Ernest Day & Son Pty Ltd v Kinna [1994] QSC 264

IN THE SUPREME COURT OF QUEENSLAND No. 356 of 1992 Brisbane Before Ambrose J. [Ernest Day] BETWEEN: ERNEST DAY & SON PTY LTD Plaintiff v. JOHN CECIL KINNA Defendant REASONS FOR JUDGMENT - AMBROSE J. Judgment delivered : 06/10/1994 CATCHWORDS: CIVIL LAW - Trust Account - Building contract - Contruction of lease and retirement village documents to determine if plaintiff was a beneficiary - Defendant received lease payments as trustee - Defendant breached trust agreement in preferring to pay first mortgagee - Measure of damages. Counsel: A.J.H. Morris Q.C. with him P. Howard for the Plaintiff J.C. Sheahan for the Defendant Solicitors: Stephens & Tozer for the Plaintiff Blake Dawson Waldron for the Defendant Hearing Date(s): 11 July 1994 to 14 July 1994 -- 1 of 32 -- IN THE SUPREME COURT OF QUEENSLAND No. 356 of 1992 Brisbane Before Ambrose J. [Ernest Day] BETWEEN: ERNEST DAY & SON PTY LTD Plaintiff v. JOHN CECIL KINNA Defendant REASONS FOR JUDGMENT - AMBROSE J. Judgment delivered : 06/10/1994 This action was commenced in the Federal Court of Australia, Queensland District Registry. On 4 March 1992, pursuant to order of Drummond J made in Brisbane under s.5(4) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cwth), it was transferred to the Supreme Court of Queensland. By contract between Palm Springs Village Pty Ltd ("the owner") and the plaintiff as builder made on 11 July 1988, the plaintiff agreed to construct buildings on the owner's land to be used for the purpose of a retirement village. The land on which improvements were to be erected is near Manly in the State of Queensland. The plaintiff performed its contractual obligations and the development project was completed with the erection of 81 residential units. The owner procured finance from Custom Credit Corporation Ltd. At about the time of completion of the units, however, -- 2 of 32 -- 2 there came into force in Queensland the Retirement Villages Act 1988. It is unnecessary to give attention to the effect of that enactment upon the owner's development project, suffice it to say that the owner took steps to comply with the requirements of the Act and Regulations proclaimed on 28 October 1989. Inter alia, such compliance included obtaining the approval of The Registrar of Retirement Villages of the "scheme for a retirement village" resulting from the development. Part 2 of the Retirement Villages Act 1988 relates to the obtaining of The Registrar's approval. Having regard to the way the case was conducted and the issues thereby raised it is sufficient to observe that a good deal of time was spent in obtaining the Registrar's approval in this case and the delay involved impeded the sale of the units. The effect of this impediment was to deprive the owner of the cash flow necessary to pay interest accruing to Custom Credit Corporation for moneys advanced to complete the development. This interest was accruing at the rate of 24 per cent per annum. The plaintiff, as builder, was owed something over half a million dollars in respect of the work it had performed completing the retirement village development. At some stage an investor named Ling procured for himself a transfer of the registered bill of first mortgage held by Custom Credit Corporation. The defendant acted as solicitor for Ling in respect of this transfer. The indebtedness of the owner to Custom Credit Corporation and ultimately to Ling, was significantly greater than the indebtedness of the owner to the plaintiff, who had procured from the owner by way of security for that debt a second registered mortgage. -- 3 of 32 -- 3 To be wise after the event it seems that if there had been no delay in procuring the necessary approval from The Registrar of Retirement Villages and had the units in that development been marketed promptly there would have been a sufficient cash flow established to pay out in full, or almost in full, the first and second mortgages. However, the delay in marketing the units in the retirement village resulted in the owner's inability to make payments to either of the mortgagees. The only security given over the retirement village complex by the owner for payment of the moneys advanced or expenses incurred in the development of the village were the first and second mortgages. It would be unhelpful to enter into a detailed analysis of the retirement village scheme to which the Registrar eventually gave his approval. Suffice it to say that the implementation of that scheme required that the owner grant leases to persons seeking a unit in the village. The granting of such leases was conditional upon the potential retirees "lending" to the owner of the property sums of money which would then be used by the owner to meet necessary outgoings of various kinds and in particular, to pay moneys to which each of the mortgagees was entitled. To avoid problems in marketing the retirement village units, should those units be subject to a significant mortgage debt, a scheme was devised whereunder a person applying for a lease of a unit would make "a loan" to the owner of the project as lessor under the proposed lease. However, the "loan" would be paid directly to the defendant who was the owner's solicitor and who had been involved in legal work connected with -- 4 of 32 -- 4 marketing the village retirement units upon completion of the construction work. The defendant would then hold the loan moneys as trustee for the owner and the resident and would ultimately apply the moneys so held on trust as directed by cl.3 of the lease. All the leases seem to have contained a covenant in the terms of cl.3 which was considered upon the hearing. In respect therefore of each of the leases granted to prospective retirees, the lease document was signed by the owner as lessor and the retiree as lessee. Moreover, the consent of the first mortgagee and the second mortgagee to each lease was endorsed upon it to enable it to be registered as a lease unencumbered by those securities, which Mr Ling and the plaintiff would otherwise have held over the leased property by virtue of their registered mortgages. The scheme for the disposition of the retirement village units, which obtained the approval of the Registrar, involved the insertion in each of the leases cll.3, 4 and 5.1 which read as follows: "3. Resident's Interest free Loan 3.1 In return for the grant of the Lease, the Resident shall lend to the Owner the sum of money described as "the Loan" in Schedule "A" hereto which sum shall be repayable in the manner and to the extent set out in this Lease. 