JW Broomhead (Vic) Pty Ltd (In Liq) v. JW Broomhead Pty Ltd

[1985] VR 891
(1985) 3 ACLC 355
(1985) 9 ACLR 593

(Judgment by: McGarvie J) Court:
SUPREME COURT OF VICTORIA

Judge:
McGarvie J

Subject References:
Companies
Company carrying on business as trustee
Liabilities incurred
Whether beneficiaries liable to indemnify trustee
Power of company to transfer interest in business to trust without consideration
Meaning of "moneys" in trust deed
Whether business included
Disclaimer and acceptance of beneficial interest
What constitutes
Disclaimer by holder of joint beneficial interest
Effect on other joint holder of that interest
Application of principle in Hardoon v Belilios to trust with more than one beneficiary
Application of principle to holder of beneficial interest on trust for minors
Extent of liability to indemnify trustee
Whether joint or several
Effect of inability of other beneficiary to indemnify on liability of solvent beneficiaries

Legislative References:
Companies Act 1961 (VIC) - 20; 119; 141

Judgment date: 3 April 1985

Melbourne


Judgment by:
McGarvie J

In this action the plaintiff, J W Broomhead (Vic) Pty Ltd (in liq) proceeds against four defendants, J W Broomhead Pty Ltd, Baroy Industries Pty Ltd, Graham John Wood and Lynette Desley Wood. The fifth defendant, Accordo Industries Pty Ltd, is in liquidation and the plaintiff does not pursue its claim against it.

The plaintiff carried on business as a builder from soon after its incorporation on 30 April 1976 until the commencement of its winding up on 6 September 1977. When placed in liquidation, its trade liabilities were much greater than its assets. At the present stage of the liquidation, the deficiency is of the order of some $65,000 to $70,000.

The plaintiff's main claim is that for the greater part of the period mentioned above, it carried on the building business as trustee for the defendants and so incurred the liabilities as trustee. It claims to be entitled as trustee to be indemnified against these liabilities and, to the extent that the trust assets are insufficient to indemnify it, it claims indemnity from the defendants personally on the basis that they were beneficiaries of the trust. The plaintiff relies on the principle applied in Hardoon v Belilios [1901] AC 118. By the action the liquidator, Ernest Niemann, seeks to obtain money to be paid in the liquidation to creditors of the plaintiff.

The issues

The plaintiff must first establish that as trustee under a trust deed dated 30 April 1976, it carried on the building business and incurred the liabilities. The defendants contend that the trust deed was not validly executed by the plaintiff and did not otherwise become binding on the plaintiff. They further say that even if the plaintiff did become bound by the trust deed, the business never became part of the trust fund which the plaintiff held on the trusts of the deed. The plaintiff contests these contentions, and further replies that the defendants are estopped from denying that it made the deed and that the business was conducted upon the trusts created by the deed.

After the trial commenced the plaintiff sought by amendment of the statement of claim to allege alternatively that it carried on the business as trustee for the defendants in their respective proportions, not as trustee under the deed, but pursuant to the common intention of the plaintiff and defendants that it should do so. The plaintiff desired in this way to put its case alternatively on the basis that the deed had not been executed. I exercised my discretion against allowing the amendment at that late stage. In order to succeed in the action the plaintiff must establish the execution of the deed or estoppels precluding the defendants from denying execution.

The defendants are named in the deed as beneficiaries of the trust fund to be held by the plaintiff as trustee. If the plaintiff establishes that it carried on the business as the trustee appointed by the deed, the contention of the defendants is that they never effectively became beneficiaries of the trust. This is put on the basis that they did not accept the benefit or they disclaimed it. It is also put on the basis that none of the trusts under the deed operated unless all the named beneficiaries finally became beneficiaries of the trust and it is denied that this happened.

If the plaintiff succeeds in establishing that it carried on the business as trustee of the deed and that the defendants or some of them were beneficiaries of the trust at the time, the defendants submit that the principle of Hardoon v Belilios, supra is inapplicable in the present case. It is argued that the principle does not apply where there is more than one beneficiary; alternatively, that the defendants are not between them the absolute beneficial owners of the trust fund; and that in any event beneficiaries who hold their beneficial interests on trust for minors are not personally liable to indemnify a trustee.

In the event of my holding that the plaintiff is entitled to indemnity, questions will arise as to which defendants are liable to indemnify the plaintiff and the extent of their respective liabilities. There has been no detailed evidence in respect of the various liabilities incurred by the plaintiff in the conduct of the business. If the plaintiff is entitled to indemnity, the relevant liabilities and their amounts will be determined under orders for inquiries and accounts.

Alternative claim as agent

The plaintiff's other claim is for indemnity from the defendants on the basis that it carried on the business as agent for them. At the trial, Mr Finkelstein, who appeared for the plaintiff, limited this claim to the period from the incorporation of the plaintiff to the date when the deed was executed by the settlor and the plaintiff's seal placed upon it. As appears later, I find that date to have been 28 September 1976. The plaintiff seeks indemnity from the defendants as principals up to that date, and as beneficiaries from that date.

Background

The defendant J W Broomhead Pty Ltd (JWB) is one of a number of companies in a group controlled by members of the Broomhead family. The family enterprises have operated with success in New South Wales since 1881. For some 40 years Mr Roy Broomhead has been the person with the dominant influence in the control of the companies and their businesses. For a number of years he has been chairman and managing director of JWB and most of the other companies. JWB carries on business as a builder. Mr Broomhead is a very efficient businessman and builder and a man of strong personality. He insists on being involved in and has the prevailing influence upon the major decisions made within the companies and their businesses.

In the years 1976 and 1977 Mr Brownlee was secretary of the company. Since the late 1940s Mr Calver, a chartered accountant, has done the accountancy work for the group of companies. He is auditor of JWB and other companies in the group. He has incorporated new companies for the group as required. He has a close working relationship with Roy Broomhead. They are friends, belong to the same club and usually meet there once a week. Mr Cassim, of the firm of M G Cassim & Co, had for years acted as solicitor for JWB and other companies in the group.

The defendant Baroy Industries Pty Ltd (Baroy) is a company which owned property. Its directors were Roy Broomhead and his son, Barry Broomhead. Barry Broomhead was chairman of directors. They had approximately an equal interest in the shares of Baroy. Mr Calver was accountant and auditor, and Mr Cassim solicitor for Baroy.

The third defendant, Graham Wood, a qualified carpenter, had carried on his own business then became a building manager for one of the Broomhead companies in New South Wales. Mr Calver had acted as his accountant for a number of years and he relied almost entirely on his advice for the ordering of his financial and investment affairs and those of his family. Lynette Wood, the fourth defendant, is the wife of Graham Wood.

The fifth defendant, Accordo Industries Pty Ltd (Accordo), which is in liquidation, was a company which at the relevant time was substantially engaged in acting as trustee. Its shares were held equally by Robert Keogh and Keith Wood, who were its directors. Keith Wood is not related to Graham Wood.

Robert Keogh and Keith Wood are engineers. Through a company, Keogh, Wood & Partners Pty Ltd, they practised as consulting civil engineers. They were directors and equal shareholders in the company. They had another company, Keogh Wood Management Pty Ltd, which carried on the business of a manager and management consultant. Since early 1975, the solicitors' firm of Ronald Seaman and Phillip Hamilton had acted for Keogh and Wood and their companies. For a number of years the accountants' firm, Mills and Quinton, had done the accountancy work for Keogh and Wood and their companies. The activities of Keogh and Wood which have been mentioned so far were based in Victoria.

Keogh and Wood had another company registered in New South Wales. Through that company Keogh and Keith Wood had done structural design work for the Broomhead companies. They had known Roy Broomhead for several years.

Main events

I turn now to the events which are of particular importance to the following issues:

(a)
when the trust deed was signed by the settlor and purported to be sealed by the plaintiff;
(b)
whether the trust deed became binding on the plaintiff;
(c)
whether the building business became part of the trust fund and was carried on by the plaintiff as trustee;
(d)
whether the respective defendants accepted or disclaimed their beneficial interests in the trust fund; and
(e)
whether the plaintiff is entitled to the indemnities claimed.

In 1975 a Dunlop rubber company intended to move one of its manufacturing operations from Drummoyne in Sydney to Montague in Melbourne. One of the Broomhead companies, J W Broomhead Constructions Pty Ltd, contracted with the Dunlop company to build the new building at Montague, transport and install the machinery and hand over the finished property. While this work was being done, the services of Messrs Keogh and Wood were used on occasions when it was necessary for an engineer to certify that particular work complied with the requisite standard.

Graham Wood came to Melbourne and took charge of the work being done for the Dunlop company. His wife and family initially remained in Sydney but later came to Melbourne. The Broomhead company not only did work for the Dunlop company but contracted to do building work for others and developed a building business in Victoria under the management of Graham Wood. Graham Wood had experience of doing reinstatement work for insurance companies to buildings damaged by fire. He and Roy Broomhead were equal shareholders in a company, Woodbro Pty Ltd, which did that type of work in New South Wales. He discussed with Roy Broomhead his desire to remain in Melbourne to do building work in Victoria. They considered forming a company in Victoria to do that.

Keogh and Keith Wood became involved in the discussions. They suggested that they could provide engineering and management services to the proposed Victorian company.

Roy Broomhead instructed Calver to incorporate a company in Victoria to carry on the proposed building business. While discussions were proceeding regarding the involvement of Keogh and Keith Wood, Calver prepared for the incorporation. On 12 March 1976 Roy Broomhead and Graham Wood subscribed to the memorandum and articles of the plaintiff and their signatures were witnessed by Calver.

On 17 March 1976 Roy Broomhead, Graham Wood, Keith Wood and Robert Keogh met at the business premises of Keogh Wood Management Pty Ltd at 71 Palmerston Crescent, South Melbourne. I will refer to these premises as "the Palmerston Crescent premises". There was tendered before me, as part of the plaintiff's minute book, Ex N, a document which is in the form of minutes of the meeting. It is headed "Minutes of the meeting of the directors of J W Broomhead (Vic) Pty Ltd ...". The plaintiff was not incorporated until 30 April 1976 and the minutes were tendered under s 55 of the Evidence Act 1958.

The minutes record the appointment of Keogh as chairman, Roy Broomhead and Keith Wood as joint managing directors, Graham Wood as general manager, Keogh as secretary and public officer, and Mills and Quinton as auditors. It is recorded that Roy Broomhead produced the memorandum and articles of the company and documents applying for incorporation and registration which were noted. Decisions were made as to the bankers of the company, signatures for the bank account and the obtaining of an overdraft, if possible, to a limit of $20,000. The memorandum of the company (EX L(1), cl 1.03) provides that the share capital with which the company proposes to be registered is $10,000 divided into 10,000 shares of $1 each. The minutes of the meeting on 17 March 1976 contain this statement:

6.1 Agreed

1. That the share allotments be made in the following proportions-

J W Broomhead Group Pty Ltd 42%
Baroy Industries Pty Ltd 10%
Graham John Wood 24%
Keogh Wood Management Pty Ltd 24% carried
It was further noted that on the basis of paid up capital of $10,000 the responsibility of the shareholders to the initial capital would be -
J W Broomhead Group Pty Ltd $4200
Baroy Industries Pty Ltd 1000
Graham John Wood 2400
Keogh Wood Management Pty Ltd 2400 noted

The reference to J W Broomhead Group Pty Ltd was an erroneous reference to JWB which was carried through in the documents for some time. There was no company of that name.

There had for some years been a difference in practice between the companies of the Broomhead group and the companies controlled by Keogh and Keith Wood. The companies in the Broomhead group did not operate as trustees. In order to minimise taxation, the companies controlled by Keogh and Keith Wood operated as trustee companies. Over the years Keith Wood had told Roy Broomhead that the failure to have the Broomhead companies operate as trustee companies was costing him money in taxation. Roy Broomhead had not used trustee companies because of an experience of his father many years before. His father and his uncle had been in partnership. When the uncle died, he left many liabilities which his father had to pay. An old solicitor had told Roy Broomhead that he should have learnt a lesson by that and should never have a partnership. Roy Broomhead took the advice and was never involved in a partnership or anything which he regarded as akin to it. As part of this policy, he had avoided trustee companies.

It is clear from the minutes of the meeting on 17 March that at that time it was contemplated that the plaintiff would operate in the ordinary way, with profits distributed to the shareholders as dividends proportionately to their agreed shareholdings. There is no reference in that document to the plaintiff operating as a trustee. Those minutes record a decision that regular meetings of the company be held at the registered office on the second Tuesday in each month at 10 am. It had been decided at that meeting, and it was again decided after incorporation, that the registered office of the plaintiff be at the Palmerston Crescent premises.

On 13 April 1976 the second Tuesday of the month, another meeting which preceded incorporation was held. Again there are minutes in the minute book, EX N. The heading indicates a meeting of the company. Those present were Roy Broomhead, Graham Wood, Barry Broomhead, Keith Wood and Mr Brownlee, then the secretary of JWB. There was an apology from Keogh. It was decided to appoint as directors Roy Broomhead, Barry Broomhead, Keogh, Keith Wood and Graham Wood. There was a resolution to appoint officers, who were the same as those which the meeting of 17 March had purported to appoint. The minutes record that Calver was to be asked to speed up the incorporation of the company and Brownlee to chase up the registration and confer with Keogh as to the amendments and early registration. The evidence does not indicate what amendments were contemplated. None were made. A number of resolutions which had been passed on 17 March were again passed, including the one relating to the proportions of share allotments and responsibility for paid-up capital. Other resolutions related to banking and management and business matters. There was a resolution that the next meeting be held at the Palmerston Crescent premises on Tuesday 11 May 1976. There is no reference in the minutes to the plaintiff acting as trustee.

The evidence shows that by 13 April 1976 the five men, Roy Broomhead, Barry Broomhead, Graham Wood, Robert Keogh and Keith Wood had reached broad agreement as to the company to be formed to conduct a building business in Victoria. The company was to operate in the normal way with profits distributed to shareholders in proportion to their respective shareholdings. The respective proportions to go the interests nominated by each of the men was agreed.

I am satisfied that before the plaintiff was incorporated, it had been suggested by Keogh and Keith Wood to Roy Broomhead that the plaintiff operate as a trustee company and there had been discussions about this. Keith Wood said that he had had such discussions before the plaintiff was set up and Roy Broomhead eventually said there could have been such discussions before May 1976.

When the proposal that the plaintiff operate as a trustee company was put to Roy Broomhead, he indicated strongly that he was against it. After discussion, he indicated that, while he did not favour it, he would seek the advice of his solicitor Cassim and of Calver on the proposal. I infer that this gave rise to the letter from Seaman to Cassim on 6 May 1976.

On 30 April 1976 the plaintiff was incorporated under the Companies Act 1961 (Vic). Upon incorporation the subscribers to the memorandum, Roy Broomhead and Graham Wood, became the members of the company. Sections 14(1), 16(4) and (5) Companies Act 1961. By the memorandum they had each agreed to take one ordinary share of $1 in the company.

On 6 May 1976 Seaman sent the following letter (exhibit F) to M G Cassim & Co:

Re: Keogh Wood Management Pty Ltd

Your client - J W Broomhead Group Pty Ltd

We refer to the telephone conversation on 3 May 1976 between Mr Cassim and Mr Seaman of this firm. During that conversation Mr Seaman referred to a proposed operation in Victoria in which your client J W Broomhead Group Pty Ltd would be involved with our client Keogh Wood Management Pty Ltd. Mr Cassim indicated that, as yet, you had not received any instructions with respect to the operation. Notwithstanding, we thought it appropriate to write to you to set out details of the arrangement as we understand it, and the purpose of this letter is to do so, and also to pass on the views of our client as to how the operation should be conducted. The information we have is as follows:

1. The operation in Victoria will be conducted by four parties, namely:

J W Broomhead Group Pty Ltd with 42 per cent;

Baroy Industries Pty Ltd with 10 per cent;

A company representing the interest of Mr Graham Wood with 24 per cent; and

Accordo Industries Pty Ltd representing the interest of Keogh Wood Management Pty Ltd with 24 per cent.

2. The operation in Victoria will be in the name of a new company called J W Broomhead (Vic) Pty Ltd. We understand this company was incorporated in Victoria on 30 April 1976 as company No C-118321-Z; and that the directors will be Messrs B R Broomhead, R Broomhead, H R Keogh (chairman), G Wood, and K H Wood.

3. Our client proposes that J W Broomhead (Vic) Pty Ltd should act as a trustee for the four parties. Its role as trustee would be documented by a deed of settlement creating a unit trust. The beneficial interests of the parties under the unit trust would be in the proportions set out in para 1 above. The purpose of the trust is to avoid the situation whereby the operating company in Victoria, that is, J W Broomhead (Vic) Pty Ltd will be subject to the usual rates of company taxation. If J W Broomhead (Vic) Pty Ltd acts merely as a trustee any income it receives will not be taxed in its, but rather in the hands of the four beneficiaries to whom the income is passed.

