In the matter of Macarthur Farm Pty Ltd

1. [1]

   The Plaintiff, Macarthur Farm Pty Ltd, is a special purpose vehicle which was incorporated by the First Defendant, Mr Thomas Crown, for the purpose of purchasing properties located at 186 and 214 Macarthur Road, Spring Farm, New South Wales (the Spring Farm Properties).

2. [2]

   Macarthur Farm is the trustee of a unit trust called the Macarthur Farm Trust. All of the units in the Macarthur Farm Trust are held by the Third Defendant, Crown Family Estates Pty Limited (CFE). Mr Crown is the sole shareholder and director of each of Macarthur Farm and CFE.

3. [3]

   The Second Defendant, Ms Vanessa Crown, is Mr Crown’s wife.

4. [4]

   In order to fund the purchase of the Spring Farm Properties, Macarthur Farm entered into a loan agreement with Warneet Super Pty Ltd (the Loan Agreement). Warneet advanced the full amount of the purchase price for the Spring Farm Properties, plus GST and transaction costs.

5. [5]

   Immediately following settlement, Mr Crown caused Macarthur Farm to lodge a Business Activity Statement (BAS) in respect of the month of September 2023, in order to obtain a refund of the GST which had been paid on the purchase of the Spring Farm Properties. The Australian Taxation Office (ATO) assessed that an amount of $2,614,900 was payable to Macarthur Farm following lodgement of this BAS (the September BAS Refund).

6. [6]

   Subsequently, in November 2023, Mr Crown caused Macarthur Farm to lodge a further BAS in respect of the month of October 2023. A refund of $1,600 was assessed to be payable to Macarthur Farm for this period (October BAS Refund).

7. [7]

   Mr Crown caused each of the September BAS Refund and the October BAS Refund (together, the BAS Refunds) to be paid into a bank account in his name (Mr Crown’s Account).

8. [8]

   By Amended Originating Process filed 5 August 2024, Macarthur Farm has brought a number of claims against the Defendants, arising out of transactions which were undertaken following the receipt of the September BAS Refund.

9. [9]

   It was common ground that:

   1. (1)

      on 5 October 2023, the September BAS Refund was paid into Mr Crown’s Account;

   2. (2)

      on 10 October 2023, the amount of the September BAS Refund was transferred from Mr Crown’s Account into a joint bank account held by Mr Crown and Ms Crown (the Joint Account); and

   3. (3)

      on 23 October 2023, funds in the Joint Account were used to purchase a property in Bronte, New South Wales, in the name of Ms Crown (the Bronte Property).

   4. (4)

      on 10 November 2023, the October BAS Refund was paid into Mr Crown’s Account.

10. [10]

    As regards Mr Crown, Macarthur Farm pressed, in closing submissions, three claims, namely:

    1. (1)

       that, on receipt of the BAS Refunds in Mr Crown’s Account, Mr Crown held those funds on trust for Macarthur Farm, and acted in breach of trust by transferring those funds to the Joint Account;

    2. (2)

       that Mr Crown breached his statutory and fiduciary duties as a director of Macarthur Farm by misappropriating the BAS Refunds and failing to return those funds to Macarthur Farm; and

    3. (3)

       that Mr Crown is liable for money had and received, and liable to pay restitution (the relevant vitiating factor being Mr Crown’s misappropriation of funds and/or his breaches of statutory and fiduciary duties as a director of Macarthur Farm).

11. [11]

    As regards Ms Crown, Macarthur Farm abandoned any claim that she was on notice that the funds paid into the Joint Account had been misappropriated either at the time when those funds were received or at the time when funds in the Joint Account were used to purchase the Bronte Property. However, Macarthur Farm contended that, having received those funds as a volunteer and having subsequently been put on notice by no later than 29 July 2024 of Macarthur Farm’s claim that those funds had been misappropriated, Ms Crown was under an obligation to restore the funds derived from the misappropriation to the extent that she retained those funds or their traceable products (specifically, her interest in the Bronte Property).

12. [12]

    As regards CFE, Macarthur Farm’s primary position was that it did not have any claim against this entity, because it did not receive the September BAS Refund. However, Macarthur Farm submitted that, in the event that it was established that (as the Defendants contended) the September BAS Refund was received by CFE, then CFE was liable under the first limb of Barnes v Addy (1874) LR 9 Ch App 244 as a knowing recipient of funds paid in breach of trust (on the basis that Mr Crown had misappropriated those funds, and Mr Crown’s knowledge was attributed to CFE).

13. [13]

    The Defendants disputed the factual premise of each of Macarthur Farm’s claims, namely, that Mr Crown had misappropriated the BAS Refunds. They pleaded that CFE was entitled to receive from Macarthur Farm a $1,100,000 “Success/Performance Fee” for services in relation to the acquisition of the Spring Farm Properties and a $1,500,000 “Management/Performance Fee” for services in relation to the development of the Spring Farm Properties, and that the transfer of the sum of around $2,600,000 into the Joint Account represented a payment made to CFE in respect of those fees.

Factual background

1. [14]

   Mr Crown operates a business involving the acquisition of properties for renovation or development and subsequent sale. He gave the following evidence of his usual practice in respect of this business.

2. [15]

   When Mr Crown identifies a property for development and negotiates a purchase of the property, he usually incorporates a new special purpose vehicle (SPV) for the purpose of holding that property.

3. [16]

   If Mr Crown expects the SPV to hold the property long term, his usual practice is to open a bank account with National Australia Bank (NAB) for that entity after it has been incorporated. If, however, he expects the SPV to sell the property within six months or so after purchase, he will usually not open a bank account for that SPV, but will instead use either Mr Crown’s Account or the Joint Account for transactions relating to that SPV.