3.2 (a) The Loan shall be made by the Resident to the Owner by payment in full of the amount of the Loan as described as "the Loan" in Schedule "A" upon execution and delivery of this Lease and Certificate of Satisfaction and Acknowledgement by the Resident to the Owner which shall take place within eight days after notification by the Owner to the Resident of the Owner's acceptance of the -- 5 of 32 -- 5 Resident's Application for Lease. (b) The amount described as "the Loan" in Schedule "A" shall be paid by the Resident to the Trustee by bank cheque forthwith upon execution and delivery of the Lease as aforesaid. Such moneys will be deposited by the Trustee into a Trust Account named John C. Kinna and Associates Palm Springs Trust Account (hereinafter called "the Trust Account"). 3.3 The Loan shall be free of interest. The Resident shall in no circumstances be entitled to any interest on the Loan or any part of it in respect of the period after the commencement of this Lease. 3.4 If: (a) The Resident has forwarded to the Trustee a signed copy of the Certificate of Satisfaction and Acknowledgement in the form set out in Schedule "B" hereto; and (b) The Trustee has sighted a copy of this Lease signed by all parties; and (c) The Trustee has sighted either a Certificate of Classification issued by the Brisbane City Council in respect to the building of which the Residential Unit forms part, or a certificate signed by the architect of the Village stating that the building, of which the Residential Unit forms part has been completed in accordance with all relevant plans and specifications and in accordance with the terms of all approvals; and (d) The Resident has paid to the Trustee the Loan in accordance with the Lease; and (e) The First Mortgagee and the Second Mortgagee have each endorsed their consent to this Lease, on the lease document, in such a way as to allow for the registration of the same in accordance with the requirements of the Real Property Acts, and (f) The Lease and the relevant Certificates of Title have been lodged for registration with the Queensland Land Titles Office and a dealing number obtained in respect of the Lease. Then the Trustee shall pay the Loan and any -- 6 of 32 -- 6 interest accrued thereon to the following parties in the following manner: (i) In the event that this Lease is the first lease entered into in respect of the Residential Unit: (a) in the event that any moneys are owing by the Owner to the holder of a first registered mortgage over the Land, the Trustee shall pay out of the Loan moneys received into the Trust Account: A. all interest that accrues on the Trust Account to the first mortgagee; B. the sum of FOUR HUNDRED THOUSAND DOLLARS ($400,000.00) to the second mortgagee in reduction of the moneys owing by the owner to the second mortgagee upon receipt into the Trust Account of twenty-five (25) loans from residents; C. all costs and expenses which in the Trustee's opinion have been properly claimed by creditors to have been incurred in respect of the establishment of the Village including the obtaining of necessary Government approvals for its operation. D. the balance of moneys owing by the Owner to the first mortgagee shall be paid to the first mortgagee by agreement between the first mortgagee and the Owner out of loan moneys received from residents and in any event shall be paid in full or otherwise discharged upon the lease of the last unit in the Village; and E. the balance of moneys which in the opinion of the Trustee are properly due and owing to the second mortgagee shall be paid out of the balance of the Trust Account. (b) the Trustee shall pay the balance if any of the Trust Account and any interest accrued thereon to the Owner. -- 7 of 32 -- 7 (ii) In the event that the Lease is not the first lease entered into in respect of the Residential Unit:- (a) the Trustee shall pay to the former resident of the Residential Unit the amount payable to that Resident pursuant to the lease entered into between the Owner and that Resident; and (b) the Trustee shall pay the balance (if any) of the loan to the Owner. 3.5 If the Resident vacates the Residential Unit or if this Lease is determined for any reason except relocation pursuant to clause 21 then the Loan shall be repayable to the Resident in the manner and to the extent provided for in Clauses 3.6, 3.7, 3.8 and 3.9. 3.6 The Loan shall be repayable to the Resident in part only, and to an extent dependent upon the period of residence of the Resident in the Residential Unit. The Owner shall be entitled to retain for its own use and benefit that part of the Loan as is not repayable to the Resident pursuant to the terms of this Lease. 3.7 The part of the Loan repayable by the Owner to the Resident shall be calculated as follows:- (a) In the event that the Resident shall have been in occupation of the Residential Unit for a period of less than twelve (12) months from the commencement of this Lease, then the Owner shall pay to the Resident an amount being ninety five per cent (95%) of the Loan. (b) In the event that the Resident shall have been in occupation of the Residential Unit for a period of or exceeding twelve (12) months but being less than ten (10) years then the Owner shall repay to the Resident an amount being the Loan less an amount equal to the sum of five per cent (5%) of the Loan plus two and one-half per cent (2½%) multiplied by the period of residence, expressed in years and taking into account the fraction of the final year, less one year. (c) In the event that the Resident shall have been in occupation of the Residential Unit for a period of or exceeding ten (10) years -- 8 of 32 -- 8 the Owner shall repay to the Resident an amount being seventy two and one half per cent (72.5%) of the Loan. 3.8 The Owner shall make payment to the Resident (or in the event of the death of a resident, to his personal representatives) of that part of the Loan which is repayable to the Resident: (a) in the event that the Resident vacates the Residential Unit, within fourteen (14) days of the Owner having received a Loan from a subsequent resident of that Retirement Unit; or (b) in the event that this Lease is determined by the Owner because of destruction or damage pursuant to clause 19.2(e) within one (1) month from the date of the determination of this Lease; or (c) In any event, within six (6) months of the Resident giving notice of termination of this Lease or within six (6) months of the termination of this Lease for any reason except relocation pursuant to clause 21 (whichever shall first occur). 