We shall be grateful if you will please pass the contents of this letter to your client. Please let us know your instructions when you receive them.

We make the point that if your client agrees to proceed in the manner we have outlined in this letter, then it will be necessary to ensure that the objects of J W Broomhead (Vic) Pty Ltd enable that company to act as a trustee. It was for this reason that we asked that you obtain and make available to us a copy of the memorandum and articles of the company. The next step would be to prepare a deed of settlement to establish the unit trust to which we referred in para 3 of this letter. If you have no objections, we are happy to prepare the document and submit it to you for your approval.

Yours faithfully,

RONALD SEAMAN & PHILLIP HAMILTON

Per:

(Signature)

PS Subsequent to the writing of this letter we were informed by Mr Keogh of Keogh Wood Management Pty Ltd that Mr Roy Broomhead had signified his approval of the method by which the operation in Victoria is to be conducted, and which we have outlined in this letter. In any event, please let us have confirmation.

What appears in the postscript is not evidence that Roy Broomhead had signified his approval. The existence of the postscript is relevant when considering later conduct and letters.

I defer consideration of a meeting and minutes of a meeting on 11 May 1976 until I consider the implications of the following letter of 19 May 1976 (Ex H) which Calver wrote to Seaman:

The Broomhead Victoria Trust (proposed)

Mr Roy Broomhead has handed me your letter of May 6 (RCS:JO) addressed to N G Cassim & Co and asked me to communicate with you on the subject.

As indicated in the postscript at the foot of your letter, Mr Roy Broomhead has signified his approval to your submission and his discussions with me are consistent with the views expressed.

His acquiescence has emanated from separate discussions with me, Mr D Brownlee and Mr Keogh and I suggest that at this stage it might be a good idea if some sort of a minute or statement of intention be circulated among the five participants with a request that they be signed and returned to the secretary of J W Broomhead (Vic) Pty Ltd.

I have not done anything about lodgment of form 17 (allotment) or form 43 (directors, secretaries etc) and submit that it would be more practical if these and any other statutory requirements be attended to in Melbourne under your guidance or that of Mills & Quinton.

A discretionary trust has been established for Mr Graham Wood and his interests would most likely be best suited if his proportion in the unit trust were held by the Graham Wood Family Trust. I would appreciate your comment on this submission.

Mr Roy Broomhead is going overseas early June and it is his wish that the formalities be short circuited and that your reply be sent direct for his consideration and that of Mr D Brownlee and myself in preference to involving N G Cassim & Co.

Owing to the shortness of time between now and Mr R Broomhead's departure I have sent copies of this letter to all parties concerned.

(The evidence does not show whether the correct first initial of the firm is "M" or "N".)

It is central to the defendants' case that Roy Broomhead never at any time agreed that the plaintiff should operate as a trustee company. This letter states that Roy Broomhead has by 19 May 1976 indicated to Calver that he agrees and authorised him to communicate that to Seaman.

It has been of particular importance in this case to make an assessment of the reliability of Keith Wood, Roy Broomhead and Ralph Calver as witnesses.

It was not suggested that Keith Wood has any material interest in the outcome of this case. He had disputes with Graham Wood and Roy Broomhead in 1977. He did not appear to me to be activated in his evidence by resentments towards any of the defendants or those with an interest in the defendant companies. On a number of issues where it would have been easy for a person prepared to manufacture evidence, to assist the plaintiff by doing so, Keith Wood said simply that he did not remember. An example was his evidence as to whether he was authorised, as stated in the minute signed by him, to represent Graham Wood at the meeting on 11 May 1976. I regard him as a reliable witness.

I do not regard Roy Broomhead as a reliable witness, although he is an impressive person. From my impression of him as a witness, from the evidence he gave and from evidence given by Calver, I assess him as a man of high capacity, industry and thoroughness who, with attention to detail, keeps himself well-informed on all aspects of his companies and their businesses and who expects and obtains a high standard of performance from those under him. He, in practice, makes the decisions for the Broomhead group. Much of his evidence about his not seeing documents or not noticing what was in them was inconsistent with my assessment of his thoroughness in business and of the way he would operate. He is highly motivated to defeat the plaintiff's claim. This is not only through financial considerations. I accept his evidence that when it was seen that the plaintiff was in financial difficulties he offered to have the Broomhead interests pay 52 per cent of the debts. He has high motivation to protect the good commercial reputation of his family name and companies, by avoiding a judgment against a company bearing the Broomhead name. I consider this has led him to give evidence which is inconsistent with the probabilities and with facts established by other evidence. He often shaped his evidence to fit what he regarded as the interests of JWB in this action.

Ralph Calver is a competent professional. He was unimpressed with the standards of efficiency he saw displayed by Keogh and Wood and by Mills and Quinton. I do not regard him as activated by resentment that the role he expected to play with regard to the plaintiff was performed by others. He has a strong loyalty to and friendship with Roy Broomhead. Whether due to loyalty and friendship or to unconscious rationalisation over the years, his evidence supported the defendants' case on important points until, confronted with a document, he later conceded in cross-examination that the position was contrary to what he had first said.

It was common ground that Robert Keogh was unavailable as a witness and that I should draw no inference from the fact that he was not called.

In his evidence in chief Calver did not say that Roy Broomhead had indicated to him that he agreed with the proposal that the plaintiff should operate as a trustee. However, in cross-examination he said that Roy Broomhead had handed him the letter of 6 May (Ex F) and asked him to communicate with Seaman and they had discussed the letter. Eventually Calver's evidence was to the effect that Broomhead had indicated to him "that a trust was okay as far as he was concerned". I accept this evidence and am satisfied that Broomhead instructed Calver to write the letter of 19 May (Ex H).

Calver was a careful and systematic accountant. He agreed in evidence that Roy Broomhead was the man in control of his companies and kept a pretty strong hand over their affairs, that what he says usually goes, and that he, Calver, would not do anything inconsistent or contrary to his wishes. In view of their personalities and relationship Calver would have been careful to comply precisely with Roy Broomhead's instructions. He was aware that Roy Broomhead's approval of the trustee company proposal was a reversal of a long standing policy.

I do not accept Roy Broomhead's evidence that he did not read the letter of 6 May until recently. In that letter written to Cassim, Seaman asked him to pass on its contents to his client. Broomhead said he did not recall whether he had handed that letter to Calver but if he did it would be a matter of his passing unopened to Calver a letter from Cassim, telling him to form an opinion on whatever he was talking about and to report back if there was any problem. He said he may have handed Calver an envelope without knowing what was in it. His evidence was that Cassim & Co had no discussion with him regarding the proposed trust. He agreed that Calver would get a reprimand if he went against his instructions or wishes. He said Calver would know he was not interested in a trust at all. He insisted that Calver did not ask him whether he was interested in setting up a trust in Victoria and did not discuss the letter of 6 May with him at any time.

In the circumstances, it is unlikely that Cassim, Broomhead or Calver would have acted as Broomhead's evidence implies they did. Cassim, asked to pass the contents of the letter to his client would be likely to do so. If Broomhead knew the letter was proposing a course which he strongly opposed, it would be uncharacteristic of him to deliver it unread to Calver. Calver would be most unlikely to write what he did on 19 May without ensuring that it stated only what Broomhead had asked him to state. I am not overlooking the evidence, which I accept, that from about mid-May Broomhead was very busy in preparation for going overseas.

It follows that at some stage before 19 May Roy Broomhead had decided to give his support to the plaintiff's operating as trustee along the lines outlined in Seaman's letter of 6 May.

Roy Broomhead's evidence was that he had never reached that state of mind. He maintained that his position throughout, which he conveyed to Keogh and Wood and others on a number of occasions, was that he would never accept a trustee company but was prepared to seek the views of Calver and Cassim on the proposal. He would not in my opinion, have taken a contradictory position such as that. I am satisfied that he decided, with some reluctance, to proceed with Keogh and Wood's proposal because they, who were to co-operate in the Victorian enterprise, strongly desired that the plaintiff should operate as a trustee. I do not think that Roy Broomhead regarded the proposal as of any taxation advantage to himself or his companies.

The document which is Ex M is headed "Minutes of meeting of J W Broomhead (Vic) Pty Ltd held at 71 Victoria Road, Rozelle on Tuesday 11 May 1976 at 11.45 am." The address is that of premises of the Broomhead companies in Sydney.

The document was not produced from the minute book of the plaintiff but from a file of Mills and Quinton, the accountants. It is signed by Keith Wood who in his evidence said that to the best of his recollection it accurately records what transpired at the meeting and that he thinks he wrote up those minutes. I prefer his evidence to the evidence of Roy Broomhead who said that there was no more than a casual and informal discussion on that day.

There had not been a meeting of the company since incorporation. People familiar with the formation and operation of companies, as were Roy Broomhead, Keogh and Wood, would know that, although management decisions had been made at pre-incorporation meetings, a number of formal decisions had to be made for the effective operation of the company. The date was the second Tuesday in May, the date for the next meeting recorded in the minutes of 13 April. It was held in Sydney rather than at the Palmerston Crescent premises but there could be a number of reasons for that.

As a meeting of the plaintiff company those entitled to be present were the members, Roy Broomhead and Graham Wood. Those recorded as present are: "Messrs R N Broomhead, K H Wood (representing G J Wood) and D Brownlee."

Keith Wood said in evidence that he cannot recall whether he was asked by Graham Wood to attend that meeting on his behalf. Graham Wood said that it is possible that he instructed Keith Wood to represent him but he does not believe that he would have done so and he would not have authorised Keith Wood to commit him to decisions set out in the minutes. Mr Quinton said that these minutes were prepared by him or his partner on the instructions of Keith Wood. Keith Wood's recollection was that he would have written up the minutes. The probability is that Keith Wood noted the details of the meeting and resolutions, took them back to Melbourne and gave them to Mills and Quinton to have them prepared in formal manner and typed. Probably the reason for this was so that Mills and Quinton would have available the minutes enabling them to make the necessary returns of allotments of shares, appointments of directors and the like. Keith Wood would know both when he made handwritten notes at the meeting and when he signed the minutes, whether he had been authorised by Graham Wood to represent him. At every meeting of the company or directors either Keogh or Keith Wood is shown as present. As they were the managers of the internal affairs of the company this would be expected. At the time, Graham Wood was working in Melbourne. If the meeting was to be held in Sydney and Keith Wood was to attend, and no controversial issue was expected to be decided, it might be regarded as desirable by all concerned to find a way of avoiding the necessity for Graham Wood going to Sydney as well. On that basis I am satisfied that Keith Wood was authorised by Graham Wood to represent him.

In the circumstances I am not prepared to find that the minutes of this meeting were circulated to those who were members or to those referred to in the minutes as directors. Mr Liddell QC, who appeared with Mr Henshall for the first four defendants, said he was not asking me to find that the failure to circulate these minutes was due to any deliberately deceptive conduct.

Exhibit M shows that at the meeting on 11 May Keith Wood was appointed chairman of the meeting, the certificate of incorporation was produced, Keogh was appointed Secretary and Public Officer, a seal was adopted, one ordinary share fully paid was resolved to be allotted to Roy Broomhead, Graham Wood, Barry Broomhead, Robert Keogh and Keith Wood, those five persons were appointed as directors and their consents to act were tabled, Graham Wood was appointed general manager and Mills and Quinton were appointed auditors. There was a resolution to open bank accounts with the Commercial Banking Co of Sydney and the Bank of New South Wales. The last statement in the document is:

Objects of company

It was noted that the company would be acting in the capacity of a trustee only, and in particular would act as trustee for 'The Broomhead Victoria Trust'.

Roy Broomhead in his evidence denied that there was a formal meeting on 11 May. He referred to his diary which showed that on that day Keith Wood asked him to purchase a camera for him while overseas. He said he probably spoke to him on the phone or briefly in his office. He did not recall any discussion on that day about the common seal. He said nothing was discussed that day about the Victorian company, its shares, directors, public officer, general manager, auditors or bank accounts. He added that there was no discussion at all about its acting in the capacity of a trustee. He said that there was nothing in Ex M which was discussed by Keith Wood and him that day.

I am satisfied that Ex M is a correct record of decisions made at the meeting on that day. The statement in it of the object of the company shows that by this time Roy Broomhead was in agreement with the proposal made by Keogh and Keith Wood that the plaintiff should operate as a trustee company. That he was of that mind on 11 May is consistent with what he told Calver was his attitude when requesting him to make the communication made in the letter of 19 May, Ex H That letter used as a heading the same name for the trust as appears in the minutes of the meeting on 11 May (Ex M).

It is important to consider what occurred on 11 May against the background of the circumstances, relations and aspirations then existing, not on the later background of a failed enterprise. At that stage relations were good between all parties who expected to co-operate in a successful business venture. All concerned would have realised that the contributions of Roy Broomhead and Graham Wood to the venture were essential. Roy Broomhead had the business skills, reputation and connections in the building industry. Graham Wood had the building skills which enabled him to be general manager. It would have been quite impracticable for Keogh and Keith Wood to seek to impose the trust concept if Roy Broomhead or Graham Wood was unwilling. The preparation of false minutes of meetings would have achieved nothing. I should add that counsel for the defendants did not allege the deliberate falsification of documents. It was put rather that there had been a surfeit of enthusiasm by the Keogh-Wood interests for the trust concept.

The minutes of meetings of the plaintiff or its directors should be signed by the chairman of the meeting or of the next succeeding meeting: see Companies Act 1961, s 148(1)(b); Fourth Schedule, Table A, reg 78. It appears from the plaintiff's minutes that the person signing them sets out a date below his signature which is the date of the meeting or of a later meeting. When the date was that of a later meeting, the minutes of the later meeting did not record any resolution for the confirmation of the minutes. There is no date to indicate when Keith Wood signed Ex M. It was not suggested in cross-examination that there was anything improper or inappropriate about his signature of the document. The exhibit is admissible under s 55 of the Evidence Act 1958.

It was significant that the meeting of 11 May resolved to allot one share each to the five men who were also appointed directors. It was not contended before me that any profits of the plaintiff were ever intended to be shared equally between the five men. The original proposal, recorded in the minutes of the meetings of 17 March and 13 April (included in Ex N) was that there should be allotments of shares in agreed proportions to companies in which Roy Broomhead, Barry Broomhead, Keogh, and Keith Wood were interested, and to Graham Wood. It would have followed from the allotment of one share to each of the five men, that in the absence of some mechanism such as the trust deed, each of the five would have shared equally by way of dividend in any profits of the plaintiff. However, if the plaintiff's business became part of the trust fund under the proposed deed the broad scheme of proportionate shares in the profits would operate. There was never any decision to allot more than the five shares.

There is no evidence of any later proposal or attempt by any of the five men appointed directors, or anyone else, to alter the shareholding in the plaintiff. This indicates that, although there was a change to the correct name of JWB, further consideration was given to the way in which the 24 per cent to be allocated to Graham Wood was to be received, and there was a change in the company to receive Keogh and Keith Wood's interest, there was no basic change from the position which had been reached by about 11 May.

On 3 August 1976 the return of the allotment of shares to the five men was lodged with the Commissioner for Corporate Affairs (Ex L(2) and (5)).

Roy Broomhead's evidence is that early in the piece he knew the company had five shareholders. He said he understood there were first two then five shareholders. His evidence was that although he expected the capital to be issued in the proportionate shareholdings earlier agreed, he was content that this be done in two stages. He said he thought that the shareholdings of the five persons would later be changed to the proportionate shareholdings earlier agreed. He said he had no idea why the five shares were issued to the five persons and did not know who gave instructions for it to be done. His explanation was that he was content with the shareholdings in the five men because he, with his son and Graham Wood, who he knew so well, had three-fifths of the shares which gave control of the company. He added that everybody was on friendly terms.

If it was not agreed that the trust proposal be pursued, the shareholding in the company was no academic question. The company had soon after the meeting on 11 May taken over the building business previously conducted in Victoria by the Broomhead company and all considered that it had good prospects of making substantial profit. For the whole of 1976 it was regarded as a successful business. There were liquidity and management problems in early 1977 but it was not until about May 1977 that it was realised by those conducting the company that it was in financial difficulties. A number of accounting statements prepared over that period showed satisfactory profits. At the meeting on 17 August 1976 at which all five men were present, Keogh reported a profit of about $30,000 for the three months' trading. Roy Broomhead with his experience of building had reservations about that and it was later revised to show a profit of about $10,000. If the profits had materialised and there was no trust deed, unintended and unsatisfactory results would have followed. The five men would have shared the profits equally. The desired taxation advantages would not have been achieved. If there was agreement that the trust proposal be implemented, the shareholding was of little importance, because the profits would have been distributed in the agreed proportions to the beneficiaries in the trust fund with the consequent taxation advantages.