4. [17]

   The SPVs typically do not have assets or available capital of their own. Consequently, once an SPV has been incorporated, it will generally obtain finance from a third-party financier in order to purchase the property. Mr Crown is responsible for negotiating and obtaining such finance on behalf of the SPV.

5. [18]

   Where the purchase of a property involves a GST component, Mr Crown’s usual practice is to negotiate with the financier to ensure that the principal loan amount covers the GST payable on the property. Upon repayment of the loan, the financier will typically receive the principal loan amount which includes the GST component.

6. [19]

   Where an SPV purchases a property in respect of which GST is payable, Mr Crown’s usual practice is to instruct his accountants, after the purchase has settled, to prepare and lodge a BAS for that SPV, in order to obtain a refund or credit of any amount of GST which the SPV paid when purchasing that property.

7. [20]

   When the BAS has been processed and any refund has been received, Mr Crown’s usual practice is to make an entry in a ledger, detailing when the BAS refund was received, the amount, and the relevant entity.

8. [21]

   Mr Crown gave the following evidence regarding his usual practice upon receipt of such a refund:

9. [22]

   Mr Crown first became aware of the Spring Farm Properties in 2022, and subsequently became interested in purchasing those properties.

10. [23]

    From about March 2023, Mr Crown engaged in conversations and correspondence with employees of Audant Investments Pty Limited with respect to the purchase and development of the Spring Farm Properties. Audant Investments is the entity responsible for managing various assets held by Mr Robert Whyte. Warneet is the trustee of a self-managed super fund of which Mr Whyte is the sole member.

11. [24]

    On 28 March 2023, Mr Crown and the Executive Director of Audant Investments, Mr Troy Thompson, had a telephone call regarding the Spring Farm Properties. At 3:05pm on the same day, Mr Crown sent an email to Mr Thompson, stating as follows: “As discussed this morning, I’ve secured the former ‘Spring Farm Quarry’ properties in a deal directly with the vendors for $27m”. In the email, Mr Crown provided Mr Thompson with “high level details” regarding the purchase and development value of the Spring Farm Properties.

12. [25]

    On 2 May 2023, Mr Thompson sent an email in reply which stated as follows:

13. [26]

    In his affidavit of 14 October 2024, Mr Thompson explained that his reference to “Manx Park” in his 2 May 2023 email was a reference to a previous transaction involving Warneet and Mr Crown which had involved a 50/50 profit share and which had involved no success, management or performance fee payable to Mr Crown.

14. [27]

    Later that same day, Mr Crown sent Mr Thompson another email containing his “response/counter to Robert’s offer”. In response to the proposed “60% (Audant)/40% (Crown)” profit share, Mr Crown suggested a “50%/50% profit share to keep consistent with Manx Park deal as Spring Farm will also be another ‘on-sale’ deal”. Mr Crown added:

15. [28]

    On 5 May 2023, Mr Thompson replied to Mr Crown’s email as follows:

16. [29]

    On 8 May 2023, Mr Crown sent an email in response, confirming his agreement to this proposal.

17. [30]

    On 11 May 2023, Mr Crown and Mr Thompson had the following exchange of text messages:

18. [31]

    On 12 May 2023, Macarthur Farm was incorporated, with Mr Crown as its sole director and shareholder.

19. [32]

    On the same date, Mr Crown executed a Trust Deed on behalf of each of Macarthur Farm as Trustee and CFE as Original Member. The Trust Deed created the Macarthur Farm Trust. By cl 3 of the Trust Deed, Macarthur Farm was required to hold the “Trust Fund” on trust for CFE. The Trust Fund effectively comprised the entire property of Macarthur Farm.

20. [33]

    Clause 6.1(b) of the Trust Deed provided as follows:

21. [34]

    Clause 23 of the Trust Deed was entitled “Conflict of Interest” and provided as follows:

22. [35]

    Further, clause 10.3.1 of Macarthur Farm’s Constitution relevantly provided as follows:

23. [36]

    Mr Crown deposed that, in accordance with his usual practice, he did not open a bank account in Macarthur Farm’s name because he anticipated that the Spring Farm Properties would be sold soon after purchase.

24. [37]

    On 25 June 2023, Mr Crown sent the following text to Mr Thompson:

25. [38]

    On 26 June 2023, M Collins & Sons Holdings Pty Ltd as Vendor and Macarthur Farm as Purchaser entered into a contract for sale of the Spring Farm Properties for the price of $27m plus GST. Mr Crown executed this contract on behalf of Macarthur Farm.

26. [39]

    On around 26 June 2023, Mr Thompson received an email from Ms Rebecca Mercer of Hicksons Lawyers, who were acting for Audant Investments on the Spring Farm transaction. The email included the following statements:

27. [40]

    Mr Thompson deposed that prior to Macarthur Farm executing the contract for sale of the Spring Farm Properties, there had been some uncertainty as to whether Collins & Sons would charge GST on the purchase. In his affidavit, Mr Thompson stated:

28. [41]

    At 4:04pm on 26 June 2023, Mr Thompson forwarded Ms Mercer’s email to Mr Crown, noting he was providing “Lawyer comments below as discussed” and requesting Mr Crown’s “comment”.

29. [42]

    At 7:40pm on 26 June 2023, Mr Crown sent an email to Mr Thompson, stating as follows:

30. [43]

    The next day, 27 June 2023, Mr Crown sent an email in reply to Mr Thompson’s email attaching Ms Mercer’s advice with his comments. Mr Crown confirmed that it was “Correct” that the purchase price of the Spring Farm Properties was $27m plus GST. With regards to Ms Mercer’s comments regarding GST (set out in paragraph [39] above), Mr Crown stated as follows:

31. [44]

    On 18 July 2023, Collins & Sons and Macarthur Farm entered into a “Deed of Amendment” which varied the terms of the contract for sale of the Spring Farm Properties. The amendments are not material to the current dispute.