3.9 Notwithstanding any other provision in this Lease: (a) The Owner shall be entitled to deduct from any money otherwise payable to the Resident, any moneys payable by the Resident to the Owner pursuant to the terms of this Lease. (b) The Owner shall not be obliged to make any payment to the Resident in respect of the Loan unless the Resident has delivered up vacant possession of the Residential Unit to the Owner. (c) The Owner shall be entitled to deduct from any moneys otherwise payable by the Owner to the Resident such sum as is required by the Owner to reinstate the Residential Unit and/or furniture, fittings and fixtures therein the same good order, repair and condition as they were in when this Lease commenced (fair wear and tear and damage by fire, earthquake, storm and tempest excepted). In the event that any dispute arises between the Resident and the Owner as to the amount required to so reinstate the Residential Unit, then the dispute shall be referred to such architect as may -- 9 of 32 -- 9 be nominated for the purpose at the request of the Owner by the President for the time of the Royal Australian Institute of Architects (Queensland Division). Such architect shall act as an expert in resolving the dispute and not as an arbitrator, and his decision shall be final and binding on all parties. The Terms of appointment of the architect to resolve the dispute shall include the following:- (i) that the architect shall make his decision in respect of the dispute and advise the parties to the dispute of that decision within fourteen (14) days of his being appointed; (ii) that, in the event that the architect determines that the amount required to reinstate the Residential Unit is equal to or more than the amount claimed by the Owner, then the Resident shall pay the costs of the architect, but if otherwise, the Owner shall pay the costs. (d) The Owner shall be entitled to deduct from any moneys otherwise payable by the Owner to the Resident such amounts as the Resident has agreed to pay to the Owner for the provision of nursing care or personal care or assistance and as have not been previously paid to the Resident. 4. Owner's Obligations on Termination of Lease 4.1 In the event that his Lease terminates for any reason (except by reason of resumption, destruction or damage as provided for in clause 19.2(e) the Owner shall use its best endeavours to find another person or persons to accept a lease of that Residential Unit in return for an interest free loan of such amount as the Owner may from time to time at its discretion determine and the Owner shall notify the Resident as soon as it has entered into a Lease with that other person or persons. 5. Acknowledgements by Resident 5.1 Subject to the provisions of the Retirement Villages Act 1988, the Resident acknowledges: (a) That this Lease together with the Public Information Document forms the whole of the agreements between the Resident and the Owner; and -- 10 of 32 -- 10 (b) That no promises or representations have been made by the Owner or on behalf of the Owner as to the provision of services (including without limiting the generality of the foregoing the provision of nursing or medical services or personal care or assistance), other than as are set out in this Lease and in the Public Information Document approved by the Registrar of Retirement Villages. The lease granted to a retiree seeking a unit in the retirement village is not the sole repository of rights and obligations incurred by parties to the lease. Under s.23 of the Retirement Villages Act 1988 it is provided, inter alia: "Where the Registrar has approved a scheme for a retirement village he shall enter in a register kept by him a copy of each document relating to the scheme that is to be published for the information of the public and the contents of each such document so entered shall be deemed to be incorporated in and to form part of every residence contract made under the scheme by a person controlling the operation of the scheme or his agent." In my view, a lease comes within the term "residence contract" as defined in s.6 of the Act. Under the scheme of the Act, units in a retirement village may not be marketed unless the Registrar's approval of the scheme has been first obtained - see s.22 of the Act. Under s.17 of the Act an applicant for the Registrar's approval of a scheme for a retirement village must persuade the Registrar under s.17 to accept and permit registration of a "Public Information Document". The object of this requirement is to make available to members of the public information concerning the scheme. In the present case The Registrar of Retirement Villages accepted the public information document which had been submitted to him to obtain registration. This document appears -- 11 of 32 -- 11 at p.76 and subsequent pages of ex.1. Under cl.2.4 of the public information document (p.84 of ex.1), it is stated: "2.4 The land on which the Village is erected is presently subjected to two (2) registered mortgages. The first registered mortgage is in favour of Mr Noel Ling and the second registered mortgage is in favour of the builder, Ernest Day & Son Pty Ltd. The aggregate of the amounts secured by both registered mortgages will not exceed the market value of the village land and improvements (buildings and other works). Both mortgages will be repaid by the Owner from the loan moneys received from residents upon leasing of the units, so that both mortgages will be discharged in full when the last unit in the village is leased." Under cl.7.5 (p.95 of ex.1) it is provided: "7.5 When the Trustee is satisfied that both the resident's rights and the Owner's rights have been satisfactorily secured by the lodgement of the lease for registration, the total amount of the loan and any accrued interest thereon will be paid by the Trustee firstly, progressively, on the Owner's behalf, to the mortgagees and other outstanding creditors and secondly to the Owner." Under cl.16.2 (p.109 of ex.1) it is provided: "16.2 With respect to the sale of the Village land by the Owner the rights and interests of the residents are protected in the following manner: (a) the resident's lease will be registered over the title deed for the land on which the Village is erected. In the event of any sale the leases would remain registered on the title deed of the Village land. (b) pursuant to the Retirement Villages Act the residents have a statutory charge over the Village land to secure the repayment of loan moneys payable to them on termination of their lease. The statutory charge has priority over all interests, mortgages or over charges over the Village land GRANTED AFTER the commencement of the Retirement Villages Act. RESIDENTS SHOULD NOTE THAT THE TWO EXISTING REGISTERED MORTGAGES NUMBERED J615521G AND J992375Y HAVE -- 12 