I am satisfied that from about May 1976 each of the five men approved and supported a trust proposal broadly along the lines of that later contained in the draft deed. I refer later to Barry Broomhead and Graham Wood commencing to support the proposal.

From the month of May 1976 the conduct of those concerned with the management and control of the plaintiff was, considered overall, consistent with their working towards bringing into operation the proposal that the plaintiff should act as trustee.

On 6 May Mills and Quinton wrote to the Deputy Commissioner of Taxation (Ex T) advising that the plaintiff had been incorporated to act as a trustee and would not derive income in its own right. This was done on the same day as Seaman sent his letter with the postscript to Cassim (Ex F).

On 18 May Mills, of Mills and Quinton, instructed Seaman to prepare a deed of settlement. Further details were supplied later.

On 19 May Calver wrote to Seaman at Roy Broomhead's request, the letter (Ex H) stating Broomhead's approval of the trust proposal. This letter has already been discussed.

Before 2 June, Calver discussed the proposal with Graham Wood who told him to arrange the position in Victoria in the way in which he thought best in the interests of Graham Wood and his wife.

On 2 June 1976 Calver sent to Seaman a letter (Ex 3) stating:

The Broomhead Victoria Trust (proposed)

I refer to earlier correspondence. Roy Broomhead is now virtually out of the country and the policy decisions relating to establishment of the proposed trust will need to be determined by the board without Roy's guidance as chairman.

Graham Wood has been my client for a number of years and he and his wife are looking to me for some guidance on the new set up in Victoria on such matters as payroll procedure, superannuation, etc.

I would like to see a draft of the deed for the proposed unit trust as soon as possible and confer with Mills and Quinton as to how details of trading up to date are to be built into the financial records.

If you could make arrangements with Keogh Wood for a representative conference on the subject I would be very grateful.

Roy Broomhead went overseas on 5 June and was away until 21 July 1976.

By 15 June Seaman had drafted a deed of settlement which he enclosed with the following letter (Ex E(2)) to Calver:

Re: The Broomhead Victoria Trust

Thank you for your letter dated 2 June 1976. I referred a copy of your letter to Mr Norman Mills, and following discussion with him, it was left with me to send you a copy of the proposed deed of settlement. This document is enclosed.

You will notice we have shown mr and Mrs Wood as holding a 24 per cent interest. The intention is that they should hold the interest in their capacity as trustees pursuant to the deed of settlement dated 28 April 1972, between Mr B S Wood as settlor and Mr and Mrs Wood as trustee. To avoid any suggestion that Mr and Mrs Wood have a personal beneficial interest in the unit trust, we suggest that they execute a declaration stating that they do so in their capacity as trustee under the deed of settlement dated 28 April 1972.

Please contact us if you wish to discuss the deed with us.

Exhibit AA is a photocopy retained by Mr Calver of the copy of the proposed deed of settlement sent to him with that letter. The two parts of the deed later executed (Exs A and B) were the same in form and impression as that. No changes were made to the form of the deed originally prepared.

The deed of settlement is expressed to be made between the settlor Lilian Keogh and the plaintiff, described as "the trustee". It recites that to give effect to her wish to provide for the beneficiaries, the defendants in this action, the settlor has paid the trustee $50. The trustee declares that it will hold the $50 and any additions made to it by the settlor or any other person as a trust fund on the trusts of the deed. A "unit" is defined as an equal and individual interest in the trust fund. The beneficiaries are to be entitled to the trust fund in proportion to the number of units held. The beneficiaries are stated to hold the units as follows:

J W Broomhead Pty Ltd - 42 per cent
Baroy Industries Pty Ltd - 10 per cent
Graham John Wood and Lynette Desley Wood - 24 per cent
Accordo Industries Pty Ltd - 24 per cent

The trust created by the deed is to be called "The Broomhead Victoria Trust".

On 24 June 1976 a letter was written by Mills of Mills and Quinton to Calver (Ex R). It referred to Calver's letter of 2 June to Seaman. It mentioned the trust deed and the need to collect $1 from each of the persons shown in the schedule for each per cent of unit interest there shown. It requested Calver to arrange for $42 from JWB and $10 from Baroy to be forwarded to Mills and Quinton.

The letter also referred to a decision made in discussions between Quinton and Graham Wood that in one way or another the profits made in operations in Victoria before the plaintiff's incorporation on 30 April 1976, would be credited (proportionately) to the proposed unit holders according to their holdings. The letter said that it was important to have the position as at 30 April 1976 determined at that stage so that no possible misunderstanding could arise in future.

It also indicated that the writer was unsure of what was proposed regarding Graham Wood's superannuation.

The letter contained an offer to discuss in more detail the several points mentioned in it.

The sums representing $1 for each per cent of unit interest were not collected. Calver was puzzled by the request as he thought the money for a trust came from the sum settled. He passed the letter to Brownlee the secretary of JWB to attend to it for that company and to contact Barry Broomhead the manager of Baroy. The cash book of JWB shows that a cheque for the $42 requested from it was drawn on 30 June 1976. The cheque was never presented for payment. There is no evidence of any step being taken by any of the other beneficiaries named in the draft deed towards payment of the amounts requested.

Quinton said that Mills was acting on a misapprehension in requesting the contributions. I do not think it matters much why Mills made the request. There is no basis for suggesting that he was seeking contributions for shares as distinct from unit interests under the deed.

Originally it had been contemplated that capital of $10,000 would be raised by share subscriptions. When the plaintiff commenced its business its working capital was provided by overdrafts through the trading accounts of banks.

On 30 June Mills wrote to Calver (Ex 6) stating:

Re Discretionary Trust - G Wood Family

Graham Wood has handed me a copy of the above discretionary trust for perusal in connection with the proposal to use his discretionary trust in the J W Broomhead (Vic) unit trust.

Mills commented that the discretionary trust deed appeared unsuitable as Mrs Wood was excluded as a beneficiary and that it would be more desirable for a company to be trustee of the discretionary trust. He suggested it would be desirable for a new trust to be settled on the family of Graham Wood and invited Calver's comments.

That letter crossed in the mail with a letter from Calver to Mills of 1 July 1976 (Ex 5) which was in reply to Mills' letter of 24 June. In it Calver said:

Mr Seaman has sent me a copy of the deed of settlement which appears to be completely adequate. I spoke to Mr D Brownlee, secretary of J W Broomhead Pty Ltd who has indicated that the directors of the company and Baroy Pty Ltd are prepared to subscribe to the trust in the proportions indicated. I also submit that share allotments should be made, recorded and minuted in the trustee company, J W Broomhead (Vic) Pty Ltd. Also that appointments of directors, secretaries etc should be attended to.

He said he would like to confer with Mills to assess the profit earned to 30 April 1976. He mentioned that Graham Wood had told him he was doubtful as to when the plaintiff began as his new employer. In the letter Calver continued:

As regards the 'new employer', I am also a bit frustrated insofar as there does not appear to be any minute statement of intention or even a letter indicating that J W Broomhead Pty Ltd subscribe to the idea of the trading trust. I would have liked to have had Roy Broomhead's wishes officially recorded before he went overseas. The best I can do now is to get the boards together to pass a resolution agreeing to their participation." No such resolutions were passed.

On 7 July Calver wrote (Ex 4) in answer to Mills' letter of 30 June. He agreed that a company would be more satisfactory as trustee for the family of Graham Wood. He reported that he had discussed the matter with Graham Wood the day before and gave details of two Graham Wood family trusts which had been created by a firm of solicitors in Adelaide.

On 3 August Mills wrote (Ex 5) apologising to Calver for not replying to his letter and requesting a copy of one of the trust deeds of the family of Graham Wood which he did not have. He said that he did not fully understand whether both those trusts were to be used jointly in the Broomhead (Vic) Pty Ltd venture. Calver sent the requested trust deed to Mills with a letter of 5 August (Ex 7). In the letter he said that it might be best to check with Mr Seaman but in his opinion both the Wood family trusts would have to be sub-trusts of the Broomhead (Vic) Trust.

On 3 August 1976 Mills and Quinton lodged with the Commissioner for Corporate Affairs returns showing the five men appointed directors on 11 May 1976 (Ex L(1)), the allotment of a share to each of Roy Broomhead and Graham Wood on 30 April 1976 (Ex L(2)) and the allotment of a share to each of Keith Wood, Robert Keogh and Barry Broomhead on 11 May 1976 (Ex L(5)).

There is no evidence of meetings in June or July 1976. This was probably due to Roy Broomhead's absence overseas from 5 June to 21 July.

There was a meeting on 17 August 1976 at the Palmerston Crescent premises at which Keith Wood, Keogh, Graham Wood, Roy Broomhead and Barry Broomhead were present and Brownlee was in attendance. The heading of the minutes (Ex N) indicates that it was a meeting of the company rather than the directors. The main subjects of decision concerned the business organisation and operation of the plaintiff. The first item recorded under general business is:

10.1 Trust Deed - Agreed

'That copies of the trust deed would be made available to all parties'.

This entry shows that the trust deed was discussed. Keith Wood said he could not recall the discussion that took place about the trust deed. Graham Wood had no direct recollection of the meeting and no recollection of what was said about the trust deed. Roy Broomhead's evidence was that Keogh and Keith Wood had mentioned a trust deed and they thought it would be a tremendous idea; that he again said that he would not be in a trust of any description but if they sent a copy to his solicitr and Calver, they could report back to him and they could have a look if it had any substance. He said that no-one mentioned that a copy of the deed had been sent to his solicitors. He denied that he had discussed the deed with his solicitors or accountant before the meeting of 17 August.

I do not accept Roy Broomhead's account of what was said about the trust deed. A copy of the deed had been sent to Calver by Seaman with the letter of 15 June. Calver read it, could find no fault in it, although he had limited experience of trusts, and passed it on to Broomhead's solicitor for his comments on the legal aspects. On 1 July Calver wrote to Mills and Quinton stating that the deed of settlement seemed adequate. It is unlikely that Roy Broomhead could have said what he claims to have said and obtained agreement to the provision of copies of the deed to Cassim and Calver without someone present telling him they had already seen copies. I also think it is unlikely that Roy Broomhead had gone to the meeting without ascertaining from Barry Broomhead or Brownlee what had happened in relation to the plaintiff while he was overseas. In addition, I have already found that after initial resistance, Roy Broomhead had by 11 May 1976 agreed to the plaintiff operating as a trustee company.

The evidence of the meeting on 17 August establishes that there was discussion about the trust deed in the presence of the five men and Brownlee.

The decision-making and information-recording processes of the plaintiff were not effected with any high degree of care, foresight or thoroughness. Calver's comment that after incorporation things went along in an unbusinesslike manner is justified. There are many examples of this in the exhibits. Some suggestions of prudent practice from Calver went unheeded. Because of this slackness of approach, I do not infer that the entry in the minutes records the full substance of what was said about the trust deed.

The next relevant event with a date identified by the evidence is that on 28 September 1976 two original executed parts of a deed of settlement were sent by hand from the office of Keogh and Wood to Seaman. Seaman had taken no step in respect of the deed since he sent the copy of the proposed deed to Calver on 15 June 1976.

In the letter of 19 May which Calver wrote to Seaman (Ex H) he requested that formalities be short circuited and a reply be sent direct for consideration of Roy Broomhead, Brownlee and himself instead of involving Cassim. When he received instructions from Mills on 18 May to draw the deed, Seaman was instructed that Roy Broomhead wanted Cassim left out of the exercise. Seaman had already written to Cassim and would have been embarrassed to write to Broomhead on the matter. Mills instructed him to submit the documents to Keogh for execution by the parties.

The signatures on the parts of the deed of settlement are those of Lilian Keogh as settlor and Robert Keogh and Keith Wood as directors of the plaintiff. There is no direct evidence before me which shows the circumstances in which the parts of the deed were signed. Lilian Keogh is the mother of Robert Keogh. She was 76 when she gave evidence and has no memory whether or not events relevant to this action occurred. The date of 30 April 1976 placed on the deed was selected, presumably, because that was the date of the plaintiff's incorporation and the date which had been chosen as the date from which the plaintiff would be treated as carrying on the business in Victoria. It appears that the word "director" under the signatures of Keogh and Wood and the date were inserted in the parts of the deed after they had been signed. Those additions which appear in the two original copies of the deed (Exs A and B) do not appear in the photocopy of the executed deed which was produced from Mr Seaman's file (Ex K). The photocopy appears to have come from the office of Keogh and Wood as the notation regarding the date 28/9/76 is in the handwriting of their secretary. I do not accept Mr Finkelstein's submission that an original date, "27 Sep", over-written as "30 Sep", in the bank statement of account indicates that the deed was executed on 27 September (Ex C(c)). The fact that the parts of the deed were sent by hand to Seaman suggests that it was sent without delay after execution. The fact that Keogh sent the bank a letter dated 29 September regarding the opening of a savings account, (see Ex DA) tends to support this. I find that the parts of the deed were executed on 28 September 1976. The deed operates from that date: Norton, A Treatise on Deeds, 2nd ed, pp 190-1.

It was of importance for taxation purposes that the $50 initially to constitute the trust fund under the deed, should be provided by someone without beneficial interest under the deed. The probability is that on the occasion of the execution of the deed Lilian Keogh delivered $50 to Robert Keogh or Keith Wood by cheque or cash. There is nothing to suggest that she did not provide the money. The money was used to open a savings account with the CBC Savings Bank Ltd on 30 September 1976. The payment in of the sum of $50 was the only transaction on that account. The $50 has remained in the account ever since and with accrued interest, $66.98 now stands to the credit of the account.

Neither the $50 nor the interest earned on it were brought into the plaintiff's books of account. There are references to a sum of $100 which is designated as "Settlement" (Ex 9), "Units Issued" (Ex Z) or "Bank Savings Account ... being amounts received for units in trust" (first entry in journal in Ex Y). This sum appears to represent the amount which Mills expected to receive from beneficiaries in respect of their units when he sought contributions to a total of $100 on 24 June 1976 (Ex R).

The opening of the savings bank account shows the looseness of the operations of the plaintiff. The account was opened in the name of J W Broomhead (Vic) Pty Ltd as trustee for the Broomhead Victoria Trust. The notice of authority to operate on the account, signed by Keogh and Wood states that a meeting of the directors of the company was held on 30 September which resolved amongst other things that withdrawal forms were to be signed by any two of the trustees (Ex C(a)). There are no minutes of any meeting of directors that day. Counsel agreed there had been no such resolution. As there is only one trustee of the trust, no withdrawal could validly have been made on that authority.

On 7 December 1976 Seaman requested a member of his staff to lodge the copies of the deed at the Stamps Office. This was done on 9 December. The stamp duty was assessed and was paid on 21 January 1977. On 3 February 1977 Seaman and Hamilton rendered their account to the plaintiff for the preparation and stamping of the trust deed and this is one of the debts in the statement of affairs which Keith Wood and Graham Wood on 7 September 1977 declared to be owed by the plaintiff (Ex O).

While the plaintiff's business operations had appeared to be satisfactory financially, there was some concern about management and financial procedures.

On 7 February 1977 Roy Broomhead and Calver came to Melbourne and a meeting took place at the Palmerston Crescent premises. Those present at the meeting at various times were Roy Broomhead, Graham Wood, Keith Wood and Robert Keogh. Calver was in attendance at least for some of the time (Ex N). There were extensive discussions and decisions were made upon the financial, managerial and administrative arrangements that were to apply.

Calver had been asked by Roy Broomhead to investigate the operation of the company and report to him. Calver had a short discussion with Graham Wood mainly about suggested changes in financial procedures. Graham Wood was not satisfied with the procedures being followed by Keogh Wood Management Pty Ltd which was providing the plaintiff's administration and its financial procedures and controls. Calver spent time in the office of Keogh Wood Management Pty Ltd examining the accounts and interviewing two employees of that company.

On 8 February Calver prepared and provided Roy Broomhead with a signed report on his visit to Melbourne (Ex BB). It is headed "The Broomhead Victoria Trust". In it he said:

A statement of entitlements of unit trust holders has not been prepared and certificates showing entitlements have not been issued, nor has there been an annual meeting or any annual return to corporate affairs commissions.

The only allotment notice filed shows that the trustee company is under the control of R N Broomhead and Graham Wood - one share each.

There are other references to the plaintiff as "the trustee company". He refers to the fact that there does not appear to be any record of an appointment of an auditor to the trust.

He reported that he was given two copies of accounts showing profits of the plaintiff to 30 June 1976. One showed a profit of $30,857 and the other (apparently Ex 9) a profit of $10,256.