32. [45]

    On 1 September 2023, Mr Crown sent Mr Thompson a “draft loan doc just in from my lawyer with their mark-ups”, requesting that Mr Thompson “Let me know as soon as you have an execution version so I can execute”. Mr Thompson sent an email in reply to Mr Crown the same day which included the following:

33. [46]

    Mr Crown responded on the same day, addressing Mr Thompson’s query as follows:

34. [47]

    On 7 September 2023, Macarthur Farm in its personal capacity and as trustee for the Macarthur Farm Trust entered as “Borrower” into a Loan Agreement with Warneet. Macarthur Farm and Warneet also executed a Mortgage, General Security Deed and Deed of Undertaking on the same day.

35. [48]

    Clause 3(a) of the Loan Agreement is headed “Purpose of Loan” and provided as follows:

36. [49]

    Clause 3(c) provided as follows:

37. [50]

    Clause 4 of the Loan Agreement was headed “Repayment”. Clause 4.1 provided as follows:

38. [51]

    The “Repayment Date” was defined in Item 2 of Schedule 1 of the Loan Agreement as being the earlier of 26 June 2024, twelve months from the date of the Contract for Sale, and the Completion of an On-Sale.

39. [52]

    Clause 5 of the Loan Agreement was headed “Interest” and provided as follows:

40. [53]

    Clause 8.3 of the Loan Agreement provided for a range of “Other Undertakings”, including that the Borrower must “not sell, assign, transfer or otherwise dispose, or part with possession of, any Secured Property other than as permitted by the terms of a Security”.

41. [54]

    Clause 9 of the Loan Agreement was headed “Default” and relevantly provided as follows:

42. [55]

    By cl 2.1(a) of the General Security Deed, Macarthur Farm as Grantor granted a security interest in “the Collateral” to Warneet as the Secured Party. Clause 2.1(b) provided as follows:

43. [56]

    “Collateral” was defined in the General Security Deed as follows:

44. [57]

    By cl 3.1 of the General Security Deed, Macarthur Farms agreed not to “dispose, or part with possession, of any Collateral”, “unless permitted to do so by clause 3.2”. Clause 3.2 provides for “Permitted dealings” as follows:

45. [58]

    The General Security Deed defined a “Revolving Asset” as including any part of the Collateral which is “money, (including money withdrawn or transferred to a third party from an account of the Grantor with a bank or other financial institution) other than money in any account which is blocked under the terms of a Finance Document.”

46. [59]

    Two points about these provisions should be noted. First, there was no obligation on Macarthur Farm to pay to Warneet the amount of any refund of GST which it received. Secondly, the amount of any such refund was not included in the moneys from which the profit share was calculated. Mr Thompson subsequently realised that these matters represented, from Warneet’s commercial perspective, deficiencies in the loan arrangements.

47. [60]

    There was, on the affidavit evidence, a factual dispute as to whether there was a conversation between Mr Thompson and Mr Crown to the effect that, on receiving any refund of GST in respect of the Spring Farm Properties, Mr Crown would ensure that such moneys were used to pay down the loan account. It is unnecessary to resolve this issue. Macarthur Farm did not press, in closing, any contention that the payment of GST into Mr Crown’s Account amounted to a breach of any such oral agreement.

48. [61]

    On 8 September 2023, the purchase of the Spring Farm Properties settled. Warneet advanced $30,315,000 to Macarthur Farm, comprising the purchase price, plus GST, stamp duty, and settlement costs.

49. [62]

    On 1 October 2023, Mr Crown caused Macarthur Farm to lodge a BAS in respect of the month of September 2023.

50. [63]

    On 4 October 2023, Mr Syd Cassimaty, the Chief Financial Officer of Audant Investments, sent an email to Mr Crown asking: “Can you confirm whether the GST return for the Spring Farm purchase has been lodged for Sept 23?” Mr Crown replied: “I believe so, just awaiting confirmation from my accountants. Will confirm asap.”

51. [64]

    On the following day, 5 October 2023, the sum of $2,614,900, representing the amount of the September BAS Refund, was deposited by the ATO into Mr Crown’s Account.

52. [65]

    In his affidavit, Mr Crown deposed that the BAS Refunds were paid into Mr Crown’s Account because Macarthur Farm did not have a bank account. Mr Crown confirmed in cross-examination that he understood that the BAS Refunds were, upon payment into Mr Crown’s Account, held by him on trust for Macarthur Farm.

53. [66]

    On 10 October 2023, an amount of $9,000,000 was withdrawn from Mr Crown’s Account. This money was transferred into the Joint Account. The balance in the Joint Account on the day prior to the receipt of this sum was $554.28.

54. [67]

    It was common ground that the transfer of $9,000,000 into the Joint Account included the funds received in respect of the September BAS Refund (that is, the amount of $2,614,900).

55. [68]

    In his affidavit, Mr Crown gave the following evidence regarding the reason why, and basis upon which, he transferred the amount of the September BAS Refund into the Joint Account:

56. [69]

    On 23 October 2023, an amount of $7,192,844.21 was debited from the Joint Account with the narrative “Balance Required for Settlement”. The balance of the Joint Account prior to this withdrawal was $10,003,588.66. The balance following this withdrawal was around $2.819m.

57. [70]

    The moneys withdrawn from the Joint Account were applied to the settlement of the purchase of the Bronte Property, which occurred on 23 October 2023.