of 32 -- 12 PRIORITY OVER THE STATUTORY CHARGE UNTIL SUCH TIME AS THEY ARE BOTH DISCHARGED IN FULL." In the instrument of approval of the scheme executed by the Deputy Registrar of Retirement Villages on 1 June 1990 (p.168 of ex.1), it is provided in cl.7: "7. All interest free loans by prospective residents shall be deposited in the Trust Account nominated in the public information document, namely John C. Kinna and Associates - Palm Springs Trust Account at John C. Kinna and Associates, Solicitors and Attorneys, 3rd Floor, 55 Murray Street, Pyrmont N.S.W. 2009. All such moneys shall be held in this Trust Account until such time as the conditions contained in Clause 3 of the Lease document have been satisfied whereupon the moneys may be applied in accordance with the terms of that Clause. Following settlement of the residence contract, any interest accrued on the moneys deposited in the Trust Account may be dealt with in accordance with the provisions of the public information document." In cl.12 (p.169 of ex.1) it is provided: "12. Upon settlement of the last residence contract, the land relating to the retirement village scheme, described in Schedule B of this Instrument of Approval, shall be wholly unencumbered except for the statutory charge registered under Part IV of the Act and for any service or access easements. The land is to remain unencumbered during the period that the retirement village scheme is carried on except for the raising of moneys to give financial support for the day to day operation of the village or the granting of any additional service or access easements." The defendant acted for the owner in the preparation of the leases and the public information documents and indeed in procuring registration of the development under the Act. It is the case for the plaintiff that it was a beneficiary of the trust fund held by the defendant; it contends that this conclusion is the only one open upon consideration of the lease -- 13 of 32 -- 13 and the content of the public information documents to which I have referred. On the other hand, the defendant contends that the plaintiff is not a beneficiary under that trust, the only beneficiaries being the owner as lessor and the various lessees who contributed "loans" as contemplated by the lease and public information documents. It is contended for the defendant that the contents of cl.3 of the lease and various other parts of the public information documents to which I have referred relating to the disposition of trust moneys are merely directory in nature and the defendant as trustee of these moneys had a general discretion to apply them as he thought fit for the ultimate benefit of the owner/lessor and the resident/lessees. The contention between the plaintiff and the defendant arises because in fact the defendant was persuaded by the first mortgagee (his client at that stage) to pay out to him large sums of money "lent" by lessees to avoid implementation of his threats to take steps to realise his security. Had the first mortgagee done this, of course, it may have significantly impeded carrying the scheme into effect because, no doubt, persons would be loath to participate in the scheme should there be any charge or encumbrance on the property involved, other than the statutory charge created by s.33 of the Act, the nature and effect of which are set forth in ss.34 and 35 of the Act. Under cl.5 of the public information documents (p.90 ex.1) it is provided: -- 14 of 32 -- 14 "5.2 Intending residents are required to complete and sign the standard application for lease which is contained in Annexure "D". 5.3 When applying for a lease the Owner will provide the resident with the following documents: (a) the Public Information Document; (b) the Certificate of Satisfaction and Acknowledgement; and (c) the Lease Agreement." Under cl.7 (Financial Arrangements) (p.94 ex.1) it is provided, inter alia: "7.1 The lease of a Palm Springs Village unit will not involve regular rental payments. Instead an interest free loan will be paid by the resident to the Owner (in the case of the first Leases, to the Trustee) prior to the resident taking occupancy of the unit. 7.2 The amount of the loan is the amount specified in Loose Leaf Insert No. 1 payable in full on execution and delivery to the Owner of the Certificate of Satisfaction and Acknowledgement and the lease document within eight (8) days after the Resident has been notified of the Owner's acceptance. 7.3 To protect the interests of the residents the amount of the loan in full will be paid into the trust account of the Owner's Solicitor, Messrs John C. Kinna & Associates ("the Trustee") of 3rd Floor, 55 Murray Street, Pyrmont, Sydney, N.S.W. 2009 and held on trust for the residents and the Owner until the resident's rights have been fully secured by lodgement of the lease for registration. Such moneys will be invested and will earn interest. The interest is to be paid to the Owner. Payments are to be made by Bank Cheque and made payable to John C. Kinna and Associates, Palm Springs Trust Account. 7.4 The Owner reserves the right to vary the amount of the loan at any time during the period in which the Village is being offered to the public PROVIDED HOWEVER that such right of variation shall not apply in respect to residents who have signed an application for lease and who then sign a lease. 7.5 When the Trustee is satisfied that both the resident's rights and the Owner's rights have been satisfactorily secured by the lodgement of -- 15 of 32 -- 15 the lease for registration, the total amount of the loan and any accrued interest thereon will be paid by the Trustee firstly, progressively, on the Owner's behalf, to the mortgagees and other outstanding creditors and secondly to the Owner." Annexure "E" to the public information document is a Certificate of Satisfaction and Acknowledgement which must be executed and handed to the owner prior to a lease being obtained; the resident is required to sign the Certificate of Satisfaction and Acknowledgement which contains, inter alia, the following: "I/We hereby authorise the Trustee, John C. Kinna and Associates to release my/our loan monies and/or the balance thereof held by the Trustee on my/our behalf in accordance with the provisions of the lease and the Public Information Document." In my view, after the leases were lodged for registration the moneys received by the defendant by way of "loan" from lessees were then held in trust by him for the benefit of the persons specified in cl.3. At the very least $400,000 of moneys paid to him as loan moneys in respect of the first 25 leases granted were held in trust for the second