered. The 1.5m shares that thedefendant held in Unitract were evidenced by a record in the share register of thecompany that showed the defendant as having a holding balance of 1.5m shares,without differentiation between those shares. The particular register in which thatrecord existed was the issuer-sponsored register of Unitract.


[204] But even when shares were held in numbered, certificated form, therewere some purposes for which the identification of the shares by number wasunimportant. If a shareholder executed a transfer of the same number of sharesthat he owned in a company, the transfer was valid even if the identifyingnumbers of the shares were inserted only after the transfer was executed(Barned’s Banking Company, In re; Ex parte The Contract Corporation (1867)LR3 Ch App 105 at 115–16; Re Financial Insurance Co; Bishops Case (1869)7 Ch App 296n) or never inserted at all: Re Letheby & Christopher Ltd [1904]1 Ch 815.

[205] It can also be unimportant that the wrong identifying numbers areinserted in the transfer. In Re International Contract Co; Ind’s Case (1872)7 Ch App 485 A had transferred to B 50 shares, numbered 11,105–11,154, in aparticular company. In fact someone other than A owned the shares with thosenumbers, but at the time of the transfer A owned more than 50 shares in thecompany, and some of his shares were numbered 11,005–11,054. When thecompany was wound up, B alleged that he was not a contributory. He failed.Sir W M James LJ said (at 486–7):

If the creditors find a man on the list for fifty shares they do not look at the particularnumbers; all that concerns them is that he is on the list of shareholders for fifty shares… I cannot think that he should be allowed to say that there was some mistake aboutthe figures in the transfer — a mistake which was very easily made, for it appears thatthe numbers ought to be from 11,005 to 11,054 instead of from 11,105 to 11,154. Thesubstance of the transaction was that he meant to be on the list for fifty shares; he wason the list for fifty shares, and the creditors and other persons interested have a right tohold him to that.

[206] Sir G Mellish LJ said (at 487):

I think the numbers of the shares are simply directory for the purposes of enablingthe title of particular persons to be traced; but that one share, an incorporeal right to acertain portion of the profits of the company, is the same as the other, and that shareNo 1 is not distinguishable from share No 2 in the same way as a grey horse isdistinguishable from a black horse. If, therefore, a holder of shares has the same numberof shares which he professes to transfer, or a larger number, and by mistake the wrongdistinguishing numbers are put in the transfer, that will not prevent the fifty shareswhich belongs to him passing to the transferee. The figures might afterwards berectified. I think the substance of the matter is that [B] has agreed to take fifty sharesas between him and the creditors of the company; he has been registered with his ownconsent as to these shares, and therefore he is properly on the list. [Emphasis added]

[207] It is part of the reasoning of Sir G Mellish LJ that statement of theidentifying numbers of the shares being transferred is unimportant for the validityof the transfer.

[208] The law of the United States similarly regards the numbers allotted toindividual shares as unimportant for some purposes. Richardson, Trustee inBankruptcy v Shaw 209 US 365, 28 Sup Ct 512, 52 L Ed 835 (1908), a decisionof the United States Supreme Court, considered a situation where a sharebrokerhad received share certificates as security for a client’s margin trading, and, at atime when the broker was approaching bankruptcy, had returned to the client,upon the client’s demand, certificates relating to an equal number of shares tothose lodged. The question at issue was whether the client had thereby receiveda preference. It was argued that there was a preference because, by a custom ofthe market:


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… the broker was not obliged to return the very stocks pledged, but might substituteother certificates for those received by him, and that this is inconsistent with ownershipon the part of the customer, and shows a proprietary interest of the broker in the shares(at 378 US).

[209] The court rejected that argument, saying:

… this contention loses sight of the fact that the certificate of shares of stock is not theproperty itself, it is but the evidence of property in the shares. The certificate, as thename implies, but certifies the ownership of the property and rights in the corporationrepresented by the number of shares named.

A certificate of the same number of shares, although printed upon different paper andbearing a different number, represents precisely the same kind and value of property asdoes another certificate for a like number of shares of stock in the same corporation. It isa misconception of the nature of the certificate to say that a return of a differentcertificate or the right to substitute one certificate for another is a material change in theproperty right held by the broker for the customer [citations omitted]. As was said bythe Court of Appeals of New York in Caswell v Putnam 120 NY 153, 157, “one shareof stock is not different in kind or value from every other share of the same issue andcompany. They are unlike different articles of personal property which differ in kind andvalue, such as a horse, wagon or harness. The stock has no earmark which distinguishesone share from another, so as to give it any additional value or importance; like grainof a uniform quality, one bushel is of the same kind and value as another.” (At 378–9of 209 US).

Construction of the declaration of trust

[210] The declaration of trust that the defendant made is, in substance, that, ofthose shares in Unitract that he held, 222,000 of them were held in trust for theplaintiff. In my view, that is, in substance, that 220,000 of the shares he held wereon trust for the plaintiff, and the rest were on trust for himself. The trust inrelation to the rest of the shares is the type of trust that one infers must have beenintended, if the trust that definitely was intended concerning the 220,000 sharesis to operate: compare Commonwealth of Australia v Booker InternationalPty Ltd [2002] NSWSC 292 at [34]–[45] and cases there cited. The declarationof trust left him free to deal with the parcel of 1.5m shares as he pleased, providedthat it was not reduced below 220,000, provided that any encumbrances on theshareholding were such that at least 222,000 were left unencumbered, andprovided that the plaintiff was entitled to call for the transfer of 222,000 sharesat any time after 1 August 2003. If there were to be any declaration of dividendor return of capital prior to the time that the plaintiff had the 220,000 sharestransferred to her, the plaintiff would be entitled to receive an appropriateproportionate part of the dividend or return of capital. When I say “an appropriateproportionate part” I refer to the fact that the quantum of a dividend or return ofcapital is necessarily calculated by reference to the number of shares held by ashareholder at a particular date. The plaintiff would be entitled to a proportion ofthe amount of a dividend or return of capital equal to 220,000 divided by the totalnumber of shares in Unitract held by the defendant at that particular date.

[211] Once a finding has been made that there was an intention to hold 220,000shares on trust, that intention needs to be given effect to in the way that isappropriate to the kind of property that is being talked about. Given the types ofrights that are involved in holding shares in a company, the way that rights of ashareholder need not be identified only in terms of owning particular identifiedshares, how identification of individual shares can be unimportant for a transferof some of the shares in a shareholding, and how these particular shares in


Unitract were in any event not numbered and were held as an undifferentiatedbalance in a share register, there is nothing in the nature of the trust property thatis inconsistent with recognising the validity of the trust. To recognise the trust isnot to perfect an imperfect gift — because there is no transfer of any propertyinvolved in a declaration of trust, but rather the declarer of the trust states theterms on which, henceforth, he will hold certain property that he already holds.[212] A trust of this kind is not analogous to a simple trust, where a single anddiscrete item of property is held on a bare trust for a single beneficiary. Rather,it is a trust of a fund (the entire shareholding of 1.5m shares) for two differentbeneficiaries (the plaintiff and the defendant himself), where powers ofmanagement are necessarily involved in the trust (to sell or encumber, withinlimits that such dealings do not impinge on the plaintiff’s rights), and whereduties on the trustee would arise as a matter of law (for example, to deal with anydividends and capital distributions by distributing them in the appropriateproportions). It is because the trust is construed as being of the entireshareholding that it is not necessary for the plaintiff to be able to point to someparticular share and be able to say “That share is mine”. It is because of thisfeature of the trust that the defendant declared that an attempt to draw an analogywith cases concerning whether property passes in items of goods when the goodsare not appropriated to the contract (like London Wine Co or Re GoldcorpExchange) fails — because in those cases, identification of the individual itemsin which property has passed is essential if the property in them is to pass. Theconstruction that is needed to be able to make a trust of part of a shareholdingoperate — and which I infer is what the defendant actually intended — is the onethat I have set out in [210] above. It does not require there to be identification ofparticular shares in which the beneficiary has the beneficial interest. Given thenature of shares in a company, it is perfectly sensible to talk about an individualhaving a beneficial interest in 222,000 shares out of a parcel of 1.5m, even if itis not possible to identify individual shares that are held on trust.[213] Indeed, contrary to the apparent assumption of Mr Ockelton (at [156]above), the test for validity of a trust is not dependent on a beneficiary being ableto identify particular property that is held on trust for him or her. In manydiscretionary trusts, the only interest that a particular beneficiary can claim tohave at a particular time is the vested interest subject to defeasance (andsometimes contingent as well) that a taker in default of appointment has:compare Stein v Sybmore Holdings [2006] NSWSC 1004 at [25]–[26]. Becauseof the powers of management that the trustee of such a trust often has, it is oftennot possible for the taker in default of appointment to be able to point to any ofthe assets of the trust and say simply “that asset is mine”. All that such a personcan do is point to an asset and say “that asset is mine, provided the trustee doesnot sell it before the vesting date, provided the trustee does not make anappointment of it to someone else, and provided any other contingencies thatthere are before I take an interest vested in possession happen”. In the presentcase, one can identify the property that is subject to the trust (the entireshareholding) one can identify the trustee (the defendant), and one can identifythe beneficiaries (the plaintiff as to 220,000 shares, the defendant as to the rest).That is all that is needed for a valid trust.

Cases consistent with, though not decisive of, validity of the trust

[214] It is of some relevance that one of the ways in which equity imposes aremedy for breach of trust, when trust property has become mixed with non-trustproperty that is indistinguishable from it, is by recognising a trust of the mixed


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fund, so that the wronged beneficiary can recover the equivalent of the trustproperty from the mixed fund, in specie. Brady v Stapleton (1952) 88 CLR 322was such a case. When bankruptcy was looming following a large judgment torecover unpaid income tax, Mr Coward transferred various property (includingshares) to people likely to be well disposed to him. The trial judge, Clyne J, found(at 329):

… that Coward was the head and front of a daring and scandalous scheme designed toswindle the Commissioner of Taxation, that he was actively assisted in this scheme byhis wife and his brother-in-law (Brady) and that [3 other named people] were inertparticipants in the scheme.

[215] One such transfer was of six different parcels of shares in CanadianPacific Tobacco Co Ltd, totalling in all 32,280 shares, to Brady. Brady at all timesheld 1300 shares in that company, that he owned beneficially. Brady thentransferred 17,000 shares to Coward’s wife. Having found that Brady held all theshares that were transferred to him as trustee for Coward, Clyne J ordered Bradyto pay the trustee in bankruptcy a sum of monetary compensation. The trustee inbankruptcy appealed against that order, seeking an order that shares betransferred to him in specie. Dixon CJ and Fullagar J at 336 explained theproblem they had to solve:

… it may be taken that Mrs Coward took the 17,000 shares with notice of the facts fromwhich the trust affecting Brady’s shares arose, and therefore with notice of the trust. Butthe difficulty is that it is impossible to identify, among the shares held by Mrs Cowardand Brady, any particular shares as being the 32,280 shares which are subject to the trustfor the bankrupt. The strong probability that this difficulty is not fortuitous does notseem to help towards a solution of the problem. It was this impossibility ofidentification which led Clyne J to refuse the orders which the trustee now seeks.