58. [71]

    The Bronte Property was purchased in the name of Ms Crown for an amount of $22,650,000. Ms Crown remains the registered proprietor of the Bronte Property.

59. [72]

    On 30 October 2023, Mr Cassimaty forwarded his email of 4 October 2023 regarding the September BAS Refund to Mr Crown again and requested that Mr Crown “please confirm where this is at”. Mr Crown replied: “Nothing received yet, but I’ll check in with Pitchers and revert.” In fact, as outlined above, the September BAS Refund had, to Mr Crown’s knowledge, been received into Mr Crown’s Account more than three weeks earlier, and had been transferred by Mr Crown into the Joint Account.

60. [73]

    Mr Crown accepted that his response to Mr Cassimaty’s query was dishonest. In his affidavit, Mr Crown gave the following explanation for his answer to Mr Cassimaty’s query:

61. [74]

    On or about 7 November 2023, Macarthur Farm’s BAS for October 2023 was lodged with the ATO. On 10 November 2023, the amount of $1,600, representing the October BAS Refund, was paid into Mr Crown’s Account.

62. [75]

    On 12 November 2023, Mr Thompson sent an email to Mr Crown which, relevantly, asked Mr Crown about “the status of the GST on Spring Farm”, noting that “Robert [Whyte] will not fund until this is resolved/ known”. (The reference to funding which had not yet occurred was a reference to another transaction that Mr Crown was negotiating with Audant Investments in respect of another property known as Newbury Farm).

63. [76]

    Mr Crown replied the next day indicating that he had been “assured by Pitchers I will have status today and will revert once in”. Again, this statement was, to Mr Crown’s knowledge, false. Mr Crown was aware that the BAS Refunds had already been received into Mr Crown’s Account.

64. [77]

    On 22 November 2023, Mr Thompson and Mr Crown exchanged the following text messages:

65. [78]

    Again, Mr Crown’s statement that the GST would be “refunded … within 7 days” was, to his knowledge, false.

66. [79]

    On 30 November 2023, Mr Thompson sent Mr Crown a text asking for “Any update on GST refund?” On the same day, the two exchanged the following messages:

67. [80]

    Mr Thompson did not receive a response to this text message.

68. [81]

    On 4 December 2023, Mr Thompson and Mr Crown exchanged the following further messages:

69. [82]

    On the subsequent Friday, 8 December 2023, Mr Crown and Mr Thompson exchanged the following text messages:

70. [83]

    In her affidavit, Ms Crown deposed that she recalled a conversation with Mr Crown around November or December 2023 where words to the following effect were said:

71. [84]

    On 11 December 2023, a second mortgage was registered over the Spring Farm Properties in favour of MC Coronam Pty Ltd.

72. [85]

    On 15 December 2023, Warneet lodged a “Declaration under Clause 9.2 (a) of the Loan Agreement”. The declaration referred to the Loan Agreement and stated as follows:

73. [86]

    Also on 15 December 2023, Mr Rahul Goyal and Mr Barry Wight were appointed as receivers and managers of the assets of Macarthur Farm (the Receivers and Managers).

74. [87]

    By correspondence dated 17 January 2024, 30 January 2024, and 9 February 2024, the Receivers and Managers demanded that Mr Crown arrange for the BAS Refunds to be repaid into a nominated bank account of Macarthur Farm. Mr Crown has not complied with these demands.

75. [88]

    On 4 April 2024, this proceeding was commenced.

Claims against Mr Crown

1. [89]

   It is common ground between the parties that when the BAS Refunds were paid into Mr Crown’s Account, Mr Crown held those moneys on trust for Macarthur Farm.

2. [90]

   As regards the September BAS Refund, it is common ground that the amount of this refund was, after being received in Mr Crown’s Account, paid into the Joint Account.

3. [91]

   Macarthur Farm pleaded that, by causing the September BAS Refund to be paid into the Joint Account, Mr Crown gained an unauthorised advantage for himself and Ms Crown, in breach of trust.

4. [92]

   Mr Crown denied that, by paying these moneys into the Joint Account, he gained an unauthorised advantage for himself and his wife. The Defendants relevantly pleaded as follows (Defence, [5(c)], [9A(b)]):

5. [93]

   Macarthur Farm made a request for particulars of this pleading, seeking particulars of any agreement pursuant to which the fees were said to have been paid. The Defendants responded, through their solicitors, as follows:

6. [94]

   Macarthur Farm submitted that, even if the particularised “determinations” were established as a matter of fact, a contract cannot be, as a matter of law, formed by an uncommunicated subjective intention of which there is no objective evidence, relying on Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; [2002] HCA 8 at [25], and Stellar Vision Operations Pty Ltd v Hills Health Solutions Pty Ltd [2023] NSWCA 102 at [64].

7. [95]

   It is unnecessary to determine this issue, as Mr Crown did not give any evidence, in his affidavit or in cross-examination, of having “determined, as director of CFE, that CFE would provide services to Macarthur Farm in relation to its acquisition and development of the Spring Farm Properties in return for fees paid or to be paid by Macarthur Farm” (emphasis added). Nor did he give any evidence of having “determined, as director of Macarthur Farm, that he would accept those services in exchange for fees in the amount charged or to be charged by CFE” (emphasis added). There was no evidence of any such agreement being formed prior to services being provided. Nor did he give any evidence of having determined, prior to services being provided, what fees would be charged for any such services.

8. [96]

   Instead, Mr Crown’s evidence was that, around the time that he transferred the amount of the September BAS Refund into the Joint Account, he formed the view “that the work undertaken by me was considerable and, so in accordance with my usual practice, I caused Macarthur Farm to pay [CFE] performance fees for that work”, by paying the September BAS Refund into the Joint Account.

