Twigg v Twigg

1. [1]

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

2. [2]

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

   1. (1)

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

   2. (2)

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

   3. (3)

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

   4. (4)

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

   5. (5)

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

   6. (6)

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

3. [3]

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

4. [4]

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

5. [5]

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

6. [6]

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

7. [7]

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

8. [8]

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

9. [9]

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

10. [10]

    We agree with the orders proposed by Brereton JA.

11. [11]

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

12. [12]

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

13. [13]

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

14. [14]

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

15. [15]

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

16. [16]

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

17. [17]

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

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

1. [18]

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

2. [19]

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

3. [20]

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

4. [21]

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

5. [22]

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

6. [23]

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

7. [24]

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

8. [25]

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

9. [26]

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

10. [27]

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

11. [28]

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

12. [29]

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

13. [30]

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

14. [31]

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

15. [32]

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

16. [33]

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

17. [34]

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

18. [35]

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

19. [36]

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

20. [37]

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

21. [38]

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

22. [39]

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

23. [40]

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

24. [41]

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

25. [42]

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

26. [43]

    As the primary judge rightly concluded: [36]

27. [44]

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

28. [45]

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

29. [46]

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

2. Trustee de son tort (Ground 6)

1. [47]

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

2. [48]

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

3. [49]

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

4. [50]

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

5. [51]

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

6. [52]

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

7. [53]

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

8. [54]

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

9. [55]

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

10. [56]

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

11. [57]

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

12. [58]

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

13. [59]

    Being a director of a trustee company is not the same as assuming to act as trustee. To become a trustee de son tort, a director would at least have to arrogate to himself or herself the function of trustee, and not merely facilitate its discharge by the company. [51] In Bath v Standard Land Co Ltd, Cozens-Hardy MR said: [52]

14. [60]

    Fletcher-Moulton LJ, although dissenting in the result, also said that it would not be “in accordance with the principles of equity to hold that [directors are] liable for all breaches of trust on the part of the company, even though such breaches of trust were planned and carried out by themselves”. [53] Those statements are inconsistent with the idea that directors who procure their company to act in breach of trust are liable as trustees de son tort.

15. [61]

    In purportedly making the distribution resolutions, Max was not acting as if he were trustee, but as a director of the Trustee Companies, albeit without requisite authority and inconsistently with his fiduciary obligations. The want of authority was not, however, in any appointment as trustee, but in his authority as a director. [54] Critically, before paying the Sale Proceeds substantially to himself, there was no anterior act by which he had assumed the obligations of trustee. Although the respondents submit that he was de facto trustee of the Sale Proceeds before distributing them to himself, no earlier act by which he purported to assume to act as trustee in place of the relevant Trustee Companies has been identified. He never assumed the trusts; rather he procured the misapplication of the trust property. He procured a breach of trust, and he received trust property as a result, but that sounds in liability under Barnes v Addy, potentially through imposition of a remedial constructive trust, and not as a trustee de son tort.

16. [62]

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

3. Dishonesty (Grounds 7, 8)

1. [63]

   At first instance, Max submitted that the Court should apply Corporations Act 2001 (Cth), s 1322, to conclude or make an order that the resolutions he purported to pass were valid. [55] One of the conditions for making a validating order under s 1322(4)(a) is that “the person or persons concerned in or party to the contravention or failure acted honestly”. [56] His Honour rejected Max’s attempt to rely on s 1322, for multiple reasons, one of which was that he was not satisfied that Max acted honestly. In that respect, his Honour said: [57]

2. [64]

   Later, in the context of considering whether there had been fraudulent concealment for the purposes of Limitation of Actions Act 1958 (Vic), s 27, his Honour said: [58]

3. [65]

   The appellants contend that the primary judge erred in finding that Max acted dishonestly in concealing the payments made to him and entities controlled by him (Ground 7), and in particular in finding that Max did not inform Diane of the impugned payments so that she would not question them, and in inferring dishonest intent from that (Ground 8).

4. [66]

   Just how this is relevant to the appeal is somewhat opaque. The appeal did not challenge the primary judge’s decision to decline to grant relief under s 1322, on which Max bore the onus of proving that he had acted honestly. Dishonesty was potentially relevant to whether the action was one “in respect of any fraud or fraudulent breach of trust” for the purposes of Limitation of Actions Act, s 21(1)(a); but that arises only in the event that the bar in s 21(2) applies, and below I conclude it does not. The appellants submitted that it was relevant to the liability of Max and the Max companies under Barnes v Addy as dishonest participants in a breach of fiduciary duty. This is doubtful, given that Max did not merely participate in, but himself committed, the relevant breach of duty, so that his liability does not depend on dishonesty, which becomes relevant only when seeking to visit liability on a third party who falls short of inducing or procuring a breach, but nevertheless participates in it: it is only then that it is necessary that the breach amount to a “dishonest and fraudulent design”. However, dishonesty may also be relevant in the context of postponement of any statutory bar by reason of fraud or fraudulent concealment - whether under the Limitation of Actions Act 1958 (Vic) (“the Victorian Act”), s 27, or under corresponding equitable concepts, from which s 27 and its analogues are derived, which apply to the application of limitation statutes by analogy in equity.

5. [67]

   The notion of dishonesty in the context of liability under Barnes v Addy is not necessarily identical to the notion of fraud or fraudulent concealment for the purposes of postponing the bar. In the context of liability under Barnes v Addy, this Court has held that dishonesty, for the purposes of liability for knowing assistance in a breach of fiduciary duty which amounts to a dishonest and fraudulent design, is a transgression of the ordinary standards of honest behaviour, and it is not necessary to demonstrate that the person thought about what those standards were. [59] In the context of postponement of the bar, the prevailing view in this Court is that expressed by Mahoney ACJ, with whom Meagher JA and Abadee AJA agreed, in Seymour v Seymour (which concerned Limitation Act 1969 (NSW), s 55, the New South Wales equivalent of s 27 of the Victorian Act) (emphasis added): [60]

6. [68]

   The appellants submit that, in circumstances where the judge found all parties unreliable, there was an unsound basis for findings of dishonesty; and that in any case, the evidence showed that Diane knew that Max was exercising control of the proceeds of sale and acquiesced in, if she did not agree to, that state of affairs (said to be evidenced by her delay in commencing proceedings, and by her having “written Max out” of her will because he had inherited the business). Further, they submit that the judge relied substantially on the fact that the 2007 resolutions were signed only by Max, and wrongly inferred dishonesty from the failure to adduce evidence from the accountants to prove that Max was only acting on advice in being the sole signatory – this was said to have “reversed the onus” borne by Diane to prove dishonesty, and to be unsound additionally because (1) there had been substantial delay (making such evidence difficult to call), (2) Max’s (inherently probable) evidence that the accountants prepared the resolutions was not rejected, and (3) Max honestly believed that he was entitled to deal with the proceeds as effective owner of the companies. The more specific inference that Max did not want to risk Diane questioning the distributions is also said to be unsustainable: any such risk was negated by Diane’s evidence that she signed any document placed before her by Max. Conversely, there is said to be a lack of evidence supporting a finding of dishonesty.

7. [69]

   The finding that all parties were less than reliable witnesses – perhaps unsurprising itself in circumstances that when they came to give evidence at the trial more than twelve years had passed since the relevant events – does not mean that there was an unsound basis for a finding of dishonesty, once the relevant facts were found. The departure from the uniform and established practice of previous years whereby Max and Diane met and together made resolutions as to distribution, so that in 2007 Max alone did so, is striking. Had that process been followed, those matters of which Diane was not informed – the quantum of the net proceeds, that Max was going to take almost all of them, and that that would exhaust the trusts forever – would have come to her notice. There is force in the primary judge’s observation that, if (as Max contended) signature by Diane was a mere formality and it was her usual practice to sign everything that Max put in front of her, that begs the question of why that formality was not followed in the case of the most important and final decision the Trustee Companies had ever been called on to make, namely how to distribute within the family this enormous and unanticipated windfall, consequent on the disposition of the whole of the Twigg Group’s business assets.