Mr Calver's evidence was that he was probably requested by Roy Broomhead to come to Victoria and that he would have asked him to have a look and see what was going on and report back to him. Calver said he prepared a written report and gave it to Roy Broomhead. He said it would be his normal procedure to send the report to Roy Broomhead shortly after he got back to Sydney and wrote it up. Roy Broomhead's evidence is that he did not get the report and first saw it a week before giving his evidence. I reject his evidence and am satisfied he saw it within a day or so of its date. It would be inconsistent with his personality and mode of operation for him not to insist on seeing it promptly. I consider that he denied seeing it because he was asserting in evidence that at that time the Broomhead Victoria Trust had not gone beyond the stage of a proposal. He said that he did not remember the trust aspect being mentioned at the meeting on 7 February; it could have been mentioned but only as a proposal. If it was only a proposal and he admitted that he had read Calver's report which so clearly treated it as an existing trust, he could not have explained in his evidence the absence of any response or conduct by him to rectify the erroneous view of Calver and others that there was a trust and to put the correct position beyond doubt.

On 5 May 1977 Keith Wood had discussions with Roy Broomhead and Calver in Sydney which showed that Keith Wood and Robert Keogh were in deep disagreement with Graham Wood with regard to the operations of the plaintiff. They made strong allegations against him. Keith Wood sent to Roy Broomhead and Calver a memorandum of 6 May 1977 (Ex CC) summarising the result of their discussions. It referred to the fact that profit and loss statements were to be completed by Mills and Quinton by 6 May.

Mills and Quinton sent to the Trustees of the Broomhead Victoria Trust at the Palmerston Crescent premises the balance sheet as at 30 June 1976 and the profit and loss statement for the period 30 April to 30 June 1976. Each was headed "The Broomhead Victoria Trust" (Ex V). The attached letter addressed to the trustees was dated 5 May 1977. The profit and loss statement showed a loss for the period of $10,632.

At this stage Roy Broomhead, Keogh and Keith Wood were very concerned about the financial position of the plaintiff and were working together to place it on a sound financial basis. It is inevitable than in those circumstances Roy Broomhead and Calver saw the balance sheet and profit and loss statement soon after it was prepared by Mills and Quinton.

On 13 May 1977 Mills and Quinton lodged the income tax return of the Broomhead Victoria Trust showing a loss from 30 April to 30 June 1976 of $10,632.

A letter of 21 June 1977 (Ex DD) from Keogh Wood Management Pty Ltd to Calver headed "Re the Broomhead Victoria Trust" enclosed a copy of the results for 11 months ended 31 May 1977 for "the Broomhead Victoria Trust".

On 7 July 1977 there was a meeting of the directors of the plaintiff at the Palmerston Crescent premises attended by Robert Keogh, Keith Wood and Graham Wood (Ex N). Roy Broomhead was overseas at the time. It was an acrimonious meeting which discussed the position of the plaintiff and its operations in an atmosphere of distrust.

There was a meeting of the board of the plaintiff at the Palmerston Crescent premises on 9 August 1977. Robert Keogh was chairman; Roy Broomhead, who had returned from overseas on 1 August, was present; G Littler, under a written letter of proxy, represented Barry Broomhead; and Graham Wood and Keith Wood were present. Calver was one of the three persons in attendance. The meeting discussed the liquidity of the plaintiff and what was to be done about its debts. Eventually it was resolved unanimously that the plaintiff go into voluntary creditors liquidation and that a meeting of creditors be called at the earliest practicable time.

Calver prepared a report dated 9 August as a result of his investigations in Melbourne (Ex EE). It commences:

Building operations carried on by the Broomhead Victoria Trust.

Trustees - J W Broomhead Victoria Pty Ltd.

Beneficiaries as detailed in deed of settlement dated 1976.

J W Broomhead Pty Ltd (Sydney) - 42 per cent.

Baroy Industries Pty Ltd (Sydney) - 10 per cent.

Graham John Wood and Lynette Desley Wood (Vic) - 24 per cent.

Accordo Industries Pty Ltd (Vic) - 24 per cent.

Directors and shareholders of trustee company detailed in CAC search.

The report refers to inadequacies and inconsistencies in records of the plaintiff.

Amongst the documents stated to be attached to the report were:

(1)
Memo and Arts - Trust Company.
...
(3)
Deed of settlement - unsigned and undated.

The document states:

I have spent one day only on accounts investigation in Victoria and was so completely dumbfounded at the disparity between various sets of accounts submitted that I issued a report - copy of which is attached.

The attachments, including the report said to be attached, are not in evidence before me. Calver said the report must have been just a summary of the various accounts which were at variance with each other.

Calver said that he was asked to do the report (ie EX EE) at the request either of Roy Broomhead or of all the directors of the plaintiff. When asked about EX EE in evidence in chief, Roy Broomhead said he had forgotten all about the document but it has his handwriting on it. Broomhead said he would have received it "way after the event" when Calver's files were brought in. He said he got it months after the winding up of the plaintiff began on 9 September 1977. Much of his evidence regarding this document was supposition or reconstruction. It is most probable that, whoever requested the report to be done, it was provided to Roy Broomhead who read it.

Before he went overseas, he knew that the plaintiff was in financial difficulties and that Keogh and Keith Wood on the one hand and Graham Wood on the other were making substantial allegations against each other. He was overseas from early July to 1 August and would learn on his return that this state of affairs had continued. This was the first time he had been associated with a company which faced winding up. He would have preferred to have had it trade out of its difficulties. Calver had done the investigation in Melbourne which resulted in his report (Ex EE) on the day that the directors decided to place the company into voluntary liquidation. The purpose of the report was to enable it to be considered by those in charge of the plaintiff and Roy Broomhead was one of them. In those circumstances I do not accept that Roy Broomhead did not see the report within days of its completion. I am satisfied that he read the references to the trust and did nothing to contradict or repudiate those statements to anyone.

A meeting of shareholders to consider the winding up of the plaintiff company was held in Melbourne on 6 September 1977. Those who attended included Keith Wood, Roy Broomhead and Graham Wood. A problem arose. It was thought that while there should have been five shareholders, there were only two - Roy Broomhead and Graham Wood. This view probably came from the absence of a record of the return of the allotment of another three shares (ex L(5)). In his reports, Ex BB on 2 February 1977 and Ex EE on 9 August 1977, Calver had said that the only return of shareholding he had seen showed two shareholders only - Roy Broomhead and Graham Wood. Because it was thought there were only two members of the company, it was necessary for Roy Broomhead to vote for winding up. It was a fairly emotional meeting and Roy Broomhead was now strongly opposed to the whole scheme of voluntary liquidation. He indicated that he did not want to be associated with the actual decision to go into voluntary liquidation. Someone pointed out that the voting rights had to be exercised in accordance with the wishes of the trust unit holders. There was no denial by anyone that there was a unit trust. He said that even so, he was not prepared to agree because he felt it was a wrong decision. Eventually, the solution was adopted of his giving a proxy to Mr Filson of Hungerfords, the accountants, who was the chairman of the meeting. Filson and Graham Wood then resolved that the company be wound up. I accept the evidence of the solicitor Mr Hamilton and his handwritten note of what occurred at this meeting (ex Q). He only attended in the absence of his partner, Seaman and had no motive to record or recount anything other than what occurred. Less than three weeks before, he had been asked to advise how this unit trust company was to be wound up and was unable to give the advice. He is likely to have remembered if Roy Broomhead had denied the existence of a unit trust.

Exhibit B is one of the parts of the deed of settlement which I have found to have been signed and sealed on 28 September 1976. Roy Broomhead said that it was given to him by Mr Ward, the present secretary of the company on the Friday before he gave evidence. Mr Ward got it from a file of JWB. He then gave it to his solicitor and it was produced by the defendants' counsel at an early stage of the trial. Roy Broomhead said that he was not able to say from his records or inquiries how the part of the deed of settlement came into the possession of JWB. It is the part which is stamped as the counterpart, not as the original.

Treatment of the issues

I now turn to the particular issues.

Did the trust deed become binding on the plaintiff?

It was argued for the defendants that the plaintiff's articles required that the plaintiff's seal could only be affixed validly to the trust deed with the authority of a resolution of the plaintiff's directors. As there is no evidence that there ever was such a resolution Mr Liddell submitted that this was fatal to the plaintiff's action.

The regulations in Table A of the Fourth Schedule to the Companies Act 1961 which are relevant to the issues in this case applied to the plaintiff, s 30: exhibit L(7) arts 1-4. Regulation 96 provides:

The directors shall provide for the safe custody of the seal, which shall only be used by the authority of the directors or a committee of the directors authorised by the directors in that behalf, and every instrument to which the seal is affixed shall be signed by a director and shall be contersigned by the secretary or by a second director or by some other person appointed by the directors for the purpose.

There was no issue before me as to whether the five men were purportedly appointed as directors at the meeting on 11 May 1976. Their appointments were defective. Article 14(2) provided that the names of the first directors should be determined in writing by a majority of the subscribers of the memorandum. The meeting on 11 May was defective as a meeting of members of the company. The members of the company were Roy Broomhead and Graham Wood. Those present at the meeting were Roy Broomhead and Keith Wood representing Graham Wood. A member of the company may be present and vote at a meeting of the company by proxy: Companies Act 1961, s 141; regs 47, 51 and 54 of Table A of the Fourth Schedule. However the instrument appointing a proxy is required to be in writing under the hand of the appointer, in specified form and to be deposited at the registered office not less than 48 hours before the time for the meeting: regs 59 to 61. There is no evidence that Graham Wood appointed Keith Wood in writing as a proxy.

Counsel referred me to s 119 of the Companies Act 1961 and reg 89 which provide that the acts of a director or a person acting as a director are to be valid notwithstanding any defect that may afterwards be discovered in his appointment. Mr Finkelstein referred me to authorities upon comparable provisions. Mr Liddell indicated that the point was a doubtful one but said that in the light of the section and regulation he did not rely on the irregularities in their appointments.

Mr Finkelstein submitted that it was not necessary that the directors should have authorised the sealing of the deed by resolution at a meeting of directors, it was enough if each of the directors had given the authority whether at a meeting or otherwise.

Regulation 73 provides that the business of the company shall be managed by the directors who may exercise all such powers of the company as are not by the Act or the regulations required to be exercised by the company in general meeting. Regulation 79 provides that the directors may meet together for the despatch of business. By reg 80 questions arising at any meeting of directors shall be decided by a majority of votes and a determination by a majority of directors shall for all purposes be deemed a determination of the directors. Regulation 90 provides that a resolution in writing signed by all the directors shall be as valid and effectual as if it had been passed at a meeting of the directors.

I consider that upon a proper construction of reg 96, the authority of the directors for the use of the seal is not limited to an authority given by resolution at a meeting of directors.

Regulation 71 of Table A of the Second Schedule to the Companies Act 1938 followed the form of earlier companies legislation in Victoria and provided that "The seal of the company shall not be affixed to any instrument, except by the authority of a resolution of the board of directors ..." In the Companies Act 1958, a new Act which was the forerunner of the Act of 1961, the equivalent regulation in Table A of the Fourth Schedule provided that the seal should only be used "by the authority of the directors or of a committee of the directors authorised by the directors in that behalf": reg 94. The legislative intention to substitute the authority of the directors for the authority of a resolution of a board of directors is obvious. That intention is continued in reg 96 of Table A of the Fourth Schedule to the Companies Act 1961.

It is sufficient if at the time when the seal is used each of the directors has authorised that use. Neither the words of the regulation construed in their context nor any principle of law requires the authority to be given in any particular way, at any particular time or on any particular occasion. Directors may give their authority at different times and in different ways. I find support for this construction in the authorities and reasoning applied by Wickham J in considering the analogous situation of assent given by the members of a company in Perseus Mining NL v Landbrokers (Perth) Pty Ltd [1972] WAR 12.

Support for this construction comes also from the approach of Jenkins LJ in construing the articles of a trading company. He said:

I think that the articles of association of the company should be regarded as a business document and should be construed so as to give them reasonable business efficacy, where a construction tending to the result is admissible on the language of the articles, in preference to a result which would or might prove unworkable": Holmes v Keyes [1959] 1 CH 199 at 215. If all the directors authorise a particular use of the seal, business efficacy in the operation of the company would be impeded by a requirement that there must be a meeting of directors and a formal resolution before the seal can be used.

I do not regard reg 90 which gives validity to a resolution in writing signed by all directors as inconsistent with the construction I have adopted. That regulation gives the signed document the effect of a resolution passed at a meeting. Some powers of the directors may only be exercised by resolution. The power to make calls seems to be such a power: see regs 13 and 14. Regulation 90 would enable calls to be made without there being a meeting.

It is only at a meeting of directors that a majority of directors may, by reg 80, exercise the powers of the directors.

Did the five men authorise the sealing of the deal?

Keogh and Keith Wood, who sealed and countersigned the deed themselves, obviously gave authority. It is necessary to consider whether the other three authorised what Keogh and Wood did.

First one looks at their conduct up to the time of sealing to see whether they authorised it. A distinction is to be drawn between what they did and said by way of giving the authority to Keogh and Wood, and what, apart from that, they may have admitted that they had done. The former is admissible on this issue but the latter would be admissible only against Graham Wood who is a defendant and whose admissions against interest would be admissible against him. However, for the plaintiff to succeed against any defendant it must establish that each of the three men authorised Keogh and Wood to seal the deed and the other two are not parties to the action. On this issue I do not rely on any admissions.

Roy Broomhead

The proposal that the plaintiff operate as a trustee was made to Roy Broomhead by Keogh and Wood before the plaintiff was incorporated. On 11 May 1976 at what purported to be a meeting of the members of the company, at which Roy Broomhead and Keith Wood were present, they agreed that the plaintiff would act in the capacity of a trustee only and in particular would act as trustee for the Broomhead Victoria Trust. At the same meeting they resolved to allot a share to each of the five men. With only two persons present Roy Broomhead must have agreed to, or voted for, this resolution. The resolution was consistent with the plaintiff distributing its profits as a trustee to beneficiaries in the proportions previously agreed. It was not consistent with the plaintiff distributing its profits as dividends through the shareholdings previously agreed and recorded in the minutes of the meetings of 17 March and 13 April 1976. There is no satisfactory explanation for the allotment decision on 11 May other than the agreement that the plaintiff would act as trustee. Keith Wood gave evidence that he believed Roy Broomhead agreed on the trust proposal from the outset. On this issue the evidence does not satisfy me that he agreed before 11 May.

By 19 May Roy Broomhead had authorised Calver to write the letter EX H. I rely on Calver's evidence that this authority was given and the letter itself is evidence: Evidence Act 1958, s 55(1). Calver in EX H replied to the letter of 6 May which Seaman had written to Cassim for Keogh Wood Management Pty Ltd: EXF. Calver wrote that Roy Broomhead approved the trust proposals in Seaman's letter. The trust proposals in the letter were a more detailed formulation of the general proposal initially put to Roy Broomhead by Keogh and Wood.

On 15 June Seaman sent a copy of the unexecuted deed to Calver, who read it and sent it on to Cassim, retaining a photocopy for himself.

On 17 August, 16 days after Roy Broomhead returned from overseas, there was a meeting at which each of the five men was present. It was the last meeting before the deed was executed and the minutes show that the deed was discussed. At that stage the five men were working together in amity and co-operation.

Keogh and Wood were enthusiastic to have the trust brought into existence. Roy Broomhead had, since May, been in agreement that that should be done. It is to be inferred from the fact that the deed was discussed that everyone present knew at the meeting that the deed had been prepared. With Keogh, Keith Wood and Roy Broomhead supporting the trust proposal and the deed having been prepared, the general tenor of the discussion on the topic, would inevitably have been that the plaintiff was to enter into the deed, unless someone had raised objection to that course. I am satisfied that nothing was said by any of those present, against the deed being executed. If that had been said it would have been a significant setback to the trustee proposal which Keith Wood strongly espoused. Keith Wood, who I regard as a reliable witness, would have remembered that. His evidence, which I accept, is that he does not recall the discussion regarding the deed. The deed in substance made the same provision for the Broomhead interests as had been proposed in Seaman's letter, EX F, which Roy Broomhead had approved.

If the deed was to be sealed, it was a matter of indifference which directors did the sealing. The instructions for the deed had come from Keogh and Wood through Mills to Seaman. The settlor was Keogh's mother. Keogh and Wood were the persons primarily responsible for the management of the company and the registered office of the plaintiff was at their business premises. In the circumstances it was natural that they should do the sealing.

I am satisfied that Roy Broomhead gave authority to Keogh and Wood to seal the deed on behalf of the plaintiff.