[216] Even so, the High Court granted a remedy in specie. Dixon CJ andFullagar J at 338–9 referred to the judgment of Mellish LJ in Re InternationalContract Co, and said:

… where it is possible to give effect to the rights of a cestui que trust by simply takingout so much money or so many bonds or so many shares, the cestui que trust may electwhether he will take property in specie out of the mass or have a charge on the mass.

… the true distinction observed by equity … is well illustrated by the contrast betweenthe case … where a trustee has mixed trust money with his own and bought a horse, andthe case where he has mixed trust bonds with bonds of his own. Yet a horse is an“indistinguishable mass” in one sense, and the bonds are an “indistinguishable mass” inalmost the opposite sense. The horse is an “indistinguishable mass” in the sense that itis not practicable to attribute one part of him to the trust fund and another part of himto the trustee’s own funds. The bonds are an “indistinguishable mass” in the sense thatthere is no practical reason for differentiating one bond from another and it is quitepossible to take out so many bonds as will suffice to make good the trust fund. The realdistinction which equity draws is between the case where it is, and the case where it isnot, practicable to give effect to the rights of the cestui que trust by appropriating to hima specific severable part of the available property.

[217] I recognise that recognising a trust by way of a remedy is not the sameas declaring a trust in the first place. However, that it is possible for equity torecognise a trust of a particular number of shares out of a larger parcel, by wayof remedy, is at the least consistent with it being possible for a person, out ofcourt, to declare such a trust.


[218] Milroy v Lord (1862) 4 De GF & J 264; 45 ER 1185 (the principle inwhich was approved by the High Court in Corin v Patton at CLR 549; ALR 9)is another case that is at least consistent with it being possible to hold part of ashareholding on trust. It concerned a purported assignment of part of theshareholding of an intending donor. The only reason why the purportedassignment was not held to be an effective declaration of trust was as a matter ofconstruction. If it was fundamentally impossible to declare oneself trustee of partof one’s holding of shares, one would expect that ground to have been relied uponas well.

United States authorities

[219] United States courts have seen no difficulty in recognising the validity ofa trust of a specified number of shares out of a larger holding of shares.

[220] In Rollestone v National Bank of Commerce (1923) 252 SW 394Ragland J in the Supreme Court of Missouri construed a statement of the holderof more than 1m shares in a particular company as being a declaration of trust of10,000 of those shares. At [3] he referred to the settlor’s shares:

[3] … all of which were exactly alike in kind and value. There was no earmark by whichany one of them could be distinguished from the others, so as to give it additional valueor importance. They were like grain of a uniform quality, wherein one bushel is of thesame kind and value as another … the words “10,000 shares of capital stock” embodied,therefore, an accurate description of definite property rights in the corporation.A certificate of the same number of shares would have evidenced nothing more.

[221] DiLucia v Clemens (1988) 541 A 2d 765 is a decision of the SuperiorCourt of Pennsylvania (Cirillo President Judge, Brosky and Beck JJ). The holderof more than 25,000 shares in a corporation declared a trust of 2000 of them. Thiswas valid, at 767, because

… the identity of the shares was clear and the description sufficient because the shareswere fungible. It is immaterial that no specific shares were isolated and held in trust.

it is the identity of the [trust] fund, not of the pieces of coin or banknotes, that controls… Where the agent has mingled his own property with that of the principal, the lattermay reclaim from the admixture an amount equal to his own, although it may not be thesame identical property … and where a trustee has mingled trust funds with his own,and afterwards takes sums from the common mass for his own use, it will be presumed,so long as the mass is as large as the original trust funds, that the sum so taken was hisown and not the trust fund’s. Vosburgh’s Estate 279 Pa 329, 333, 123A. 813, 815 (1924).

[222] The only United States decision that I located which came to a differentconclusion was Busch v Truitt (1945) 163 P 2d 739, a decision of the DistrictCourt of Appeal, second district, division two, California. A man owned over17,000 shares in the capital of the company, all of which were held in escrow.He wrote a letter acknowledging that there were “1380 shares of escrowed stockthat I owe you as of this date”. The trial judge had held that there was an effectivetrust. The District Court of Appeal reversed that decision and held, at 928, thatfailure to identify the specific trust fund meant that there was no trust. All thecases cited in support of that conclusion were Californian ones.

[223] That decision of the District Court of Appeal was in effect reversed byBusch v Truitt, a decision of the Supreme Court of California, in bank. Eventhough the ruling of the Supreme Court of California at 163 P 739 was “thejudgment is affirmed”, it is apparent from the reasons (which incorporate byreference the reasons given in Kroger v Truitt (1945) 163 P 2d 735, and also from


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the fact that the judgment opens by stating that it is an appeal from the trial judge,that the judgment that was affirmed was that of the trial judge, not that of theDistrict Court of Appeal.

[224] Both Busch v Truitt and Kroger v Truitt arose from the activities of thepresident of a corporation that was encountering financial difficulties. Thecorporation had issued some stock that was freely transferable, and some“escrow” stock that could be sold only with permission of a public authority. Thepresident held escrow stock. The president’s way of dealing with thecorporation’s financial difficulties was to “borrow” from shareholdersunrestricted stock, promise to replace that unrestricted stock with escrow stock,and sell the unrestricted stock. The president died before these promises wereperformed. At the time of his death he owned enough of the escrow stock toperform all these promises. His widow was his administratrix and solebeneficiary. She entered an agreement with the various people who had beenpromised stock, compromising their claims, and that agreement was approved bythe probate court. She later did not perform that agreement, so far as some of thepromisees were concerned. Busch and Kroger were two promisees who did notreceive stock, and who sued the executrix. Both succeeded before the trial judge.While the litigation involved questions other than the validity of the trust, in thecourse of the reasons in the Supreme Court of California, in bank in Kroger vTruitt Shenk Justice (with whom Gibson CJ, and Edmonds, Carter, Traynor,Schauer and Spence JJ concurred) said (at [1]):

[1] … the statement of the foregoing facts and supported findings … are sufficient toestablish the creation of the trust in the decedent’s lifetime and to identify the stock heldfor the purpose of discharging the obligations.

[225] One of the arguments of the administratrix was that, even if there hadbeen an express trust in the lifetime of the deceased, the litigation against her wasdefeated because the litigation had not been brought within the 4-year periodafter the death of the deceased that was required by the relevant statute oflimitations. The reason that Shenk J gave, at [1], for that argument failing wasthat by the action of the administratrix in “entering into a written agreementwhereby she promised to transfer a certain number of shares to each of thepersons named therein”, and obtaining the approval of the probate court to thatagreement:

… she indicated with reasonable certainty her intention to hold the specified shares ofstock for the purpose of transferring them to the designated beneficiaries. Civ Code§2221. The written agreement approved by the probate Court and given in part for the$43,500 received by the administratrix was effective to create an express trust to holdthe shares released for the benefit of the former owners of stock loaned to the decedent.There is no contention that the action was filed too late if the agreement of August 12,1942, created an express trust.

[226] Thus, the reasoning of the Supreme Court of California, in bank, inKroger v Truitt, and hence also in Busch v Truitt involved on two separateoccasions a recognition of the validity of a trust of a certain number of shares outof a larger shareholding.

[227] That leaves the decision of the District Court of Appeal in Busch v Truittwith no standing as an authority. I have not found any United States decision thatapplies the District Court of Appeal decision in Busch v Truitt. Thus, it seems notto represent the present United States law on whether it is possible to have a trustof some of the shares in a larger holding.


[228] The tendency of the United States courts to look to the substance of thesettlor’s intention in deciding whether there is sufficient certainty of subjectmatter of a trust is illustrated by Bay Biscayne Co v Baile (1917) 75 So 860, adecision of the Supreme Court of Florida. There, $1000 cash, a note for $1000,and 15 promissory notes, drawn by three different debtors, for a total face valueof $19,400 were all handed to a trustee, on the basis that securities to the amountof $15,000 face value would be selected by the trustee and guaranteed by thesettlor, with the selected securities to be held in trust to pay the formerhousekeeper of the settlor $1200 per annum, with the trustee to have power tosubstitute the securities by notes or securities satisfactory to the settlor. The courtheld, at So 869, that the fact that the trustee never selected securities did notprevent a valid trust arising:

It is claimed that, because Mr Baile did not select $15,000 of the securities from the$19,400, the trust was never completed. We cannot agree with this construction of thetrust agreement. This was merely a matter of detail which could not affect the trustwhich had already been established. This was left for the trustee to do, and certainly itcannot be said that the trustee by some improper act or omission up on his part coulddestroy the trust.

[229] I mention these United States decisions not because every aspect of thereasoning would be applicable in the Australian legal system, but as comfort thatthe same result as Hunter v Moss has been arrived at in another significantcommon law system, and also because some of them are mentioned in the onlyAustralian authority that refers, even indirectly, to the present problem.

Herdegen v Federal Commissioner of Taxation

[230] Herdegen v FCT (1988) 84 ALR 271 is a decision of Gummow J as ajudge of first instance in the Federal Court of Australia. It concerns the liabilityof a husband and wife who had been shareholders in a company, and who wereassessed as liable to pay vendor shareholder recoupment tax. That was the taximposed upon the former shareholders of companies that went out of existencewith unpaid company tax and/or undistributed profits tax, as part of certain taxschemes. The legislation imposing the tax on the former shareholders created anexception to liability for the tax if the former shareholders had held their sharesas “bare trustees”.

[231] Mr and Mrs Herdegen claimed that they had the benefit of that exception.Of the 100 issued shares in the company, Mr Herdegen held 59 andMrs Herdegen held 41. The shares in the company were numbered. The trust wasalleged to arise from a conversation (deposed to in para 9 of a particular affidavit)in which Mr Herdegen said that he suggested that the shares be held as to 25 forhimself and his wife, as to 38 for [A, one of the people he was talking to], andas to 37 for [B, another of the people he was talking to], and from evidence thatMr Herdegen had always regarded the assets of himself and his wife as “our jointasset”.

[232] There was also some oral evidence from Mr Herdegen that, later, he hadhad a conversation with his wife in which she assented to his suggestion that(at 278) “I should hold [A’s 38] shares in trust [and] you should hold [B’s] 37shares in trust out of your share[s]”. However cross-examination (set outat 278–9) on that evidence left it in a condition where no trial judge could acceptit. As well, Mr Herdegen had sworn to two inconsistent views about how heregarded, at the time a particular affidavit was sworn, the shares as held on trust.

[233] Gummow J concluded (at 279):


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In these circumstances, I am quite unable to be satisfied that Mr Herdegen has shownthere was (a) an oral declaration of trust by Mr Herdegen that he held 38 of his 59 sharesin Onedin Investments on trust for [A], or alternatively, such a declaration in favour ofTransia, (b) an oral declaration of trust by Mr Herdegen “as agent for Mrs Herdegen”that she held 37 of her 41 shares in Onedin Investments on trust for [B], or, alternatively,an oral declaration to this effect by Mr Herdegen, without prior authority of MrsHerdegen, but later ratified by her in the discussion of which they gave evidence. Thatis how the applicants’ cases were put in counsel’s written submissions.