8. [70]

   The fact that Diane was accustomed to sign whatever Max asked her to does not mean that Max had no reason not to ask her to do so on this occasion – especially given the extraordinary nature of the transaction. So much is self-evident. Indeed, Max (ultimately) conceded that he appreciated that there was a real risk that if his sisters found out about what he was proposing in 2007 by way of distribution to himself, they might have objected (emphasis added): [61]

9. [71]

   The curious circumstances of the 2007 resolutions called for an explanation. Max claimed that he was unconscious of the fact that what he was doing was wrong or that taking advantage of the situation involved wrongdoing. He contended that he believed that he was entitled to act as he did as the de facto controller of the business, and that he relied on advice from the accountants, Pitcher Partners, to do so. However, it was the primary judge’s unchallenged conclusion that no evidence was adduced – from Mr Fitzpatrick, who was called, or anyone else – of any advice given by Pitcher Partners to the effect that it was appropriate for Max to act as he did in signing alone effective resolutions of the Trustee Companies, or otherwise explaining the departure from the practice which had been routinely followed since his father’s death in 1996. The “note” attached to the resolutions tells the contrary. In circumstances where Max was seeking to establish (for the purposes of relying on s 1322) that he acted honestly, he bore the onus of proof, and it was entirely open to his Honour to rely on the absence of any such evidence as a relevant matter in concluding whether such advice had been given. Contrary to the appellants’ submissions, the passage of time does not significantly detract from this, given that Max and Mr Fitzpatrick were not unable to profess to recall other conversations and events from the same period. This was not merely a Ferrcom [62] inference drawn from the failure to adduce relevant evidence from a witness, but an absence of any evidence to support Max’s contention. And even where Max did not bear the onus (such as on the issue of fraudulent concealment), his failure to adduce such evidence from the accountants not only legitimately founded an inference that it would not assist him, but left a void of evidence to explain the otherwise suspicious circumstances.

10. [72]

    Insofar as the ‘advice’ on which Max claimed to rely was that the form of the resolutions was prepared and provided by Pilcher Partners, there are further difficulties. First, the resolutions were drafted after the impugned payments, or at least some of them, had been made: before 30 June 2007, $58,750,000 had already been paid out of the TPH account, to Max or entities controlled by him. [63] Secondly, the accountants would not have departed from the practice they had followed in drafting resolutions for each year of the preceding decade, unless they were given instructions which caused them to do so. As to this, Max gave the following evidence: [64]

11. [73]

    A further matter telling against Max’s claim that he believed he was entitled to act as he did is provided by a letter dated 24 November 2004, prepared by the accountant Mr Fitzpatrick, setting out “Dianne’s [sic] thinking … regarding how the Twigg Family financial assets might be dealt with going forward”. The primary judge observed: [65]

12. [74]

    Relevantly, under the heading “Key General Principles”, the letter stated (emphasis added): [66]

13. [75]

    After explaining a number of matters, including what were the “non-business assets, and recording that it was Mrs Twigg’s intention that “the Twigg business group continue to contribute the maximum deductible superannuation contribution on behalf of Dianne [sic], which is approximately $90,000 per annum” (which would not be possible if all its assets were distributed), the letter proceeded (emphasis added): [67]

14. [76]

    As the primary judge observed: [68]

15. [77]

    Max had undoubtedly read and understood the letter. He was cross-examined about it: [69]

16. [78]

    The parts of the letter emphasised above tell strongly against Max’s claim to have believed that he could deal with the Sale Proceeds as he did. His claim that “ultimately” in effect meant 2007, in the context of those aspects of the letter, and of the fact that there was no evidence, even from Max, that Diane was told that the effect would be that for all practical purposes the trusts would be at an end and there would be no remaining trust assets or business or income, is not credible.

17. [79]

    The appellants pointed to a finding made by the primary judge in the context of consideration of the defence of laches which was said to be inconsistent with dishonesty on the part of Max, because it is said that upholding that defence, even in part, necessarily involved finding that Max believed he was entitled to deal with the Sale Proceeds as his own. In distinguishing the application of the doctrine to the personal claim and the proprietary claim, his Honour said (emphasis added): [70]

18. [80]

    The appellants submitted that it was implicit in these passages, and in upholding the defence of laches to the extent that it was, that Max honestly believed that he was entitled to deal with the proceeds as he did. I do not agree. First, insofar as these passages refer to Max’s state of mind, they relate to the later times when he disposed of assets to his detriment, not the time in 2007 when he took the trust property in the first place. They are not inconsistent with him not having an honest belief that he was entitled to take the trust property in 2007; he may have developed a belief that he was entitled to deal with the assets as if they were his own over time, with the absence of objection. Secondly, this is reinforced by the fact that the passage in [188] refers to him dealing with the assets as if they were his own, but not to any honest belief to that effect, while the passage in [189] refers to any ‘belief’ only in respect of ‘what remained’. Thirdly, the passage in [189] makes clear that such belief as he by then had was still accompanied by appreciation of a risk that objection might yet be raised because of the manner in which he had taken the Sale Proceeds. This is not a finding that Max honestly believed he was entitled to act as he did in 2007, and is not inconsistent with the express findings that he acted dishonestly.

19. [81]

    Diane’s state of knowledge – in 2007 let alone in 2009 – is not directly relevant to Max’s honesty. On any view, she was not fully informed. Contrary to the appellants’ submission, the delay in commencing proceedings does not evince acceptance on her part that Max was free to use the Sale Proceeds for his own benefit and was therefore not acting dishonestly: it could not do so unless Diane was aware of the amount and proportion of the proceeds that Max had taken. Nor does Diane’s “writing Max out of her will” do so: Diane’s will was consistent with what she intended “ultimately” to happen in accordance with the November 2004 letter. The fact that Max may have lived an opulent lifestyle is not inconsistent with his having a consciousness of wrongdoing: he may have reasoned that in the light of his other available resources it would not trigger suspicion, or that his mother so trusted him that she would not think to question it. In any event, it suffices that his conduct transgressed ordinary standards of honest behaviour, even if he did not appreciate it. As the primary judge said (emphasis added): [71]

20. [82]

    Max made the impugned payments and purported to pass the June 2007 resolutions as he did, in circumstances where he knew that Diane reposed trust and confidence in him (including to tell him of important issues or decisions that might be harmful to her interests), that Diane was a director and necessary party to previous distribution resolutions, and that there was a risk that if he disclosed his intention some beneficiaries might object. In my judgment, absent any better explanation, the probable explanation for this unprecedented departure from historical practice, in the context of the enormity and finality of the transactions under consideration, of which he was the beneficiary, was that Max was using his fiduciary position as Managing Director of the Trustee Companies for his own benefit to acquire for himself the trust property, in a manner calculated to minimise the risk that the other director would discover and exercise her legal right to object. Such conduct is plainly a transgression of ordinary standards of honest behaviour, and as has been noted, it is not necessary to demonstrate that Max thought about what those standards were. However, the very fact that he proceeded in a manner calculated to avoid discovery speaks eloquently in favour of the proposition that he knew he was not entitled to act as he did. The primary judge did not err in concluding that Max acted dishonestly in the relevant sense, and in particular that in proceeding as he did he sought to avoid the discovery by Diane of information that would ordinarily have come to her notice and may have caused her to exercise her legal right as the other director to object – that is to say, what Max did involved conscious wrongdoing, and conscious active concealment. This has consequences for the discussion, below, of laches and limitations.

4. Laches (Ground 10)

1. [83]

   It is convenient next to deal with the defence of laches. As has been noted, the primary judge upheld the defence in respect of claims against Max personally for equitable compensation, but not in respect of claims for proprietary relief. In this respect, after referring to the observations of Deane J in Orr v Ford, [72] his Honour said (emphasis added): [73]

2. [84]

   The appellants support the primary judge’s holding that the claims against Max personally were barred by laches, but contend that his Honour erred in not applying the same reasoning to the claims for proprietary relief (Ground 10). They submit that:

   1. (1)

      The decision not to apply laches to the proprietary claims was founded on the “unsustainable” finding of dishonesty by Max. However, as I have concluded, above, that finding was far from unsustainable; [74]

   2. (2)

      The judge was wrong to focus on Max’s state of mind, the relevant consideration being the state of mind of Diane, who knew the matters that it was said that Max failed to disclose (namely, the sale price and distributions). However, the context in which his Honour referred to Max’s state of mind was in considering whether he had acted to his detriment in reliance on a belief that he was entitled to the remaining assets. The point was that any such belief must have been a qualified one, because of the risk – which Max was found to appreciate – that at some stage Diane or others might object, and this was relevant in evaluating, for the purposes of the defence of laches, whether it was inequitable to visit on Max the consequences of that risk coming to fruition. The question of Diane’s knowledge is dealt with below;

   3. (3)

      There was no principled basis for applying laches to some claims but not others. However, in the course of argument Mr Walker SC, for Max, accepted that, at least in theory, outcomes for equitable compensation and proprietary claims could be different, although he submitted that in this case, where Max’s actual belief that he was entitled to deal with the remaining assets as his own was applicable to both, there was no reason to reach different results. Even accepting the premise that Max had such a belief (which for reasons already given I do not), the distinction is that proprietary relief merely requires Max and his companies to disgorge what they have received, whereas equitable compensation would compel them to make good the losses out of their own resources. In any event, because of the view I take, below, in respect of the cross-appeal, no different outcome remains;

   4. (4)