mortgagee. It was the defendant who drew the leases and the public information document and the various annexures to it. Although he gave evidence suggesting that it was never intended that he as trustee should treat the persons specified as payees in cl.3 of the lease as beneficiaries, it is noteworthy that by letter dated 24 July 1990 to his then client, the first mortgagee, he wrote in the following terms: "However I can confirm the following: 1. Both the terms of the trust setting up the Palm Springs fund and as a condition of approval of -- 16 of 32 -- 16 the scheme by the Registrar of Retirement Villages I am obliged to disperse moneys in a certain way. In addition to this it will be essential to adhere substantially to the scheme already set up to satisfy creditors, some of whom are on the verge of winding the project up. The scheme has always been established on the basis that leases would be granted to each resident and those leases would be registered. It has therefore always been the case that if the project is to proceed at all it must be with the consent of the mortgagees. 2. ... 3. You have asked whether you can be assured of partial payments out of each lease as and when completed. On my calculations it would seem to me that within the terms of the trust I could assure you in consideration of your proceeding as intended and consenting to each lease prior to settlement, I could assure you of the following: (a) As you are aware I am obliged to pay to the second mortgagee the sum of $400,000 out of the first 25 leases. Using the proceeds from the first 25 units as the initial fund I would undertake to provide you with $20,000 out of each of those 25 settlements. This would allow creditors to be paid and the project to proceed as planned substantially in accordance with the terms of approval and the terms of the trust. (b) Thereafter, subject to instructions from Palm Springs and further costs associated with the project, you would be entitled to direct the payment of all proceeds to your own account until your mortgage debt is satisfied. I confirm that I am presently holding proceeds from the execution of eleven leases, five of which are ready to lodge with the Land Titles Office in Brisbane and six of which require your consent before sending to Brisbane. I confirm that no leases can be lodged until you produce the title deeds to the Land Titles Office and that until then, no moneys can be released. By production of the title deeds, your position as rightful custodian of the deeds will not be prejudiced in any way." As the result of further discussions between the -- 17 of 32 -- 17 defendant, the owner and the first mortgagee, a good deal of money was paid by the defendant as trustee to the first mortgagee. Indeed, $400,000 had been so paid by September 1990. The defendant was "instructed" to make the payment by the owner who was, upon the evidence, also a client of the defendant - one introduced to him by the first mortgagee. The defendant as trustee failed to ensure that from the moneys received by way of loans from the first 25 lessees, $400,000 was paid to the plaintiff. Without referring to details in the correspondence contained in ex.1, it seems clear that the owner and the first mortgagee between them decided that the first mortgagee should be paid moneys in priority to any payments being made to the plaintiff. The 25th lease was granted and money received on 7 December 1991. The money became trust money held by the defendant under cl.3.4 on about 19 December 1991. Stated shortly, the plaintiff, unaware of any intended departure from the scheme contained in cl.3 of the lease, continued to consent to leases between the owner and lessees of units in the village, believing that at the very latest upon its giving consent to the 25th lease, the defendant would then pay it $400,000 in accordance with that scheme. However, as a result of pressure placed on the defendant by the first mortgage, I infer that he did not have sufficient funds in hand upon the execution of the 25th lease to pay $400,000 to the plaintiff. All told, the plaintiff was entitled to payment of something over $560,000. The deprivation of the moneys owed to it for the building work completed one year earlier embarrassed -- 18 of 32 -- 18 it financially. The first mortgagee then offered to "permit" payment to the plaintiff of the sum of $250,000 if it agreed to release the owner from any further obligation under the second mortgage. For the plaintiff, Mr Day said that the company found itself in such a perilous financial position that he felt compelled to accept the offer made in effect by the first mortgagee through the owner because of the position in which the second mortgagee found itself by reason of being deprived for some years of something over $500,000 to which it was entitled. In fact, the plaintiff as second mortgagee did release the owner from any further obligation under the second mortgage in consideration of payment on behalf of the owner (with the assent of the first mortgagee) to him of $250,000. This sum was part of the funds received by way of loans from residents upon their becoming lessees from the owner. The source of the $250,000 actually paid to the plaintiff with the assent of the first mortgagee was from "loans" held by the defendant and received from resident lessees who took leases after the first 25 leases had been negotiated. The first mortgagee had in fact permitted the defendant to make two payments to the plaintiff, under cl.3, one of $50,000 and another of $60,000, from funds received from lessees under the first 25 leases. Stated shortly therefore, the defendant failed to pay to the plaintiff as second mortgagee $400,000 of the sum which came into his hands as the result of the granting of the first 25 leases of the retirement village. Instead it paid only -- 19 of 32 -- 19 $110,000 from these funds. All told then instead of receiving $400,000 as contemplated by cl.3 of the lease and the other public information documents, the plaintiff recovered only $360,000 of which sum only approximately $110,000 was derived from loan moneys contributed by the lessees under the first 25 leases granted by the owner. In my view, upon the proper construction of the lease and public information documents which are to be read as part of the lease, the defendant as trustee of the "loans" made by the residents to the owner was obliged to treat the second mortgagee as a beneficiary under that trust. It seems that he treated himself as a beneficiary under the trust upon which he held loan moneys and paid himself about $100,000. He also made an interest free loan to his other client Palm