(I should add that with respect to the 38 shares allegedly held on trust by MrHerdegen, no attempt was made to indicate how they were selected from among theparcel of 59 shares numbered 1–10 and 52–100. The same is true of Mrs Herdegen’sshares. As to whether such specific identification was essential to establish certainty ofsubject matter, or whether the shares might be treated as fungible for this purpose, theauthorities appear to be unsettled: Rollestone v National Bank of Commerce (1923) 252SW 394 at 398; Busch v Truitt (1945) 160 P 2d 925 at 928; affd 163 P 2d 739. I am alsoprepared to assume without deciding that it would in law have been competent for MrHerdegen to declare a trust for his wife in the way contended for by the applicants.)

What emerges from the evidence quite clearly is a failure by Mr Herdegen to focushis attention upon the distinction between the separate ownership of himself and hiswife and the allocation of distinct parcels of shares between particular beneficiaries, andto frame accordingly the words relied upon to give effect to any intention to declaretrusts. He may well have believed in May 1979 that what had been achieved was thecreation of trusts of shares in Onedin Investments in favour of [A] and [B]. But thatwould not be sufficient. The whole vice in the applicants’ cases is indeed manifest inpara (9) of Mr Herdegen’s affidavit which puts the applicants’ case in its mostfavourable light.

[234] Reading his Honour’s reasoning process as a whole, it seems that thedeficiency that he saw, in identification of the subject matter of the trusts, was thathe could not be satisfied that there had been an intention expressed that the 38shares intended to be held for A were to come from the shareholding ofMr Herdegen, or from the shareholding of Mrs Herdegen, and likewise he couldnot be satisfied that there had been an intention expressed that the 37 sharesintended to be held for B would come from the shareholding of Mr Herdegen, orfrom the shareholding of Mrs Herdegen.

[235] I do not overlook the fact that, when introducing his discussion ofwhether there were valid trusts, Gummow J had said (at 277):

Counsel for the applicants submitted that for the purposes of s 5(5), there might bea trust (and a “bare” trust) binding a vendor, although it was not possible for the vendorto establish which shares of a parcel held by the vendor were held for which of severalbeneficiaries. Thus, it was said that Mr Herdegen held 38 of his 59 shares in OnedinInvestments on bare trust within the meaning of s 5(5), although he might not be ableto establish which of the 59 shares were so held and for whom they were held, asbetween [A], Transia or [B].

In my view, this cannot be so. The trust asserted is an express non-purpose trust ofpersonal[i]ty of the traditional type and without any of the complexities that arise indefining the nature of the rights of beneficiaries under the modern discretionary trust(as to which see Gartside v IRC [1968] AC 553). Even if it were a discretionary trust,the class comprising the objects of the exercise of the trustee’s discretion still wouldhave to be certain of identification in the sense of the authorities (as notably explainedin McPhail v Doulton [1971] AC 424). And, in any event, there must be certainty alsoas to the property bound by the trust (FCT v Clarke (1927) 40 CLR 246 at 283–5; Scotton Trusts, 4th ed, 1987, § 76, 77).

In the present case, each applicant propounds a trust of which he or she was trustee.Their counsel rather tended to approach the matters as if there was one trust with


co-owners declaring themselves trustees of jointly owned assets. That thinking tends toobscure the issues. Further, if there is the necessary certainty in identity of trustee,subject matter and beneficiary, then in any given case it will be necessary for thosepropounding the express trust to establish on the part of the alleged settlor the presenceof the necessary intention to constitute a trust.

[236] It occurs to me that a person who read in isolation the first paragraph Ihave quoted from para 277, and of the statement “In my view this cannot be so”might think that that was a denial that it was possible for Mr Herdegen to hold38 of his 59 shares on trust for A, when he had not identified which 38 shareswere so held. However, that reading would be incorrect. The proposition thatGummow J is denying is (in part) that Mr Herdegen held 38 of his 59 shares ona bare trust. Among the authorities to which his Honour referred at 277 is Scotton Trusts, 4th ed, 1987, §76, 77. At pp 444–5, in §77 Scott refers to bothRollestone and Busch v Tuitt. Scott cites Rollestone as an example of theproposition that:

A person who holds the entire legal interest may be trustee for another to the extentof a share of the property and subject thereto for his own benefit.

It is exactly that type of trust that the defendant in the present case has declared.

[237] If the correct way of regarding what Mr Herdegen had done was that hehad declared himself a trustee of 38 of his 59 shares, that is a trust of his 59 sharesthat would be partly for the benefit of the beneficiary, and partly for the benefitof Mr Herdegen himself. Such a trust of the 59 shares is not a bare trust.

[238] Further, the proposition that Gummow J is denying is that Mr Herdegenheld 38 of his 59 shares on a bare trust, in a particular factual situation namelythat he is not able to establish (i) which of the 59 shares were so held, and (ii)for whom, out of the potential beneficiaries, they were so held. Gummow J is notdenying that it was possible for Mr Herdegen to hold 38 of his 59 shares on trustfor some specified person.

[239] It is appropriate to mention here that at §77, 445, Scott notes that thedecision in Busch v Tuitt reported in 160 P was reversed by the decision reportedin 163 P, but does not mention the reasons for that reversal. Concerning thedecision in Busch v Tuitt that is reported in 160 P, Scott said:

… the owner of 17,145 shares of a company wrote to his creditor that he owed him 1380shares. It was held that he did not thereby create a trust. This seems to be a properholding, but the court expressed the opinion that a trust could not be created without aseparation or identification of the shares to be held in trust.

[240] That remark seems to express the author’s view (with which Irespectfully agree) that a statement that a certain number of shares were “owed”is inadequate to create a trust, but also to express a reservation about the court’sopinion that “a trust could not be created without a separation or identification ofthe shares to be held in trust”. It is hardly likely that Gummow J, at 277, wouldhave intended to express views that were at odds with the authority cited assupport for those views.

[241] The passage from the judgment of Gummow J at 277 is also followed bythe paragraph in brackets, that I have quoted above from 279, that expresslyleaves open the question of whether it is possible to have a valid trust of aparticular number of shares from a larger parcel. Thus, reading his Honour’s


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reasons as a whole, they leave open the question of whether under Australian lawit is possible to have a valid trust of a particular number of shares from a largerparcel.

[242] One might get the impression, from the citation of “Rollestone v NationalBank of Commerce at 398; Busch v Truitt” as authority, in the paragraph inbrackets that I have quoted above from 279, for the proposition that “As towhether such specific identification was essential to establish certainty of subjectmatter, or whether the shares might be treated as fungible for this purpose, theauthorities appear to be unsettled”, that the two American cases referred to leftthe law on that topic in an unsettled state. As I have endeavoured to show above,the outcome of Busch v Truitt on appeal to the Supreme Court of California isconsistent with the decision in Rollestone, and the United States authorities onthe topic do not appear to be unsettled. However, when the decision in Herdegenleaves open the question whether, as a matter of Australian law, it is possible tohave a trust of a particular number of shares from a larger parcel, it is of noparticular importance whether or not one got that impression.

[243] It follows from this discussion that I do not, with respect, agree with theview expressed in Jacobs (at [157] above) that Herdegen is authority for theproposition that an undifferentiated portion of a parcel of shares is a subjectmatter too vague for the court to enforce any trust in respect of, unless one uses“undifferentiated” with a very particular shade of meaning.

[244] In Re Harvard Securities Ltd at 384–5 Neuberger J, in the ChanceryDivision (Companies Court) in England, decided that the Australian law was thatit was not possible to have a trust of some of the shares in a larger parcel.He recognised (correctly) that Herdegen had deliberately left that point open.However, he accepted an opinion, from an unnamed lawyer or lawyers inMallesons, that it was likely that an Australian court would hold that no suchequitable rights could exist. The reasoning by which Mallesons arrived at thatconclusion is not exposed. As Young J, writing extrajudicially, has pointed out(“English and Australian law as to trusts affecting shares” (1998) 72 ALJ 116) theconclusion of an English judge as to the state of Australian law is a decision offact, which binds nobody. Further, Young J points out that the evidentiary basison which the fact was found is at the least unusual, given that it is not apparentwho had formed the opinion that was received, and suggests that an opinionabout what the courts of a foreign country are likely to do at some stage in thefuture, concerning a topic which has not been decided in that country, “is justinadmissible”. It is not necessary to form a view about whether such an opinionis totally inadmissible — it suffices for present purposes that an opinion aboutsuch a topic must be debatable. I do not, with respect, regard the course thatNeuberger J adopted concerning the Australian law on this topic in Re HarvardSecurities as something that in any way influences the outcome of the presentlitigation.

Trusts of part of a debt

[245] Because of the fairly close similarity that exists between parcels of sharesand debts (in that both are choses in action), I mention here the decision inRe Appleby’s Estate (1930) Tas LR 126. It concerned a pensioner who opened asavings bank account and stated on the form by which he opened it that it wasin trust for a particular woman. Thereafter, he made annual declarations to agovernmental authority, for a purpose connected with his pension, about theassets he held, that did not mention the amount in the bank account. Within a


month of opening the account he was operating on it as if it were still his own,and he retained the bank book for a couple of years, until he handed it to a womandifferent to the one named as beneficiary of the account. Crisp J inferred that thepensioner had not intended a trust of the whole amount deposited, that probablyhe intended “a trust of such portion of the fund, as he did not require for himself;such part of it as might remain unused by him”: at 128. It was in thosecircumstances that his Honour concluded that there was insufficient certainty ofsubject matter for there to be a valid trust.

[246] Jacobs, in the passage quoted at [157] above, accurately describes thepurported trust in Appleby as one of “an undifferentiated portion … of a depositin a bank account”. However, it was undifferentiated because it was quiteuncertain in its nature. It was not undifferentiated, in the sense that a trust to hold$200 in a bank account that contains $500 does not differentiate which particular$200 is being talked about. It is only the latter sense of “undifferentiated” thatwould provide any analogy to the problem that arises in the present case.

[247] Associated Alloys Pty Ltd v CAN 001 452 106 Pty Ltd (in liq) (2000)202 CLR 588; 171 ALR 568; [2000] HCA 25 is another case relating to a trustof part of a debt. It concerned a Romalpa clause, in a contract for sale of rawmaterials to a manufacturer. The contract provided that if the purchaser used thegoods in a manufacturing process, it would hold “such part of the proceeds ofsuch manufacturing … process as relates to the goods … in trust for the [seller]”:at [71]. That trust was a valid one. As Gaudron, McHugh, Gummow andHayne JJ said (at [30]):

[30] … it is no objection to the effective creation of a trust that the property to besubjected to it is identified to be a proportion of the proceeds received by the buyer; aproportion referable to moneys from time to time due and owing but unpaid by thebuyer to the seller.

Similarly Sandford v D V Building & Construction Co Pty Ltd [1963] VR 137had seen no difficulty in recognising a trust of part of a debt.

Academic criticism of Hunter v Moss

[248] In the academic criticism of the decision in Hunter v Moss there are somearguments raised that are not directed at the adequacy of the particular process ofreasoning exhibited by Hunter v Moss, but rather at the very concept that it ispossible to have a trust of a particular number of shares in a larger holding. I turnto consider some of those arguments.