      The judge wrongly found little or no detriment to Max in “paying [the] assets away”, as the disposal of the assets constituted detrimental reliance; prejudice is demonstrated in respect both of Max’s property settlement with his former wife (as it was necessarily informed by his financial position at the time, and would have been less unfavourable to Max if his assets were diminished by any outcome of the present proceedings), and more generally in that Max and his companies no longer have the funds available to them to meet the present claims, which would not have been the case but for the delay; further, the primary judge overlooked that Max suffered detriment also in that he would have been better able to defend the proceedings without delay and loss of evidence. However, I do not accept the respondents’ submission in reply, that no prejudice was established because being able to deal with the Sale Proceeds as if they were his own was not prejudice but merely unlawful benefit, and there was no evidence that Max’s property settlement with his former wife would have been different had the present proceedings been commenced at that time; in my view, it can reasonably be inferred that he would have had to pay his former wife less if his asset pool had been less. However, the judge did not find that there was “little or no detriment”: his Honour found that “It is likely that Max dealt with other trust assets that have now been lost or spent in the way that he did in the belief that he was entitled to what remained, and in that sense he has acted to his detriment”, and that “Max may have acted to his detriment, but he did not do so as a consequence of any conduct by the plaintiffs”. While his Honour did not refer to the impact of delay on Max’s capacity to defend the proceedings, there was no evidence that it had any such impact: there was no evidence of prejudice from the loss of documentary evidence or witness memory due to the passage of time.

3. [85]

   However, for reasons that follow, the foregoing matters are of only subsidiary relevance. The respondents support the primary judge’s conclusion that laches did not bar the claims for proprietary remedies, but by their cross-appeal (Ground 1) contend that his Honour erred in holding that laches did bar personal remedies against Max. They submit that Max failed to discharge his onus to establish laches, as he did not demonstrate either that Diane had knowledge of his wrongdoing sufficient to establish laches, or that he suffered prejudice such as to make it inequitable to enforce the claim.

4. [86]

   For laches to bar an equitable claim, the plaintiff must first possess “sufficient knowledge of the facts constituting the title to relief”. [75] The delay is measured from the time the plaintiff is sufficiently aware of the facts which constitute the wrongdoing upon which the claim is based. [76] In Savage v Lunn, [77] this Court said (emphasis added):

5. [87]

   The appellants cite Meagher Gummow & Lehane, Equity: Doctrines and Remedies, 5th ed at [38-070], [78] for the proposition ventured by the authors that where the delay causes prejudice through detrimental reliance, there seems no reason why the plaintiff’s ignorance of its rights should bar a defence of laches. For that suggestion, the only authority to which the authors refer is the judgment of Mahoney JA (with whom Meagher JA and Handley JA concurred) in Nowell v Palmer. [79] However, with great respect, I see no statement in that judgment supportive of that proposition. Moreover, the judgment of Handley JA endorses Lindsay Petroleum as the “classic statement” of the equitable principles governing the defence of laches and delay. Savage v Lunn (No 2), [80] which is also relied on by the appellants, in fact affirms the requirement for knowledge (emphasis added):

6. [88]

   The proposition that means of knowledge is as good as knowledge does not simply mean that if one could find out upon making inquiries, one is taken as having knowledge, in the absence of anything to put the plaintiff on inquiry. It is derived from the judgment of Lindley LJ in Allcard v Skinner, where his Lordship said: [81]

7. [89]

   Thus the proposition that ignorance which is the result of deliberate choice is not an answer to an equitable defence based on laches and acquiescence presupposes knowledge of the relevant facts, though not of the rights to which they give rise. The requirement for more than mere notice of facts which might put one on inquiry was also illustrated by Pagone J in Reader v Fried (emphasis added): [82]

8. [90]

   The appellants invoke the primary judge’s finding that “by about 2009 at the latest, Mrs Twigg knew Max had dealt with the Sale Proceeds after paying tax and repaying debt without consulting her and largely for his own benefit.” [83] Elsewhere, in the context of concealment, his Honour found that “She knew that the Twigg Group business had been sold for approximately $155 million. She knew that she and her daughters were to receive part of the proceeds of sale. She could easily have asked Max or Mr Fitzpatrick what was going to happen to the balance of the proceeds of sale. But she chose not to do so”.

9. [91]

   His Honour’s conclusion that by about 2009, Diane knew Max had dealt with the Sale Proceeds after paying tax and repaying debt without consulting her and largely for his own benefit, was founded on the following elements:

   1. (1)

      that Diane knew that Cleanaway paid approximately $155 million for the trust assets;

   2. (2)

      that Diane knew that Max exercised control over the proceeds of sale and used them to buy a number of valuable assets, including

   3. (3)

      that Diane also knew that Max had an extravagant lifestyle, which included racing expensive sports cars, and must have understood that, in part at least, that lifestyle was supported by proceeds from the sale of the business; and

   4. (4)

      that Diane knew that Max had made the decision to pay $5 million of the proceeds of sale to each of her, Frances, and Elizabeth.

10. [92]

    Where the timeframe of 2009 referred to by the primary judge is sourced is not apparent. It may be accepted that Diane knew, as a signatory to the contract, that the gross selling price was approximately $155 million. However, there is no evidence that establishes that she was aware of the quantum of the net proceeds. To the contrary, the existence of a large amount of debt was emphasised by Max. Diane’s following account of what she was told and understood was not challenged (emphasis added): [84]

11. [93]

    Max himself said that Diane was aware that the $155 million “was going to be washed out and she knew that we had debt”. [85]

12. [94]

    Diane admittedly knew that Max had caused payments to be made of $5 million each to her daughters as well as to herself: [86]

13. [95]

    In that context, she thought Max received about $10 million: [87]

14. [96]

    Max’s contention that he told Diane that, after the three payments of $5 million, “the rest is mine”, was denied by Diane, and not accepted by the primary judge. Diane said: [88]

15. [97]

    Diane’s version was preferred by the primary judge (emphasis added): [89]

16. [98]

    As to knowing that Max was exercising control over the proceeds, his Honour had earlier observed that this was consistent with his control of the Twigg Group business before it was sold, and that it was likely that from Diane’s point of view matters proceeded much as they had in the past (emphasis added): [90]

17. [99]

    In other words, Max’s ongoing control over the proceeds was consistent with his previous permitted control of the business and in that context was not a red flag.

18. [100]

    As to the proposition that Max enjoyed and displayed an opulent or extravagant lifestyle and did not hide his wealth, the only evidence he gave referable to this was that in about 2007, he purchased the Hedges Ave property for $17,500,000 in the hope that it might improve his marriage which was then in difficulties, and subsequently sold it, at a substantial loss, for $7,700,000. [91] Diane’s evidence was to the effect that she knew that, at about the time of the 2007 sale of the business, Max had purchased a property in Queensland, and assumed that he had used some of money he must have received from the Sale Proceeds to do so; [92] that Hedges Ave was a “big and imposing” house, where “there was always lots of cars there; and they were all flash, don't you worry”; that she learned that he had purchased Hedges Ave for $16 million, and “he sold it for much less … only got ten or nine for it” and purchased Albatross Ave (where she had spent at least one Christmas with him), she thought for about $6 million. [93]

19. [101]

    Diane also knew that after the sale of the Twigg Group business Max purchased the Byron Bay Beach Hotel, about which she gave the following evidence, which was not challenged (emphasis added): [94]

20. [102]

    Notably, it was her understanding – consistent with her understanding, referred to above, that Max would manage any surplus proceeds, which could be used by members of the family members as necessary, and with her not understanding that Max had effectively wound up the trusts – that Max had used some of the Sale Proceeds to acquire the Hotel for the ongoing benefit of the family, and not for his exclusive personal benefit.

21. [103]

    Thus, Diane was aware that Max had acquired a substantial house and some expensive cars for himself, and the Hotel for the benefit of the family. Such acquisitions did not bespeak that the net proceeds of the sale were in the order of $113 million, let alone that Max had taken nearly $100 million for himself. As has been noted, Diane’s understanding was that Max had received about $10 million. [95] In addition, he had a number of other sources of funds, including the consulting fee of $10 million paid to him by Cleanaway, [96] the income from the ongoing operations of the Hotel, and, apparently, his own flooring company Truebridge (or Architectural Floors). [97] Although it is not clear that all of these potential sources of funds were known to Diane, the $10 million from the sale of the business, together with the $10 million consultancy fee, was more than ample to fund an “opulent” lifestyle, without suggesting that he had taken very much more. That he had a substantial house and expensive cars is not inconsistent with his having taken no more than the $10 million which Diane assumed and the consultancy fee also referred to in the sale contract, and did not convey that he had taken nearly $100 million or anything like it.