Springs. It is not contended on behalf of the defendant that he did not hold the loans moneys upon a trust. He does contend however that the only beneficiaries under this trust were the resident lessees and the owner and that he had a discretion to pay the first mortgagee and himself in priority to the second mortgagee on the owner's behalf irrespective of the terms of cl.3 of the lease and the content of the public information document. While neither the first nor second mortgagee was a party to the creation of the trust, it is very clear that the timely lifting of those mortgages was very important if the 81 village retirement units were to be readily disposed of to resident-lessees without any obligation to those mortgagees secured upon those units. It appears abundantly clear that the -- 20 of 32 -- 20 scheme reflected in cl.3 of the mortgage and in the other public information documents was regarded as an essential feature of the scheme approved by the Registrar. The evidence remains silent as to what part, if any, was played by the first mortgagee and/or the second mortgagee in arriving at the scheme reflected in cl.3. The defendant however was solicitor for both the owner and the first mortgagee when the public information documents and the lease were drafted and registered. What is reasonably clear is that at the time the scheme was approved and the retirement units became marketable, there were 81 units available, each of which would result in the provision of a loan in the sum of at least $45,000 to be held by the defendant as trustee. A couple of units twice the size of the normal units required a loan of $90,000. All told, therefore, upon the lease of the 81st unit, there should have been available for creditors, both secured and unsecured, a sum in excess of $3,645,000. From the first 25 units leased the loan moneys received ought to have amounted to at least $1.125 million. No reasons were advanced why it would not have been possible for the defendant to pay to the plaintiff $400,000 out of the loan moneys received with respect to the first 25 units. If $400,000 of that sum had been paid to the plaintiff as contemplated by the scheme reflected in cl.3 of the lease, there would have remained $725,000 available to meet in part the claims of the first mortgagee, the defendant himself for legal work done in connection with the scheme and other creditors. The loan moneys receivable from the disposition of all 81 -- 21 of 32 -- 21 units amounts to a sum in excess of $3,645,000. If one deducts the $400,000 payable to the second mortgagee from the total of moneys receivable there is left not less than $3,245,000 available to satisfy the claims of the first mortgagee and the defendant and probably one might think almost enough to satisfy the claims of the second mortgagee for the balance owing to him after receipt of $400,000. Of course one of the difficulties in meeting the mortgages was the accrual of interest payable at a high rate for a longer period than was envisaged initially. Whatever may be the explanation for the delay in effecting registration, it seems that the first registered mortgagee entitled to interest at the rate of 24 per cent per annum on moneys outstanding with priority over the plaintiff's security was in a better position to profit from the delay than was the plaintiff or other creditors - at least while the realizable value of the retirement village exceeded the first mortgagee's current entitlement under his mortgage. There can be little doubt that pending the leasing of the first 25 village units, which ought to have procured "loans" in the sum of $1.125 million, the first mortgagee brought much pressure on both the owner and the defendant to obtain in satisfaction of his mortgage, moneys which the general scheme contemplated would first be paid to the second mortgagee. In my view, having regard to the terms of cl.3 of the leases pursuant to which loan moneys were paid to the defendant as trustee and to the other public information documents to which I have referred, the loans moneys, when they first came into his hands, were held either as stakeholder for, or on -- 22 of 32 -- 22 trust for the owner and the intended lessee pending the "satisfactory securing of" their rights by lodgement of the lease for registration. When the lease was lodged the "loan moneys" were then held by the defendant impressed with a trust which required that the defendant pay out of the moneys received from the first 25 leases $400,000 of that sum to the second mortgagee - the plaintiff in this case. Indeed, it seems moderately clear that the sum to which the second mortgagee was entitled could have been paid to him upon loan moneys received by the defendant from the first 10 or at the most 11 leases. There seems little doubt that the first mortgagee was able to exercise significant influence over the defendant. It emerged in the evidence that the defendant occupied an office owned by the first mortgagee in Sydney rent free. It seems also that when that office was sold the defendant stored records relating, inter alia, to his dealings with the retirement village in question at premises occupied by the first mortgagee. Indeed, according to the evidence of the defendant, when he went to obtain some documents relevant to the issues in this case which he had left in the premises of the first mortgagee, he found that those documents had been taken. He said that they were taken without his consent. When asked why he had not reported this "theft" to the police the defendant declined to comment. It was suggested that the defendant was "afraid of" the first mortgagee, but this he denied. I find therefore that in failing to pay $400,000 of the moneys received in trust by the defendant up until the time of -- 23 of 32 -- 23 the lodgment for registration of the 25th lease of units in the retirement village the defendant acted in breach of the duties he owed to the plaintiff as trustee of the fund, which was then, or should have been, under his control as trustee for the beneficiaries referred to in cl.3 of the lease documents, which had up until that time been lodged for registration with the Titles Office. As a consequence of that breach of duty by the defendant, the plaintiff has suffered loss and damage. It is contended on behalf of the plaintiff that in calculating that loss I should, inter alia, ignore the $250,000 actually paid to the plaintiff by the defendant out of moneys received for leases subsequent to the registration of the 25th lease. It is said that upon the evidence the only moneys paid to the defendant from funds he held as trustee in respect of moneys paid by