Having looked at Roy Broomhead's conduct up to the time of sealing, I now look at his conduct afterwards. This is relevant and admissible as circumstantial evidence. One looks at the conduct to see whether it is or is not the conduct which would be expected of a man who had authorised the deed and knew that it had been executed with the authority of himself and the other four men. I look at his conduct in connection with the business affairs and operations of the plaintiff where he would have been expected to have taken one course if the deed had been executed with authority and another if it had not. This conduct includes his making or failing to make statements in those situations. This evidence is not admissible as an admission against interest because Roy Broomhead is not a party to the action. It is thus not admissible as evidence of the truth of any express or implied assertion by him. "A statement is original evidence when the fact that it was made is relevant to the issue independently of the truth or honesty of the statement. A statement is hearsay when only a fact dependent on its truth is in issue": see Tregarthen, The Law of Hearsay Evidence, p 10. Roy Broomhead's conduct is that which would have been expected of him if the deed had been executed by the plaintiff with due authority and it founds an inference that the deed was so executed: R v Forderingbridge (1858) ElB & El 678; 120 ER 664, esp per Lord Campbell CJ at 683-4 (ER 666) and Erle J at 684 (ER 666); R v Ernst [1984] VR 593 at 597-601 Cross on Evidence, 2nd Aust ed pp 458-462, paras 17.19 to 17.25; Cross, The Scope of the Rule Against Hearsay (1956) 72 LQR 91 at 96; Wigmore on Evidence (Chadbourne Revision) Vol II, pp 97-100, s 266; pp 112-115, ss 271-2; Vol VI, pp 250-253, s 1766; pp 313-4, s 1788.

Roy Broomhead's conduct after he read the reports of Calver of 8 February 1977 (EX BB) and 9 August 1977 (EX EE) shortly after the dates of their preparation, as I have found he did, is significant. Both reports clearly indicated that the plaintiff was operating as a trustee company. The latter one showed that its building operations were carried on as a trustee under a deed of settlement of 1976, the beneficiaries of which were stated. If no execution of any deed of settlement had been authorised by the members or the directors of the company, he would regard himself as under a duty to set matters aright and have the company cease acting as though it were a trustee. At least he would have regarded himself as under a duty to inquire and investigate. He did none of these things. He acted as would be expected of a man who knew that he and the other four men had authorised the sealing and that the deed had been sealed with that authority.

At the liquidation meeting on 6 September 1977 it was put to Roy Broomhead that he had to vote in accordance with the wishes of the trust unit holders rather than in the way he wished to vote. If there were no trust unit holders because there was no trust in existence he would have been expected to have informed those at the meeting. He did not.

There are many accounting reports before me which are headed "The Broomhead Victoria Trust". I am satisfied that Roy Broomhead kept a close and critical eye on these reports and saw most if not all of these headings. There is no evidence of his taking the steps which would be expected of him in the circumstances if he believed there was no trust because the authority of the members or directors to constitute a trust had not been given.

The conduct of Roy Broomhead after 28 September 1976 confirms the view which I took upon examining his conduct before that date. I am satisfied that he authorised the sealing of the deed by Keogh and Wood.

Mr Finkelstein argued in the alternative that the conduct of Roy Broomhead after the sealing of the deed, ratified the sealing of the deed so as to confer his authority for the sealing if that had been lacking at the time. I do not need to decide upon this submission.

Barry Broomhead

Barry Broomhead did not play a leading part in the affairs of the plaintiff. The evidence shows that he was personally present at only two of the various meetings that were held (13 April 1976 and 17 August 1976).

Roy Broomhead said that at an early stage of the discussion which led to Keogh and Wood being involved in the Victorian project "it was decided that J W Broomhead Constructions Pty Ltd would have 42 per cent; Baroy Industries Pty Ltd 10 per cent which would give us virtually the control: 24 per cent to Graham Wood and 24 per cent to Keogh and Wood", (transcript p 467).

Barry is an architect and Roy's son. On my assessment of Roy Broomhead's approach I consider that when he contemplated the shareholding he regarded it as virtually giving "himself" the control of the plaintiff. In the circumtances Barry was likely to regard himself as in the position of an investor in one of his father's successful business enterprises and to follow his father's lead on the form within which the enterprise should be conducted.

As from 11 May 1976 his father was in agreement with the proposal that the plaintiff should operate as a trustee. It is probable that soon after Barry learnt of this and agreed to support the proposal.

Barry Broomhead did not give evidence.

I am satisfied that at the meeting on 17 August there was discussion to the effect that the plaintiff was to enter into the deed and that neither Barry nor anyone else raised any objection to that course. Bearing in mind the probabilities, I am satisfied that either by what he said or by his silence in the circumstances, he authorised Keogh and Wood to seal the deed.

Graham Wood

Graham Wood knew at an early stage that there was a proposal that the new company should be a unit trust company. He was not concerned with whether the company was a trustee company or not as long as he got his share. On this question he regarded Roy Broomhead as the governing factor and was guided by his influence. From the outset it was proposed that Graham Wood should have 24 per cent of the profits of the Victorian company. First this was to be by dividends on shareholding. Later it was proposed that it be received as a benefit under a trust.

There were extensive discussions about the most desirable way of Graham Wood, or interests nominated by him, receiving his interest under the proposed trust. Seaman in the letter of 6 May 1976 (EX F) suggested it should go to a company representing him. Calver on 19 May (EX H) suggested it should go to the Graham Wood Family Trust. Before 2 June Calver had discussed the position with Graham Wood. It was inevitable that he would mention that Roy Broomhead had approved of the plaintiff's operating as a trustee company. In the letter to Calver of 15 June (Ex 2) with which he enclosed a copy of the proposed deed, Seaman said that the intention in Mr and Mrs Wood holding a 24 per cent interest was that they should hold it as trustees under a deed of settlement of 28 April 1972. He suggested that they execute a declaration stating they hold their interest as trustees under that deed. On 30 June Mills wrote to Calver (Ex 6) saying that Graham Wood had handed him a copy of the earlier trust deed which appeared unsuitable as Mrs Wood was excluded as a beneficiary and it would be desirable to have a company as a trustee. He said it would be desirable to have a new trust settled on the family. Calver replied on 7 July (Ex 4) agreeing that a company would be more satisfactory as trustee for the family of Graham Wood. He said there were two trusts of the Graham Wood family and gave details of the respective beneficiaries under them. On 3 August (Ex 5) Mills wrote requesting from Calver a copy of the other trust deed. Calver forwarded that with a letter of 5 August (Ex 7) in which he suggested checking with Seaman but gave his opinion that each of the family trusts would have to be sub-trusts of the Broomhead Victoria Trust.

Graham Wood relied entirely on Calver and authorised him to make the arrangement he thought best for the receipt of the 24 per cent interest. Graham Wood was interested in his trade and not in the mechanics of trust companies or bookkeeping.

Calver last spoke to Graham Wood regarding his interest under the proposed trust on 6 July and correspondence on the subject ended on 5 August. Eventually Calver ceased to act for Graham Wood and sent some of the documents in his possession to Wood and some to Mills and Quinton who then acted for him. The evidence does not show when this change occurred.

Seaman's original instructions were that Graham Wood's interest under the trust was to go to a company representing his interest. Following Mr Calver's suggestion that it should go to the Graham Wood Family Trust, Seaman obtained some information as to what he thought was the only family trust, which led him to draw the deed as he did.

Graham Wood impressed me as a witness honestly giving his recollection. I accept his evidence that no-one informed him of what developed as a result of the correspondence. I also accept that he had not seen a copy of the draft deed or the executed deed until shortly before the hearing. However, I do not accept his evidence that he did not know that his wife was named as a beneficiary with him in the deed. He had a conversation with Calver after Calver had read the draft deed. This was a short conversation by telephone when he was in Sydney on 6 July. It was about the family trust taking an interest under the proposed trust. It is most likely that Calver mentioned in the course of that conversation the effect of the provision in the draft deed which he was considering having changed if it was unsuitable. I think Graham Wood has forgotten this conversation. He said he had had no discussions or could not recall discussions with Calver as to who should be the beneficiary or about his interest in the trust. I accept Calver's evidence, his recollection being assisted by the letter he wrote soon after, that there were such discussions. I am satisfied that at that stage Graham Wood knew his wife was named with him as a beneficiary of the share under the deed.

I am satisfied that Graham Wood was told by Calver before 2 June 1976 that Roy Broomhead had agreed to the trust proposal and as from that time that Graham Wood supported the proposal himself. The letters written on his behalf by Calver to Seaman and Mills proceed on the basis that there is to be a trust. It is clear that when there was discussion at the meeting on 17 August 1976 to the effect that the plaintiff would enter into the deed, Graham Wood did not resist it. If he had resisted it he would remember taking that significant stance and would have said in evidence. He was asked whether he recollected Roy Broomhead resisting the trust proposal at that meeting and said he did not. His evidence was that he had no recollection of what had been said. The probability is that he assumed that his interests had been looked after by Calver or Mills or someone else and that it was satisfactory for him to proceed on the basis of the deed as it stood. There was no question of the share not going to him and his wife. The only query had been whether it was going in the way most advantageous to minimise taxation. I am satisfied that either by what he said or by his silence during the discussion on 17 August, Graham Wood authorised Keogh and Wood to seal the deed.

His conduct after the sealing of the deed was what would be expected of a man who knew that the members and directors had authorised the sealing of the deed.

He must have seen at least some of the accounting reports headed "Broomhead Victoria Trust" but took no steps to question them or prevent the plaintiff from acting as though a trust existed. At the liquidation meeting on 6 September 1977, believing himself to be a member and director of the plaintiff, he did not deny the statement that voting rights had to be exercised in accordance with the wishes of the trust unit holders.

In view of my conclusion that the trust deed was sealed with the authority of the directors it is not necessary to consider Mr Finkelstein's argument that, in any event, both members of the company, the subscribers to the memorandum, Roy Broomhead and Graham Wood authorised its sealing.

The conclusion that the trust deed was sealed with the authority of the five men receives support from another piece of circumstantial evidence. The executed counterpart of the deed (BX B) was produced from the files of JWB. It had obviously been sent to JWB after its execution, either by Keogh or Keith Wood or by Seaman on their instructions. It is beyond belief that Keogh or Keith Wood or Seaman on their instructions would have sent the deed to JWB or that JWB would have retained it without protest, if it had been executed by them without authority.

Was the building business carried on by the plaintiff as trustee under the deed?

There are three aspects of the issue whether the building business was carried on by the plaintiff as trustee appointed by the deed. First there is the question whether there was a declaration by the plaintiff that it held the business on the trusts of the deed; secondly, whether it was within the capacity of the plaintiff to transfer its beneficial interest in the business to the trust fund for no consideration; and thirdly, whether the business became part of the trust fund and was carried on by the plaintiff as trustee appointed by the deed.

Declaration of Trust

I regard the plaintiff as having by its conduct declared itself to be holding its building business on the trusts of the deed.

The plaintiff would hold its business on the trusts of the deed if by its words, or by implication from its conduct, it declared that it intended to do so; Maitland, Equity, (Brunyate ed) p 54; Jacobs, Law of Trusts, 4 ed (Meagher and Gummow) pp 54-5, para 501 and p 77, para 623; Commissioner of Stamp Duties (Qld) v Jolliffe (1920) 28 CLR 178 at 187; Comptroller of Stamps (Vic) v Howard-Smith (1936) 54 CLR 614 at 621-2.

One type of conduct which may amount to an implied declaration of trust by a trustee is adding property of his own to a trust fund of which he is trustee: Thorpe v Owen (1842) 5 Beav 224; 49 ER 563; Gray v Gray (1852) 2 Sim Ns 273; 61 ER 345 See also Re Curteis' Trusts (1872) LR 14 Eq 217; Underhill's Law of Trusts and Trustees, 13 ed, p 278.

A declaration of trust by a person may be implied from entries made by him in his books of account and memoranda, and from his treating property as trust property: Stapleton v Stapleton (1844) 14 Sim 186; 60 ER 328; Vandenberg v Palmer (1858) 4 K & J 204; 70 ER 85; New, Prance & Garard's Trustee v Hunting & Ors [1897] 2 QB 19; Re Vandervell's Trusts (No 2) [1974] CH 269 at 319-320, 325 Halsbury's Laws of England, 4 ed, Vol 48 pp 295-6 para 543, n 3.

It was common ground before me that neither the conduct before the execution of the deed nor the ante-dating of the deed made the plaintiff a trustee before the time when the deed was executed. I think that some or all of those then concerned with the management and control of the plaintiff thought that the trusteeship could be made retrospective by an ante-dating of the deed. I consider that the proper inference is that from 6 May 1976 onwards the plaintiff was continually declaring by its conduct that it held its business on the trusts of the proposed deed or the deed. That declaration was legally ineffective until the deed was executed. When the deed was executed the continuing declaration had the effect that as from the time of execution, but not before, the plaintiff held its business on the trusts of the deed.

As from 6 May 1976 those managing and controlling the plaintiff had it treat and present itself in a number of ways as conducting or intending to conduct its business as trustee of the Broomhead Victoria Trust. On that date Mills and Quinton wrote EX T to the Deputy Commissioner of Taxation informing him that the plaintiff had been incorporated to act as a trustee of the Broomhead Victoria Trust and would not be deriving income in its own right. It stated that trust returns would be lodged for the trust. The minutes of the meeting on 11 May between Roy Broomhead and Keith Wood with Brownlee in attendance, noted that the company would be acting in the capacity of a trustee only and in particular would act as trustee for the Broomhead Victoria Trust. At that meeting it was resolved to allot shares in a way inconsistent with distributing the plaintiff's profits in the agreed proportions through dividends on shareholdings, but consistent with doing so by way of a trust. Soon after the meeting, the plaintiff commenced to carry on its building business.

On 18 May Seaman was instructed on behalf of the plaintiff to draw the deed of settlement and this was drawn and sent to Cassim by 15 June. On 24 June Mills sent to Calver the letter requesting him to collect from JWB and Baroy $1 for each per cent of unit interest shown in the deed. On 17 August 1976 at the meeting of the five men, with Brownlee in attendance, there was discussion and agreement that the deed would be entered into. There was no opposition to this course and it was agreed that copies of the deed would be made available to all parties.

From the time of execution of the deed the plaintiff continued to treat and present itself as holding and operating its building business as trustee on the trusts of the deed. There is nothing in the documentary evidence, or in the oral evidence which I have accepted, which shows any intention or conduct on behalf of the plaintiff inconsistent with this.

The savings bank account was opened for the plaintiff on 30 September 1976 with the settled $50, as trustee for the Broomhead Victoria Trust and a copy of the executed deed later provided to the bank. The deed of settlement was stamped.

A number of draft or final accounting reports were prepared and made available to those appointed directors and others, which were headed "the Broomhead Victoria Trust". The accounts with that heading which are in evidence are: balance sheet at 30 June 1976 and statement of profit and loss from 30 April to 30 June 1976 (Ex V); balance sheet as at 31 May 1977 and statement of profit and loss for the 11 months ended 31 May 1977 and supporting documents (Ex Z); balance sheet at 30 June 1977 and statement of profit and loss for 12 months ended 30 June 1977 and supporting documents (except list of assets purchased since 1 July 1976) (Ex Z); the different balance sheet at 30 June 1977 and statement of profit and loss for 12 months ended 30 June 1977 and supporting document (Ex FF); and the balance sheet at 4 August 1977 (Ex Z).

Some of these accounting reports are erroneous as they treat the plaintiff as a trustee before the execution of the deed. Nevertheless they cast light on the way the plaintiff treated and presented itself.

The accounting reports in evidence which do not bear that heading are the list included in Ex Z of assets purchased since 1 July 1976 and the balance sheet at 30 June 1976 and profit and loss statement to 30 June 1976 (Ex 9) which are headed only with the plaintiff's name. This heading is neutral. The balance sheet in Ex 9 shows an amount: settlement $100. This appears to be the amount designated in the balance sheets in Ex Z as "units issued". As mentioned above these entries seem to refer to the amounts which Mills expected the beneficiaries to pay in respect of their units when he sought contributions of $100 on 24 June 1976 (Ex R). On that basis the balance sheet in Ex 9 reflects the anticipated operation of the trust deed.

On 13 May 1977 the first income tax return for the Broomhead Victoria Trust for the period from 30 April to 30 June 1976 was lodged. All the attached sheets were headed "the Broomhead Victoria Trust" and related to the financial results of the operations of the plaintiff's building business. This also was erroneous as the plaintiff did not become a trustee until after that period but is relevant to the plaintiff's declared intention.

On 31 August 1977 the plaintiff's accountants provided the Deputy Commissioner of Taxation with a copy of the deed (Ex X).

At some time after the deed was stamped the plaintiff provided JWB with the part of the executed deed which is Ex B.

At the liquidation meeting on 6 September 1977 when it was asserted that there were unit trust holders this was not challenged or denied on behalf of the plaintiff by any of those present who were members of the plaintiff or had been appointed directors or officers.

