Corporation of Trustees of Roman Catholic Archdiocese (Bne) v Discovery Bay Developments Pty Ltd & Anor [1995] QSC 280

IN THE SUPREME COURT OF QUEENSLAND No 1945 of 1991 BETWEEN: THE CORPORATION OF THE TRUSTEES OF THE ROMAN CATHOLIC ARCHDIOCESE OF BRISBANE (Plaintiff) AND: DISCOVERY BAY DEVELOPMENTS PTY LTD (First Defendant) AND: STIRLING INVESTMENTS CORPORATION PTY LTD (Second Defendant) REASONS FOR JUDGMENT - de JERSEY J Judgment delivered 27\10\1995 The second defendant, Stirling Investments Pty Ltd ("and/or Nominee"), purchased the "Sanctuary Cove" land from Hope Project Pty Ltd by a contract dated 31 December, 1983. Stirling then nominated the first defendant, Discovery Bay Developments Pty Ltd, as the purchaser (ex.1, p100). Over the next few years, Discovery Bay developed the land into the Sanctuary Cove Resort and sold much of it. Within the area of the Sanctuary Cove Resort, one may delineate an area of 5 acres 1 rood 32.8 perches, comprising a perfect square, with one side on the southern boundary of the property, and with the mid point of that side at the spot where the highest contour line crosses the boundary. It is marked in red on ex.16 and defined in words on the reverse side. The plaintiff, The Corporation of the Trustees of the Roman Catholic Archdiocese of Brisbane, claims that that land was at relevant times -- 1 of 26 -- 2 impressed with a trust in favour of the Church and that although the defendants knew of that trust, they disregarded the trust while developing and selling off the land. The Church now asserts a right to equitable compensation for breach of trust and breach of fiduciary duty. Stirling acknowledges the existence of a trust in its purchase contract. Special condition 30 provides:- "Notwithstanding anything to the contrary herein it is a condition of this Contract that the purchaser shall as and from the date of execution and at all times hereafter hold a single area of at least 5 acres, 1 rood, 32.8 perches of the said land hereby sold as Trustee for and on behalf of the Corporation of the Trustees of the Roman Catholic Archdiocese of Brisbane. The vendor shall have the right to specify the actual location of the said 5 acres, 1 rood, 32.8 perches adjoining the southern boundary of the land hereby sold." The area of the land being sold is defined in the contract as "approx 435 acres less 5 acres 1 rood 32.8 perches held in trust for the Roman Catholic Church", and one may accept that the purchaser did not pay for that area of 5 acres 1 rood 32.8 perches. The clause provided that Hope Project as vendor had the right to specify location. In relation to that, I conclude that Hope Project was content to rely on an earlier specification, made by a previous owner of the land, Leonard Heffernan. That emerges from Hope Project's solicitor's letter of 25 January,1984 directing the solicitors for Stirling to Mr Heffernan: Stirling's solicitors had by their letter of 5 January, 1984 sought details of the trust. I set out the text of those letters. Porter Lehn & Co wrote in these terms on 5 January, 1984 on behalf of Discovery Bay, to the solicitor for Hope Project, Mr Neil McPherson: "We act on behalf of the abovenamed purchaser and enclose herewith Requisitions on Title for your client's attention. We note that portion of the land is held upon Trust for the corporation of the Trustee of the Roman Catholic Archdiocese of Brisbane. Would you -- 2 of 26 -- 3 kindly provide us with copies of any Deed or other documentation showing details of the Trust and the terms of same." Mr McPherson's response of 25 January, 1984, on behalf of Hope Project, read: "I have attached hereto Purchasers Requisitions on Title duly answered. With reference to your enquiry with respect to the Trust for Roman Catholic Archdiocese of Brisbane, I advise that when the land was originally purchased from Mr Leonard Heffernan it was a requirement of that Vendor that a clause be included in that contract in such terms. No further deed or other documentation has been made available to the Vendor. For further information it is suggested that you contact Mr Leonard Heffernan, PO Box 726, Surfers Paradise, Telephone (075) 316907." Mr Muir QC, who appeared for the defendants, submitted that the Church now seeks to attach too much significance to Hope Project's solicitor's letter of 25 January, 1984. There is no question about the solicitor's authority to write in the terms he did, on his client's behalf. Discovery Bay's solicitors had by their letter of 5 January sought "details of the trust and the terms of same". In referring them on to Mr Heffernan, Hope Project was implicitly indicating its willingness to leave the specification of those "details" - which would ordinarily include any specified location - to Mr Heffernan. Hope Project should therefore be taken to have said in effect: "Insofar as Mr Heffernan has specified a location, we are content to adopt that." Discovery Bay should, for its part, be taken to have acquiesced in that. After all, it did not respond saying: "But surely it is up to Hope Project alone to specify the location, and to do so anew, whatever may have happened in the past." Mr Len Heffernan had purchased the land from Cambridge Credit Corporation Ltd by a contract dated 11 September, 1979: a memorandum of transfer to him was -- 3 of 26 -- 4 executed on 1 October, 1979. It was a condition of that contract that as from execution of the transfer, Mr Heffernan should hold "a single area of at least 5 acres 1 rood 32.8 perches ... as trustee" for the Church, and that he, Mr Heffernan, should "have the right to specify the actual location" of that area. Mr Heffernan sold the land to D & M Wade Nominees Co Pty Ltd by contract dated 8 January, 1980, and before he had specified the location of the trust land, but that contract again acknowledged the existence of the trust (special condition 32), and reserved