Effect of capital gains tax

[249] Two arguments concern the capital gains tax consequences ofrecognising such a trust. One of them is that, if the person who has declared thetrust sold some of the shareholding, “how does the Revenue know whether he isselling his own shares, so that he is chargeable to capital gains tax, or if he isselling [the beneficiary’s] shares, so that [the beneficiary] is so chargeable?”(Hayton, Uncertainty of Subject-Matter of Trusts (1994) 110 LQR 335 at 336).

[250] I do not profess to know the answer to that question under English law.Under Australian law, capital gains tax is assessed under the Income TaxAssessment Act 1997 (Cth) (the ITAA 97), Pt 3–1 and 3–3. A capital gain or lossis realised, for income-tax purposes, only if a “CGT event” happens: ss 102–20of the ITAA 97. One such CGT event is event A1, “disposal of a CGT asset”:ss 104–10 of the ITAA 97. A CGT asset is any kind of property, or a legal or


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equitable right that is not property: s 108–5 of the ITAA 97. It follows that a sharein a company is a CGT asset. Under ss 104–10 of the ITAA 97, subject to someexceptions not presently relevant, and omitting the examples and notes found inthe section:

(2) You dispose of a CGT asset if a change of ownership occurs from you to anotherentity, whether because of some act or event or by operation of law. However, a changeof ownership does not occur:

(a) if you stop being the legal owner of the asset but continue to be its beneficialowner; or

(b) merely because of a change of trustee.

(3) The time of the event is:

(a) when you enter into the contract for the disposal; or

(b) if there is no contract — when the change of ownership occurs.

(4) You make a capital gain if the capital proceeds from the disposal are more thanthe asset’s cost base. You make a capital loss if those capital proceeds are less than theasset’s reduced cost base.

[251] Under ss 121–20 of the ITAA 97:

(1) You must keep records of every act, transaction, event or circumstance that canreasonably be expected to be relevant to working out whether you have made a capitalgain or capital loss from a CGT event. (It does not matter whether the CGT event hasalready happened or may happen in the future.)

(2) The records must be in English, or be readily accessible and convertible intoEnglish. They must show what is described in this section. (They show something ifthey include whatever material is necessary for that thing to be easily identified orworked out.)

(3) They must show the nature of the act, transaction, event or circumstance, the daywhen it happened or arose and:

(a) in the case of an act — who did it; and

(b) in the case of a transaction — who were the parties to it.

(4) They must show details (including relevant amounts) of how the act, transaction,event or circumstance is relevant (or can reasonably be expected to be relevant) toworking out whether you have made a capital gain or capital loss from a CGT event.

[252] For someone who holds a parcel of shares partly on trust for anotherperson to keep records that comply with these requirements, those records wouldneed to indicate whether any shares in that parcel which had been disposed ofbelonged beneficially to the shareholder.

[253] Liability to pay tax depends upon the making of an assessment: s 166Income Tax Assessment Act 1936 (Cth). However, administratively, aself-assessment system operates, under which

… returns are generally not subject to technical scrutiny before an assessment is made.The ATO relies on post-assessment checking and auditing to determine whether ataxpayer has disclosed all assessable income and whether deductions and rebates (or taxoffsets) have been properly claimed. The Commissioner has fairly wide powers toamend assessments where, for example, any post-assessment checks reveal that thetaxpayer’s taxable income has been understated. (CCH Australian Master Tax Guide,38th edition 2006 25–100)

[254] Each taxpayer is obliged to lodge a taxation return, in a prescribed form:Sch 1 Subdiv 388-B of the Taxation Administration Act 1953 (Cth). Theprescribed form for individuals requires disclosures of capital gains:supplementary section item 17.


[255] Thus, in the present case, the taxation office would know whether thedefendant was selling some of his own shares, or some of the shares held on trustfor the plaintiff, because in submitting his income taxation return the defendantwould be required to show an amount of capital gain that was chargeable to him,and would be required to have records that contained, in sufficient detail, theinformation on the basis of which the calculation of that amount of capital gainhad been made. That calculation would itself show whether particular shares thathe disposed of were ones that he held for himself, or ones that he held on trustfor the plaintiff.

[256] If, at the time of making a particular sale of shares, or at the time ofwriting up records relating to a sale of shares, the defendant attributed a sale toeither the shares held for himself, or the shares held for the plaintiff, that wouldbe determinative, for the purpose of calculation of capital gains tax.

[257] Whether any such sale was a breach of trust on his part is an entirelydifferent question. Under the trust the defendant declared, he has no power to sellthose shares that he held on trust for the plaintiff. Thus, if he were to sell anyshares, with the intention of thereby diminishing the number of shares he held intrust for the plaintiff, his action would be a breach of trust. If he were to sell someof his shareholding, and (contrary to his obligations under the taxation law) didnot identify whether the shares that he sold were beneficially his own, the samepresumption as is used in tracing would be applied, so that he would be presumedto be acting in accordance with his obligations as trustee, and thus to be sellinghis own shares rather than those he held on trust for the plaintiff.

[258] In this way, I see no difficulty, under the Australian law relating totaxation of capital gains, in identification of whose shares have been sold, for thepurpose of calculation of capital gains tax.

[259] Another matter that needs to be considered, in deciding whether capitalgains tax law creates a difficulty for the notion that part of a holding of shares canbe held on trust, relates to the manner of calculation of capital gains tax, whenpart of a holding of shares is declared to be held on trust. If it were to happen thatthe parcel of shares of the person declaring the trust had been acquired over aperiod of time, and at various different prices, it would be necessary to identifythe cost base of the shares that were declared to be held in trust, to be able tocalculate any eventual capital gains tax liability of the person declaring the trust.

[260] In the present case, the defendant acquired all the shares that areregistered in his name in Unitract at the one time, and for a single consideration,namely as the purchase price for the 1.5m shares he had held in Unitract Pty Ltd.Thus, the difficulty I have just mentioned does not have any application to theparticular facts of this case. Even so, there are other factual circumstances towhich the difficulty might apply, and thus the difficulty needs to be considered ifone is considering whether, as a matter of general principle, such a trust ispossible.

[261] When a person who holds shares declares a trust of some of those shares,that is in itself a disposal. Thus, the record-keeping requirements of the taxationlaw would oblige the person declaring the trust to identify what was the cost baseof the shares that had been disposed of. In doing so, the cost base of the sharesthat had not been disposed of will also, necessarily, be decided, if the records arekept properly. The person declaring the trust is given a choice about this. CCHFederal Income Tax Reporter, 151–770, p 151,144 explains:


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Where there is a disposal of “shares” (sec 995–1(1)) which form part of a holding ofidentical shares, ie shares of the same class and in the same company, and it is notpossible for a taxpayer to identify the particular shares disposed of, taxpayers have theoption of deciding which particular shares are being disposed of (and keeping adequaterecords of the transaction to support the decision) or adopting the first-in first-outmethod as a reasonable basis of identification (Taxation Determination TD 33).Alternatively, average cost may be used if the shares are in the same “company” (sec995–1(1)), are acquired on the same day, and involve identical rights and obligations.

[262] That choice can, in practice, be exercised after the trust has beendeclared, though the need to take the disposal of shares into account in the nexttaxation return of the person declaring the trust would require the choice to beexercised before the lodgement of the next taxation return. The exercise of thatchoice will decide the quantum of any capital gain or loss that the persondeclaring the trust sustains by reason of the disposal involved in declaring thetrust, and will also be one factor in deciding the quantum of any capital gain orloss that he sustains when any of the balance of his holding is disposed of.

[263] The exercising of that choice does not have any effect on the amount ofcapital gains tax that might eventually be payable by the beneficiary. If thebeneficiary has received the shares without consideration, the beneficiary’s costbase for the shares that are held on trust will be zero. If the beneficiary hasprovided consideration for the declaration of trust, the beneficiary’s cost base forthe shares will be whatever is the value of the consideration that the beneficiaryprovided.

Operation of tracing rules

[264] Another argument of Professor Hayton (110 LQR at 336) is:

If the proceeds of sale are profitably or detrimentally reinvested does the newinvestment belong in equity to Hunter or Moss, bearing in mind that it is only if Mossis acting wrongfully in respect of specific shares that Hunter can take advantage of theequitable tracing rules to apply whichever of them suits him best?

[265] In my view, identification of whether any shares, of the parcel, that weresold were ones that belonged beneficially to the trustee or beneficiary would bedecided in accordance with the principles I have mentioned at [257] above.

Effect of a forged transfer

[266] Another problem, that does not arise on the facts of this present case, butthat is still appropriate to consider for the purpose of deciding whether inprinciple there is a problem about the recognition of a trust of a particular numberof shares in a larger parcel, is:

… will all shares in a consolidated holding of 950 shares really be identical if anincorporated parcel of 50 happens to represent a forged gratuitous transfer? (Hayton,110 LQR at 337)

[267] In my view, such problems will be solved, first, if the declaration of trustwas written, and the writing was an inaccurate reflection of the true intention ofthe settlor, by having the trust instrument rectified to accord with that intention:Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR329. Next, one would construe the particular declaration of trust that is involved.If there is a declaration of trust of “200 of my 1000 shares”, it is a matter ofconstruction whether the settlor’s really having 1000 shares is a conditionprecedent for the declaration being effective. If it is a condition precedent, and it


turns out that, because some of his shares were acquired under a forged transfer,he does not have 1000 shares, then the declaration will be ineffective. If it is nota condition precedent, then, provided the settlor has 200 or more shares once thefraud has been unravelled, the declaration of trust will be effective. That outcomewould be subject to any equity that might emerge from the circumstances of thecase (such as if the beneficiary had induced the belief that the share transfer thatturned out to be forged was a genuine one) that led to the declaration of trustbeing set aside.

[268] In all these circumstances I conclude that there is no difficulty ofprinciple in recognising the validity of the trust that the defendant intended todeclare.

Part E — remedy for breach of trust

[269] As Lord Browne-Wilkinson said in Target Holdings Ltd v Redferns[1996] 1 AC 421 at 434; (1995) 17 ACSR 582 at 589:

The basic right of a beneficiary is to have the trust duly administered in accordancewith the provisions of the trust instrument, if any, and the general law.

[270] A remedy that is frequently ordered against a trustee who has acted inbreach of trust is to recoup the trust fund — to place money or other property intothe trust fund, sufficient to undo the consequences of the breach of trust.However, that is not the only remedy. Any equitable remedy must be moulded tobe appropriate to the facts of the particular case. The objective of equitableremedies is to undo, so far as in practice can be done, the consequences of abreach of obligation. In the present case, when the breach of trust consisted infailing to transfer to the beneficiary property to which she was entitled, thatobjective is achieved by granting equitable compensation, payable to thebeneficiary, in an amount that will put her into the same situation as she wouldhave been in if the obligation of the trustee had been performed: TargetHoldings Ltd v Redferns at AC 434–5 and 439; ACSR 589 and 594–5;O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 273;29 ACSR 148 at 157–8; Beach Petroleum NL v Kennedy and others (1999)48 NSWLR 1; 33 ACSR 1; [1999] NSWCA 408 at [431]–[432]; Youyang Pty Ltdv Minter Ellison Morris Fletcher (2003) 212 CLR 484; 196 ALR 482; [2003]HCA 15 at [43]. That amount is assessed as at the date of the trial, and with thebenefit of hindsight: Dawson, Re; Union Fidelity Trustee Co Ltd v PerpetualTrustee Co Ltd [1966] 2 NSWR 211; Youyang Pty Ltd v Minter Ellison MorrisFletcher at [35].