9. [97]

   Mr Crown’s affidavit evidence does not support his pleaded case that the moneys were transferred into the Joint Account by way of the payment of two separate fees, being a success/performance fee of $1,100,000 for services in relation to the acquisition of the Spring Farm Properties and a management/performance fee of $1,500,000 for services in relation to the development of the Spring Farm Properties. There is no reference in his affidavit to two different types of fees being payable of the type described in the pleading, let alone in the amounts referred to in the pleading, or any reference to two distinct amounts being payable which together totalled $2,600,000.

10. [98]

    Nor did Mr Crown give any evidence that, as pleaded, any part of the September BAS Refund was paid to CFE in reimbursement of “fees payable to lawyers, consultants and professional advisers who provided services in relation to the acquisition or development” of the Spring Farm Properties. In particular, there was no evidence from Mr Crown regarding the identity of any third party service provider who was retained by CFE, or regarding any amounts invoiced by any such provider and paid by CFE. Instead, Mr Crown gave evidence in his affidavit in the following generalised terms: “I estimate that I have spent over about $298,000 on expenses in respect of the Spring Farm Property”. This is not evidence that CFE paid any amount for which it was entitled to be reimbursed. Instead, Mr Crown’s evidence is that such expenses were paid by himself, rather than by CFE.

11. [99]

    There is no contemporaneous documentary evidence referring to Macarthur Farm and CFE having reached any agreement or arrangement for performance fees to be paid, or referring to Mr Crown having determined, at the time of the receipt of the September BAS Refund, that performance fees should be paid in the amount of that refund.

12. [100]

    For example, there is no reference in any contemporaneous document to such fees being payable or having been paid. There is no evidence of any invoice being rendered in respect of any such fee. There is no reference to the payment of any such fee in the books or records of Macarthur Farm. Nor is there any reference to the receipt of any such fee in the books and records of CFE. There is no narrative in any contemporaneous bank statement referring to the payment or receipt of any such fee.

13. [101]

    In closing address, the Defendants submitted that Mr Crown’s evidence of his usual practice regarding performance fees was not challenged (see paragraph [21] above). However, Mr Crown gave evidence that his usual practice when a GST refund was received was to “make an entry in a ledger, detailing with the BAS Refund was received, the amount and the relevant entity”. As Macarthur Farm pointed out, the Defendants have not produced any ledger recording any such payment. This suggests that the present case was not an instance where Mr Crown followed his usual practice.

14. [102]

    In any case, it makes commercial sense that the arrangements which Mr Crown describes would be a “usual” rather than an invariable practice. The stated object of the practice is to ensure that Mr Crown receives, through an entity that is the trustee of a family trust of which he is beneficiary (such as CFE), “payment … for work that I performed for the particular SPV” through “the full lifecycle of the project up to final exit”. Any assessment of whether the trustee of Mr Crown’s family trust, and whether Mr Crown himself, was going to receive adequate payment for those services in respect of any particular development project would depend on the way in which that particular project was funded and how any profits from that particular project were to be distributed.

15. [103]

    In the present case, Macarthur Farm was to receive a significant percentage of any profits from the Spring Farm project. Mr Crown negotiated this level of profit share on the basis that the profits received by Macarthur Farm would represent, in effect, a return for the contribution made by Mr Crown and CFE to achieving a profitable outcome. In his negotiations with Mr Thompson, Mr Crown described the agreed level of profit share as representing an appropriate return for “‘cleverness’ (the Crown way & all the work)” (see paragraph [27] above). Any such profit share received by Macarthur Farm would be for the benefit of the sole unitholder of the Trust, CFE, which in turn was the trustee of a family trust of which Mr Crown was beneficiary.

16. [104]

    In addition, there is no documentary evidence that the moneys paid into the Joint Account were received on behalf of CFE (rather than being received for the benefit of the holders of that account, Mr Crown and Ms Crown).

17. [105]

    For example, there is no ledger in respect of moneys held on trust for CFE, or in respect of moneys held in the Joint Account. Nor is there any contemporaneous document which refers to the amount of the September BAS Refund as having been received by Mr Crown and Ms Crown on behalf of CFE.

18. [106]

    The only evidence that any moneys in the Joint Account were held on behalf of CFE comprises statements to this effect in Mr Crown’s affidavit. In particular, Mr Crown deposed as follows:

19. [107]

    An express trust is created only if the settlor properly manifests an intention to create a trust: Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [57]-[59] per Gummow and Hayne JJ (see also at [102]-[115] per Heydon and Crennan JJ). The Defendants did not point to evidence of an outward, objective manifestation of any subjective intention on Mr Crown’s part that the September BAS Refund was received in the Joint Account on behalf of, or held on trust for, CFE.

20. [108]

    Further, Ms Crown, who was the other signatory to the Joint Account, did not give evidence that any moneys in that account were held on trust for any other person. Instead, she acknowledged in cross-examination that moneys received into the Joint Account were used by her to fund personal expenses. For example, she identified that various payments were made from this account to a house cleaning service, a nail salon, a dog grooming and boarding business, and Uber Eats, as well as regular payments being made into her children’s saving accounts.

21. [109]

    Ms Crown gave evidence that, before using funds in the Joint Account for such purposes, she would check the balance in the account. However, she did not give evidence that she enquired, or considered it as a possibility, that any part of the balance was held on behalf of any other person. This indicates that, from Ms Crown’s point of view, the funds held in the Joint Account from time to time represented funds which were available to her to spend as she saw fit.