to Mr Heffernan the right to specify the location, adding that "one boundary of such 5 acres 1 rood 32.8 perches (should adjoin) the southern boundary of the land ... sold". Payment of the balance purchase price was secured by a bill of encumbrance, dated 13 February, 1980, and that instrument also acknowledged the trust, and, in the same terms, Mr Heffernan's right to specify the location of the land (cl.30). I set out cl.30: "Notwithstanding anything to the contrary hereinbefore expressed or implied, it is a condition of this encumbrance that the encumbrancer shall at all times hold a single area of at least 5 acres 1 rood 32.8 perches of the land subject to this encumbrance as Trustee for and on behalf of the Trustees of the Roman Catholic Archdiocese of Brisbane. The encumbrancee shall have the right to specify the actual location of such area and shall nominate an appropriate parcel as the land so held in trust providing that such parcel of land be situated on the southern boundary of the land hereby encumbered. The encumbrancee may refuse to consent to any plan of subdivision which does not contain such a parcel of land and may refuse to partially release its encumbrance over such nominated parcel of land unless the release is requested by the encumbrancer to allow an unencumbered transfer to The Corporation aforesaid." Again before any specification by Mr Heffernan, D & M Wade sold the property to Hope Project, by a contract dated 15 February, 1980. That contract also contained an acknowledgment of the existence of the trust, but reserved to Hope Project as purchaser the right to specify the location. The Church claims that Mr Heffernan specified the location of the trust land in -- 4 of 26 -- 5 June, 1981. I accept Mr Heffernan's evidence that, at about that time, he took Father Nolan of the Runaway Bay Parish to the land, and specified the location of the 5 acres 1 rood 32.8 perches area as shown in red on ex.16 ( a document he produced subsequently, on 13 May, 1991). I also accept Father Nolan's evidence about that trip to the land. (The Church would have preferred a larger site, for the purposes of a church and possibly a school - up to 10 acres, and Mr Heffernan endeavoured to have the area increased, through his brother Ivor, but unsuccessfully.) After that trip, Mr Heffernan gave his brother Ivor (who had acted as agent for D & M Wade in its purchase of the land and was a director of Hope Project), a copy of the plan of the land, showing the position of the Church land (p.50 l 50) - the same form of plan as in ex.16. (I was not satisfied however that Mr Heffernan also then gave his brother a copy of the clause from the contract.) This was an act of "specification" of the location of the trust land, sufficient for cl.30 of the bill of encumbrance, and during its currency. Other matters aside (as to uncertainty, etc.), a trust in favour of the Church was by then, at the latest, fully constituted. That other contracts intervened, between that act of specification and the eventual Hope Project sale to Stirling, does not matter in a practical sense, because of the acknowledgment of the trust in cl.30 of the Hope Project/Stirling contract, and the reliance on Mr Heffernan for the detail - to which I earlier referred. (It is convenient to mention here my view that cl.31 of the bill of encumbrance in favour of Mr Heffernan should obviously be read as if the word "not" on the second last line were not there - to avoid absurdity and inconsistency: Fitzgerald v. Masters (1956) 95 CLR 420, 426-7.) No doubt Mr Heffernan contemplated the possibility of some adjustment to the -- 5 of 26 -- 6 area, during the process of development of the land, and hoped for an increase in the area - as emerged during cross-examination; but he had nevertheless sufficiently specified the location of the 5 acres 1 rood 32.8 perches for purposes of the bill of encumbrance. Where Mr Leonard Heffernan's evidence conflicted with that of his brother Ivor, I much preferred the former. While not particularly doubting Mr Ivor Heffernan's intent to be honest, I considered him a most unreliable witness: the transcript itself shows abundant ground for that. (I did not accept as credible his evidence of telling Mike Gore that the Church was "interested in the money, not so much the acreage" (p.209 l.35), and I must go so far as to say that his explanation in re-examination (p.218) lacked the ring of truth - I mention this particularly because it featured in the defendants' submissions.) On the other hand, I found Leonard Heffernan an impressive witness, both as to honesty and reliability, and I accepted all his evidence (with the exception noted on p.5). About three months after Stirling purchased the land, a solicitor, Mr Lehn, acting for Discovery Bay, wrote a letter dated 5 April, 1984 to Mr Len Heffernan, which included this paragraph: "We understand that there is a portion of the land to be held in trust for the Catholic Church. We do not have the precise details of that land or of the Trust and we would be pleased if you would be able to contact the writer so that we may discuss this matter with you." I accept the evidence of Mr Len Heffernan that he subsequently telephoned and spoke with a male person at Mr Lehn's firm - who I infer was Mr Lehn himself - confirming the existence of the trust, and identifying the location of the land (although asserting that the area had been increased to 10 acres). I prefer to accept Mr Heffernan's evidence about this, even though Mr Lehn said he had no recollection of -- 6 of 26 -- 7 the call. It is highly probable that Mr Heffernan would have responded to the letter of 5 April, and spoken, as asked, with "the writer". The reference to 10 acres was of course wrong. But the significant feature is the advice to the solicitor for Discovery Bay that the trust persisted, and as to the (general) location of