[271] Were it not for a complication arising from the fact that the defendant’s1.5m shares were all restricted securities subject to a holding lock, the measureof that equitable compensation would, on the facts of this case, be the same as themeasure of damages for breach of contract. I shall return to the consequences ofthe complication arising from the shares being restricted securities subject to aholding lock at [312] below.

Part F — trust of shares of Williamson or Merkaba?

[272] One of the contentions of the plaintiff’s counsel is that the defendant notonly had the 1.5m shares which were registered in his own name in Unitract, butalso the beneficial ownership of shares in Unitract that were held in the name ofRoger Williamson or of Merkaba Pty Ltd. The plaintiff seeks to make twodifferent forensic points by this contention. One is that the document executed on


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17/18 March 2003 relates to a trust of the defendant’s beneficial interest in thoseshares held in the name of Roger Williamson or Merkaba Pty Ltd. Another is thatthe defendant owed to the plaintiff a fiduciary duty, which he could, and should,have performed by causing to be transferred to her, when she asked for the sharesafter 1 August 2003, 222,000 of the shares in which he held such a beneficialinterest.

[273] I turn to whether the evidence establishes that the defendant had any suchbeneficial interest. The evidence concerning this topic is a collection offragments, from which the plaintiff submits I should draw an inference.

[274] In 2002, the defendant engaged Mr Paul Brown, of John McDonald &Partners, solicitors, to act for him concerning the Cooper’s Shoot property. Thedefendant needed to pay a deposit or part deposit to the owner of that land, ofnearly $20,000: at [29] above. He told his solicitors that arrangements had beenmade for money to be sent to their trust account. However, the money had notarrived in the solicitors’ trust account by 30 June 2002. On 30 June 2002, thedefendant sent a fax to Mr Brown, saying:

… please find attached a copy of the bank statement, that the $20K was debited fromand letter from my overseas financial advisor.

[275] The enclosed “letter” was on paper with no letterhead, and no otherindication of the address from which it came. Its text was as follows:

29 June 2002.

Alan.

Below is a copy of my instruction to the bank. The funds were debited from mypersonal account at Standard Chartered Bank Jersey on 19 June with t/t reference.

TT53/390825/PROJMCDONALDPTNRS.

There is no sign on my account that the TT has been returned for any reason soif J McDonald Trust still say they have not received the funds, please let me know andI will ask the bank to put a trace on them.

Regards Roger.

14 June 2002.

To: Ramiro dos Reis.

Please make the following wire transfers:

1. AUD20,000 (Twenty Thousand Australian$) to:

[details of John McDonald and Partners Trust account].

And debit our AUD$ a/c No 67243422 R&E Williamson.

[276] The enclosed “bank statement” is in the form of a bank statement, but isalso not on letterhead. It does not identify the bank that holds the account, or thename of the proprietor of the account, or the number of the account. It does notstate, and one cannot infer, who drafted the text of the narrations relating toindividual transactions. It appears, from a footer on it, to have been obtained froman internet location, the name of which includes “my-online-account.net”. Theentries on that “bank statement” are as follows:

14–06–02 Balancebroughtforward

28,353.67

14–06–02 Int. rtechanged to1.45%

28,353.67


14–06–02 T/f toJMcDonaldTrust

20,000 8353.67

14–06–02 Int. ratechanged to1%

8353.67

14–06–02 US$4000 toATM card

7,050 1303.67

14–06–02 Wire fees 200 1103.67

14–06–02 R W fee onabove

700 403.67

24–06–02 T/f fromADS

27,000 27,403.67

24–06–02 Int. ratechanged to1.45%

27,403.67

25–06–02 T/f toUnitract

27,000 403.67


403.67

25–06–02 Wire fee 100 303.67


337.50 -33.83


-33.83

28–06–02 T/f fromADS

49,000 48,966.17

28–06–02 Int. ratechanged to1.45%

48,966.17

28–06–02 T/f toUnitract

48,000 966.17


966.17

28–06–02 Wire fee 100 866.17


600 266.17

[277] The “bank statement” debits the $20,000 transferred to J McDonald Truston 14 June 2002, not 19 June 2002. 19 June 2002 was the date the $20,000 wassaid, in the letter, to have been debited to the R & E Williamson account withStandard Chartered Bank in Jersey. Further, it appears that each time a debit ismade to the “bank account” a “wire fee” of $100 is charged for each amount, andas well the account is debited with an “R W fee”. For the amounts transferred on25 and 28 June 2002, the “R W fee” is exactly 1.25% of the amount transferred.However, for the amounts transferred on 14 June 2002 the “R W fee” is greaterthan 1.25%. I also note, however, that the transfers on 14 June 2002 appear to


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include an amount in US$, that has been debited to the account in an amountstated in A$. If the “bank statement” was indeed a bank statement of a bankaccount in the name of R & E Williamson, one wonders why Mr Williamson(who I infer is “R W”) would be debiting fees to his own account. I note that theentries include $27,000 transferred from “ADS” (which I infer is in some wayconnected with the defendant) on 24 June 2002, and transferred out the next dayto Unitract, and a further $49,000 transferred from “ADS” on 28 June 2002 ofwhich $48,000 was transferred out the same day to Unitract.

[278] When the defendant was cross-examined about these entries, he said:

Well, “ADS” doesn’t necessarily refer to me. I can’t confirm it.

[279] That answer is typical of many the defendant gave, where he says he“can’t confirm” a proposition put to him, when there is no documentary back-upfor the proposition available in court.

[280] Other cross-examination on that “bank statement” was:

Q — And I suggest to you that the only explanation for that is that that $76,000, nodoubt plus other transfers which we don’t have, was used by Roger Williamson topurchase shares in Unitract Limited? A — To my knowledge I have never transferredmoney to Roger Williamson.

[281] That evidence could be correct, if the entry “t/f from ADS” did not meanthat the defendant personally had transferred the money, but rather that there hadbeen a transfer from an account maintained in the name of, or belonging to, orin some other way connected with, the defendant, even though it was not thedefendant who caused that transfer to be made. Other explanations might also bepossible. However, the evidence does not enable a conclusion to be made.

[282] The trust account records of John McDonald & Partners show that, inconnection with the defendant’s acquisition of the Cooper’s Shoot property, anamount of $19,982.80 was received on 8 July 2002 from “International FundsManagement”, and disbursed the same day in payment of the deposit.

[283] The plaintiff and the defendant lived together at 39 Alcorn St, SuffolkPark from March 2002 until November 2002. During that time the defendant toldthe plaintiff that he was going to put money into the initial capital raising of thecompany, and that he could buy shares at 4c per share. He explained to her thatthe capital raising was raising a certain amount of money before the companycould float as a public company. No direct documentary evidence of thedefendant ever putting money into the initial capital raising has been tendered.

[284] On some occasions the defendant would complain to the plaintiff that“I have lost a large amount of money because of the change in the exchange ratebetween when I transferred the money, and when I received it in Australia”. Theevidence discloses nothing specific about the money being talked about, the timeor circumstances when it was transferred from Australia, or the time orcircumstances in which it was later received in Australia.

[285] The reader will recall that Unitract came to be floated through an unlistedcompany, Musgrave, acquiring all the shares in Unitract Pty Ltd in return for theissue of shares in Musgrave. Musgrave then changed its name to Unitract Ltd.The agreement dated 11 July 2002 between Musgrave Block Holdings Ltd andUnitract Pty Ltd does not state at the outset that anyone other than those twocompanies are parties to it. However, at the end, after the words “EXECUTEDby the Parties” there is provision for not only Musgrave and Unitract Pty Ltd to


sign, but also for each person who is named as either an existing shareholder inUnitract Pty Ltd or an intended shareholder in Musgrave, to also sign. There aremultiple copies of each of the execution pages, some of which have been signedby only one or two people, as though execution pages have been executed indifferent geographical locations, and then collected. There is an execution pageon which a signature appears opposite the place for Roger Williamson to sign,that signature purporting to be witnessed by “Mr F R Owen 293 Apartado deCorres Roges Girona Spain retired”.

[286] That agreement contains a warranty that at the date of the agreement thecapital structure of Unitract Pty Ltd is:

Shareholders No of Shares

Craig Stephen Thorley 7,950,000

Joseph Hermes Kaal 7,950,000

Alan Dennis Shortall 1,500,000

Roger Williamson 9,600,000

George Sim <ELM Unit Trust> 3,000,000

Grange Consulting Group Pty Ltd 1,250,000

Seed — Roger Williamson 5,250,000

TOTAL 36,500,000

[287] Thus, the defendant is shown as holding 1.5m shares, and RogerWilliamson is shown as holding a total of 14,850,000 shares, of which 5,250,000are “seed”.

[288] The shares that Musgrave agreed to issue, under that agreements were asfollows:

(a) Craig Thorley — 7,950,000 Shares;

(b) Joseph Kaal — 7,950,000 Shares;

(c) Alan Shortall — 1,500,000 Shares;

(d) Roger Williamson — 19,600,000 Shares;

(e) George Sim as trustee for the ELM Unit Trust — 3,000,000 Shares;

(f) Grange Consulting Group Pty Ltd — 1,250,000 Shares;

(g) ASP — 3,000,000 Shares; and

(h) Andrew Hart — 5000,000 Shares.

[289] Thus, the defendant’s number of shares in Unitract was to be the same asthe number of shares he had held in Unitract Pty Ltd, while Roger Williamsonwould hold 4,750,000 more shares in Unitract than he had held in UnitractPty Ltd.

[290] The agreement made provision for the obligations of the parties beingsubject to various contingencies, one of which was “the Seed Capital Raisingoccurring by 19 July 2002”. The “Seed Capital Raising” was defined to be“an issue of shares by Unitract [Pty Ltd] to raise $400,000”.

[291] A “Project Summary” dated July 2002 relating to the Unitract retractablesyringe came to be in the hands of the defendant’s architect, Mr McKay. Thatdocument set out the proposed capital structure for “FY 2003”. It stated that 10mshares would be issued as seed capital, with the seed raised at 4c.


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[292] As it happens, the 5,250,000 shares that Roger Williamson is shown asholding as “seed” in the agreement between Musgrave and Unitract Pty Ltd, plusthe additional 4,750,000 shares that Roger Williamson would be allotted in thelisted vehicle, total 10m.

[293] When Unitract floated, Roger Williamson was shown as holding a totalof 19.6m shares, and a further 500,000 options. Of the shares, 2m were notrestricted. The remaining shares were subject to a restriction stated to be“12 months from date of issue (15–07–03)”.

[294] On 1 July 2003, Unitract made application to ASX for quotation ofordinary fully paid shares which were due to be released from escrow on 19 July2003. That application included the 17.6m restricted shares held in the name ofRoger Williamson. I infer that that application was granted.