22. [110]

    Those matters are inconsistent with the Defendants’ contention that the amount of the September BAS Refund was received into the Joint Account on behalf of, and was held on trust for, CFE.

23. [111]

    Two contemporaneous documents which were completed by Mr Crown are inconsistent with the Defendants’ contentions that there was an arrangement between Macarthur Farm and CFE regarding the payment of performance fees and that such fees were paid by Macarthur Farm to CFE.

24. [112]

    First, on 22 December 2023, Mr Crown completed a report on company activities and property (ROCAP) in relation to Macarthur Farm, and signed a declaration that the answers to the questions contained in Part B of the ROCAP were “true, correct and complete to the best of my knowledge and belief at the date of this declaration”. Mr Crown confirmed in cross-examination that he understood that he had an obligation to tell the truth when completing this document. The answers given by Mr Crown in Part B included the following:

25. [113]

    In cross-examination, Mr Crown confirmed that this was a truthful answer. However, this answer is inconsistent with the Defendants’ case that, shortly prior to the ROCAP being completed, Macarthur Farm had entered into an arrangement with CFE to pay performance fees in relation to the Spring Farm Properties and had paid such fees. There is no apparent or rational reason why, if such an arrangement had been entered and performed, Mr Crown would not have indicated this in the ROCAP. Mr Crown did not offer any explanation for the inconsistency between this answer and the Defendants’ case in this proceeding.

26. [114]

    Secondly, on 1 January 2024, CFE lodged a BAS for the period October to December 2023, this being the period in which, on the Defendants’ case, CFE had received an amount of some $2,600,000 from Macarthur Farm in respect of performance fees. Mr Crown acknowledged that he did not declare receipt of any such fees in this BAS, with the total sales for the period being recorded as $0.00. (In addition, such fees were not recorded in any preceding, or subsequent, BAS lodged by CFE.) Mr Crown was not re-examined on this issue, and therefore did not provide any explanation for the discrepancy between the information in this BAS and the defence advanced in this proceeding.

27. [115]

    Ultimately, the only evidence in support of the contention that the payment of the September BAS Refund into the Joint Account represented a payment made to CFE in respect of performance fees for the acquisition and development of the Spring Farm Properties is Mr Crown’s affidavit evidence to this effect.

28. [116]

    Mr Crown’s credit is, however, diminished by the fact that he has previously made a series of knowingly false statements in relation to the BAS Refunds.

    1. (1)

       On 30 October 2023, Mr Crown told a representative of Warneet that no GST refund had been received in relation to the Spring Farm Properties (see paragraph [72] above). In fact, to Mr Crown’s knowledge, the September BAS Refund had been received in Mr Crown’s Account on 5 October 2023 and had been transferred by Mr Crown to the Joint Account on 10 October 2023. Mr Crown accepted in cross-examination that this statement was dishonest.

    2. (2)

       On 13 November 2023, Mr Crown stated, in response to a request for an update on when the BAS Refunds would be received, that he had been promised by his accountants “a status today” and would “revert once done” (see paragraph [76] above). Mr Crown had not spoken to his accountants about this, and had no need to do so (having already received the funds). In his affidavit, Mr Crown stated that he made a decision to “lie” about not having received the BAS Refunds, “similar to what I had done” in response to the previous request on 30 October 2023.

    3. (3)

       On 22 November 2023, Mr Crown stated that the ATO had confirmed that the GST was “being refunded – should be within 7 days” (see paragraph [77] above). This was another knowingly false statement. In his affidavit, Mr Crown acknowledged that in providing this response he “continued to lie”.

29. [117]

    Mr Crown stated in his affidavit that: “In hindsight, I probably should have informed [Warneet’s representative] that I had received the September and October BAS Refunds, and had paid the September BAS Refund to [CFE] for the work I had undertaken on the Spring Farm Property deal.” He gave the following evidence in cross-examination:

30. [118]

    As Macarthur Farm submitted in closing address, Mr Crown did not resolve the request by Warneet for payment of the BAS Refunds by stalling for time. Instead, this simply led to repeated requests by Warneet for updates. What would have dealt with Warneet’s request would have been for Mr Crown to tell Warneet, if it had been the case, that Macarthur Farm was unable to pay the September BAS Refund to Warneet because Macarthur Farm had already paid away the full amount to CFE pursuant to an agreement relating to performance fees. Mr Crown’s failure to give this simple response, which would have addressed Warneet’s query, suggests that such a response was not in fact available, because the September BAS Refund had not been paid away pursuant to any such arrangement.

31. [119]

    Having regard to those matters, I am not satisfied that there was any agreement or arrangement between Macarthur Farm and CFE for the payment of performance fees in respect of the Spring Farm Properties; or that the September BAS Refund was transferred from Mr Crown’s Account into the Joint Account pursuant to any such arrangement or otherwise in respect of any such performance fees; or that the September BAS Refund was, on being received in the Joint Account, held on behalf of CFE.

32. [120]

    Accordingly, it follows that Mr Crown has not established that he caused the September BAS Refund to be paid into the Joint Account for the reason or on the basis pleaded in the Defence, or for any other legitimate purpose connected with the business of Macarthur Farm or the Macarthur Farm Trust. The claim for breach of trust has therefore been established.

33. [121]

    It was common ground that, as a director, Mr Crown owed to Macarthur Farm the duties set out in ss 181 and 182 of the Corporations Act 2001 (Cth), as well as cognate fiduciary duties.

34. [122]

    Having regard to the findings I have made above, the September BAS Refund which was held in Mr Crown’s Account on behalf of Macarthur Farm was not paid into the Joint Account in satisfaction of any obligation of Macarthur Farm to CFE, or pursuant to any transaction entered between Macarthur Farm and CFE, or for any legitimate purpose connected with Macarthur Farm’s business.