the first 25 lessees amounted to $110,000. If one then ignores the $250,000 paid from the moneys received upon registration of leases after the 25th lease had been registered, it follows that as a direct result of the breach of trust by the defendant he failed to pay to the plaintiff the sum of $290,000 out of moneys he received and held prior to the registration of the 26th lease. It is contended that the defendant, as trustee, is therefore obliged to make good the shortfall of $290,000 which he failed to pay to the plaintiff out of moneys received up until the registration of the 25th lease without setting off the $250,000 received from trust funds in consideration of the plaintiff releasing the owner from any further liability under the second mortgage. If the contention on behalf of the plaintiff be correct then in addition to "damages" in equity in respect of -- 24 of 32 -- 24 foreseeable financial loss suffered by reason of a failure to make timely payment of moneys as trustee at a much earlier time, the plaintiff is also entitled to retain the $250,000 actually paid to him and to recover also the $290,000 for breach of trust - that is, he is entitled to receive, in effect, $540,000. On the other hand, if, to the sum of $250,000 received by the plaintiff in exchange for his release of his second mortgage, there is added only the $110,000 which he properly received from trust funds held by the defendant, the plaintiff is only entitled to recover $40,000 - that is, the shortfall of $40,000 actually suffered by the plaintiff by reason of not having received the $400,000 at an earlier time when he was entitled to receive it from the trust moneys and prior to the registration of the 26th lease. In a sense the plaintiff contends that a course somewhat analogous to a "tracing" exercise may be adopted to demonstrate that there was a shortfall in trust moneys paid to him out of the fund from which he was entitled as beneficiary to the sum of $400,000. His contention is, in effect, that he is entitled to the whole of the shortfall and as well to retain the $250,000 he undoubtedly received from the defendant out of moneys which, strictly speaking, were then held by the defendant upon trust for other beneficiaries specified in cl.3. If the plaintiff be correct in that contention then it will recover as compensation or equitable damages for the defendant's breaches of trust the sum of $140,000 more than the $400,000 to which cl.3 refers. In my view the plaintiff's contention on this point is not sound. Assuming the funds in the hands of the defendant to be -- 25 of 32 -- 25 dispersed pursuant to cl.3 of the leases may be treated as a single fund held for the beneficiary specified in the clause, it was open to the defendant to remedy his breach of trust involved in paying moneys from that fund to the first mortgagee before first paying $400,000 to the plaintiff by having resort to other parts of the fund to enable him to repair, in part at least, that breach of trust. In this respect I refer to MacPhillamy v. Fox (1932) 32 SR (NSW) 427 per Harvey CJ in Eq at pp. 432 and 433. Upon the evidence, had the plaintiff been paid the whole of the amount which it was owed and which was secured by the second mortgage, ignoring the question of interest which was accruing on that mortgage, it would have received $560,000. Upon the evidence, I find it impossible to determine with any precision just how much of its secured debt the plaintiff would have recovered had the defendant complied in a timely fashion with his obligation as trustee to adhere to the order of payment specified in cl.3 of the lease; I am unable to say positively that the plaintiff would have received more than $400,000 of the moneys secured by its second mortgage had it in fact received that amount upon the completion of the first 25 lease agreements which led to the defendant's receipt of "loans" in the sum of at least $1.125 million. I find however that it would have had a chance of doing so. It was contended on behalf of the plaintiff that had it been paid the moneys to which it was entitled when it was entitled to them it would have been in a far stronger position to negotiate with Mr Ling, who was desirous of becoming sole mortgagee of the property to recover further moneys owed by the owner and secured by the second mortgage. The first mortgagee -- 26 of 32 -- 26 as I have already indicated, was entitled to interest on money outstanding under its mortgage at the rate of 24 per cent per annum. This placed the first mortgagee in a situation to increase its mortgage debt at the expense of the second mortgagee by delaying the settlement of leases which depended upon the first mortgagee and the plaintiff each releasing its mortgage debt to the extent of the moneys "lent" by the potential residents. The plaintiff, in my view, is entitled to recover compensation and/or equitable damages from the defendant for the loss it suffered as a beneficiary by reason of the defendant's breach of trust. In this respect see Meagher Q.C. Gummow and Lehane Equity Doctrines and Remedies 2nd Edition para. 4126, pp.840-1 where reference is made to: Palmer v. Monk [1962] NSWR 786 at 790 per Jacobs J and Mansard v. Tilley Consultants Pty Ltd [1982] WAR 161 at 164 per Wallace J, and The Laws of Australia Vol 15 Equity pp. 8, 10; Nocton v Lord Ashburton [1914] AC 932 per Viscount Haldane LC at 956- 957; Markwell Bros Pty Ltd v. C.P.N. Diesels Qld Pty Ltd [1983] 2 Qd R 508 per Thomas J at 523 and Fraser Edmiston Pty Ltd v. A.G.T. (Qld) Pty Ltd [1988] 2 Qd R 1 per Williams J at 13. Upon the evidence out of the "loan" proceeds of the first 25 lease transactions, the defendant paid the plaintiff only $110,000. It follows that not later than upon the receipt of the 25th "loan" the defendant was obliged to pay from the moneys in hand the further sum of $290,000 under cl.3 of the lease. That receipt occurred on 19 December 1990. In my judgment, therefore, from that time until the receipt of $250,000 on 1 May 1991, the defendant was liable to the plaintiff for compensation/damages for delay in the receipt -- 27 of 32 -- 27 of the sum of $290,000. While that money was outstanding the plaintiff is entitled to interest on that sum at the rate of 10 per cent per annum. At this stage the first mortgagee obviously found himself in a very strong negotiating position with the plaintiff. The defendant had clearly been acting for the first mortgagee and I infer that the reason the defendant did not comply with his obligations under cl.3 of the lease, was that he consciously preferred the interests of the first defendant who as well as beneficiary under the trust was also