[295] On 12 September 2003, Unitract lodged with ASX a notice of change ofinterests of substantial shareholder lodged by Roger Williamson. It showed thatMr Williamson’s relevant interest in shares had changed in three respects — byan off-market purchase on 11 June 2003 of 285,714 shares, an on-marketpurchase attributed to the date “04/12/02–21/05/03” of 343,348 ordinary shares,and an on-market sale, attributed to the period “23/12/02–05/09/03” of 1,044,749shares. That form identified Mr Williamson as holding 1,285,714 sharesregistered in his own name, and as being the beneficial owner of a further17,948,599 shares registered in the name of “Merkaba Ltd”. The evidencediscloses nothing about the place of incorporation, directors or shareholders ofMerkaba Ltd.

[296] On 24 December 2004, Unitract lodged another notice of change ofsubstantial shareholding with ASX. It related to a sale by Mr Williamson of atotal of 1,441,606 shares. The column headed “Date of Change” was not filled in.Individual sale prices were not stated, only “$1.26 average”. After those sales, theshares in which Mr Williamson held a relevant interest decreased to 633,653 heldin his own name, and 17,159,054 held in the name of Merkaba Ltd, of which hewas said to be beneficial owner.

[297] Unitract lodged a further notice of change in substantial shareholdingwith ASX on 4 October 2005. It showed that Mr Williamson had, on21 September 2005, sold a further 2,840,478 shares, and, on an unstated date, hadpurchased 358,998 shares. By then, according to the form, Mr Williamson had arelevant interest in 291,138 shares held in his own name, 14,170,670 shares heldin the name of Merkaba Ltd, 50,000 shares held in the name of PrismNominees Ltd, <WILR 3500>, 530,000 held in the name of Prism Nominees Ltd<SIPP 3510 A/C>, and 269,419 held in the name of Bell Potter Nominees Ltd<BB Nominees A/C>. Bell Potter Securities was a firm of brokers through whichthe defendant had transacted business.

[298] In all these forms, the address of Roger Williamson is given as “410Langham House, 29/30 Margaret St London UK W1W85A” and the address ofMerkaba Ltd is given as “Suite 401, 302 Regent St London UK W183HH”.

[299] For the purpose of proving the quantum of expenditure he had made forthe benefit of the plaintiff and her family, the defendant placed into evidencecertain bank statements of Underline International Pty Ltd. He gives evidencethat this company was incorporated in or around April or May 2001. He says:

This company did not trade, but was a vehicle by which I, through a … cheque account… would pay certain personal expenses.


That account was only used by me to pay expenses for the joint benefit of myself, thePlaintiff, and her children. On occasions I would use other accounts to pay for similarexpenses, but this account was the one I primarily used. I would deposit funds into thataccount from time to time from other assets available to me. There were no withdrawalsor debits from this account other than ones made for the joint benefit of myself thePlaintiff and her children, other than insignificant amounts.

[300] He exhibited the bank statements for that account relating to the periodfrom 1 June 2001 to 2 July 2003, then from 2 April 2004 to 4 January 2005.[301] In the bank statements prior to 2 July 2003, no deposits are shown asemanating from Merkaba Pty Ltd or Roger Williamson. Three amounts totallinga little less than $115,000 and identified on the statements as “offshoretelegraphic transfer received” appear in the statements on 3 January, 21 Marchand 22 May 2003. There is no other identification of the source of those moneys.[302] In the statements that commence on 2 April 2004, there are transfers intothe account identified on the face of the bank statement as “from Merkaba Pty LtdR Williamson”. The deposits so made are:

23 April 2004 40,000

29 April 2004 15,000

4 May 2004 13,000

24 May 2004 50,000

3 June 2004 5000

16 June 2004 25,000

22 June 2004 37,000

11 August 2004 60,000

26 August 2004 18,000

6 October 2004 78,000

15 November 2004 115,000

29 November 2004 100,000

TOTAL 556,000

[303] As well there are transfers into that account with a notation “fromR Williamson” as follows:

9 July 2004 100,000

12 July 2004 80,000

TOTAL 180,000

[304] The trust account ledger of John McDonald & Partners shows, in theaccount relating to the defendant’s proposed acquisition of the Cooper’sShoot Rd property, a telegraphic transfer of $102,000 into the account on8 December 2003 identified as “Kerkaba P/l — s/duty”. I infer that that is amisprint for Merkaba Pty Ltd, or Merkaba Ltd. The trust account ledger showsthat on 8 December 2003 an amount of $100,994 was paid out of the account tothe office of state revenue, for stamp duty on the purchase.[305] That same trust account ledger also shows that on 17 March 2006 theoffice of state revenue refunded the stamp duty. The amount refunded was appliedpartly in payment of the costs and disbursements of John McDonald & Partners,and the balance, $92,552.20 was paid to Underline International Pty Ltd. It wasnot refunded to Merkaba.


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[306] The defendant had various specific propositions put to him concerninghis financial relations with Roger Williamson:

Q — I am putting to you now that you used money that you had borrowed from variousfriends, including Louise, the plaintiff in this case, and you used that to buy shares inUnitract on the float in the name of Roger Williamson? A — I deny that.…Q — What I am putting to you is that you used the money that you had got together in2002 to buy shares in Unitract Limited in the name of Roger Williamson? A — No.…Q — I am putting to you that you borrowed money from some of those people and usedthat money to buy shares in the name of Roger Williamson in Unitract Limited? A —That’s not correct.…Q — And between you and Roger Williamson had a lot of shares you could sell? A —That is not correct.Q — And indeed a lot of them were sold? A — That is not correct.Q — And that is where the continuing flow of money has come to you from RogerWilliamson into your account Underline? A — Yes.

(I interpolate that that “Yes” was in the nature of “I’m following you”, rather than“I agree with you”.)

Q — Is representing sale of shares which had been released were escrow at that periodand sold? A — That’s not correct.Q — I may have asked you the other day — I can’t remember — can you give anyexplanation as to where this flow of money is coming from Roger Williamson into yourUnderline account which as you agreed last week, or which I put to you was over700,000 in that period up to August ‘04. Can you tell the Court where that is comingfrom other than the sale of Unitract shares during that boom period in ‘03? A — Icouldn’t say.…Q — Mr Shortall, what I am suggesting to you is that after the 1 August “03 you hadvarious opportunities of honouring your promise to transfer 222,000 shares to Louise,didn”t you? A — I would have had, yes.Q — Why didn’t you? A — My shares were restricted and there wasn’t an obligationto do so.Q — Now I have already put one of those options to you, and that was the fact that youhad money flowing in from Merkaba, Roger Williamson into your account withUnderline, you could have used that? A — I would have just the one, yes.Q — And you could have prevailed upon Roger Williamson to give you 222,000 out of$19,600,000 to satisfy your promise, couldn’t you? A — I could have.Q — Any reason why you didn’t? A — I would consider it inappropriate as an officerof the company to suggest something like that to a major shareholder.Q — If Roger Williamson exists you actually are in a very intimate businessrelationship with him, a relationship out of which you can influence him in that prevailupon him to do your bidding? A — Um, I would not be in a position to what I considerinfluence Roger Williamson.…Q — And I would suggest to you that due to that relationship between you and him thatyou could have quite easily got him a measly, meagre 222,000 shares out ofshareholding of 19 million 600? A — Now, I agree.

[307] I do not regard the defendant’s answers to these questions as sufficient todispose of the submission that Mr Williamson or Merkaba Ltd held shares inUnilife in trust for the defendant. But the topic was not fully explored incross-examination. In particular, the topic of whether any of the money that


Mr Williamson contributed as seed capital to Unitract Pty Ltd (not Unitract Ltd)came in some fashion from the defendant was not explored. When that topic hasnot been explored, the rule in Browne v Dunn (1893) 6 R 67 precludes there beingany finding on it.

[308] It is of particular importance that this topic was not put to the defendant,when the defendant had manifested in his answers a punctilious attention to theprecise detail of questions that he was asked.

[309] The plaintiff served on the defendant’s solicitors a notice to produce thebank statements of Underline International Pty Ltd for the period 3 July2003–1 April 2004. That is the period in which at least some of the seed capitalwas subscribed to Unitract Pty Ltd, and also the period in which the flotation ofUnitract occurred. That notice to produce was first called on on 3 November2006. I was informed from the bar table that those documents were in thephysical possession of accountants connected with the defendant, where theywere “in storage”, and the accountants had other work commitments whichmeant that they were not able to remove them from storage. I made clear that,when a notice to produce had the force of a subpoena, it was not satisfactory forthe accountants to take the attitude that they were too busy to comply with it. Thenotice to produce was called on on each of the subsequent hearing days, with thesame response. In those circumstances, the groundwork is laid for the drawing ofa Jones v Dunkel (1959) 101 CLR 298; [1959] ALR 367 inference against thedefendant.

[310] However, what Jones v Dunkel does is to permit an inference that isotherwise available to be more strongly, or more readily drawn. In the presentcase there are many unusual and unexplained features of the relationship betweenthe defendant and Mr Williamson concerning Unitract. While one possibleexplanation of the evidence might be that Mr Williamson or Merkaba Ltd holdssome shares in Unitract on trust for the defendant, there are many otherstructures, besides a trust, through which an Australian resident can arrange forthere to be assets offshore that he or she can in practical terms get the benefit of.If an Australian resident wanted to arrange to have assets held offshore in thatfashion, a simple trust that gave the Australian resident a present right to have theassets transferred to him would be a fairly crude and ineffective way of doing it,at least partly because, unless that person was simply prepared to lie about it, anyincome or capital profits arising from those assets would be included in thecalculation of the assessable income, for Australian tax purposes, of that person.

[311] In all the circumstances, I do not infer that any of the shares held in thename of Mr Williamson or Merkaba Ltd are held on trust for the defendant.

Part G — effect of restricted securities

[312] Mr Curtin submits that the plaintiff’s case is affected by illegality. Therelevant illegality is a contravention of the stock exchange listing rules relatingto shares the subject of an escrow. The illegality is said to affect the plaintiff’scase in two separate ways. The first is that it prevents there having been a validdeclaration of trust at all. The second is that, if a trust was validly established, thelisting rules would have prevented there being an actual transfer of the shares tothe plaintiff, and hence she is unable to make out the means by which she seeksto quantify her remedy.


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[313] To consider those arguments, it is necessary to examine in more detail thecircumstances in which these restrictions on transfer arise, their terms, the sortsof legal obligation to which they give rise, and the manner in which anycontravention is enforced.

[314] I turn first to how the restrictions arise.

[315] No rule in the listing rules specifically states that the only circumstancein which an entity seeking quotation of any of its securities can issue securitiesto a person involved in its promotion or flotation is if the securities issued arerestricted securities. However, it seems to be a fairly clear assumption runningthrough the listing rules that an entity seeking quotation can issue securities to aperson involved in its promotion or flotation only if the securities issued arerestricted securities, to the extent set out in App 9B. In any event, listing rule 2.9provides:

Quotation of an entity’s securities is in ASX’s absolute discretion. ASX may grantquotation on any conditions it thinks appropriate. ASX may grant or refuse quotationwithout giving any reasons.

And in the present case restriction agreements were in fact entered, relating to the1.5m ordinary fully paid shares of the defendant.

[316] Chapter 19 of the listing rules contains the following definition of“restricted securities”:

(a) Securities issued in the circumstances set out in Appendix 9B.(b) Securities that, in ASX’s opinion, should be treated as restricted securities.