35. [123]

    It follows that, by causing those moneys to be paid into the Joint Account, Mr Crown used his position as sole director of Macarthur Farm to gain an unauthorised advantage for himself and Ms Crown, and to cause detriment to Macarthur Farm, and failed to exercise his powers as a director in good faith in the best interests of Macarthur Farm and for a proper purpose. He thereby breached the statutory and fiduciary duties that he owed to Macarthur Farm.

36. [124]

    Macarthur Farm did not, in closing, advance any submissions regarding its remaining claim against Mr Crown for money had and received. It is unnecessary to consider this claim separately since, as pleaded, it does not go beyond the other claims. The relevant enrichment is said to be the receipt of the BAS Refunds by Mr Crown, and such enrichment is alleged to be unjust because Mr Crown misappropriated the BAS Refunds in breach of trust and in breach of his duties as a director of Macarthur Farm.

37. [125]

    I deal with the issue of relief below.

38. [126]

    The October BAS Refund may be dealt with briefly.

39. [127]

    It was common ground that, on receipt of the October BAS Refund in Mr Crown’s Account, Mr Crown held this sum on trust for Macarthur Farm.

40. [128]

    The Defendants did not plead that the October BAS Refund was (like the September BAS Refund) applied to the payment of any fee due to CFE. On the Defendants’ own case, the amount of the fees to which CFE was entitled in respect of the Spring Farm development project was $2,600,000, and this amount was paid by the transfer of funds into the Joint Account following the receipt of the September BAS Refund, and prior to the receipt of the October BAS Refund.

41. [129]

    The Defendants did not plead, let alone establish, any basis on which Mr Crown or CFE was entitled to retain the amount of the October BAS Refund.

42. [130]

    Macarthur Farm has demanded that Mr Crown transfer the amount of $1,600 to it. Mr Crown, as trustee, is obliged to comply with this demand. He has not done so.

43. [131]

    Macarthur Farm is accordingly entitled to an order that the amount of the October BAS Refund be paid to it.

Claims against Ms Crown

1. [132]

   In the course of the hearing, Macarthur Farm abandoned any contention that Ms Crown had notice, at the time when the September BAS Refund was paid into the Joint Account or at the time when the Bronte Property was purchased, that the September BAS Refund was property of Macarthur Farm, or that Mr Crown was acting in breach of trust or in breach of his duties as a director of Macarthur Farm in transferring the September BAS Refund into the Joint Account. Accordingly, Macarthur Farm abandoned any claim that Ms Crown had knowingly received moneys paid in breach of trust, or had knowingly assisted in a dishonest breach of trust or fiduciary duties, or was involved in any breach of statutory duties.

2. [133]

   Instead, Macarthur Farm relied on the following factual matters:

   1. (1)

      Ms Crown received the September BAS Refund which was paid into the Joint Account as a volunteer;

   2. (2)

      shortly after the September BAS Refund was paid into the Joint Account, funds from that account were used in settlement of the Bronte Property;

   3. (3)

      on 29 July 2024, Ms Crown became aware, when she received a letter from Macarthur Farm’s solicitors, that an issue had been raised about funds having been paid into the Joint Account in breach of trust or in breach of Mr Crown’s duties as a director; and

   4. (4)

      at the time when Ms Crown was put on notice of those claims, she retained the Bronte Property.

3. [134]

   Macarthur Farm submitted that the decision in Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252 at [163] (per Allsop P, with Campbell JA and Handley AJA agreeing) was authority for the proposition that a volunteer who receives funds, and who is subsequently put on notice that these funds had been misappropriated from another person, is under an obligation, based on the principles in Black v S Freedman & Company (1910) 12 CLR 105; [1910] HCA 58, to restore the funds derived from the misappropriation to the extent that she retained the funds or their traceable products when she had notice of the claim.

4. [135]

   Macarthur Farm did not point to any evidence that Ms Crown retained, at the time when she received notice of its claim against Mr Crown, any part of the funds which were said to have been misappropriated by Mr Crown (cf. Moriah War Memorial College Association v Nosti [2020] NSWSC 942 at [9], [133]-[136], upon which Macarthur Farm relied). Ms Crown was said to have received notice of Macarthur Farm’s claim in late July 2024, and the bank statements for the Joint Account indicated that this account had been in overdraft at all times since the end of March 2024.

5. [136]

   As regards “traceable products” of such funds, the only “traceable product” identified by Macarthur Farm in closing submissions was Ms Crown’s interest in the Bronte Property. Accordingly, Macarthur Farm relied on the principle in Heperu to contend as follows: “Insofar as the $2.6 million was paid into the Joint Account, and then funds from that account were used in the settlement of the Bronte Property, … Ms Crown is liable to restore the trust, relying on the principles addressed above regarding Mr Crown’s breach of trust.”

6. [137]

   In response to this claim, the Defendants referred to s 42(1) of the Real Property Act 1900 (NSW), which provides as follows:

7. [138]

   The Defendants noted that in Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462, the Court of Appeal referred to both this provision and the decision in Heperu when considering the position of a volunteer recipient of misappropriated funds, who has used such funds to purchase real property prior to receiving notice of any claim that the funds had been misappropriated. At [238]-[243], Gleeson JA (with whom Meagher and Barrett JJA agreed) made the following observations:

8. [139]

   The Defendants submitted that, having regard to the decision in Sze Tu, a Black v Freedman claim was not available against a volunteer recipient of misappropriated funds who, prior to being put on notice of any such misappropriation, had used those funds to purchase real property.