the trust land (albeit the wrong area). As to credibility, I was pressed with the fact that Mr Lehn made no diary note of this - but then neither apparently did he made a note of what follows. I also find that after the date of Mr Lehn's letter, which was 5 April, 1984, Michael Gore, on behalf of Discovery Bay, told Mr Lehn to this effect: "Don't worry about the Church land. I'll deal with it if I have to." That was a very important direction, yet Mr Lehn did not make a note of it. There is ample other evidence that Discovery Bay knew of the trust obligation. While Mr Gore was actively developing the land, his memory was jogged - although I do not consider it needed to be jogged - at a meeting of the Hope Island Progress Association where, in response to a query from Mr James Signorini, he confirmed that the land "was still available there for the Catholic Church". Then there is cl.30 of the Hope Project/Stirling contract, referring to the trust in express, clear terms. I doubt that officers of Discovery Bay, reading cl.30, would have regarded it as in the least "obscure", as was submitted. Further, there was, as at February, 1984, the plan prepared for Cheoy Lee (Aust.) Pty Ltd - and Mr Gore (p.193 l.45) - which showed land reserved for the Church - albeit in the wrong place (ex.45). (That error flowed from the engineer Mr Burchill's design in ex.40, done purely for the convenience of the developer: p.193). It is highly significant, indeed sinisterly consistent with a plan to defeat the Church, that the later, April, 1984 plan, deleted that Church reference (p.244), and as I infer, on the instructions of Discovery Bay (p.249 l.15). Discovery -- 7 of 26 -- 8 Bay had, indeed, acknowledged the trust in various other ways - by Mr Gore in his direction to Mr Lehn after 5 April, 1984 in which he mentioned "the Church land"; by Mr Gore in his statement at the Progress Association meeting, that the land was "still available" for the Church; and through Mr Lehn's letter of 5 April, 1984, that land was "to be held in trust" for the Church. Yet under Mr Gore's direction, Discovery Bay developed the land without protecting the Church entitlement. I infer that it quite deliberately ignored that entitlement. It acted at least cavalierly. But as the terms of Mr Gore's direction to Mr Lehn themselves suggest, Mr Gore was prepared to take the risk; to proceed with the development on the chance that the Church would not properly uncover, formulate and pursue its entitlement. Mr Gore's approach, and that of Discovery Bay, was therefore better described as reckless, and in that sense dishonest. But were the defendants obliged to respect the trust to which special condition 30 of Stirling's contract with Hope Project refers? Stirling's express intention to hold the land on trust is confirmed there with, to my mind, the utmost of clarity (cf. Bahr v. Nicolay (1987-8) 164 CLR 604, 618-9). But the defendants advance various reasons why, they submit, that apparent trust cannot be enforced. First, they submit, cl.30 is uncertain. The words "at least" before the specified area certainly leave open the possibility of an increase in the size of the block, and no maximum is defined. This, it was said, renders the provision uncertain. But the extent of the binding obligation is nevertheless prescribed, and the words "at least" go no further than to point up the possibility of further agreement to extend the area. In the absence of such agreement - and I find there was none - the minimum specified area must be the operative area. This is somewhat reinforced by the last sentence, as to -- 8 of 26 -- 9 the vendor's specification, which relates to "the said 5 acres 1 rood 32.8 perches", and the express exclusion from the land sold of that particular area "held in trust" for the Church. It may well be, as submitted by Mr Keane QC, for the Church, that the words "at least" were inserted because of the exigencies of sub-division, allowing for some variation, but to ensure that the actual area was not reduced below the specified area. A more fundamental submission for the defendants was that no binding obligation arose from cl.30, because the nominated person - Hope Project - did not specify the location of the trust land (cf. George v. Roach (1942) 67 CLR 253). In fact, as I have found, Hope Project was content to exercise its right to specify by reference to Mr Heffernan, and Mr Heffernan had effectually "located" the 5 acres 1 rood 32.8 perches in June, 1981 as depicted on ex. 16. I earlier expressed views about that matter. I return later to the question whether specification was in any event essential to there being a trust. Mr Muir submitted that cl.30 could not give rise to binding obligations - whether in contract or trust - because the clause did not itself designate the location of the subject land. The clause does provide a means for ascertaining that location, and not dependent on further agreement between the parties. That was enough. Leaving the right to specify the particular location within the wider specified area to Hope Project (even though a contracting party) did not render cl.30 uncertain, in terms of contract theory: Godecke v. Kirwin (1973) 129 CLR 629, 641-2 (per Walsh J, with whom Mason J agreed), and Booker Industries Pty Ltd v. Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600, 604-5. As to the law of trusts, the trust property was, in terms of the Halsbury proposition (4th, vol 48, para. 552), "capable of being ascertained". -- 9 of 26 -- 10 My reasons have thus far focused on the act of specification of the location of the land as precedent to the obligation binding the defendants. If required, that act of specification did occur and was effective, whether under cl.30 of the contract with Hope Project's reliance on Len Heffernan, or by Len Heffernan acting pursuant to the bill of encumbrance. Mr Muir submitted that the Church's contentions, (a) that Mr Heffernan's specification might be related to the bill of encumbrance, and (b) that his specification was "adopted" by Hope Projects, were not open on the pleadings. As to (a) The circumstances of the specification are pleaded in a factual way in para 28 of the statement of claim. It is said there to have been "in accordance with" the provision of the Heffernan/ D & M Wade contract relating to specification. That provision set out what was required, in materially the same terms as the corresponding clause of the bill of encumbrance. The clause of the bill of encumbrance also is pleaded in full (para 23). Further, that is relied on as part of the "writing" proving the trust (para.5(c)(i) reply). It is therefore open for the Church to contend that the act of specification, pleaded in that factual way, fitted the requirements not only of the Heffernan/D & M Wade contract, but the supporting bill of encumbrance as well. One wonders what other purpose there could have been in pleading those precise terms of the bill of encumbrance as to specification. As to (b) In para 34 of the statement of claim, the Church sets out the provision giving Hope Project the right to specify. In paras. 37 and 38, the Church alleges that Discovery Bay asked Mr Heffernan for details of the location, and that he provided -- 10 of 26 -- 11 them. The pleading of Hope Project's right to specify, in close conjunction with the allegation that Mr Heffernan had specified the location and that he gave details of that to Discovery Bay, permitted the Church to argue that the Heffernan specification was sufficient for the purposes of the pleaded provision giving Hope Project the right to specify. The two were then connected, in an evidentiary way, by proof that it was at the instance of Hope Project, that Discovery Bay contacted Mr Heffernan. As well, the Church relied on both solicitors' letters as part of the "writing" proving the trust (para 5(c)(iii) reply). The contentions were therefore open on the pleadings. Mr Muir said that had (b) been pleaded more specifically, he would have sought to establish that if asked, Mr Ivor Heffernan, as a director of Hope Project, would have specified a location in the lower area - as shown on ex.40 and 45. If it matters, I accept that Mr Ivor Heffernan would probably have opted for that lower area. But that issue does not arise, once one concludes - as I believe one may on the pleaded case - that Hope Project was content to rely, for its specification, on Mr Heffernan's earlier designation of where the land should be. In any case, consistently with the view that a trust arises if the subject matter, although not specified, is "capable of being ascertained", the act of specification of the location of this trust land was not in my view essential to the establishment of the obligation binding the defendants. Pending specification, the whole of the land acquired by Discovery Bay was affected by the rights of the Church; upon execution Stirling, and through it Discovery Bay, were obliged to refrain from dealing with the legal estate in any way which would frustrate the right of the Church as beneficiary. That is the proper construction of cl.30, with specification being regarded as part of the -- 11 of 26 -- 12 machinery for the carrying out of the trust. The vendor was obliged to exercise that "right" of specification, as part of its general obligation to ensure the business efficacy of cl.30 (cf. Sudbrook Trading Ltd. v. Eggleton (1983) 1 AC 444, 477). And should the vendor fail to co-operate, the court could rectify the omission (in re Baden's Deed Trusts (1971) AC 424, 451) and give effect to the trust. Further, regardless of express trust, by taking the transfer on the terms of this contract, Discovery Bay assumed contractual and fiduciary obligations for the benefit of the Church. It must be seen as having accepted a transfer on that condition in order to obtain the land: Bahr v. Nicolay, at 654-5, 637-9. Equity therefore "fastens upon the conscience" of Discovery Bay, in favour of the third party, to prevent a fraud on Hope Project and the Church. That the Church as third party has not itself supplied consideration, so as to be able itself to compel specific performance, is irrelevant to the equitable obligation assumed by Discovery Bay by force of the contract. See, generally, as to the role of equity here (though in a different context), McCormick v. Grogan (1869) LR 4 HL 82, 88-9. A constructive trust is imposed to prevent fraud by Discovery Bay. For reasons expressed elsewhere in this judgment, I find the intention of Discovery Bay, deliberately to defeat this interest in the Church capable of precise identification, clearly established. Mr Muir raised the change in ownership and control of Discovery Bay as breaking the continuity of its knowledge, and suggested that unless it were shown that its new owners and directors knew of the equitable obligation, unconscionability - through the continued development regardless of the Church's rights - could not be established. There is evidence that Mr Joyner, the Church's property officer, drew the Church's claim to the attention of Ariadne Australia Ltd in October, 1987 (p.153, ex. 1, -- 12 of 26 -- 13 pp.66 l.20-50). That aside, the new controllers were obliged to acquaint themselves with cl.30 and other relevant matters - and had they properly done so, they should have appreciated what was going on. I turn now to some other particular matters of defence. On 28 May, 1984 Discovery Bay became registered as proprietor of the land which the Church claims was subject to the trust. The defendants assert that Discovery Bay thereby gained indefeasible title and avoids liability to the Church. But the terms of cl.30 counter that, because as Brennan J put the matter in Bahr v. Nicolay (p.653) "the title of a purchaser who not only has