22. [104]

    Moreover, Diane also gave evidence, which was supported by contemporaneous correspondence, that until early 2018 she had complete trust in Max (and the accountant Mr Fitzpatrick); that it was not until Frances commenced making enquiries about unpaid beneficiary entitlements that she began to become suspicious of Max, as he was refusing to pay Frances; that as a result, in 2018 she engaged solicitors to undertake an investigation into her financial affairs and the Sale Proceeds; that it took time for those solicitors to obtain the underlying source documents from Pitcher Partners and third parties; and that it was not until her solicitors obtained sufficient documentation in late 2018 and into early 2019 that was she able to receive advice in respect of the situation concerning her assets, estate and the Sale Proceeds. [98]

23. [105]

    The references in his Honour’s judgment to what Diane knew tend to obscure the critical gaps in her knowledge. It is notable that there was no finding, and no evidence, that she knew:

    1. (1)

       that the net proceeds of sale were in the order of $113 million, or had any idea of their true approximate quantum;

    2. (2)

       that Max had taken nearly $100 million for himself; or

    3. (3)

       that the payments of $5 million which she and her daughters had received were in effect a final distribution, with the trusts ceasing to operate any business or hold any funds of substance.

24. [106]

    Indeed, in rejecting a defence of ratification, the primary judge rightly found that Diane was plainly not fully informed of the relevant breach and its consequences: [99]

25. [107]

    There was no evidence that Diane “chose not to ask”; no occasion arose for her to think about asking. Diane did not know, before about 2018 or 2019, that Max had appropriated to himself something like 90% of the net proceeds of sale amounting to some $113 million dollars, or anything like it. It was not established that Diane knew, or that she ought reasonably have known, of the wrong, before about 2018. Thereafter, she acted with reasonable expedition to ascertain the true position and commence proceedings. For those reasons, the defence of laches should have failed in respect of the personal claim, as well as in respect of the claim for proprietary relief.

5. Limitations (Ground 9)

1. [108]

   It was uncontroversial that the proper law of the trusts was that of Victoria. Section 21 of the Victorian Act provides as follows:

2. [109]

   Section 5 of the Victorian Act relevantly provides as follows:

3. [110]

   The primary judge held that:

   1. (1)

      the claim relating to Max’s breach of fiduciary duty was not barred by s 21(2), because s 21(2) does not apply to a remedial constructive trust imposed by the Court; [100]

   2. (2)

      the claim founded on Max being a trustee de son tort was not barred by s 21(2), because the exceptions in s 21(1)(a) and (b) applied; [101] and

   3. (3)

      none of the claims was barred by s 5, because they were not claims for debt or for an account. [102]

4. [111]

   His Honour also refused leave to Max to amend his defence to rely, by analogy, on Corporations Act 2001 (Cth), s 1317K, which provides a limitation period of six years for proceedings for a compensation order against a person who has contravened a civil penalty provision such as Corporations Act, s 181, which provides that directors of a corporation must exercise their powers and discharge their duties in good faith in the best interests of the corporation, and for a proper purpose.

5. [112]

   The appellants challenge all of those holdings. However, because I have concluded that Max was not liable as a trustee de son tort, it is unnecessary to consider that aspect.

6. [113]

   The appellants submit that the claims for relief for breach of fiduciary duty were barred by s 5 and/or s 21(2) of the Victorian Act.

7. [114]

   As to s 5, the primary judge said: [103]

8. [115]

   The appellants submit that relief imposing a constructive trust on a defaulting fiduciary engages s 5(2) because it is relief arising from a liability to account. Further, they submit that the relief granted included an account to establish the quantum of rents and profits derived from trust property, and that at least this claim was caught by s 5(2) and barred.

9. [116]

   As to s 21(2), the primary judge held that that provision does not apply to remedial (as distinct from institutional) constructive trusts: [104]

10. [117]

    His Honour then referred to the passage in Lord Sumption’s judgment which has been set out above, [105] and continued:

11. [118]

    The appellants accept that there is a relevant distinction between institutional and remedial constructive trusts (and also that, at least in Australian law, breach of fiduciary duty by a company director does not give rise to an institutional trust, as a director is not to be equated with a trustee or de facto trustee), [106] but submit that the distinction is relevant only to the exception in s 21(1), and not to the bar in s 21(2), which, they say, applies to remedial as well as institutional trusts. The respondents on the other hand submit that the primary judge rightly held that s 21(2) as well as s 21(1) applies only where there is an express or de facto trustee, and only to actions by beneficiaries (which the trustee companies are not) in respect of a breach of that trust. The respondents also submit that only the Max companies (not Max personally) have pleaded this provision, in bar of their liability under Barnes v Addy. In reply, the appellants assert that Max as well as the Max companies rely on s 21(2); they maintain that s 21(2) applies to remedial as well as institutional constructive trusts, and they emphasise that it applies to actions “to recover trust property”, which this case was. They also submit that the respondents cannot avoid the operation of s 21(2) by saying that the trustee companies are not beneficiaries, as the provision captures claims brought by trustees on behalf of beneficiaries, as well as claims by beneficiaries themselves.

12. [119]

    I do not accept the respondents’ submission that only the Max companies and not Max personally relied on s 21(2). The pleading was in general terms, and expressly “in answer to the whole of the plaintiffs’ claim”. [107] The argument that only the Max companies relied on it is founded on the appellants’ submissions at trial, [108] which admittedly contain one passage which emphasises the position of the Max companies (“the second to tenth defendants”), [109] but I do not think amounts to any eschewal of reliance on the provision on behalf of Max personally.

13. [120]

    Nor do I accept the respondents’ submission that s 21(2) does not apply to the claims by the Trustee Companies against Max or his companies because they are not “action[s] by a beneficiary” within the provision. The primary judge held that the proper plaintiffs were the Trustee Companies (as distinct from Diane personally). [110] In my opinion, it makes no difference whether the action is brought by beneficiaries (which is expressly within s 21(2), or by a trustee (for example, a replacement trustee) for the exclusive benefit of the beneficiaries. In Cattley v Pollard, [111] it was said (of the Limitation Act 1980 (UK) (“the UK Act”, in which s 21(1) and (3) are respectively in identical terms to s 21(1) and (2) of the Victorian Act):

14. [121]

    For the reasons given in that case, in my opinion the circumstance that the claims are made by the Trustee Companies and not by their beneficiaries would not avoid the effect of s 21(2), if it were otherwise engaged.

15. [122]

    The key question is whether s 21(2) is engaged. For the following consideration of the application of limitation statutes to claims for equitable relief in respect of a breach of fiduciary duty, I am indebted to the judgments of Lord Sumption JSC in Williams, [112] and of Gleeson JA in Sze Tu v Lowe. [113] For convenience, while conceding that they are not entirely accurate, I will use the terms “accessorial liability” and “accessory” to describe the liability of a person who has, under either limb of Barnes v Addy, become amenable to equitable remedies by reason of having participated in the unlawful misapplication of trust assets, whether by dishonestly assisting a misapplication of the funds by the trustee, or by receiving trust assets knowing that the transfer to them was a breach of trust.

16. [123]

    Historically, equity has distinguished in its application of limitations between institutional trusts, and remedial trusts imposed on accessories. While equity generally applied statutory limitation periods to purely equitable claims by analogy, it refused to do so in the case of a claim by a beneficiary of an “actual” (or institutional) trust against the trustee. The rationale for this exception was that the possession of the trustee was the possession of the beneficiary, and the trustee’s possession could not operate as a bar because it was possession according to law. However, that rationale did not apply to an accessory, who was not an “actual” trustee but would only become a trustee by decree of the court. Thus, claims for an accessory to account by virtue of their participation in the unlawful misapplication of trust assets were considered to be subject to the application, by analogy, of the statute of limitations. [114]

17. [124]

    As Lord Sumption points out, [115] during the 19th century confusion and inconsistencies emerged, culminating in Soar v Ashwell. [116] That was a case of a trustee de son tort – an institutional trustee – but the Court of Appeal, obiter, expressed the view that an accessory would be treated, for limitation purposes, in the same way as an express trustee. However this development, which Lord Sumption exposes as heretical, [117] was not embraced by Dixon J in the High Court in Cohen v Cohen, who, despite reference to Soar v Ashwell, described the position in the traditional way (emphasis added): [118]

18. [125]

    As Lord Sumption proceeds to explain, statute intervened, first, to restate the equitable rule that an express trustee could not plead a limitation, and later, to permit an honest trustee to do so ‒ “except where the claim is founded upon any fraud or fraudulent breach of trust to which the trustee was party or privy, or is to recover trust property, or the proceeds thereof still retained by the trustee, or previously received by the trustee and converted to his use”. [119] In a Canadian appeal, the Privy Council held that the exception did not apply to accessories whose liability to account arose from the wrongful misapplication itself, with the consequence that such an accessory was entitled to rely on the limitation statute, at least by analogy. [120] The same view was taken again by the Privy Council in Clarkson v Davies, which is of present interest because it related to the knowing receipt of a company’s funds by its directors: [121]