I am satisfied that from the time of the execution of the trust deed on 28 September 1976 the plaintiff held and operated its building business on the trusts of the deed.

It is not necessary, at least at this stage, to specify everything which constituted the business. All that which would ordinarily be regarded as part of the plaintiff's building business passed in equity to the beneficiaries under the deed. This included the assets, debts and interests in contracts which would previously have been regarded as assets, debts and interests of the plaintiff's business. All types of activities which would, before 28 September, have been regarded as activities of the plaintiff's building business, were from that date carried on by the plaintiff as trustee of the deed. Liabilities incurred as from that date, were liabilities incurred as trustee for those with a beneficial interest in the business. There are cases concerned with the gift by will of a business or the declaration of trust with respect to a business which indicate what is included in various contexts within the meaning of the word "business": eg Re O'Shea dec'd; National Trustees Executors & Agency Co of Australasia v O'Shea [1953] VLR 43; In the Estate of Hunter dec'd [1957] SASR 194 Re White dec'd [1958] CH 762.

I do not accept Mr Finkelstein's submission that after the execution of the deed the plaintiff was conducting as trustee only new business and was conducting for its own benefit business obtained before the execution of the deed.

For the defendants reliance was placed on the principle that equity will not treat an imperfect gift as a declaration of trust. I do not regard that principle as relevant here. The principle is based on the fact that a person may transfer property by assignment of the legal ownership or by declaration of trust. If a person intends to effect a transfer by one mode but fails effectively to do so, equity will not give effect to the transaction by treating the transfer as having been done by the other mode: Richards v Delbridge (1874) LR 18 Eq Cas 11-15 at 14. In this case there is only one mode of transfer to consider. The issue is whether there was or was not a declaration of trust. There is nothing to suggest that an assignment of the business at law was contemplated or attempted by the plaintiff.

It is not submitted that the plaintiff as trustee is entitled to indemnify for liabilities incurred before the execution of the trust deed.

Power to transfer without consideration

It was argued for the defendants that it was beyond the plaintiff's powers to transfer the beneficial interest in its business to the trust without receiving consideration. In my opinion such a transfer was within power.

The objects of the plaintiff appear in its memorandum (Ex L(6)). Its powers are those contained in the memorandum and those in the Third Schedule to the Companies Act 1961 which are not inconsistent with the powers in the memorandum: see Companies Act 1961, s 19 and the concluding sentence of para 1.02 of the memorandum. By the second last sentence of para 1.02, the powers in the Third Schedule are to be construed so as to extend and not restrict any of the powers in the memorandum.

One of the plaintiff's objects is to carry on the business of a builder as a trustee, gratuitous or otherwise: memorandum para 1.02(a) and (d).

It has the power to undertake and execute trusts: memorandum para 1.02(w)(13) and (35). By para 1.02(w)(14) of the memorandum it has power to dispose of its property for cash or otherwise upon any terms thought desirable. By cl 21 of the Third Schedule it has power to dispose of or otherwise deal with all or any part of its property.

The plaintiff has specific power to perform the functions incident to its acting as trustee: memorandum para 1.02(d). By para 1.02(z) it has power:

To do all such acts matters and things as in the opinion of the company may be incidental or conducive to the attainment of any of the foregoing objects or the exercise of any of the foregoing powers.

By cl 26 of the Third Schedule it has power:

To do such other things as are incidental or conducive to the attainment of the objects and the exercise of the powers of the company.

There are statements that indicate that a disposition of a company's property must be reasonably incidental to the carrying on of the company's business and be done for the benefit of and to promote the prosperity of the company: Re Lee, Behrens and Co Ltd [1932] 2 CH 46 at 51-2. This approach has not had universal support: see the judgments of Griffith CJ and Barton J in Miles v The Sydney Meat Preserving Co Ltd (1912) 16 CLR 50 (affirmed by the Privy Council on a different view of the facts (1913) 17 CLR 639) and Charterbridge Corporation Ltd v Lloyds Bank Ltd [1970] CH 62. However, if the approach is correct, it must, in my opinion, be restricted to a company all of whose objects are directed to carrying on business to make profit.

It is of importance that the plaintiff in this case had as an object the carrying on of the business of a builder as a gratuitous trustee and power to do what was or was considered to be incidental or conducive to that object.

At the time of its incorporation on 30 April 1976 the plaintiff had no business. By 11 May 1976 at least three persons most concerned with the management and control of the plaintiff, Roy Broomhead, Keogh and Keith Wood, contemplated that the plaintiff would carry on a building business as trustee for the Broomhead Victoria Trust under the proposed trust deed or some variation of it. Soon after 11 May the plaintiff commenced to carry on the building business. At about this time Graham Wood and Barry Broomhead came to contemplate that the plaintiff was to carry on the business as trustee. The inference from the evidence is that by consent of all concerned the plaintiff gratuitously took over and continued a building business previously conducted by one of the Broomhead companies.

I consider it was well within its incidental power for the plaintiff to take over and conduct the business for its own benefit on the basis that if it was decided that it would operate as a trustee it would transfer the benefit of the business to the trust fund. That was and was considered by the members and those appointed directors to be incidental and conducive to the plaintiff carrying on the business as trustee. Accordingly it acted within its powers when, following the execution of the deed on 28 September, it transferred the beneficial interest in the business by declaration of trust to the beneficiaries in the trust fund under the deed. In the circumstances it would have been a breach of commercial morality for the plaintiff to have insisted on payment to itself from the trust fund of a price for the business.

The defendants other than Graham Wood are in any event precluded by s 20 of the Companies Act 1961 from relying on any lack of capacity or power in the plaintiff to add the business to the trust fund without receiving consideration for it. That section provides:

(1)
No act of a company (including the entering into of an agreement by the company) and no conveyance or transfer of property, whether real or personal, to or by a company shall be invalid by reason only of the fact that the company was without capacity or power to do such act or to exercise or take such conveyance or transfer.
(2)
Any such lack of capacity or power may be asserted or relied upon only in- ...

(b)
any proceedings by the company or by any member of the company against the present or former officers of the company; ....

The only defendant who could be regarded as an officer or former officer of the plaintiff is Graham Wood. He is a former officer of the plaintiff as a person who occupied the position of a director and as a former employee of the company: see Companies Act 1961, s 5(1); definitions of "officer" and "director" see Corporate Affairs Commission v Drysdale (1978) 141 CLR 236. I assume that s 20(2)(b) applies to this claim against Graham Wood.

Whether business became part of trust fund

By executing the trust deed the plaintiff did not bring about the result that everything it did was done as trustee under the deed or that all its property was held on the trusts of the deed. It is necessary to consider whether the particular item of the plaintiff's property, its building business, became part of the trust fund.

In Re Scott dec'd [1948] SASR 193 at 196, Mayo J outlined the nature of a trust. He said:

No definition of a 'trust' seems to have been accepted as comprehensive and exact. The word is sometimes applied to the trust premises, sometimes to the duties related thereto, sometimes to both. Strictly it refers, I think, to the duty or the aggregate accumulation of obligations that rest upon a person described as a trustee. The responsibilities are in relation to property held by him, or under his control. That property he will be compelled by a court in itsequitable jurisdiction to administer in the manner lawfully prescribed by the trust instrument, or where there be no specific provision written or oral, or to the extent that such provision is invalid or lacking, in accordance with equitable principles. As a consequence the administration will be in such a manner that the consequential benefits and advantages accrue, not to the trustee, but to the persons called cestuis que trust or beneficiaries, if there be any, if not, for some purpose which the law will recognize and enforce. A trustee may be a beneficiary, in which case advantages will accrue in his favour to the extent of his beneficial interest. It has been said that three certainties are requisite: certainty as to the intention of the testator or settlor; certainty as to the subject matter of the trust property; and certainty as to the beneficiaries or as to the charitable intention: eg Knight v Knight (1840) 3 Beav 148 at 173; 49 ER 58 at 68.

Initially the $50 paid by the settlor constituted the trust fund. It was not used in any way to purchase or procure the business or to raise finance for its procurement or conduct. It has remained in the savings bank account and produced nothing but $16.90 in interest. I do not think that it can be said here as it could in Octavo Investments Pty Ltd v Knight (1979) 4 ACLR 575; 144 CLR 360 at 364, that the plaintiff commenced trading with the trust fund. The $50 cannot be regarded as having been converted into the business.

I regard the plaintiff's declaration that it held its business on the trusts of the deed as having made the business part of the trust fund. As a result of the declaration in the deed and the plaintiff's implied declaration of trust the legal title to both the $50 and the business were in the plaintiff and were held by it on the trusts of the deed. It would be natural to treat both items of property as part of the one trust fund and artificial to do otherwise.

When, in accordance with cl 1, a person other than the plaintiff adds to the trust fund, property which falls within that clause, the plaintiff by the terms of that clause holds it on the trusts of the deed. When the plaintiff by its conduct impliedly declared that it held the business on the trusts of the deed, it became obliged by the rules of equity to hold it on those trusts, whether the business fell within cl 1 or not. Property declared by the plaintiff trustee to be held on the trusts of the deed is thus added to the trust fund whether or not it falls within the words of cl 1 which provide for additions to the fund. In my view, whether or not the business is regarded as an "addition" to the trust fund within the meaning of cl 1 of the trust deed, it became and was conducted by the plaintiff, the trustee under the deed, as part of the trust fund.

Further, I consider that the business became part of the trust fund, as it fell within the description in cl 1 of the trust deed of "moneys added" to the sum of $50 "by the settlor or any other person". It was added by the plaintiff's implied declaration of trust. In the context of this deed the word "moneys" is wide enough to include the business.

Clause 1 of the deed provides:

The settlor as settlor hereby declares that the trustee shall and the trustee hereby declares that it will henceforth be entitled to the said sum of FIFTY DOLLARS and the investments into which the exercise of powers hereinafter contained the said sum or any part thereof and any moneys which may accrue or be added thereto by the settlor or any other person may be converted (all of which are hereinafter called 'the trust fund' that term being intended to mean from time to time the constituents for the time being of that fund and income therefrom) upon the trusts and with and subject to the powers and provisions hereinafter expressed concerning the same". The word "in" has obviously been omitted by error after the words "into which" and before the words "the exercise of powers".

In Perrin v Morgan [1943] AC 399 the House of Lords rejected an argument that the word "money" was presumed to be limited to such items as cash, currency and sums on account at a bank unless the context showed that some wider meaning was intended. The essence of the decision is reflected in this passage in the judgment of Viscount Simon LC:

... the word 'money' has more than one meaning, and it is, in my opinion, a mistake to pick out one interpretation of the word and to call it the 'legal' meaning or the 'strict legal' meaning as though it had some superior right to prevail over another equally usual and not illegitimate meaning. The context in which the word is used is, of course, a main guide to its interpretation, but it is one thing to say that the word must be treated as having one particular meaning unless the context overrules that interpretation in favour of another and another thing to say that 'money', since it is a word of several possible meanings, must be construed in a will in accordance with what appears to be its meaning in that document without any presumption that it bears one meaning rather than another: see p 412.

It is my task to ascertain the meaning of the word "moneys" in the trust deed, without any presumption that it bears one meaning rather than another.

One of the meanings of the word is wide enough to cover a business. In Prichard v Prichard (1870) LR 11 Eq 232 it was held that a gift of "my principal money" covered all the testator's personal estate including shares in partnerships and a leasehold interest. In Re Leury dec'd [1975] VR 601 the words "all moneys" were construed to include all the testator's residuary estate including realty. On the other hand it was held in Kensington Cellars Pty Ltd v Bactanee Pty Ltd (1984) 2 ACLC 245 that the transfer of a business to a company was not a payment of money to the company within the meaning of a section of the Companies (NSW) Code. These cases demonstrate that the meaning to be given to the word "moneys" in a document depends on the context, the subject matter of the document and the surrounding circumstances.

The effect of cl 1 is that the plaintiff declares that it will hold on the trusts of the deed the sum of $50 and the investments into which that sum and any moneys which may accrue or be added to it by the settlor or any other person may be converted. In terms, the clause does not provide that moneys which accrue or are added are to be held on trust but only investments into which they may be converted. The plaintiff is, however, to be treated by clear implication as declaring that it will hold on the trusts of the deed moneys which accrue or are added to what is already held on trust. The trust fund within the meaning of the deed therefore includes the sum of $50, any moneys which accrue to or are added to it and any investments into which the sum of $50 or the accrued or added moneys are converted.

Considerations of business efficacy in carrying out the responsibilities of the trustee under the deed tell strongly in favour of the word "moneys" being intended to have a meaning wide enough to include a business.

Under the deed the plaintiff as trustee may invest in the purchase of any business and its goodwill and assets: cl 4(a). It is contemplated that it may carry on a business: cl 4(1). It has the widest powers of investment. It may invest in any form of investment in which it could invest the trust fund if it were the absolute owner of it. It may at its absolute discretion vary or transpose any investments constituting the trust fund for any other investments within its investment powers: cl 3. It has power to exchange any real or personal property: cl 4(d). Clause 16 provides that it is the intention of the settlor that the trustee shall have the widest possible scope and discretion in the investment and management of the funds of the trust.

There seems to be no practical reason for there being an intention that a trustee entitled to conduct a business as part of the trust fund should not be able to receive and continue in operation a business proferred as an addition to the trust fund. There would be obvious disadvantage in the trustee being obliged to insist that the addition could only be received if previously converted to cash or what is money in the narrow sense. It would be artificial to require the trustee to use trust funds in a contrived purchase of the business to enable it to become and continue as part of the trust fund.

Under the deed the plaintiff is not obliged to accept any property which someone wishes to add to the trust fund. Until acceptance the plaintiff could disclaim. Disclaimer is considered later.

The defendants rely on cl 4(a) as indicating that in the deed the word "moneys" is to be given a narrow meaning which would not include a business. Clause 4(a) provides that the trustee shall have power to "apply and invest all moneys at any time forming part of the trust fund in any investments ... including ... taking of the purchase of any shares ... mortgages ... or securities ... and ... the purchase of ... any business ... and the goodwill or assets thereof and the purchase of any real or personal property ... And the trustee may make or purchase any such investments for cash or in consideration as the trustee shall ... think fit and it may make or purchase any such investments for the sum greater than the amount of the trust fund for the time being and it may agree to pay for any such investments wholly or in part from any further moneys which may come into its hands including dividends profits interest or other income paid or payable in respect of any such investments."

The contention is that the power to apply and invest all moneys at any time forming part of the trust fund in any investments points to that which may be converted into investments under clause 1 as being money in the narrow sense. Although the verb "invest" is most commonly used to refer to a laying out of money in the narrower sense on something on which interest or profit is expected, it is not confined to that meaning. Also, an investment is not limited to something which is acquired in that way. A decision which gave the word "investments" such a meaning in taxation legislation (Inland Revenue Commissioners v Rolls Royce Ltd [1944] 2 All ER 340 was not followed in the Court of Appeal where it was said that the word had to be interpreted not as a word of art but in a popular sense: Inland Revenue Commissioners v Desoutter Brothers Ltd [1946] 1 All ER 58 at 59. See also Inland Revenue Commissioners v Broadway Car Co (Wimbledon) Ltd [1946] 2 All ER 609 The result of those cases was that the word in the legislation was to be construed in the ordinary popular sense of the word as used by businessmen and not as a term of art having a defined or technical meaning. In both cases the Court of Appeal looked at the circumstances in which the property was held rather than at the way in which it had been acquired.

The fact that investment is not confined to the laying out of money in the narrow sense is illustrated by the provision in s 4(3)(a) of the Trustee Act 1958 that a "trustee may invest any trust funds in his hands, whether at the time in a state of investment or not, in the purchase of land ... used for the purpose of a dwelling house only ...".

In cl 4(a) of the deed the provision that the trustee "may make or purchase any investments for cash or in consideration" as the trustee thinks fit supports the view that the power to invest includes the power to invest more than money in the narrow sense.

The use of the word "moneys" near the end of cl 4(a) to refer to receipts which would in the ordinary course fall within the narrow meaning of "moneys" is inconclusive.

I do not think that the fact that in other parts of the deed the words "money" or "moneys" are used when referring to money in the narrow sense prevents the word "moneys" from extending to a business when used in cl 1.

It was submitted for the defendants that the wider meaning of "moneys" is appropriate in the context of wills prepared by laymen while the deed in this case is a carefully prepared document, the work of a lawyer. The form of the document is only evidentiary material which points to the word being used in a careful, precise, technical sense. On the other hand, as was said by Viscount Simon LC, "the circumstance that a skilled draftsman would avoid the use of so ambiguous a word only confirms the view that, when it is used in a will, the popular as opposed to the technical use of the word 'money' may be important": Perrin v Morgan [1943] AC 399 at 407. I consider the same applies when the word is used in a deed. No criticism of the draftsman is intended. For all I know he may have been instructed to draw a deed which had a clause in precisely the words he used.