notice of an antecedent unregistered interest but who purchases on terms that he will be bound by the unregistered interest is subject to that interest". It does not matter that in terms, cl.30 created the trust: Stirling purchased on that basis, subject to that "condition", as cl.30 styles it. This land is now beyond the reach of the Church because of subsequent bona fide purchases, but the Church may of course still pursue its claims against the defendants for compensation in equity. The defendants then plead an absence of writing, necessary because of s.11 of the Property Law Act. Sub-section (1)(b) provides that a declaration of trust of land "must be manifested and proved" by writing signed by "some person who is able to declare such trust". The plaintiff's case is not confined to express trust, but in so far as that arises, the following documents combine to constitute sufficient writing: the duly executed contract dated 31 December, 1983 between Hope Project and Stirling, including cl.30 relating to the trust giving Hope Project the right of designation; Hope Project's solicitor's letter of 25 January, 1984 directing the purchaser to Mr Leonard Heffernan for details of the trust (to be read with Stirling's solicitors' letter of 5 January, -- 13 of 26 -- 14 1984); and Mr Heffernan's parish map, ex.16 which depicts the land and provides, on the signed reverse, more detail of its precise location. It does not matter that ex.16 was prepared some years after the act of designating the location, because s.11(1)(b) requires only documentation which "manifests" or "proves" the trust. Indeed, the signed contract is probably itself sufficient, because - as previously explained- it sufficiently constitutes the trust, although not by its own force designating the land. The defendants also plead that the trust effected a sub-division of land which had not been approved, involving contravention of s.34(1) of the Local Government Act 1936-1985. That sub-section prevented the sub-division of land, save in accordance with that Act, and sub-section (8) required a precedent, approved application. The term "sub-division" was defined (s.3) as "dividing land into parts", including by an agreement "rendering different parts ... immediately available for separate disposition or separate occupation". It is difficult to see how cl.30 of this contract had that effect. In any case, s.34(19) would merely render the contract "subject to (subdivisional) approval being obtained", and there is no reason to believe that had that been properly sought, it would not have been forthcoming. The defendants further plead that the Church's cause of action against Discovery Bay is statute barred. Section 27(1) of the Limitation of Actions Act 1974 specifies an applicable six year period, but that it not apply in cases of "fraudulent breach of trust to which the trustee was a party" (para a)), or to the recovery of trust property or the proceeds of trust property (para. (b)). I accept Mr Keane's submission that if the Church's claim is made out, that is, that there has been a breach of trust, then - as my findings show- it was relevantly fraudulent (cf. Tito v. Waddell (1977) 1 Ch.106, 245; King v. Victor Parsons & Co (1973) 1 WLR 29, 33, 41); and that the -- 14 of 26 -- 15 claim for an account of profits is for the recovery from the trustee of the proceeds of trust property previously received by the trustee and converted to its use in terms of the section (s.27(1)(b)). It is probably also correct to say, as the Church submitted, that its cause of action did not accrue until the first sale in November, 1988, well within the six year period (the writ issued on 15 November, 1991). I turn now to the defendants' plea of acquiescence laches and delay (para.7 defence). It is useful to examine the respective states of knowledge of the parties. Discovery Bay should be taken to have known at all times of the existence of the trust, because of cl.30 of the Hope Project/Stirling contract. As I have observed, that provision refers to the trust in the clearest of terms. Discovery Bay went so far as to acknowledge the existence of the trust from time to time: through its solicitors' letter of 5 April 1984, in terms; by Mr Gore to Mr Lehn, after that letter, referring to "the Church land"; and by Mr Gore in his statement confirming the availability of the Church land, at the Progress Association meeting. There was also the communication of the location by Mr Len Heffernan to Mr Lehn after the 5 April letter; and the plans exs.40 and 45 showing land reserved for the church (although in the wrong place). There is another matter relevantly bearing on the defendant's attitude to the matter. When Mr Bugden, a solicitor representing EIE - International Corporation Ltd, as ultimate shareholder in Discovery Bay, met with the Church's property officer, Mr Joyner, in February, 1991, Mr Bugden said that he knew of no documentation, other than Mr Heffernan's bill of encumbrance, which could evidence a trust. Mr Bugden did then however know of the Hope Project/Stirling contract, and specifically cl.30 of that contract, which he agreed in cross-examination "went to the core of the trust issue", -- 15 of 26 -- 16 and was "the most important aspect of the file he had". Yet, although his purpose at the meeting was, as he accepted, "to exchange information" (p.226), he did not proffer that contract to Mr Joyner, but maintained that there was no documentation other than the bill of encumbrance which would evidence a trust. (I appreciate that his consultancy group asserted the view that there was no trust for lack of an act of specification of the location of the land (p.231).) That was, at best for Mr Bugden, a coy assertion, and at worst, a misleading one. I cannot accept that a lawyer reading cl.30 would not regard, as at least strongly arguable, that it amounted to a plain