19. [126]

    Lord Sumption explains that the enactment of s 19 in the Limitation Act 1939 (UK) – which was relevantly in the same terms as s 21 of the 1980 UK Act under consideration in Williams and s 21 of the Victorian Act – was not intended to change this position. [122]

20. [127]

    Lord Sumption referred to and drew significantly on the judgment of Millett LJ in Paragon, in which his Lordship, having explained, in the passage earlier quoted, [123] the distinction between (1) an institutional constructive trust and (2) a constructive trust imposed as a remedy in the context of accessorial liability, and that the case before him concerned the second class, proceeded to explain the significance of this distinction for limitation purposes: [124]

21. [128]

    Millett LJ rejected the proposition that this position had been affected by the 1939 Act, and in the course of doing so, said: [125]

22. [129]

    Millett LJ noticed two first instance decisions of this Court which had taken the same approach. [126] In Queensland Mines Ltd v Hudson, [127] Wootten J applied Taylor v Davies to hold that an accessory was not within the exception then contained in s 69(1) of the Trustee Act 1925 (NSW), which then relevantly provided:

23. [130]

    As a result, his Honour held that Mr Hudson was entitled to the benefit of the limitations available under s 69(2). In Piwinski v Corporate Trustees of the Diocese of Armidale, [128] Waddell J (as the later Chief Judge then was), also applied Taylor v Davies (footnotes omitted):

24. [131]

    Below, for reasons to which I shall come, [129] I conclude that the basis on which a limitation period was applicable in Queensland Mines and in Piwinski, was not s 69(2), which like s 69(1) did not apply to remedial constructive trusts, but by analogy with other provisions of the statute of limitations.

25. [132]

    In Peconic Industrial Development Ltd v Lau Kwok Fai, [130] the Hong Kong Court of Final Appeal held that an equivalent provision of the Hong Kong Ordinance did not apply to a person liable to account as a constructive trustee on the footing of dishonest assistance. Lord Hoffmann, with whom every other member of the Court concurred, referred to Taylor v Davies and declined to follow the dicta of the Court of Appeal in Soar v Ashwell, which he regarded as wrong in principle and unsupported by authority. [131]

26. [133]

    In Williams, with reference to these and other authorities, [132] Lord Sumption concluded that “These decisions represent a formidable corpus of modern and carefully reasoned authority in favour of a principle which is in my view correct”, namely that s 21(1)(a) applied only to express and de facto trustees and not to persons liable only by virtue of their dishonest assistance in a breach of trust. [133] His Lordship proceeded to explain that this applied equally to cases of dishonest assistance and knowing receipt. [134]

27. [134]

    Lord Sumption’s judgment received the agreement of Lord Hughes JSC, and of Lord Neuberger PSC who wrote separately. The powerful dissents of Lord Mance JSC and Lord Clarke JSC show that these are questions on which the finest judicial minds might differ. But Lord Sumption’s approach is also that of Lord Millett and Lord Hoffmann, and it is consistent with what was said by Dixon J in Cohen v Cohen. And, as the primary judge pointed out, it has been referred to with approval by the Victorian Court of Appeal in McNab v Graham, [135] as well as by Applegarth J in Port Ballidu Pty Ltd v Frews Lawyers. [136] Accordingly, it may be taken as established that s 21(1) does not apply to an accessory, with the consequence that an accessory is not precluded from relying on any available limitation, even in the case of a fraudulent breach of trust.

28. [135]

    What is less clear is the position so far as concerns s 21(2) (of the Victorian Act). Another way of putting this is, in the case of an accessory, is the applicable limitation provided by s 21(2), or does it derive (directly or by analogy) from other limitation provisions? As has been foreshadowed, in Queensland Mines and in Piwinski, Wootten J and Waddell J respectively proceeded on the basis that it was provided by the equivalent of s 21(2), namely, the then s 69(2) of the Trustee Act 1925 (NSW). So did Sheldon QC in Cattley v Pollard. [137] And it appears that in Williams, the case was conducted on the basis that unless an exception in s 21(1) applied, the claims were barred by s 21(3) (of the UK Act). [138] This can be seen in the judgments in the Court of Appeal, [139] and in particular that of Morritt C, who said: [140]

29. [136]

    This was embraced, in particular in the dissenting judgments, in the Supreme Court, to argue that if s 21(3) (of the UK Act) applies to a remedial trust, then s 21(1) must also apply. Lord Mance JSC said (emphasis added): [141]

30. [137]

    Lord Clarke JSC said (emphasis added): [142]

31. [138]

    Lord Neuberger PSC, with whom Lord Hughes JSC agreed, responded:

32. [139]

    However, in my view, with great respect, it is not correct that only by construing sub-s (3) (of the UK Act) as capturing remedial trusts was there any basis for an accessory to assert any statutory limitation defence at all; in fact, as had always been the case, an accessory could invoke other provisions of the statute, by analogy. Moreover, as it seems to me, there are two essential elements in the majority reasoning which are incompatible with sub-s (3) (of the UK Act) applying to a claim against an accessory. That the application of s 21(3) was apparently common ground may explain why this question was not more closely analysed.

33. [140]

    The first is Lord Sumption’s explanation that the exception and the rule apply to the same people. While the focus of the issue in Williams was whether the exceptions in s 21(1) applied to a person who was a constructive trustee under a remedial constructive trust, as distinct from an express trustee or a trustee de son tort, the judgment of Lord Sumption recounts the history of limitation provisions in respect of trustees in a way which demonstrates that both the bar in s 21(2) and the exceptions in s 21(1) apply in respect of the trustees of institutional trusts only, as a person who was a constructive trustee under a remedial trust never had the same disability to plead the statute of limitations as did an institutional trustee. His Lordship said (emphasis added): [143]

34. [141]

    Thus, the predecessors of s 21(2) (of the Victorian Act) were intended to create an entitlement for an institutional trustee to plead the statute, subject to the exceptions in s 21(1). As s 21(2) was intended to relieve trustees, save in the two exceptions specified in s 21(1), from the harsh consequences of the equitable rule which held them liable to account without limitation of time, so the exceptions in sub-s (1) were for the same persons as the rule in sub-s (2). It follows that the rule (like the exceptions) did not apply to accessories who were subject only to accessorial liability and therefore did not need to be relieved: they were already protected, at least by analogy, by other limitation provisions of the statute.

35. [142]

    This conclusion is supported by the symmetry, noticed by Lord Clarke, between s 21(1) and s 21(3) (of the UK Act): [144]

36. [143]

    While I respectfully disagree that it was correctly common ground that an action against a dishonest assister is an action in respect of a breach of trust within s 21(3) (of the UK Act), the symmetry to which his Lordship refers is indicative that both subsections are dealing with the same people.

37. [144]

    The second element of the majority reasoning which is incompatible with the application of s 21(3) (of the UK Act) to accessories and remedial trusts is Lord Neuberger’s conclusion, in the following terms (emphasis added): [145]

38. [145]

    In other words, the conclusion depended on the meaning of “trustee” in s 68(17) of the Trustee Act 1925 (UK), which was picked up by s 38(1) of the UK Act, and which provided that:

39. [146]

    Thus Lord Neuberger concluded that, in the context that the combined effect of the definition sections of the Limitation Act and the Trustee Act was that in s 21 of the UK Act, a trustee included a “constructive trustee”, a person liable as an accessory was not a constructive trustee within the meaning of s 68(17), which was confined to the first class – so-called de facto trustees.

40. [147]

    In Peconic, Lord Hoffmann had taken a similar definitional approach (his Lordship used the term “non-fiduciaries” in the sense that I have used “accessories”): [146]

41. [148]

    The word “trust” in s 21(3) equally takes its meaning from s 68(17) of the Trustee Act 1925. It cannot therefore mean one thing in s 21(1), and another in s 21(3). If an accessory is not a trustee for the purposes of s 21(1), the liability of an accessory to account cannot be a trust for the purposes of s 21(3).

42. [149]

    There is nothing to distinguish the reasoning in Williams in this respect in its application to the Victorian Act, in which s 3(1) includes the following:

43. [150]

    In the Trustee Act 1958 (Vic), s 3(1) includes the following:

44. [151]

    It follows that in my opinion, notwithstanding the basis on which the case appears to have been conducted, the majority reasoning in Williams is incompatible with the application of s 21(3) of the UK Act, and its equivalent s 21(2) of the Victorian Act, to claims against accessories. [147] This conclusion is also consistent with the conclusion of Millett LJ in Paragon, referred to more fully above, [148] that “Section 21 of the 1980 Act can sensibly be limited to wrongs cognisable by equity in the exercise of its exclusive jurisdiction. It makes no sense to extend it to the exercise of its concurrent jurisdiction.” His Lordship did not reserve that observation only for sub-s 21(1).