9. [140]

   Macarthur Farm said, in reply, that it did not press any proprietary claim in respect of the Bronte Property, but instead contended that a “personal claim in equity and restitution” was available against a volunteer who “retained the benefit in the property”, noting that “it was a personal remedy which was sought and obtained in [Heperu]”.

10. [141]

    In Heperu, it was held that, based on the principles in Black v Freedman, the volunteer was obliged to restore “funds or their traceable products” which she retained at the time when she received notice of the claim. Allsop P commented as follows (at [154], emphasis added):

11. [142]

    As noted above, in the present case, the only “traceable product” in issue is Ms Crown’s interest in the Bronte Property. The decision in Sze Tu is authority for the proposition that, where funds have been used to purchase real property prior to the volunteer recipient being put on notice of any misappropriation, the recipient’s indefeasible title to the property is an answer to any such Black v Freedman claim. Further, as Gleeson JA noted in the passage quoted above, the result in Heperu is distinguishable because, as Allsop P noted in Heperu (at [167]), no issue had been raised at trial in that case under s 42 of the Real Property Act. In contrast, such an issue was raised in Sze Tu and was raised in this case.

12. [143]

    An alternative contention was raised in Sze Tu that “the appellants may have a personal liability to account for benefits received from the use of partnership funds, notwithstanding that they acquired indefeasible title” (at [246]). This contention was also rejected (at [256]-[261]). Gleeson JA noted that, in Super 1000 Pty Ltd v Pacific General Securities Ltd [2008] NSWSC 1222 at [235], White J had considered that there was an open question as to “whether personal remedies against a third party liable as a constructive trustee under the first limb of Barnes v Addy are also excluded because the person acquired the title to the property by registration”. However, Gleeson JA concluded that it was unnecessary to decide this question because it had not been contended at trial that the relevant recipients were liable to account to the partnership as constructive trustees under either limb of Barnes v Addy.

13. [144]

    In the present case, Macarthur Farm abandoned any contention that Ms Crown was liable to account to Macarthur Farm as constructive trustee under either limb of Barnes v Addy. Macarthur Farm asserted a claim in restitution against Ms Crown, but did not identify any basis for that claim other than the application of the principles in Black v Freedman (as applied in Heperu). However, for the reasons given in Sze Tu which are set out above, Ms Crown’s indefeasible title to the Bronte Property is an answer to a Black v Freedman claim.

14. [145]

    For those reasons, I am not satisfied that any claim against Ms Crown has been established.

Claim against CFE

1. [146]

   Macarthur Farm’s claim against CFE arose for consideration only in the event that it was established that (as the Defendants contended) the September BAS Refund was paid into the Joint Account for, and held in the Joint Account on behalf of, CFE.

2. [147]

   In short, Macarthur Farm submitted that, on this factual premise, CFE was liable under the first limb of Barnes v Addy for knowing receipt of moneys transferred in breach of trust (as a result of being imputed with the knowledge of its controller, Mr Crown).

3. [148]

   It is unnecessary to address this claim because the factual premise has not been established. For reasons given above, I am not satisfied that the payment of the September BAS Refund into the Joint Account represented a payment made to CFE, or that the amount of the September BAS Refund was held in the Joint Account on behalf of CFE.

Relief

1. [149]

   For the reasons outlined above, the claims against Mr Crown for breach of trust and breach of director’s duties have been established.

2. [150]

   Macarthur Farm suffered loss and damage as a result of those breaches, being the loss of the amount of the BAS Refunds. It is entitled to compensation in the amount of the BAS Refunds, together with interest.

3. [151]

   Macarthur Farm contended, in closing address, that it did not have any obligation at this point to make an election between compensation or an account of profits, referring to my recent decision in Firmtech Aluminium v Xie [2024] NSWSC 1293 at [554]-[555]. In that case, valuable commercial opportunities had been diverted by officers of a company to a rival entity which they controlled. The plaintiff company did not have sufficient information to make an informed choice between alternative remedies (and in particular, did not have information regarding the profits made from individual contracts): see Firmtech Aluminium Pty Ltd v Xie (No 2) [2024] NSWSC 1427.

4. [152]

   In the present case, a sum of money, which was held on trust by Mr Crown, was transferred into the Joint Account. On Macarthur Farm’s own case, those funds were then used to buy a property in the name of another person (Ms Crown), who did not have notice that the funds had been misappropriated. Macarthur Farm did not identify at trial, by way of evidence, or in written or oral submissions, any “profit” that may conceivably have been made by Mr Crown as a result of these transactions.

5. [153]

   In those circumstances, the question of election between remedies is moot.

6. [154]

   Macarthur Farm has failed to establish its claims against Ms Crown and CFE. Those claims will be dismissed.

7. [155]

   Macarthur Farm has established its claims against Mr Crown, and is entitled to judgment against him in the amount of the BAS Refunds ($2,616,500) together with pre-judgment interest from the date of receipt of the BAS Refunds in Mr Crown’s Account.

8. [156]

   In circumstances where Macarthur Farm has been successful against Mr Crown, but not the other Defendants, I will give the parties an opportunity to be heard on costs in the event that there is no agreement as to the appropriate form of order.

9. [157]

   Accordingly, I make the following orders. The Court:

   1. (1)

      Directs that the parties are to bring in short minutes of order by 5pm on 26 February 2025 to give effect to the reasons for judgment.

   2. (2)

      Directs that, in the event the parties are unable to agree on orders to give effect to the reasons for judgment (including orders as to costs), the parties exchange and provide to the Associate to Nixon J, by 5pm on 26 February 2025, the orders which each party proposes and submissions (limited to 5 pages) on those orders, indicating whether, and if so why, an oral hearing is requested to deal with the matters in dispute.