declaration of trust - even allowing for the possibility of arguments about uncertainty and the like, and as to the possible significance of specification, as have been raised on the defendants' pleadings here. That Mr Bugden in the course of his consultancy work for the Discovery Bay shareholder (and therefore in a loose sense to be seen as exploring the trust issue on Discovery Bay's behalf with the Church representatives), chose to be coy in that way is consistent with a broader attitude, at that stage, of at least unhelpfulness on the part of Discovery Bay, with relation to the proper recognition and implementation of the Church's rights. What then of the Church's position? The Church's property officer, Mr Joyner, first learnt of the possibility of the Church's having an interest in the land in 1984. He spoke with Father Nolan and Mr Heffernan, and for a substantial period reasonably accepted the latter's assurance that the Church need do nothing in particular, the developer being aware of the Church interest. As time went on, Discovery Bay should have been aware that the Church was asserting an entitlement, if gently. See, for example, Mr Joyner's letter to Mr Lehn -- 16 of 26 -- 17 of 5 October, 1990. There are, as well, Mr Joyner's letters to Mr Gore, of 1 July, 1985 and 13 February, 1986, asserting the Church's entitlement to an interest in the land, and inviting consultation. Mr Gore made no response - which, with hindsight, one sees was significant. The Church proceeded "gently" partly because it was, as time moved on and the development commenced, anxious to assemble all available documentation, but was facing considerable difficulty in doing that. Then on 22 February, 1991, Mr Joyner had the meeting with the solicitor, Mr Bugden, who as I have said may be regarded as then having loosely represented Discovery Bay. Mr Joyner's diary note of 6 March, 1991 summarizes what was said at that meeting. As I have indicated, Mr Bugden mentioned the bill of encumbrance in favour of Mr Heffernan, which he said he considered of no effect because it was released in March, 1983, and suggested that there was no further documentation which would evidence a trust. Now to this point, Mr Joyner had seen no contract other than the Heffernan/D & M Wade contract, and the Church view was that it probably could not sustain a claim. See, for example, Mr Joyner's letters to Mr Heffernan of 24 September, 1990 and 5 October, 1990. Most significantly, Mr Joyner had not, as at February, 1991, seen the contract between Hope Project and Stirling, containing the critical cl.30, and Mr Bugden did not provide him with a copy. In accordance with my views, that contained the most compelling evidence of a trust binding Discovery Bay in favour of the Church. It was therefore really a case of Discovery Bay, subject to the trust, allowing the Church to fumble on with only blinkered vision, while Discovery Bay itself proceeded apace with the development, in the hope, as I infer, that it would thereby irrevocably bury the Church's interest. -- 17 of 26 -- 18 This is not a case where the Church, comprehensively informed as to its entitlement, stood by and let the developer proceed unhindered to its potential detriment: it is rather a case where the Church's inaction in asserting its rights is explained by its comparative ignorance of those rights, and the developer's failure to enlighten it (by, for example, providing a copy of the Hope Project/Stirling contract). The Church was anxious to dispel its own comparative ignorance, and although it made reasonable inquiries, was unsuccessful in doing so for a protracted period. Consistently with the discussion of principle in Orr v. Ford (1988-9) 167 CLR 316, the plea by the defendants of acquiescence, laches and delay should not succeed. I add reference to two particular matters raised by the defendants - an alleged loss of a right of indemnity from Mr Gore, and the significance of change in the ownership of shares in Discovery Bay. As to the latter, there is no evidence that the new shareholders were unaware of the Church's claim, or that the Church itself had any particular knowledge of the change in shareholding before the development of the land. As to the former, there is no evidence of the alleged prejudice. Those are in any event matters of detail which would not prevail in the face of the broader ground on which I reject this defence. On what basis should the Church now be compensated? Mr Keane, for the Church, primarily sought an account of the profits made by Discovery Bay in realizing land held beneficially for the Church. He relied on Docker v. Somes (1834) 2 Mylne and Keen's Reports 655, 664-5. He submitted that it would be unjust to reduce the profit by subtracting the expenses of the development, because the developer deliberately set out to defraud -- 18 of 26 -- 19 the Church, that being the compelling inference from the facts: United States Surgical Corporation v. Hospital Products International Pty Ltd (1983) 2 NSWLR 157 242-3. It is for the Church to elect between an account of profits, and compensation. Mr Muir, for the defendants, submitted that "stringent rules" must yield to the justice of the occasion (Warman International Ltd v. Dwyer (1995) 65 ALJR 362); and that just as a court of equity will not punish a defaulting fiduciary by making him account for more than he has received (Hospital Products (1984) 156 CLR 41, 109), so equitable compensation should not provide a beneficiary with more than he has actually lost. He suggested that there was no principle excluding the deduction of expenses, even in the case of a fraudulent trustee, and relied analogously on Timber Engineering Pty Ltd v. Anderson (1980) 2 NSWLR 488. See also Warman at p.373. Because on my view an account of profits, after allowing for expenses, will yield more than appropriate compensation based on the value of the