45. [152]

    It is noteworthy in this context that s 21(1) contains exceptions, not merely to s 21(2) (of the Victorian Act), but to the entire Act. Thus the intention of s 21(1) is to provide that no statute of limitations applies to an action by a beneficiary under an actual trust, in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use. Otherwise, a trustee (of an actual trust) may take advantage of any relevant limitation period, including but not limited to that provided for such trustees by s 21(2).

46. [153]

    Although the cases are often less than explicit as to which provision of the statute of limitations is applied by analogy in this context, it appears to be those which impose limitations in respect of proceedings in tort for fraud, and/or proceedings for an account. In Paragon, Millett LJ identified an analogy with an action in tort for fraud, in the passage which has already been quoted, above. [149] In Cattley v Pollard, Richard Sheldon QC also referred to the analogy with fraud: [150]

47. [154]

    Older authority shows that this analogy was in fact foundational. In Clanricarde v Henning, Romilly MR said: [151]

48. [155]

    As to the analogy with account, in Paragon, Millett LJ also explained that an equitable claim for an account in respect of a breach of fiduciary duty is, except in the case of an actual trust of the money, barred by analogy with the statutes of limitation. [152] The causes of action under consideration by Dixon J in Cohen v Cohen were that the defendant was accountable in equity for property received. [153] In Williams, [154] Lord Clarke also referred in passing to s 23 (of the UK Act), which provides:

49. [156]

    The holdings in Williams ­– and also in Queensland Mines and Piwinski – that the claims were otherwise barred are explicable and supportable on the basis that they were barred by analogy, just as claims against accessories had always been treated on that basis. The application by analogy of limitation periods is discussed further, below. [155]

50. [157]

    Section 5(2) of the Victorian Act applies in terms to “an action for an account”. The appellants submit that a claim for relief against an accessory – including a claim for equitable compensation – is caught by s 5(2) directly, not merely by analogy, as such relief arises from a liability to account.

51. [158]

    The respondents submitted that the appellants did not rely at trial on any claim being barred as an “action for an account”, and did not invoke any limitation by analogy (other than on their unsuccessful application for leave to amend to rely, by analogy, on Corporations Act, s 1317K). However, the respondents’ pleading plainly propounded s 5 of the Victorian Act, [156] and the primary judge specifically addressed s 5(1)(a) (actions founded on simple contract) and s 5(2) (action for an account). [157] Moreover, in the light of the observations of Lord Mance and Lord Clarke in Williams, it is necessary to address the potential application of s 5, including by analogy, in order to understand why s 21(2) does not apply.

52. [159]

    As has been noted, s 5(2) applies to an “action for an account”. Since the Statute of Limitations 21 Jac 1 c.16 of 1623, there has been a six-year limitation for “actions of account” or “actions for account”. Section 3 provided relevantly as follows (emphasis added):

53. [160]

    It will be observed that the first reference is to “actions of account”, and the second to “actions for account”; no distinction appears to have been intended.

54. [161]

    In Feiglin v Ainsworth, [158] Mukhtar AsJ said that s 5(2) applied a six-year limitation to all actions of account, to be construed as meaning an account at law or in equity, and whether based on a legal or equitable liability to account. [159] In holding that s 5(2) applied in terms to an account in equity as well as one at law, his Honour relied on Wheatley v Bower, [160] in which the Western Australian Court of Appeal reached that conclusion in respect of the corresponding Western Australian provision. His Honour said: [161]

55. [162]

    But his Honour held further that, if there was any doubt about the matter, a court of equity would in any event apply the sixyear limitation period in s 5(2) by analogy. [162]

56. [163]

    Mukhtar AsJ’s conclusion as to the effect of s 5(2) was not challenged on an appeal to a single judge, but it was included in a summary of Mukhtar AsJ’s holdings which Elliott J referred to as “plainly correct”, albeit without further consideration. [163] His Honour’s conclusions were referred to but not further considered in the Court of Appeal. [164] In Jane v Bob Jane Corporation Pty Ltd, [165] Sifris J followed Wheatley v Bower and Feiglin v Ainsworth to hold that s 5(2) barred all actions for an account, at law or in equity, based on either legal or equitable liability to account.

57. [164]

    The decision of the West Australian Court of Appeal in Wheatley v Bower was highly influential in the Victorian decisions to which I have referred. In it, the relevant limitation period was provided by the limitation period for an "action of account" in the context of s 38(1)(c)(ii) and s 38(1)(c)(iii) of the Limitation Act 1935 (WA), which provided:

58. [165]

    Malcom CJ, with whom Kennedy J and Wallwork J agreed, set out in full the following passage from the judgment Megarry V-C in Tito v Waddell (No 2): [166]

59. [166]

    Malcolm CJ then continued:

60. [167]

    Unfortunately, this overlooked that, while there was such a definition of “Action” in s 3 of the Western Australian Act, s 38 itself contained the following provision:

61. [168]

    That provision makes manifest that the limitations imposed by s 38(1)(c)(ii) and s 38(1)(c)(iii) of the Western Australian Act were intended to apply only to actions at law. Wheatley must therefore in my respectful view be regarded as wrongly decided. Similarly, the observation in Meagher, Gummow & Lehane (3rd Ed) [167] to the effect that in Western Australia, all actions of account, at law or in equity and based on either legal or equitable liability to account, are barred six years after the accrual of a cause of action, which was said to follow not only from the statutory provisions themselves, but also from the statutory definition of "action" contained in the Act, apparently overlooked the same provision. [168]

62. [169]

    In 1967, the NSW Law Reform Commission, chaired by Manning JA, considered the same complexities as were addressed by Megarry V-C in Tito v Waddell: [169]

63. [170]

    Thus the Law Reform Commission ultimately adopted, in what would become s 15 of the NSW Act, the approach of which Megarry V-C would say, in Tito v Waddell, ‘This tortuous scheme of indirection is one that I should be reluctant to attribute to Parliament’. [170]

64. [171]

    While I am conscious that we are construing a Victorian Act and should afford deference to decisions of the Supreme Court of Victoria in respect of it, the weight of those decisions is significantly undermined by their foundation in the incorrectly decided precedent of Wheatley. [171] The Victorian Act does not contain a direct equivalent to s 38(3) of the WA Act, but it does contain s 5(8), [172] which corresponds with s 2(7) of the English 1935 Act considered by Megarry V-C in Tito v Waddell. I am unable to accept that the definition of “action” in s 3 of the Victorian Act has the effect that s 5(2) applies to claims for an account in equity where the liability to account is equitable. Essentially, that is because s 5(8) explicitly says that it does not. My view is consistent with the view of Megarry V-C in Tito v Waddell. Mukhtar AsJ’s observation that s 5(2) “says what it says” is no answer to that, where s 5(8) operates as an exception or proviso; it is fundamental that a proviso or exception prevails over the principal provision. This conclusion is fortified by the circumstance that the word “action” is also consistently used in the other subsections of s 5, so there is no basis for thinking that s 5(2) was uniquely intended to apply to claims for equitable relief. While there is some force in the argument, recognised by both the Law Reform Commission and by Megarry V-C, that it would be curious if Parliament intended by s 5(2) (and its equivalents) to legislate a limitation period for a form of action (account at common law) which had fallen into disuse, the explanation is that the statute of limitations has ancient origins and thus unsurprisingly may continue to make provision in respect of causes of action which are no longer litigated, that – as Megarry V-C explained in the first paragraph of the excerpt set out above – a common law action for account has been referred to in the statute from its inception in 1623, and that the statue has historically been confined to actions at law, and applied in equity only by analogy. It would be even more curious if, while providing in s 5(8) (and its equivalents) that – as had always been the case – the statute did not apply to claims for equitable relief except by analogy, that was somehow circumvented in the case of equitable relief by way of account by the definition of “action”. In my view, s 5(2) is not concerned with a suit for an account founded on a liability to account imposed by equity, save insofar as, by s 5(8), it may be applied by analogy.