his client to those of the plaintiff who was "merely" a beneficiary. I infer that in breach of his obligations as trustee in failing to pay the plaintiff the money when it was entitled to it, the defendant was really acting in concert with the first mortgagee. It is not entirely accurate to say that the $250,000 paid on 1 May 1991 was paid to meet an obligation under the trust. Indeed, it was paid from trust funds at the instigation of the first mortgagee not for the purpose of effecting a belated compliance with obligations under the trust but in essence as a consideration for the plaintiff releasing entirely its security over the retirement village assets so that the first mortgagee might then be sole mortgagee of the premises. On one view the defendant assisted the first mortgagee to subject the plaintiff to economic duress directed to achieving for himself a financial advantage. It emerged in the course of the evidence that at some stage the first mortgagee indicated an interest in acquiring the whole property so that the village might be converted into rental accommodation for students. However this might be I infer that the payment on 1 May 1991 of the sum of $250,000 in exchange for the release of the second mortgage by -- 28 of 32 -- 28 the plaintiff evinced a strategy designed to financially benefit the first mortgagee in some way which I suspect was well known to the defendant; nevertheless in my view the defendant may in this action rely upon that payment as partly making good his default as trustee in making a timely payment as required by cl. 3 of the lease. After receipt of the payment of $250,000 the plaintiff lost any further benefit of the second mortgage. The plaintiff ended up receiving $360,000 in lieu of the sum of $400,000 to which it was entitled under cl.3 of the lease. As well, the first mortgagee was in a stronger position than that previously occupied with respect to the retirement village. It was strongly argued on behalf of the defendant that the plaintiff in any event would not have received anything like $360,000 had the arrangement whereby he released his security not been effected. I am unimpressed with this contention. Having regard to the way the first mortgagee and defendant co-operated to deprive the plaintiff of whatever benefit he had under cl.3 of the lease by the defendant paying to the first mortgagee and the first mortgagee receiving from the defendant moneys which both obviously knew should have been paid to the plaintiff, I am unpersuaded that what was done was "for the benefit" of the plaintiff rather than being for the benefit of the first mortgagee. After the payment of $250,000 from trust funds by the defendant on 1 May 1991, it is clear that the plaintiff was still deprived of at least the sum of $40,000 to which it was entitled as beneficiary under cl.3 of the lease: as well it lost any prospect of recovering the $160,000 being the balance of the mortgage debt (ignoring interest) secured under the -- 29 of 32 -- 29 second mortgage. I find it very difficult to value the loss of the chance of recovering $160,000 or some part thereof to which the plaintiff was entitled under the mortgage after receipt of the $400,000 under cl.3. Evidence was not led to show how much in fact was received by the first mortgagee from the "loans" money invested by the defendant in his trust account. It is clear however that the first mortgagee, on becoming sole mortgagee of the retirement village assets, was able to determine just when leases would be registered without reference to the plaintiff who was then "out of the picture". In my view the defendant is liable in damages to the plaintiff at least in the sum of $40,000. It was contended that the plaintiff also suffered consequential financial loss by reason of being held out of the moneys to which it was entitled. I have no doubt upon the evidence that the plaintiff was adversely affected by being held out of so much money for such a long time. However, I am unpersuaded that the evidence is sufficient to permit me to award damages based only upon the financial or other loss suffered by the plaintiff by reason of the postponement of receipt of $250,000 and the non-receipt of $40,000. Interest assessed on compensation or damages is the only remedy available to the plaintiff for loss resulting from postponement of receipt of such money in my judgment. I am conscious of the need to avoid speculation when attempting to draw inferences from the whole of the evidence as to what, if any, prospect the plaintiff would have had of recovering the balance of its debt secured by the second mortgage had the defendant not so clearly breached the -- 30 of 32 -- 30 obligations he owed to it as trustee. In effect by releasing the second mortgage the plaintiff abandoned what security it held for the payment of $200,000 secured under that mortgage. It received instead of $560,000 a total sum of only $360,000. It might be wondered why the first mortgagee was not added as a defendant having regard to the part he obviously played in the defendant's breach of trust in failing to meet his obligations under cl.3 of the lease and the economic duress to which the plaintiff was subjected to release its second mortgage. However he was not made a party to the action. Upon the state of the evidence it is impossible to assess with any precision how much if any of the owner's indebtedness to the second mortgagee may have been discharged had the defendant performed properly his duties as trustee in a timely manner. The plaintiff lost whatever chance it had of recovering the whole of its debt. Doing the best I can I assess damages in the sum of $40,000 for the plaintiff's loss of the chance or prospect of recovering the $160,000 or part of it as from 1 May 1991. All told therefore I assess damages/compensation for the defendant's breach of trust (apart from interest) in the sum of $80,000. With respect to $40,000 of that sum I award interest at 10 per cent per annum for 195 weeks (from 11 December 1990 to 1 October 1994) which is $15,000. With respect to late payment of $250,000 I award interest at 10 per cent per annum for 20 weeks (from 11 December 1990 to 1 May 1991) which is $9,615.38. With respect to the balance $40,000 of that sum I award interest at the rate of 10 per cent per annum for the period of 3 years 22 weeks (1 May 1991 to date of judgment) which is -- 31 of 32 -- 31 $13,692.31. There will be judgment therefore for the plaintiff in the sum of $80,000 plus interest in the sums of: (a) $15,000.00 (b) $ 9,615.38 (c) $13,692.31 Total $38,307.69 I give judgment for the plaintiff in the sum of $118,307.69. -- 32 of 32 --