[317] Appendix 9B sets out various descriptions of people who might beassociated with a corporation, and states in relation to each the number ofsecurities that are to be restricted, and the period for which the restriction is toapply. It was pursuant to appendix 9B that the number of shares in Unitract inrelation to which ASX required a restriction, and the period of that restriction,came to be ascertained.

[318] Chapter 2 of the ASX listing rules sets out the requirements for quotationof any of the securities of a listed entity. The float of Unitract involved bothobtaining quotation of its securities that were suspended, and the issue of newsecurities, of the same class as the existing ones. Listing rule 2.4 provides:

An entity must apply for quotation of all securities (except restricted securities andsecurities issued under an employee incentive scheme that are subject to restrictions ortransfer) that are in a class of securities that is to be quoted, or that is already quoted.

[319] Thus, it was a requirement of the listing rules that Unitract would applyfor quotation of the new securities that it proposed to issue as part of the float,except that r 2.4 did not require Unitract to apply for quotation of new securitiesthat it issued that were restricted securities. However, listing rule 2.12 removesthe apparent freedom that r 2.4 gives for an entity to choose whether or not toapply for quotation of restricted securities. Rule 2.12 provides expressly:

Restricted securities will not be quoted during the escrow period.

[320] Listing rule 2.8.2 requires a listed entity to apply for quotation ofrestricted securities within 10 business days after the end of the escrow period.

[321] Chapter 9 of the ASX listing rules contains, so far as is relevant to thepresent case, the following provision:


Application of restrictions and entry into restriction agreements9.1 An entity which issues restricted securities, or has them on issue, must do each

of the following:…

9.1.3 apply the restrictions in Appendix 9B …9.1.4 enter into a restriction agreement with the holder …

When restriction agreements must be entered9.3 An entity must make sure that all completed restriction agreements are given to

ASX before any person gets the restricted securities or any rights in relation to them.This rule does not prevent the person getting the right to receive restricted securities oncondition that restriction agreements are entered into.Enforcement of restrictions

9.4 An entity must comply with, and enforce, a restriction agreement, and enforce itsconstitution, to ensure compliance with the requirements for restricted securities.Escrow of restricted securities

9.5 An entity must get one of the following undertakings. The entity must give theundertaking to ASX within 2 business days after the issue of the restricted securities.

(a) A bank’s or recognised trustee’s undertaking to hold the certificate of arestricted security held on the certificated subregister for the escrow period,and not release the certificate without ASX’s written consent.

(b) An undertaking from the provider of registry services to the entity to imposea holding lock to a restricted security held on the issuer sponsored subregisterand not remove the holding lock without ASX’s written consent.

[322] I interpolate that Unitract’s shares were not certificated. Thus, theundertaking under r 9.5 that was relevant to it was the undertaking from theprovider of registry services to impose a holding lock. Other provisions of Ch 9are:

Changes of restriction during escrow9.7 During the escrow period, an entity must not do either of the following.

(a) Change an executed restriction agreement.(b) Ask for, or agree to, the following. This restriction does not apply if ASX has

given written consent to the release of the certificate or removal of the holdinglock under rule 9.5 or rule 9.17.

• Release of a certificate held on the certificated subregister by a bank orrecognised trustee.

• Removal of a holding lock on restricted securities held on the issuersponsored subregister.

Holding of restricted securities9.14 An entity must do one of the following.

(a) Issue certificates for restricted securities. The certificate must state that thesecurities are restricted securities, are not quoted on ASX and the date onwhich they will cease to be restricted securities.

(b) Enter restricted securities on the issuer sponsored subregister.

[323] Chapter 19 of the listing rules defines “holding lock” as having “themeaning in s 2 of the ASTC settlement rules”.

[324] ASTC is the ASX Settlement and Transfer Corporation Pty Ltd. It is asubsidiary of ASX. It is an approved CS facility for settlement of securitiestransactions.

[325] Section 2 of the ASTC settlement rules provides:

“Holding Lock” means, in relation to a Holding on either the CHESS Subregister or anIssuer Operated Subregister, a facility that prevents Financial Products from beingdeducted from, or entered into, a Holding pursuant to a Transfer or Conversion.


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[326] Rule 8.15.18 of the ASTC settlement rules provides:

If an Issuer receives a Message requesting authorisation of a Transfer or Conversion ofFinancial Products in a Locked Holding that is an Issuer Sponsored Holding:

(a) the Issuer must reject the Message and notify ASTC of the rejection and thereason for the rejection; and

(b) on receipt of a notification under Rule 8.15.18 (a), ASTC must notify theParticipant that initiated that Transfer or Conversion of the rejection.

[327] Thus, in the case of an uncertificated holding that is issuer sponsored, theresponsibility for not registering a transfer of shares subject to a holding lock lieswith the issuer of the securities. It is because in practice an issuer of securitiesengages a provider of registry services to operate its share registry that ASXrequires from the provider of registry services the undertaking referred to inr 9.5(b). The holding lock is an administrative arrangement whereby the providerof registry services will not add to or deduct from the balance of securities shownin the register as held by a particular person.

[328] Thus, the restrictions on transfer of restricted securities are of threedistinct types. First, the fact that they are not, and cannot be, quoted means thatthere is no practical opportunity to sell them by an on-market sale while therestriction lasts. Second, the existence of the “holding lock” places a practicalobstacle in the way of any transferee of the shares becoming registered as holderof them, no matter how the transferee’s claim to be registered might have arisen.Third, the terms of the restriction agreement itself gives rise to legallyenforceable restrictions.

The restriction agreement

[329] The restriction agreement required by listing rule 9.1.4 was entered into,on 28 October 2002, between the defendant and Unitract. It was executed as adeed. In it, the defendant was referred to as “the holder”, and Unitract wasreferred to as “the entity”. The escrow period was stated to be 24 months fromthe date on which re-quotation of the entity’s ordinary fully paid sharescommences on ASX.

[330] The document contained covenants that:

ESCROW RESTRICTIONS

1. During the escrow period, the holder will not do any of the following.

(a) Dispose of, or agree or offer to dispose of, the restricted securities.

(b) Create, or agree or offer to create, any security interest in the restrictedsecurities.

(c) Do, or omit to do, any act if the act or omission would have the effectof transferring effective ownership or control of the restrictedsecurities.

…

3. We will comply with chapter 9 of the listing rules. If any of us is not a listedentity, we will comply as if we were a listed entity. Each of us will take anysteps we are able to take that are necessary to enable any of the others tocomply.

[331] The final clause of the restriction agreement incorporates into itdefinitions of terms contained in the listing rules. Chapter 19 of the listing rulesincludes, in r 19.12, a definition of “dispose” as meaning:


… to dispose or agree to dispose directly or through another person by any means,including the following:

• granting or exercising an option;• using an asset as collateral;

• decreasing an economic interest;

• disposing of part of an asset.

[332] In my view, it would be a breach of cl 1 of the restriction agreement forthe defendant to declare a trust of any of those 1.5m securities.

[333] The restriction agreement is not one to which ASX is a party. However,if there were to be a breach of the restriction agreement, Unilife would owe anobligation, under listing rule 9.4, to enforce the restriction agreement and ensurecompliance with the requirements for restricted securities. By virtue of itsadmission to the official list, Unitract would owe ASX a contractual obligation tocomply with the listing rules. It is not necessary for present purposes to considerwhether Unitract would also owe a contractual obligation to comply with therules to other market participants: compare Clarke v Earl of Dunraven [1897]AC 59; Forbes & Bundock v Australian Yachting Federation Inc (1996) 131 FLR241.

[334] The legal effect of the listing rules is not confined to the law of contract.As well, s 793C of the Corporations Act provides:

793C Enforcement of Operating Rules

(1) If a person who is under an obligation to comply with or enforce any of a licensedmarket’s operating rules fails to meet that obligation, an application to the Court maybe made by:

(a) ASIC; or

(b) the licensee; or

(c) the operator of a clearing and settlement facility with which the licensee hasclearing and settlement arrangements; or

(d) a person aggrieved by the failure.

(2) After giving an opportunity to be heard to the applicant and the person againstwhom the order is sought, the Court may make an order giving directions to:

(a) the person against whom the order is sought; or

(b) if that person is a body corporate — the directors of the body corporate;

about compliance with, or enforcement of, the operating rules.

(3) For the purposes of this section, a body corporate that is, with its acquiescence,included in the official list of a licensed market, or an associate of such a bodycorporate, is taken to be under an obligation to comply with the operating rules of thatmarket to the extent to which those rules purport to apply to the body corporate orassociate.

…

(5) For the purposes of this section, if a body corporate fails to comply with orenforce provisions of the operating rules of a licensed market, a person who holdsfinancial products of the body corporate that are able to be traded on the market is takento be a person aggrieved by the failure.

(6) There may be other circumstances in which a person may be aggrieved by afailure for the purposes of this section.

[335] Section 761A of the Corporations Act contains a definition of “operatingrules” that has the effect that the listing rules of ASX are “operating rules” for thepurpose of s 793C.

[336] As well, s 1101B of the Corporations Act provides:


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1101B Power of Court to make certain orders

(1) The Court may make such order, or orders, as it thinks fit if:

(a) on the application of ASIC, it appears to the Court that a person:

…

(iii) has contravened a provision of the operating rules, … of a licensed

market or of the operating rules of a licensed CS facility; or

…

(b) on the application of a market licensee, it appears to the Court that a person

has contravened the operating rules, … of a licensed market operated by the

licensee; or

(c) on the application of a CS facility licensee, it appears to the Court that a

person has contravened a provision of the operating rules of a licensed CS

facility operated by the licensee; or

(d) on the application of a person aggrieved by an alleged contravention by

another person of a provision of the operating rules, … of a licensed market,

it appears to the Court that:

(i) the other person did contravene the provision or condition; and

(ii) the applicant is aggrieved by the contravention.

However, the Court can only make such an order if the Court is satisfied that the order

would not unfairly prejudice any person.

Note: For examples of orders the Court could make, see subsection (4).

(2) For the purposes of paragraph (1)(d), if a body corporate contravenes a provision

of the operating rules of a licensed market, a person who holds financial products of the

body corporate that are able to be traded on the licensed market is taken to be a person

aggrieved by the contravention.

(3) Subsection (2) does not limit the circumstances in which a person may be

aggrieved by a contravention for the purposes of paragraph (1)(d).

Examples of orders the Court may make:

(4) Without limiting subsection (1), some examples of orders the Court may make

under subsection (1) include:

…

(b) an order giving directions about complying with a provision of the operating

rules, … of a licensed market or of the operating rules of a licensed CS

facility to a person (or the directors of the body corporate, if the person is abody corporate) who contravened the provision; and

…

(e) an order restraining a person from acquiring, disposing of or otherwisedealing with any financial products that are specified in the order; and

…

(g) an order appointing a receiver of property (see subsection (9)) of a financialservices licensee; and

(h) an order declaring a contract relating to financial products or financialservices to be void or voidable; and

(i) an order directing a person to do or refrain from doing a specified act, if thatorder is for the purpose of securing compliance with any other order underthis section; and

(j) any ancillary order considered to be just and reasonable in consequence of themaking of an order under any of the preceding provisions of this subsection.