land, I will assume that the Church elects for the former. The Lord Chancellor equated the injured beneficiary's claim with the "gain" made by the defaulting trustee in Docker v. Somes. The true measure of that "gain" should ordinarily allow for the expenses incurred in its accrual. Otherwise the result would indeed produce a windfall for the Church and punish the defendants. I propose to proceed on that basis, that is, calculating the gain after allowing for expenses. I turn to the assessment. Account of Profits Discovery Bay's gross proceeds of sale from the 13 lots included in the designated Church land were $18,052,000. Parts of those lots fell outside the designated area. The Church's valuers, the Australian Valuation Office, apportioned -- 19 of 26 -- 20 $12,417,813 to the precise "Church" area, and the defendants' valuers, Herron Todd White, $11,483,116. In determining the true profits to Discovery Bay through its misuse of the Church land, I have determined that due allowance should be made for the expense of developing that land. The parties disagree however as to what allowance should be made. The expenses which consider should be allowed are as follows. (Reference may be made to the particulars scheduled to the particulars of defence.) 1. Overheads. Discovery Bay's amended claim was $758,030. The Church submitted that none of that should be allowed, as overheads would have been incurred in any event, and that that sum should not be related particularly to this area. But this area took its value as part of an integrated resort, and the overhead costs were incurred for the promotion and general marketing of that resort. In my view, these lots should therefore bear their proportion of the overall overhead costs, and I allow the sum claimed, $758,030. 2. Land and Construction. Discovery Bay claims $10,256,288, of which $1,129,760 related to the land, and $9,126,528 to construction. The Church's challenge is limited to the "land" component of $1,129,760, and seeks first the exclusion of $226,678, being "the cost of the land itself". That was the apportioned acquisition cost of all of the land in the wider Araucaria precinct, of which only 23 per cent, or $52,135, is attributable to the subject lots. Secondly, the Church submitted that $3,375,165 represents costs incurred otherwise than by reference to these particular lots. I accept, however, that -- 20 of 26 -- 21 that sum "represents costs incurred in development of the primary and secondary thoroughfares in the residential zones" and that the Church "cannot take the benefit of a sale price achieved for the subject lots serviced by these private roadways ... as if they were not components of the sale price achieved for the subject lots". I therefore reduce the claim of $10,256,288 by $52,135 only, and allow $10,204,153. 2. EIE Premium The defendants abandon this. 4. Agent's Commission The defendants claim $1,241,600. The Church challenges the commission claimed with respect to lots 3, 4, 5, 22, 23, 24, 26, 27 and 28 sold to Southern Pacific Goshu Pty Ltd ($1,001,700), because of a suggested lack of evidence that the agent, Nisshin Steamship Co Ltd "introduced" the purchaser, as required by cl.2 of the agency agreement (ex.53, p.148). The sales occurred during the currency of the agency agreement, and there is evidence that the commission was charged under that agreement (p.284). The evidence, from Discovery Bay's group accountant Mrs Fernandez, was limited, establishing that the commissions had "in fact been charged", and entered in Discovery Bay's ledgers, the amount in question "represent(ing), in fact, commission at the rate set under the agreement" (p.284). There seems to be a lack of evidence of actual payment, though that probably does not matter if the liability is established. The only point taken by the Church is the absence of any evidence that the agent, Nisshin, introduced the purchaser, Southern Pacific Goshu; that having significance perhaps because Discovery Bay (the vendor) and Southern Pacific Goshuwere both ultimately owned by EIE (p.294, l.40). It is clear that Mrs Fernandez merely assumed the agent's entitlement. She was asked (p.294): -- 21 of 26 -- 22 "You have assumed that the entitlement to payment arose by reason of there having been an introduction by Nisshin, have you?" and answered "I have taken it that there is a commission payable because, yes, they have I suppose, yes, referred that purchaser and a sale has been initiated." She is to be taken as having made that assumption. The Church is therefore entitled to take the point of the absence of evidence of introduction, which it fell to the defendants to lead. The point having been properly taken, I should not make an assumption in this area. In light of Mrs Fernandez's concession, the absence of proof is clear, and I should not draw inferences from the fact that the sums were "charged", that they were in truth due. I accordingly allow only the balance of $239,900. 5. Country Club. The defendants claim $1,100,000. This was however not paid out (p.294 l.48). The "liability" was merely a book entry (p.299 ll.10 to 27), and I am not satisfied that it was a genuine expense. I therefore disallow it. 6. Golf Buggy The defendants abandoned this claim. 7. Agent Marketing Fee The defendants claimed $1,876,820. The Church's point was that the contract fee was incurred whether or not the Church blocks in particular were developed (p.295, ll.1-25). But the fee was for marketing directed to Japanese purchasers, (pp.294-5), and under the programme, 53 properties were sold to Japanese companies, and those included the subject 13 lots (p.266, l.5). It is correct to say that the costs cannot be allocated to any other part of Sanctuary Cove, as was submitted -- 22 of 26 -- 23 for the defendants, and I therefore allow this sum of $1,876,820. 