Approach to equitable principle

In several respects the principles of equity which need to be applied in this case are not established by binding authority. In deciding what principles are to be applied I take guidance from the words of Sir Frank Kitto in his foreword to Meagher, Gummow and Lehane, Equity, Doctrines and Remedies (1975). He wrote:

"... it will be salutary for the lawyer to remind himself, that Equity is the appendix that the Chancery was composing for the saving of the Common Law, and is not an independent system of law." Referring to the development of principles of equity he said:

An understanding of the conceptual foundations of established principles, and that alone, provides a permissible foundation for further advances.

Later he referred to the faithfulness of judges in England and Australasia "to the concept of Equity as truly law, as law to be studied and understood, as law to be carried to greater heights and depths not by headlong invention or wilful distortion but by sound judicial process." He concluded:

The Common Law remains, a proud inheritance, as surely basic to legal thinking in the antipodes as in England itself ... in its substance one of the great achievements of the human mind. And Equity remains also, the saving supplement and complement of the Common Law at the ends of the earth as in England, prevailing over the common law in cases of conflict but ensuring, by its persistence and by the very fact of its prevailing, the survival of the Common Law and the enduring influence of English jurisprudence as a whole in the history of civilisation.

The task of successfully carrying forward the two bodies of law together, in a world that is changing swiftly but in some respects is ever the same, is for constructive but reverent hands to undertake: pp vi-vii.

I take the reference by Sir Frank Kitto to sound judicial process to indicate the process by which judges develop the law (including equity) by making explicit what is already implicit in the principles of law (including equity): see Professor Peter Brett, An Essay on Contemporary Jurisprudence, (1975) pp 55-8.

Often a substantial part of the conceptual foundation of the principles of law understood in this broad sense, consists of the judicial conception of what is fair, reasonable and practical in particular situations. In making a decision in an area in which the equitable principle is not established, one may draw on the analogy of what, in comparable situations judges have regarded as the principle of common law or equity which was fair, reasonable and practical. Regard may also be had to views expressed by academic lawyers as to the fair, reasonable and practical principle to be applied in the situation.

Acceptance or disclaimer of beneficial interest

It was submitted on behalf of the defendants that individually they had never accepted, or had disclaimed, any interest made available to them beneficially by the trust deed. It was contended that as a result, the plaintiff was not trustee for them at the time when it carried on the building business and incurred the liabilities.

It was argued for the defendants that they did not become beneficiaries unless they positively accepted the beneficial interest made available to them. The submission for the plaintiff was that a defendant who did not elect to disclaim upon learning of the beneficial interest, thereby acquired the irrevocable status of a beneficiary of the trust.

The general principles which apply to the making and acceptance of gifts, apply where the gift is of a beneficial interest made by way of declaration of trust. Thus in Federal Commissioner of Taxation v Cornell (1946) 73 CLR 394 at 401-2 Latham CJ applied to the alleged provision of a benefit under a trust, principles which had been held to apply to a devise of land: see also Jacobs, Law of Trusts in Australia, 4 ed (Meagher and Gummow) pp 289-90, para 1539. Positive acceptance by the words or conduct of a donee is not necessary to complete a gift. Acceptance may be presumed unless the donee disclaims the gift. The strength of the presumption is illustrated by Dewar v Dewar [1975] 1 WLR 1532 and Federal Commissioner of Taxation v Clendon Investments Pty Ltd (1977) 7 ATR 493 at 500-501. Knowing of the gift, the donee, unless he disclaims it, is ordinarily treated as tacitly accepting it: Standing v Bowring (1885) 31 Ch D 282. During the period that the donee remains entitled to disclaim, the gift is treated as vested in the donee subject to repudiation: Standing v Bowring, supra. See generally Halsbury's Laws of England, 4 ed, Vol 20, pp 28-9, paras 47-8 and the note by M C Cullity in (1978) 56 Canadian Bar Review 317.

There are statements which indicate that, to be effective, a disclaimer should be made within a reasonable period having regard to the circumstances of the particular case. The position of the donee has been described by Lord Greene MR as being not unlike that of a person with a binding option: Re Parsons [1943] CH 12 at 17. Where an option is given without limitation of time for its exercise, what is a reasonable time for it to be exercised depends on the nature of the property with respect to which it is given and all the circumstances. Marks and Baxt, Law of Trusts, p 72 conclude that it would "... appear that a person who is named as a beneficiary under a trust has an option of accepting the trust or disclaiming it. Presumably such a person would have a reasonable time within which to exercise his option." A similar notion is conveyed by words to the effect that the donee has a right to disclaim the gift "when he becomes aware" of it: eg In the Will of Hamilton [1913] VLR 460 at 465; Standing v Bowring (1885) 31 Ch D 282 at 288. In the United States of America it is established in some jurisdictions that a disclaimer must be within a reasonable time if it is to be effective: Scott on Trusts, 3 ed, Vol 1, p 294, para 36.1 and 1982 supplement p 45.

It was basic to the decision in Hardoon v Belilios [1901] AC 118, that a beneficiary may disclaim until acceptance but not after: see also Lady Naas v Westminster Bank Ltd [1940] AC 366 at 401. In the absence of positive conduct by which the donee indicates acceptance, the right to disclaim is lost because the court makes a presumption of fact or draws an inference. The presumption or inference is that by remaining silent beyond the time when he would be expected to decline the gift if not accepting it, the donee has tacitly accepted. The inference in the case of a donee is easy to draw because it is human nature to accept gifts. With a gift such as one under a trust deed or a will it is not normally considered necessary to indicate acceptance, but a beneficiary who desires not to receive what is given would commonly indicate that desire. Inaction by the beneficiary is consistent with acceptance.

The concept of acceptance of a gift is similar to that of affirmation by a party entitled to rescind for fraud. In relation to that, in Clough v London and North Western Railway Co (1871) LR 7 Ex 26 at 35, the Court of Exchequer Chamber said:

"... lapse of time without rescinding will furnish evidence that he ha determined to affirm the contract; and when the lapse of time is great, it probably would in practice be treated as conclusive evidence that he has so determined." See also Allcard v Skinner (1887) LR 36 Ch D 145 at 186-8, 191-3.

Inactivity over time operates in a similar evidentiary way to establish acceptance by a beneficiary. It is not simply whether a reasonable time has elapsed. This distinction was recognised in Morrison v The Universal Marine Insurance Co (1873) LR 8 Ex 197 at 202-5. The test for whether a beneficiary is entitled to disclaim is whether in the circumstances he has accepted by words or other conduct or has remained silent for so long that the proper inference is that he has determined to accept the interest.

Often a different inference will be drawn where the lack of positive indication of intention over a period is that of a trustee rather than a beneficiary. The law is stated in art 39 of Underhill's Law of Trusts and Trustees, 13 ed p 348:

No one is bound to accept the office of trustee. Both the office and the estate may be disclaimed before acceptance (but not afterwards) by deed or by conduct tantamount to disclaimer. The disclaimer should be made within a reasonable period having regard to the circumstances of the particular case.

The gratuitous transfer by a settlor to a proposed trustee, of property subject to trusts, commonly confers no advantage on the trustee and imposes onerous obligations on him. The proper inference in a particular case may be that a trustee who remains inactive and fails to perform the obligations of the trust is tacitly declining to accept and thereby disclaiming: see Re Clout and Frewer's Contract [1924] 2 CH 230. Care must be taken before applying to the question whether a beneficiary has tacitly accepted a gift, the approach appropriate to the inquiry whether a proposed trustee has tacitly accepted the office and estate.

Disclaimer by defendants

It was submitted for the defendants that they had each disclaimed their beneficial interest under the trust. The act of disclaimer relied on was their denial in the pleading in this action that they were beneficiaries under the trust. This action was commenced on 26 February 1979 and the defence was delivered some time later. A denial in their defence could amount to a disclaimer: Lewin on Trusts 14 ed pp 176-7. I find that the defendant Lynette Wood disclaimed but that no other defendant effectively did so.

Lynette Wood

I accept the evidence of Lynette and Graham Wood that she knew nothing of her beneficial interest or this action until a few days before she gave her evidence. At the earlier relevant times she left her financial affairs to her husband and he relied mainly on Mr Calver to look after his and his wife's affairs. However, I do not regard them on the evidence as having authority to commit Mrs Wood in respect of the new and unexpected beneficial interest that became available to her pursuant to the trust deed. By her actions in opposing the claim in this action since she knew of the deed, she has ratified what her legal representatives had alleged in the pleadings and has thus disclaimed the beneficial interest which was available to her.

Other defendants

I accept the submission of Mr Finkelstein that each of the other defendants is to be regarded as having procured the creation of the trust and their beneficial interests in it. By 13 April 1976 the five men had an arrangement by which they or their nominated interests would share in the plaintiff's enterprise through agreed proportions of shareholding. The defendants other than Lynette Wood procured the plaintiff to change the arrangement so that they shared in the enterprise in the same proportions through the plaintiff's declarations of trust.

In making those arrangements the four men other than Graham Wood must be regarded as having acted in their capacities both as directors or members of the plaintiff and as agents acting on behalf of the companies of which they were respectively directors, who became beneficiaries under the trust deed. Graham Wood acted both in his capacity as a director or member and on his own behalf. It is to be taken that as businessmen they acted at particular times in the capacity or capacities in which they had power to act. Compare: Re Express Engineering Works Ltd [1920] 1 CH 466 at 471.

I assume that it is open to a beneficiary who has procured a trustee to declare a trust in his favour to disclaim the beneficial interest. However the fact that a beneficiary requested a trustee to declare a beneficial interest in his favour, strengthens the inference that in the absence of conduct rejecting the interest, he tacitly determined to accept it.

After the discussion at the meeting on 17 August 1976 Roy Broomhead, Barry Broomhead and Graham Wood would expect the trust deed to be executed within a reasonable time. It was executed on 28 September. Some time after it was stamped on 21 January 1977 the counterpart of the executed deed, Ex B, was sent to and retained by JWB. The evidence does not indicate when this was done but the probability is that it was well before the liquidation meeting on 6 September 1977. There is no evidence to suggest that, if, as I have found, the three men authorised the execution of the deed they did not learn that it had been executed. It is probable that each of them did learn this in one way or another. It was a significant step which had been much discussed and no-one had any motive to conceal the fact of execution. Many documents which came before the men indicated that the plaintiff was continuing to treat and present itself as trustee of the deed. There is a complete absence of any protest, assertion or suggestion by any of them that the deed had not been executed. I infer from the probabilities that at least by February 1977 each of them knew the deed had been executed.

The knowledge of Roy Broomhead was the knowledge of JWB. JWB had in its files the executed counterpart of the deed. The knowledge of Barry Broomhead and Roy Broomhead was the knowledge of Baroy.

While there is no limit to the acts which may constitute a disclaimer, an effective disclaimer must be intentional and show unquivocally that the beneficiary rejects the beneficial interest: Re Paradise Motor Co Ltd [1968] 1 WLR 1125 at 1141-3. A disclaimer is to be established by the party alleging it: Lady Naas v Westminster Bank Ltd [1940] AC 366 at 400.

JWB

On this issue the evidence establishes that JWB supported the trust proposal from 6 May 1976 and had knowledge from not later than February 1977 that the plaintiff was carrying on the business as trustee under its terms and that under those terms JWB was a beneficiary. There was nothing that could be regarded as a disclaimer by JWB until long after the winding up of the plaintiff commenced. At one stage Keith Wood said in his evidence that Roy Broomhead always contended that the business was not being conducted on trust for the beneficiaries. He later said that Broomhead probably first made that contention after the company got into financial trouble or after it collapsed. He said he did not think that Broomhead had raised that at the time when the plaintiff encountered liquidity troubles in early 1977. I consider that the only interpretation which is consistent with the other evidence is that such a contention was not made by Roy Broomhead until well after the liquidation meeting on 6 September 1977. On this issue, as against JWB, the admissible evidence establishes support for the trust proposal before the meeting of 11 May 1976. Calver wrote the letter of 19 May 1976 (Ex H) with the authority of JWB given to him by Roy Broomhead as well as with the authority of Roy Broomhead himself. In it there is an admission that Roy Broomhead had given the approval referred to in the postscript to Seaman's letter of 6 May (Ex F). In giving that earlier approval Roy Broomhead would have acted on behalf of JWB as well as on his own behalf.

The fact that the part of the executed deed stamped as the counterpart was received by JWB and retained without protest or inquiry supports the inference that JWB accepted its interest under the trust deed.

Baroy

Barry Broomhead was the chairman of Baroy and Roy Broomhead one of its directors. Baroy is to be regarded on the evidence as supporting the trust proposal before the execution of the deed, knowing from not later than February 1977 that the plaintiff was carrying on the business as trustee under the deed which gave Baroy a beneficial interest and doing nothing to disclaim until well after the commencement of the winding up.

Graham Wood

Graham Wood supported the trust proposal before execution of the deed, and knew from not later than February 1977 that the plaintiff was carrying on the business as trustee under the deed. While he may not have known the precise form in which the interest was to be received by his family under the deed, he knew that 24 per cent was to be received. With that knowledge he did nothing to disclaim until well after the commencement of the winding up.

Acceptance

I am satisfied that the proper inference is that before the commencement of the winding up, each of the defendants other than Lynette Wood had determined to accept the beneficial interest made available to that defendant by the trust deed. No attempt to disclaim the interest after acceptance could be effective. When the defence was delivered it was far too late for them to disclaim.

Consequence of Lynette Wood's disclaimer

The consequence of the disclaimer by Lynette Wood is that in law she is treated as retrospectively disentitled to the interest declared for her benefit in the trust deed. However, in the working out of legal rights the law does not disregard the fact that until she disclaimed she had a right to the beneficial interest. It has been described as a right "defeasible by the beneficiary's own act of disclaimer" Re Stratton's Disclaimer [1957] CH 42 at 54. See also Re Parsons [1943] CH 12.

As Lynette Wood by her disclaimer, became retrospectively disentitled to the beneficial interest in her name under the trust deed, she is freed from all burdens which would have gone with acceptance of the interest: Mallot v Wilson [1903] 2 CH 494 at 501. See also Moffett v Bates (1857) 3 Sm and Giff; 65 ER 740; Re Lyons (1912) 107 LT 146; Pettit, Equity and the Law of Trusts, 3 ed, 227, n7. Thus she is free of liability to indemnify the plaintiff.

It is necessary to look at the legal consequences upon other beneficial interests of Lynette Wood's disclaimer.

Mr Liddell submitted that unless the beneficial interest in each of the proposed beneficiaries was perfected, each of the beneficial interests which the deed purported to confer, failed. He contended that the consequence of Lynette Wood's disclaimer was that all beneficial interests under the deed were held by the plaintiff on a resulting trust for the settlor.

One must seek the intention disclosed by the words of the deed construed in their context and on the background of the surrounding circumstances.

I do not accept this submission. There is nothing in the deed to indicate that if any of the beneficiaries disclaim their beneficial interest, that is to have the effect of avoiding the beneficial interest which vested in each beneficiary (subject to disclaimer by that beneficiary) as soon as the deed was executed. In Lady Naas v Westminster Bank Ltd [1940] AC 366 a similar argument found no favour with Lord Russell (at p 397) or Lord Wright (at p 399).

The deed provides that the beneficiaries shall be entitled to the trust fund in proportion to the number of units they hold in the fund. It provides that the number of units held by them is:

J W Broomhead Pty Ltd - 42 per cent
Baroy Industries Pty Ltd - 10 per cent
Graham John Wood and Lynette Desley Wood - 24 per cent
Accordo Industries Pty Ltd - 24 per cent

It is provided that a "unit" means an equal and undivided interest in the trust fund (cl 2). Each year until the vesting day the trustee is to pay, apply or set aside the whole of the net income for the year for the benefit of the beneficiaries in proportion to the number of units held by them (cl 6(a)). Clause 9 provides:

In case of the death of a beneficiary to the trust fund then the survivor or survivors (where the deceased was jointly entitled to units in the trust fund) and the legal personal representatives of the deceased (where he was solely entitled) shall be the only persons recognised by the trustee having any title to the units in the trust fund to which the deceased was entitled. The word "as" appears to have been omitted by error from between the words "trustee" and "having".

Clause 9 indicates that the scheme is that if more than one person are entitled to units they are jointly entitled. The entitlement of Graham Wood and Lynette Wood to their 24 per cent of the units is expressed without words of severance or division. Upon the proper construction of the deed they jointly became beneficially entitled to their units.