[337] Some of the history of such provisions is traced in Latimer, “LegalEnforcement of Stock Exchange Rules” (1995) 7 (2) Bond LR 1.


[338] When Young J decided Fire & All Risks Insurance Co Ltd v PioneerConcrete Services Ltd (1986) 10 ACLR 760 ss 14 and 42 of the SecuritiesIndustry Code (NSW) contained provisions conferring powers on the courtanalogous to those now conferred by ss 793C and 1101B of the Corporations Act2001. Young J said (at 765):

The listing requirements are, as they state themselves, standards which govern theconditions upon which a company can remain on the official list. Ordinarily the remedyfor gross breach of those requirements will be de-listing, if other factors do not indicatethat such is not in the public interest, and it seems to me that the powers of the courtunder ss 14 and 42 of the Securities Industry Code are a supplement to the powers ofthe exchange, a supplement that is similar to the powers which traditionally equity hadin respect of the common law. The traditional role of equity in those cases was tointervene where the common law remedy was insufficient or where there was someequitable fraud or oppression or unfairness in the way in which the rules were beingadministered in the common law action. Likewise, under s 42 the court, to my mind,will ordinarily only interfere in analogous cases, though in so saying I do not intend toshut out the exceptional case that will arise from time to time, which may be outsidethese guidelines.

This analysis seems to me to be consistent with what little authority there is on s 42or its predecessor; see eg Devereaux Holdings Pty Ltd v Pelsart Resources NL (1985)9 ACLR 879 and Repco Ltd v Bartdon Pty Ltd [1981] VR 1 at 9; 4 ACLR 787 at 796:note too Boomalli Ltd v Hake (1982) 7 ACLR 516 at 525; Designbuild Aust Pty Ltd vEndeavour Resources Ltd (1980) 5 ACLR 610 at 634 and NCSC v Industrial Equity Ltd[1982] 1 NSWLR 42 at 49; 6 ACLR 1 at 9.

[339] Though some aspects of this decision of Young J were disapproved by theCourt of Appeal (Street CJ, Kirby P and Samuels JA) in FAI Insurances Ltd vPioneer Concrete Services Ltd (No 2) (1986) 10 ACLR 801, the paragraphs thatI have quoted were not among those criticised.

[340] Similarly, in Re Delta Gold Ltd (2001) 40 ACSR 347; [2001] FCA 1817at [33], Allsop J said, concerning the then analogue of s 793C:

[33] The terms of s 777 make it plain that a breach of the listing rules is not an unlawfulact. The legislation provides for a method of enforcement of those rules; but breach ofthe listing rules is not to be equated with breach of a statute or acting in a contraventionof a statute. Section 777(2) provides for the satisfaction of the opening words ofs 0000777(1) in relation to listed companies: that it is a person who is under anobligation to comply with the business rules or listing rules.

[341] If the defendant were to declare a trust of his restricted securities, andUnitract were to fail to take action to enforce the restriction agreement, it wouldbe in breach of its obligation under r 9.4 of the listing rules, but that is differentto the defendant being in breach of them. No argument was put that there was anyimplied obligation arising under the listing rules, that the defendant would be inbreach of by declaring a trust, so that the defendant personally could be thesubject of an order that the court might make under ss 793C or 1101B. When noargument was put on that topic, and whether there is any such obligation mightbe a matter of some general importance, I prefer not to make any finding aboutwhether there is any such implied obligation. Rather, I hold that, even if it werethe case that the defendant would also be in breach of the listing rules bydeclaring a trust of any of his restricted securities, that would mean only that thecourt would have a discretionary power to make an order relating to thosesecurities, which it might or might not exercise.


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[342] In these circumstances, in my view, it is not illegal for the defendant todeclare a trust of restricted securities that he holds.

[343] That conclusion seems to accord with the result in DiLucia v Clemens, acase considered at [221] above. The securities over which a trust was declared inthat case were restricted transfer shares, but this did not prevent the creation ofa trust, because it was unnecessary for the shares to be transferred, as the settloralready owned them. Without a fuller understanding of the precise transferrestrictions that were involved in that case than is obtainable from the report, I donot, however, rely on DiLucia v Clemens in reaching my conclusion that it is notillegal for the defendant to declare a trust of restricted securities that he holds.

[344] A different, but related argument is whether the fact that the restrictionagreement, on its true construction, contains a contractual obligation by thedefendant not to declare a trust of his shares in itself makes them incapable ofbeing held on trust. In my view it does not. A valid trust can be declared of apolicy of life insurance which contains a covenant that it is not assignable:Re Turcan (1888) 40 Ch D 5. As well, the contractual restriction on alienationcontained in the restriction agreement is in a separate agreement, and is not partof the chose in action that constitutes the share.

[345] Nor did the contractual obligation of the defendant to Unitract not todispose of the restricted securities create any property rights in Unitract, thatmight have priority over any property rights that the plaintiff acquired through adeclaration of trust. The contractual obligation not to dispose of the restrictedsecurities is in some ways analogous to a negative pledge over assets, which isenforceable by an action for damages for breach of contract, sometimes byinjunction (Pullen v Abalcheck Pty Ltd (1990) 20 NSWLR 732; Bond BrewingHoldings Ltd v National Australia Bank Ltd (1990) 1 ACSR 445 at 461, specialleave to appeal refused National Australia Bank Ltd v Bond BrewingHoldings Ltd (1990) 169 CLR 271; 92 ALR 49; 1 ACSR 722), and sometimes(when the person who receives the interest in the restricted securities hasknowledge of the existence of the restriction) by an action for the tort ofinterference in contractual relations.

[346] The shares of which the defendant was registered holder were alreadysubject to a holding lock at the time that he declared a trust over them. Thatholding lock made it in practice impossible for the defendant to transfer theshares to the plaintiff until that holding lock expired, without the consent of ASX.ASX guidance note 11, para 9, says:

ASX will usually only consent to the release of certificates or a holding lock aftercompletion of the escrow period. However, in exceptional circumstances, ASX mayconsent earlier. One such circumstance is if the restricted securities form part of adeceased estate and the beneficiary enters into a restriction agreement for the balanceof the escrow period.

[347] That guidance note holds out no hope that it might have been possible forthe plaintiff to obtain a transfer of the 222,000 shares before the holding lockexpired, in circumstances where she would have been free to sell themimmediately.

[348] When a trust is declared over property, it relates to the property with allthe limitations and disadvantages that it might be subject to at the time ofdeclaration of the trust. In the present case, even though the same document thatdeclared the trust also said that the shares could be transferred after 1 August2003, that was an attribute that the trust property in fact did not have. It is only


if I am correct in holding that there was a contract to transfer the shares at1 August 2003 that the plaintiff can obtain a remedy that gives her, in effect, thevalue that the shares had at or soon after the time she called for them.

[349] The “voluntary escrow” that the defendant agreed to impose on theshares after 1 November 2004 (at [12] above) has no recognition in the ASXlisting rules. I infer that it involved the share registry placing the shares under aholding lock. There is no evidence that it also involved execution of a newrestriction agreement. In my view, it was a breach of his obligations as a trusteeto enter any such arrangement that restricted transferability of the trust propertyafter the trust had been declared, and after the plaintiff had called for the transferof the trust property.

[350] Equitable compensation for breach of trust is assessed by reference towhat the situation would have been if the trustee had, in all respects, performedhis duty. Thus, equitable compensation for breach of trust, in not transferring theshares, needs to be assessed on the basis that the shares could have beentransferred at any time after 1 November 2004.

[351] In light of the repeated requests for transfer that the plaintiff had made,the defendant’s obligation was to transfer 222,000 shares to her promptly after1 November 2004. If the shares had been transferred to the plaintiff at that timeit is likely that she would have sold them all virtually immediately. The shareprice in the period a week or two after 1 November 2004 approximated $1.20 pershare. If (contrary to my view) there were to be no contracts to transfer the sharesafter 1 August 2003, but there was a valid trust of the shares, the measure ofequitable compensation to which the plaintiff would be entitled would be$266,400.

Part H — other

Fiduciary duty

[352] The plaintiff makes an alternative claim that the defendant owed her afiduciary duty as at 17 March 2003. That is said to arise:

1. because he undertook or agreed to act for or on behalf of, or in the interestsof, the Plaintiff in the exercise of a power or discretion which would affect herinterests, and she possessed the characteristic of financial vulnerability; and

2. because of the relationship of confidence giving rise to duties or disabilitiesupon the defendant, in whom the confidence was reposed, and the potentialfor abuse of this confidence.

[353] Both the cases that counsel for the plaintiff referred me to concerning thissubmission, Don King Productions Inc v Warren [2000] Ch 291 and Chan vZacharia (1984) 154 CLR 178; 53 ALR 417, were cases involving a partnership,where the fiduciary duty that partners owe to each other is undoubted.

[354] Of course, if there were a valid trust, there would be no doubt that therewas a fiduciary relationship, because a trust always imposes fiduciary duties onthe trustee. However, if on the correct analysis there were no trust, I am notpersuaded that any fiduciary duty was owed by the defendant to the plaintiff. It isquite common in marriages, and marriage-like relationships, for one party,usually the man, to have significantly more economic power than the other, andfor the other to be vulnerable to unfavourable exercises of that economic power.However, the law has traditionally not regarded that fact as giving rise to anyfiduciary duty. Rather, it has resulted in the common law imposing an obligationon a man to support his wife.


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[355] Further, the general concept of a fiduciary relationship was explained byMason J in Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR41 at 96–7; 55 ALR 417 at 454; 4 IPR 291 at 329:

The critical feature of these [fiduciary] relationships is that the fiduciary undertakes oragrees to act for or on behalf of or in the interests of another person in the exercise ofa power or discretion which will affect the interests of that other person in a legal orpractical sense. The relationship between the parties is therefore one which gives thefiduciary a special opportunity to exercise the power or discretion to the detriment ofthat other person who is accordingly vulnerable to abuse by the fiduciary of his position.

[356] If there is no contract, requiring the shares to be conveyed on demand onor after 1 August 2003, and no trust, I cannot see how any separate fiduciary dutyarises, as in that situation there would be no relevant undertaking or agreementby the defendant.

Estoppel by convention

[357] A final way in which the plaintiff puts her case is that:

The defendant, having entered into the agreement on 17 March 2003, is estopped fromdenying that 222,000 shares were held in trust for the plaintiff until the plaintiff madea request for them at any time after 1 August 2003.The defendant, having entered into the agreement on 17 March 2003, is estopped fromdenying that he was under a duty to transfer shares when the plaintiff made a request.

[358] This estoppel was not argued for at any length. As pleaded, it appears tobe alleged to arise from events after the entering of the agreement on 17 March2003. I cannot see that anything relevant to an estoppel was done after theagreement was entered. Hence, I would not uphold the allegation of estoppel.

Orders(1) Judgment for the plaintiff for $548,452.(2) Defendant to pay plaintiff’s costs.

CHRISTOPHER FIRMSTONE

SOLICITOR


Documents

24 October, 3, 7, 8 November, 15 December 2006 — …2008-2-4 · WHITE v SHORTALL SUPREME COURT OF NEW SOUTH WALES — EQUITY DIVISION CAMPBELL J 24 October, 3, 7, 8 November,