8. Land Tax, Rates, Body Corporate, General Maintenance, Legals, Building Interest. These allowances, which aggregate $425,033, were agreed. 9. Interest. The defendants claim $121,068. The interest accrued with relation to loans to finance the whole project, but has been apportioned to the lots. No doubt interest would have been incurred as a liability regardless of the development of these lots, as was urged, but not in the same amount, and it is further no answer to say that Discovery Bay did not pay for this land - the moneys were borrowed to cover its development. I am therefore satisfied that I should allow this claim of $121,068. The total costs are therefore $13,625,004. Sale proceeds less total costs amount to $4,426,996. The ratio of net profit ($4,426,996) to sales proceeds ($18,052,000) is 24.52 per cent. The profits strictly referrable to the Church land should be reduced below that figure of $4,426,996, because some parts of those 13 lots did not lie wholly within the Church land. Heron Todd White apportioned $11,483,116 of the proceeds to the Church land. How that apportionment should be done is a matter of difficulty, and in the end, the Church was prepared to accept that figure, as am I. The net profit attributable to the Church land should therefore be calculated as 24.52 per cent of $11,483,116, and that amounts to $2,815,660. The Church claims interest on that sum. The defendants respond by pointing out that the Church does not claim that it was "held out of its money", and that in any case, compensation is being "assessed as at the date of trial". -- 23 of 26 -- 24 But what I am assessing is the profit or gain to Discovery Bay through improper realization of the land held in trust for the Church. That gain was not limited to the proceeds less expenses, but included further income derived through utilisation of the net return. Discovery Bay had the use of these proceeds, from November, 1988 to August, 1990, the period over which the relevant lots were sold. The particulars to the defence show 7 of the 13 contracts settling in June, 1990, two in November, 1988, two in July, 1990 and two in August, 1990. It is reasonable to regard Discovery Bay as having had the beneficial use of the proceeds from 30 June, 1990. Since Discovery Bay used these moneys in its business, interest at mercantile rates is appropriate. In Southern Cross Commodities v. Ewing (1988) 91 FLR 271, the South Australian Full Court endorsed an award of compound interest at one per cent over the "minimum base rate" charged by the National Australia Bank over the relevant period to favoured clients, at six monthly rests. On the evidence of interest rates put before me (ex.34), based on the comparable Commonwealth Bank "overdraft index rate", the Church calculates on that basis that interest on net profit from 30 June, 1990 to 30 September, 1995 amounts to 92 per cent of net profit. (I need not reproduce here the detailed calculation which the Church relied on in its submission - that could no doubt be provided for the purposes of any appeal. I was satisfied to rely on it as it was a calculation drawn from ex.34). Interest should therefore be allowed as part of the accounting for profits. I allow $2,590,407 for interest, being 92 per cent of $2,815,660, which leads to a total of $5,406,067 assessed on this basis. Alternative assessment: restoration of lost trust property -- 24 of 26 -- 25 Since the Church does not allege particular loss through inability to deal with the land, its claim for equitable compensation - "restoring to the plaintiff such loss of the Church land" (paras.51, 54 statement of claim) - should prima facie be assessed by reference to the value of the property at the time of "restoration", that is, the present (cf. re Dawson (1966) 2 NSWR 211, 216; re Bell's Indenture (1980) 1 WLR 1217). In my view, that assessment should however be of the land in an unimproved state, albeit located within a larger resort developed in a sophisticated way. There is no ground for thinking that the Church would have developed the land for residential sub-division. It would almost certainly have erected and retained a Church on the land. If I assessed the value of the land in its improved condition, I would feel it appropriate to allow for the cost of improvement. It is artificial to go through that process, however, and the Church would be properly compensated on this approach by an allowance for the unimproved present value of the land. Mr Youngson, the valuer called by the Church, allowed $1,275,000. Mr Murphy, the valuer called by the defendants, allowed $1,118,000. This demonstrates at once that an account of profits is more beneficial to the Church, and I propose giving judgment in accordance with that because I accept that that would be its election. It is not necessary for me to analyse the valuation evidence further. The joint report, ex.27, shows that there was not a marked difference between the results achieved by the valuers, although their approaches differed in some respects. If it is subsequently necessary to select between those approaches, that could in my view be done adequately by reference to the reports and the written record of evidence: so far as I was concerned, the aspect of demeanour did not affect the matter. In the -- 25 of 26 -- 26 interests of economy, I do not propose analysing that evidence any further here. I take the view that any judgment should be given now against both defendants. Each was bound to the trust, and owed the fiduciary duty. As to knowledge, there was similarity in control (see, e.g. ex. 1, p.99). At no stage of the case was any differentiation drawn between the liabilities of the defendants, and I was not addressed on the basis that they might be treated differently. There will be judgment for the plaintiff against the defendants for $5,406,067 and costs of and incidental to the action, including reserved costs, to be taxed. -- 26 of 26 --