When one of two persons jointly entitled as donees of an interest disclaims, the whole interest goes to the other person. It is a general principle that where a gift fails as to one joint donee the other takes the whole interest. This is so where the failure is due to the death of a joint donee in the lifetime of a testator, revocation or invalidity: Jarman on Wills, 8 ed p 1799; Halsbury's Laws of England 4 ed Vol 50 p 205 para 360. The position is the same where the gift to one joint donee fails through disclaimer. This is commonly encountered where a gift of property is made to two trustees and one disclaims: Halsbury's Laws of England, 3 ed Vol 38 p 913 para 1550; Lewin on Trusts, 14 ed p 177-8; Inderhill's Law of Trusts and Trustees, 13 ed p 350; Jacobs, Law of Trusts in Australia 4 ed (Meagher and Gummow) p 290-1 para 1539. The statement by Vaisey J in Re Schar Dec'd [1951] 1 CH 280 at 285 that there can be no disclaimer by one joint tenant or by one trustee seems inconsistent with authority. It was made in the course of construing a deed as amounting to a release rather than a disclaimer. His Lordship may have been referring to the position after acceptance. For example, in Re Birchall (1889) 40 Ch D 436 the Court of Appeal held that one of the trustees to whom the estate was jointly left had disclaimed: see Pettit, Equity and the Law of Trusts 3 ed p 248 n 12 In the analogous situation of a class gift it has been held that the effect of a disclaimer by an object of the gift operates in similar manner to a failure of the gift to that object and swells the interests of the other members of the class: In the Will of F G Clayton dec'd;; Rex v Skinner [1971] 1 NSWLR 76 at 79; Rex v Skinner [1972] 1 NSWLR 307. See also Wild v Banning (1866) LR 2 Eq 577.

The result is that from 28 September 1976 until a few days before she gave evidence, Lynette Wood, without her knowledge, had vested in her a joint interest in 24 per cent of the trust fund. She then disclaimed the gift of the interest and her position now is as though she had never become entitled to it. Graham Wood is now solely entitled to the beneficial interest in 24 per cent of the trust fund.

I have reached those conclusions by the application of the technical rules which govern gifts, interests and disclaimers. I regard the conclusions as consistent with the intention disclosed by the deed when construed in the light of relevant surrounding circumstances. The obvious purpose of the scheme embodied in the deed was to minimise tax. It would be most unrealistic to attribute an intention to the parties to the deed that if the interest proffered to Lynette Wood failed, the entire scheme should fail and the whole beneficial interest be held on trust for a settlor who had the most tenuous connexion with it. It would be as unrealistic to attribute an intention that if Lynette Wood disclaimed, some or all of the beneficial interest made available to Graham Wood and his nominee should result to the settlor. I express no view as to the person or persons to whom the beneficial interest would go if there were a resulting trust.

The principle of Hardoon v Belilios

I now consider whether the plaintiff is entitled under the principle applied in Hardoon v Belilios [1901] AC 118 to the indemnities claimed. That general principle is that a trustee is entitled to an indemnity for liabilities properly incurred in carrying out the trust and that right extends beyond the trust property and is enforceable in equity against a beneficiary who is sui juris. The basis of the principle is that the beneficiary who gets the benefit of the trust should bear its burdens unless he can show some good reason why his trustee should bear the burdens himself.

The general principle was not in issue before me. There are exceptions to the general principle and the defendants argued that their situation fell within a number of the exceptions.

Several beneficiaries

It was argued that the general principle applies only where there is a sole beneficiary. In Hardoon v Belilios [1901] AC 118 at 124 the Privy Council stated the law as it applies where the only beneficiary is a person sui juris. It was dealing with a case where there was only one beneficiary. Its statement was in accordance with the sound judicial practice of not stating a principle wider than necessary for the decision of the case. Such a statement should not be construed as though the Privy Council was following the opposite practice of stating the principle as widely as it was possible to state it.

Neither the submissions of counsel nor the cases have revealed to me any consideration of principle, concept, fairness or practically which would justify its restriction to the case of a sole beneficiary.

Professor H A J Ford in his article "Trading Trusts and Creditors' Rights" (1981) 13 MULR 1 considered the question. I respectfully adopt the words of that distinguished lawyer:

One would expect that the same principle ought to apply where there is more than one beneficiary and all of them are sui juris and entitled to the same interest as absolute owners between them.

However, in such cases of multiple beneficiaries as have been reported, there has been the further element that the trustees incurred the liability at the request of the beneficiaries. A request from a beneficiary who is sui juris to the trustee to assume the office of trustee or to incur liabilities obviously justifies the imposition of a personal liability to indemnify on the beneficiary and this should be so even if the beneficiary has only a limited interest. The Privy Council in Hardoon v Belilios relied on some earlier authority which concerned multiple beneficiaries for the proposition that a sole beneficiary who is sui juris is bound to indemnify even though the trustee does not prove a request by the beneficiary. This reliance suggests that the Privy Council thought that personal liability to indemnify would attach to several beneficiaries having the same interest, all of them being sui juris and absolutely entitled. (p 7)

Where two or more have requested a person to become trustee for them no difficulty has been found in treating them as liable to indemnify the trustee personally, eg Matthews v Ruggles-Brise [1911] 1 CH 194; Buchan v Eyre [1915] 2 CH 474 at 477-8.

I consider that the general principle in Hardoon v Belilios applies where there are several beneficiaries.

In any event in this case the defendants other than Lynette Wood requested the plaintiff to become trustee for them and are also liable on that basis to indemnify the trustee.

Absolute owners

It was argued that the beneficiaries under the deed are not between them the absolute beneficial owners of the trust fund. I consider that they are.

The deed provides that each year until the vesting day the trustee is to pay, apply or set aside the whole of the net income for the year for the benefit of the beneficiaries in proportion to the number of units held by them: cl 6(a). The vesting day is 80 years from the date of the deed: cl 6(a) and the fourth part of the schedule. As from the vesting day the trustee is to hold the trust fund and its income in trust for the beneficiaries then entitled to the trust fund in proportion to the units held by them: cl 11.

The beneficiaries, JWB, Baroy, Graham Wood and Accordo, all have vested interests and are indefeasibly entitled between them to the same interest (the trust fund) as absolute owners. Under the rule in Saunders v Vautier (1841) Cr & Ph 240; 49 ER 282, they could combine to put an end to the trust: Jacobs Law of Trusts in Australia, 4 ed (Meagher and Gummow) p 534 para 2307.

Sub-trusts

It was argued that the defendants Graham and Lynette Wood could not in any event be liable to indemnify the plaintiff because any beneficial interest they may have under the trust deed is held on trust for infants under their family trusts.

I do not regard this situation as conferring immunity on Graham Wood. While minors are not liable personally to indemnify a trustee they are not protected from the adverse financial impact of other orders for indemnity. A trustee's right to indemnity out of the trust estate is exercisable against property held on trust for minors. No authority was cited to me and I see no principle to support the view that Graham Wood would not be liable to indemnify the plaintiff if he held his beneficial interest on trust for minors. In this case he would not be able to pass on his liability to minors for whom he held on trust. That, however, is a usual incident of the office of a trustee who holds property on trust for minors.

I add that in this case the vague references in correspondence to the way in which Graham and Lynette Wood would or could hold their beneficial interest do not satisfy me that Graham Wood held his beneficial interest under the trust deed on trust for minors. No evidence regarding this was given by Graham Wood.

Defendants liable

The result is that each of the defendants except Lynette Wood is liable to indemnify the plaintiff.

Shares of indemnity to be borne

Submissions were made as to the share of the indemnity which the respective defendants should bear if liable to indemnify. This arises in the first instance because Accordo is in liquidation and, I assume, insolvent. For the plaintiff it is put that the whole of its liability should be allocated, in proportion to their respective shares in the trust, between the defendants liable to indemnify. Reliance is placed upon Matthews v Ruggles-Brise [1911] 1 CH 194. For the defendants it is put that a defendant whose interest in the trust fund is, for example, 42 per cent should be liable to indemnify the plaintiff for no more than 42 per cent of the plaintiff's liability.

I regard Matthews v Ruggles-Brise as deciding how the proportions are to be borne between partners where the liability to indemnify is a partnership obligation. Every partner is liable jointly with the other partners for all obligations of the firm. In that case the executors of the trustee who had taken a lease as trustee for the partners (of whom he was one) were forced topay rent and damages to the landlord. The executors brought actions for indemnity against all the other partners or their estates except for two partners whose estates were believed to be insufficient to justify proceedings. Only one action was heard, the others having been stayed by agreement pending the decision in that action. Clearly the action was being treated as a test case to enable all concerned to use it as a basis for working out the whole pattern of indemnities. If procedural technicalities are put aside there are, in working out the burdens to be borne by the respective partners in respect of a partnership obligation, two applicable principles. The first is that each partner is liable for the whole obligation. The second is that a partner who pays more than his share is entitled to contribution from his partners: Halsbury's Laws of England 4 ed Vol 35, p 39 para 69; Lindley on Partnership 13 ed pp 391-2. The amount of contribution recoverable is regulated by the number of solvent partners: Lindley, supra, p 399; Halsbury's Laws of England 4 ed Vol 20 p 124 para 227. In Matthews v Ruggles-Brise, supra, there had been no serious dispute as to proportions: see p 203. Swinfen Eady J made an order designed to result in each of those sued contributing in proportion to his share in the partnership if the two not sued were solvent; and contributing in the proportion which his share bore to the total shares of the solvent partners, if the other two were insolvent and unable to contribute anything.

While the judgment demonstrates the correct working out between partners, of a partnership obligation to indemnify a trustee who is one of the partners, it does not lay down principles of general application as to the proportions to be borne by beneficiaries.

In cases of partnership such as Matthews v Ruggles-Brise, supra, each of the beneficiaries is liable to indemnify the trustee for the whole amount. Each partner beneficiary of course has an interest in the whole trust property. A beneficiary who pays more than his share of the amount is entitled to contribution from the other beneficiaries as his payment has lifted some or all of the burden of liability from them. In sharing fairly amongst the beneficiaries, by way of contribution, the respective burdens finally to be borne, regard is had to the fact that a beneficiary is insolvent and in practice cannot bear his due burden.

In a case such as the present there is no justification for treating any one beneficiary as liable to pay the full amount of the trustee's indemnity. The beneficiaries were not jointly entitled to the whole trust fund. Each one was separately entitled to a separate part. The principles of contribution which make allowance for the insolvency of a beneficiary liable to contribute, have no application.

In Hardoon v Belilios [1901] AC 118 at 123, Lord Lindley speaking for the Privy Council said:

The next step is to consider on what principle an absolute owner can throw upon his trustee the burdens incidental to its ownership. The plainest principles of justice require that the cestui que trust who gets all the benefit of the property should bear its burdens unless he can shew some good reason why his trustee should bear them himself. The obligation is equitable and not legal, and the legal decisions negativing it unless there is some contract or custom imposing the obligation, are wholly irrelevant and beside the mark.

It seems to follow that where there are several beneficiaries entitled to separate benefits, a beneficiary who gets a proportion of the benefit of the property should bear that proportion of its burdens unless he can show why the trustee should bear that proportion of them himself.

Under the trust deed, beneficiaries such as JWB and Baroy were separately entitled to their respective proportionate shares of 42 per cent and 10 per cent in the trust fund and no more. I see no principle of justice which would require them to provide an indemnity for more than those percentages of the trustee's liability to creditors.

Accordo is in liquidation and unable to pay any amount of indemnity. Where a trustee accepts a trust for minors or a special trust excluding the right to indemnity, no injustice is regarded as being involved in his having no right to indemnity from the beneficiaries personally. He accepted the trust knowing the position: Hardoon v Belilios [1901] AC 118 at 127. By a parity of reasoning a trustee who accepts a trust knowing that his right to personal indemnity from a sole beneficiary or from one of several beneficiaries is only as good as the ability of the beneficiary to pay it, is not to be regarded as suffering injustice if the beneficiary is unable to pay.

Lynette Wood is not liable to pay any indemnity.

It may be said of the personal indemnity in issue here, as Lindley LJ said of a trustee's right to indemnity out of the trust estate, that it is "the price paid by cestuis que trust for the gratuitous and onerous services of trustees": Re Beddoe [1893] 1 CH 547 at 558. The principle which leads to a fair result is that a beneficiary entitled to a separate proportion of the fruits of the trustee's services should pay the same proportion of the price for those services. The proportionate liability of a separate beneficiary should be the same as was his proportionate right to benefit. He should bear the proportion of the trustee's indemnity for liabilities incurred, which corresponds to the proportion of his beneficial interest when the liabilities were incurred. His share of liability is to be limited to that proportion, even though other beneficiaries are not liable to indemnify or are unable through insolvency to meet their liability.

I need to consider, in the light of Lynette Wood's disclaimer, the liability of Graham Wood to indemnify the plaintiff.

If Lynette Wood had not disclaimed, Graham Wood and she would have been jointly liable to indemnify the plaintiff for 24 per cent of its liabilities: compare Hill's case (1875) LR 10 Eq 585 at 597-8. In view of her disclaimer he is now treated as having been solely entitled to the 24 per cent interest since the making of the trust deed.

The cases establish that, in working out rights, the law, while accepting that a disclaiming beneficiary retrospectively avoids his interest and frees himself of its burdens, recognises the reality that the interest was in existence until avoided by the disclaimer: Mallott v Wilson [1903] 2 CH 494; Re Parsons [1943] CH 12; Re Stratton's Disclaimer [1958] CH 42; Rex v Skinner [1972] NSWLR 307. At the time when the plaintiff as trustee incurred the liabilities through conducting the building business, Graham Wood and Lynette Wood were jointly entitled to 24 per cent of the trust fund. If 24 per cent of the income of the trust fund had been paid to them they would in practice each have used half the money.

If they had remained jointly entitled to the 24 per cent interest and the trustee had obtained a personal indemnity from them, it would have worked out through contribution that each paid half so long as they were both solvent: Matthews v Ruggles-Brise [1911] 1 CH 194. I consider that it would be unjust and inconsistent with the principle mentioned above, to impose on Graham Wood, as a result of a disclaimer occurring years later, an obligation of indemnity double that which he would have borne if beneficial interests had remained as they were when the liabilities were incurred.

It follows that neither the insolvency of Accordo nor the disclaimer of Lynette Wood increases the extent of the liability of any other defendant to indemnify the plaintiff.

The result is that for the liabilities to creditors incurred since the execution of the deed, in its conduct of the building business as trustee, the plaintiff is entitled to recover indemnity from the defendants JWB, Baroy and Graham Wood personally. As the deed was executed on 28 September 1976 that day is included in its period of operation: English v Cliff [1914] 2 CH 376 at 382-5. The amount in relation to which these personal indemnities are recoverable is the amount by which those liabilities to creditors exceed the assets of the trust available to provide it with indemnity. Of that amount JWB is personally liable to pay the plaintiff 42 per cent as indemnity, Baroy is liable to pay 10 per cent and Graham Wood 12 per cent.

Estoppel

In view of my conclusions it is not necessary to consider the pleas of estoppel made in the plaintiff's reply.

Claim as agent

For the period from incorporation until the execution of the deed the plaintiff claimed indemnity on the basis that it was then acting as agent for the defendants. There is no factual basis to support that claim and I reject it.

Declaration and orders

I will make the following declarations and orders:

1.
It is declared that:

(a)
the plaintiff is entitled to indemnities from the defendants J W Broomhead Pty Ltd, Baroy Industries Pty Ltd and Graham John Wood in respect of the plaintiff's present liabilities to creditors which were incurred by it on or after 28 September 1976 in the course of its carrying on the business of builder referred to in the statement of claim but is not entitled to an indemnity from the defendant Lynette Desley Wood;
(b)
the plaintiff is entitled to recover as such indemnities from J W Broomhead Pty Ltd 42 per cent, from Baroy Industries Pty Ltd 10 per cent and from Graham John Wood 12 per cent of the difference between the amount of the plaintiff's present liabilities to creditors referred to in sub-para (a) and the amount obtainable by the plaintiff by way of indemnity for those liabilities from the assets held by it on the trusts of the deed of settlement referred to in the statement of claim.

2.
It is ordered that the following inquiries be made and accounts taken by a matter:

(a)

(i)
an inquiry as to which or which parts of the plaintiff's present liabilities to creditors were incurred by it on or after 28 September 1976 in the course of its carrying on the business of builder referred to in the statement of claim; and
(ii)
an account of all those liabilities or parts of liabilities;

(b)

(i)
an inquiry into the amounts obtainable by the plaintiff by way of indemnity for the liabilities to creditors referred to in sub-paragraph (a) from the assets referred to in paragraph 1(b); and
(ii)
an account of those amounts.

3.
It is ordered:

(a)
that the further consideration of this action be adjourned to a date to be fixed;
(b)
that all parties be at liberty to apply generally.