65. [172]

    In purely equitable proceedings, where there is a corresponding cause of action at law in respect of the same matter which is the subject of a statutory bar, equity will apply the bar by analogy unless there is a ground which justifies not doing so because reliance by the defendant on the statute would in the circumstances be unconscionable. [173] For the purpose of limitations, a cause of action comprises ‘the occurrence of all the facts which the plaintiff must show as part of his case’, [174] or ‘the essential ingredients in the title to the right which it is proposed to enforce’, [175] or ‘the fact or combination of facts which gives rise to the right to sue’. [176]

66. [173]

    In principle, a claim for an account in equity based on a purely equitable liability to account is analogous to a claim for an account at law, and the statutory limitation period is applicable by analogy. Millett LJ explained in Paragon: [177]

67. [174]

    The Amended Summons included a number of claims explicitly for an account. [178] However, the only account that was ordered was one in respect of rents and profits derived from certain properties from 2018, [179] well within the six-year period before proceedings were commenced. Alternatively to the claims for accounts, the respondents claimed equitable compensation, [180] and proprietary relief. The primary judge held that, subject to the limitation and laches defences, the respondents were entitled to equitable compensation and proprietary relief.

68. [175]

    The liability of an accessory is primarily a liability to account. In Hospital Products Ltd v United States Surgical Corp, Mason CJ said (citations omitted): [181]

69. [176]

    In Giumelli v Giumelli, Gleeson CJ, McHugh, Gummow and Callinan JJ said (citations omitted): [182]

70. [177]

    In Paragon, Millett LJ said: [183]

71. [178]

    In Hasler v Singtel Optus Pty Ltd Leeming JA, with whom Barrett JA and Gleeson JA agreed, observed: [184]

72. [179]

    In Bofinger v Kingsway Group Ltd, [185] Gummow, Hayne, Heydon, Kiefel and Bell JJ said (citations omitted):

73. [180]

    To those equitable personal remedies referred to by Crennan J might be added equitable compensation, as was claimed in this case. Equitable compensation is not the same as an account; its focus is compensation for loss, as distinct from depriving the accessory of benefits received. [186] This is apparent from the following passage in the judgment of McLelland AJA in Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd: [187]

74. [181]

    In O’Halloran v R T Thomas & Family Pty Ltd, Spigelman CJ, with whom Priestley JA and Meagher JA agreed, said (emphasis added): [188]

75. [182]

    In Crossman v Sheahan, Ward JA (as her Honour then was) said (emphasis added): [189]

76. [183]

    Thus, while the liability of an accessory is usually explained as a liability to account, that liability may be satisfied by proprietary relief in respect of property received and retained by the accessory, by an account for property that has never been received by the accessory or is no longer retained, or by equitable compensation.

77. [184]

    In my judgment, a claim for proprietary relief against an accessory is within the analogy: it is a claim for the accessory to account for the trust property it has received, by restoring it to the trust. As the Supreme Court of the United Kingdom has observed, “the expression equitable accounting can encompass both proprietary and non-proprietary claims”. [190] The defaulting party is “liable, at the option of the cestuis que trust, to account either for the value … or … for the thing itself …’ (emphasis added). [191] I do not accept the respondents’ submission that Cohen v Cohen and Re Auzhair Supplies Pty Ltd establish that a proprietary claim is not analogous to an action for an account. In Cohen, the point that was made by Dixon J was that the analogy was not applied in case of the first class of constructive trustee (de facto trustees), but it was applied in the second (which includes accessories). [192] In Auzhair, I explained that Cohen was a case of a proprietary claim to property in the hands of the fiduciary – the point being that it was not a claim against an accessory, but against an actual trustee, such that the analogy did not apply. [193]

78. [185]

    As to equitable compensation, it is true that in Tito v Waddell, Megarry V-C held that no limitation period applied to a claim for equitable compensation, but that was in circumstances where it was sought in lieu of setting aside a transaction which was voidable for breach of fiduciary duty, for which there was no limitation period. [194] On the other hand, in Cia de Seguros Imperio v Heath (REBX) Ltd (formerly C E Heath & Co (North America) Ltd), [195] the question was whether a court of equity would have applied limitation by analogy to a claim for equitable compensation for a dishonest breach of fiduciary duty. The Court of Appeal of England and Wales held that equity would have taken the view that it should apply the statute by analogy to a claim for compensation for a dishonest breach of fiduciary duty, because what was alleged as giving rise to a dishonest breach of fiduciary duty were precisely the facts which were also relied upon for alleging breach of contract or breach of duty in tort. And as has been noted, [196] there is a well-established analogy between an action in tort for fraud and a claim in equity for 'an account as constructive trustee' founded on the same fraud. In Paragon, Millett LJ said, in respect of the liability of an accessory: [197]

79. [186]

    In Feiglin v Ainsworth, [198] Mukhtar AsJ said:

80. [187]

    The liability of an accessory to pay equitable compensation depends on substantially the same facts as the liability to account. Although the focus is different, the result will often be indistinguishable in quantum, in particular in the case of a dishonest assistant who does not receive trust property. In my view, even if an action for equitable compensation is not “an action for an account”, it so closely corresponds to one as to fall within the analogy.

81. [188]

    It follows from the discussion above that the respondents’ claims for proprietary relief and equitable compensation against Max and the Max companies so closely correspond to claims for an account, and/or claims in tort for fraud, that the six-year limitation period imposed by s 5(2) on claims for an account referred to in s 5(2), and/or by s 5(1)(a) (which provides that actions founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued), apply prima facie by analogy. Where a limitation statute applies by analogy, equity does not retain a general residual discretion to decline to apply it; however, equity will not apply the analogy where it is unconscionable to rely on it. There are two classes of cases in which courts of equity decline to apply limitation periods by analogy: the first is claims by a beneficiary against a trustee for breaches of trust, which has been discussed above; and the second is claims involving fraud or fraudulent concealment. [199]

82. [189]

    The appellants did not plead, nor expressly rely on, the application by analogy of any limitation period (except in their application for leave to amend to rely by analogy on Corporations Act, s 1317K), until supplementary submissions made after the hearing of the appeal. As a result, the respondents did not advance evidence or arguments as to why it would be unconscionable to permit the appellants to rely on the analogy. As Mr Elliott SC, for the respondents, explained in the course of the appeal, not only was the reply of fraudulent concealment, though pleaded by the respondents, not vigorously prosecuted at the trial, but because no limitation by analogy was pleaded, the same factual matters which would have founded a reply of unconscionability – because of fraudulent concealment – to a defence of limitation by analogy, were not pressed. [200] These are powerful reasons as to why the application of the analogy in this case should be considered no further. However, the analogous application of s 5 (and its equivalents) is an important element of explaining why s 21(2) (of the Victorian Act) does not apply to remedial trusts. Ultimately, I have concluded that it is preferable to address these issues on the merits, and that this can be done without unfairness to either party: despite its not having been litigated at trial, the application of s 5 by analogy is a question of law; if it is to be considered, then it would be unfair to the respondents not to consider also whether it would be unconscionable to permit the analogy to be relied upon; the relevant issues (as to fraudulent concealment) were in any event raised and addressed in the course of the appeal, in the context of the challenge to the conclusion of laches; and the ultimate result is the same as would have eventuated had the application by analogy of s 5 not been considered at all.

83. [190]

    That s 5 is applicable by analogy, and not directly, has the important consequence that time runs not from when the cause of action first accrued, but from when it was discovered or discoverable. As Gleeson JA, with whom Meagher JA and Barrett JA agreed, explained in Sze Tu: [201]

84. [191]

    Relevantly to the context of the present case, his Honour continued: [202]

85. [192]

    In Ecclesiastical Commissioners v North Eastern Railway Co, [203] Malins VC said, in the context of the application of the Statute of Limitations in equity by analogy, that the law was clearly settled that in cases of fraud the time begins to run only from the time the fraud was discovered, or by reasonable diligence could have been discovered. In Urquhart v M’Pherson, [204] a suit for an account of a partnership, Molesworth J, relying inter alia on Clanricarde v Henning, [205] and Ecclesiastical Commissioners v North Eastern Railway Co, observed that where a plaintiff may proceed in equity or at law, a court of equity would not adopt a different limitation period from that at law; but that in equity, in the case of fraud, the statute runs from the time when with due diligence the fraud might have been discovered. In Gerace, Meagher JA, with whom Beazley P and Emmett JA agreed, said: [206]

86. [193]

    Although the primary judge did not consider this precise question in this context, his Honour was required to address analogous questions under the rubric of laches, and (obiter) in the context of s 27 of the Victorian Act – which, as explained by Meagher JA in the passage just cited, reflects the equitable doctrine, and which provides:

87. [194]

    In that respect, the primary judge said: [207]

88. [195]

    While there was no Notice of Contention by which the respondents formally sought to challenge his Honour’s obiter rejection of the argument based on s 27, the issue arises at this point in the context of the analogical application of s 5(2), which as has been noted the appellants did not plead nor otherwise invoke until their supplementary submissions, but which has had to be considered in the context of explaining why s 21(2) does not apply. And the relevant issues were addressed and argued on the appeal, albeit under the rubric of laches. For the reasons I have given for upholding the primary judge’s conclusion as to dishonesty, his Honour’s holding that the respondents’ claim was based on Max’s fraud and/or that their right of action was concealed by his fraud was correct. However, as to the conclusion that “any such fraud could have been discovered by Mrs Twigg with reasonable diligence”, what is involved in the notion of “reasonable diligence” in this context was described by Lindley LJ in Betjemann v Betjemann (footnotes omitted): [208]

89. [196]

    That case was referred to, with apparent approval, by Meagher JA in Gerace: [209]

90. [197]

    In Sze Tu, Gleeson JA observed: [210]

91. [198]

    Essentially for the reasons I have given for concluding that the defence of laches fails – namely, that such facts as Diane knew did not constitute “sufficient knowledge of the facts constituting the title to relief”, in a context where, to Max’s knowledge, she implicitly trusted him – I do not agree that Max’s fraud and concealment of it was discoverable by Diane with reasonable diligence. Such knowledge as she had before 2018, coupled with her relationship with Max, was not such that a reasonable person in her position would have made further inquiries. His Honour’s statement that “she chose not to do so” is, with respect, inapt: no occasion arose for her to make any such choice; none was identified or suggested; and there was no evidence that she did.

92. [199]

    It follows that, although I have reached this conclusion by a somewhat different course, the primary judge was right to hold that neither s 5 nor s 21(2) barred the claims in respect of breach of fiduciary duty – the latter as the liability of Max and the Max companies was not as a trustee (of an institutional trust) within the meaning of s 21, but remedial only; and the former as time did not begin to run until the cause of action was discoverable, which was not until 2018 or 2019. Further, if I be incorrect in concluding that no limitation period applies directly, then any such limitation period would in any event be postponed by s 27. The same result would follow if the appellants were not permitted on appeal to rely on the application of s 5 by analogy because it had not been pleaded.

93. [200]

    The primary judge refused leave to amend the defence to plead a limitation defence relying on Corporations Act 2000 (Cth), s 1317K, by analogy. The original notice of appeal made no complaint in this respect, but by notice of motion filed on 17 February 2021, the appellants sought leave to amend their notice of appeal to add grounds complaining that the trial judge erred in refusing to permit them to amend to plead such a defence (Ground 9(b)), and in failing to hold that the claims were thus barred (Ground 9(c)). Although the appellants conceded that leave to appeal was required for those grounds, and sought that the requirement to file a summons for leave be dispensed with, the concession was incorrectly made: it is open to an appellant on appeal as of right from a final judgment to challenge, without leave, any interlocutory decision which has affected it. However, it is uncontroversial that the primary judge’s decision to refuse leave to amend was one to which the constraints of House v The King [211] apply.

94. [201]

    The appellants submitted that the primary judge’s discretion miscarried by reason that his Honour erred in finding a “general discretion” not to apply a limitation period by analogy; erroneously held that the question of whether it would have been unconscionable to apply the limitation was a new factual issue such as to justify a refusal of leave to amend, as it was already in dispute in the proceedings via the dishonesty arguments; and that the argument was already available on the pleadings.

95. [202]

    This ground can be disposed of shortly. For the reasons already given, [212] any limitation period applicable by analogy would not have commenced to run until 2018 or 2019, when the fraud and cause of action was first discovered or with reasonable diligence discoverable. The amendment if granted at trial would therefore not ultimately have availed the appellants, and there is no utility now in granting leave to amend to permit the issue to be agitated.

6. Tracing (Grounds 11, 12)

1. [203]

   The primary judge held that the proper plaintiffs were the Trustee Companies (as distinct from Diane personally), [213] and that: [214]

2. [204]

   His Honour held that any of the Max companies that received part of the Sale Proceeds were equally liable with him to account for it, on the basis that they were his alter ego: [215]

3. [205]

   Although the appellants submitted that the obiter statement in Grimaldi v Chameleon Mining (No 2) [216] cited by the primary judge should not be taken as establishing the principle for which it was relied upon by his Honour, and alternatively that, if there is any such principle, it is confined to cases of dishonesty, the statement in Grimaldi is entirely congruent with the following statement of the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd: [217]

4. [206]

   And even if the principle were confined to cases of dishonesty, this was, as has been explained, such a case.

5. [207]

   As to tracing, as the primary judge explained, [218] the general principle is that, subject to certain qualifications, a beneficiary is entitled to assert a proprietary right not only to the trust property itself in the hands of a recipient, but also to property for which that property has been exchanged. This differs from following, by which a beneficiary may exercise a proprietary right in respect of trust property notwithstanding that it has been transferred to a third party. An important qualification is that the property may not be followed once it has been transferred to a bona fide purchaser for value and without notice of the claim. This was explained by Lord Millett (with whom Lord Hoffmann agreed) in Foskett v McKeown: [219]

6. [208]

   Three issues arise in the appeal in connection with the tracing relief to which the primary judge held the Trustee Companies were entitled. Two concern the Hotel: the appellants contend, first, that no more than $10 million of the $12.2 million advanced by Max to BBH to fund the purchase of the Hotel was derived from the Sale Proceeds, and so only that proportion and not the whole of the proceeds of the Hotel are traceable (Ground 11); and, secondly, that the primary judge erred in holding that respondents could trace into the Hotel and its proceeds, when the relevant transaction was a loan from Max to BBH as trustee of the BBH Property Trust, which had been fully repaid to Max before the Hotel was sold (Ground 12). The third issue is raised by the cross-appeal, and concerns the Albatross Avenue property: the respondents contend that the primary judge erred in holding that the Sale Proceeds could not be traced into Albatross Ave (Cross-appeal ground 2).

7. [209]

   Many of the assets into which the respondents sought to trace were themselves acquired from the Hotel proceeds; thus entitlement to trace into them is dependent on the respondents being able to trace into the Hotel and its proceeds.

8. [210]

   The Hotel was acquired in late June 2007 by BBH as trustee for the BBH Property Trust – both being entities controlled by Max – for a price of $47.2 million. BBH agreed to sell the hotel in 2017 for $68.2 million, and the sale was completed on 1 March 2018. [220]

9. [211]

   In June 2007, the entire purchase price was borrowed by BBH, as to $35 million by way of a bill facility with the Commonwealth Bank, and as to $12.2 million from Max; whether all or only $10 million of this was sourced from the Sale Proceeds is considered under Ground 11 below. According to the annual financial statements of BBH, Max’s loan account fluctuated over the ensuing years: from $12.2 million in 2007, it increased to $12.509 million in 2008 and $15.68 million in 2009, before reducing to $15.484 million in 2010, $15.22 million in 2011, $14.694 million in 2012, $13.726 million in 2013, $9,654 million in 2014, $6.901 million in 2015, $4.776 million in 2016, $2.932 million in 2017, and nil in 2018. Thus, the debt owed by BBH to Max had been discharged in full by 30 June 2018 – more or less contemporaneously with the completion of the sale of the Hotel on 1 March 2018. The primary judge observed: [221]

10. [212]

    Thus at first instance, it was submitted for Max that the $12.2 million could not be traced into the Hotel, as it was properly characterised as a loan to BBH which was repaid to him. The primary judge, after referring to several authorities, including Daly v Sydney Stock Exchange Ltd, [222] and Hancock Family Memorial Foundation Ltd v Porteous, [223] which were relied on for Max, concluded: [224]

11. [213]

    The appellants submit that this conclusion was erroneous: in a field where the rights to trace property are determined “by fixed rules and settled principles” and do not depend on what is “fair, just and reasonable”, [225] it was not possible to trace through a loan which had been repaid, and proprietary relief could be granted over assets of the borrower only if the loan had been avoided. Upon the making of the loan by Max to BBH, Max’s relevant property was his chose in action to recover the loan; if the loan were avoided it might be available to trace into the borrower’s assets; but if it were not – and a fortiori if it were repaid – it was not. Upon repayment, any traceable asset was extinguished.

12. [214]

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

13. [215]

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

14. [216]

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

15. [217]

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

16. [218]

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

17. [219]

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

18. [220]

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

19. [221]

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

20. [222]

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

21. [223]

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

22. [224]

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

23. [225]

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

24. [226]

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

25. [227]

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

26. [228]

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

27. [229]

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

28. [230]

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

29. [231]

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

30. [232]

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

31. [233]

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

32. [234]

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

33. [235]

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

34. [236]

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

35. [237]

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

36. [238]

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

37. [239]

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

38. [240]

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

39. [241]

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

40. [242]

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

41. [243]

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

42. [244]

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

43. [245]

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

Conclusion

1. [246]

   My conclusions may be summarised as follows.

2. [247]

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

3. [248]

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

4. [249]

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

5. [250]

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

6. [251]

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

7. [252]

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

8. [253]

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

9. [254]

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

10. [255]

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

11. [256]

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

12. [257]

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