Rowley Super Fund Pty Ltd v Australasian Annuities Pty Ltd (In Liquidation) Receivers and Managers Appointed [2015] HCATrans 235 (11 September 2015)

Last Updated: 16 September 2015

[2015] HCATrans 235

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M29 of 2015

B e t w e e n -

ROWLEY SUPER FUND PTY LTD (ACN 129 688 455)

Applicant

and

AUSTRALASIAN ANNUITIES PTY LTD (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) (ACN 006 313 408)

Respondent

Application for special leave to appeal

NETTLE J
GORDON J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 11 SEPTEMBER 2015, AT 12.28 PM

Copyright in the High Court of Australia

MR M.S. OSBORNE, QC: If the Court pleases, I appear with MS C.M. PIERCE and MR R.J. BOADLE for the applicants. (instructed by Shiff & Company Lawyers)

MR L. GLICK, QC: If the Court pleases, I appear with MR O. BIGOS for the respondent. (instructed by Norton Gledhill)

NETTLE J: Yes, Mr Osborne.

MR OSBORNE: Thank you, your Honour. There are two principal issues. The first is the breach by Mr Rowley of fiduciary duty owed by him to Australasian Annuities to make payments which were later received by the trustee of the super fund, and the second issue is the question of knowing receipt of trust property by the trustee of that fund. I intend to deal with the question of knowing receipt first.

The order for equitable compensation was in the amount of $1,674,744. Importantly, $1,488,528 was paid to and received by the four individual trustees of the fund. The balance, the $186,216, was paid after 13 February 2008 when Rowley Super Fund was incorporated. Justice Garde in paragraph 280 at page 152 of the application book stated that:

RSF took all of the funds which originated from AA, and acted as sole trustee of the Super Fund from 13 February 2008 with imputed knowledge of Steven Rowley’s breaches of fiduciary duties to AA. This knowledge extended to both pre-incorporation and post-incorporation transactions.

He also said that those two sentences have to be read really along with what he said at paragraph 268, last sentence, application book page 145:

Even if –

Rowley’s Super Fund, the corporate entity –

had no knowledge at the time of receipt, RSF was liable as a constructive trustee from the time when it subsequently discovered AA’s right to the funds.

So, really in those three sentences there are embodied the following concepts: firstly, that the money that was paid out of AA’s bank account in breach of fiduciary duty constituted trust property for the purposes of first limb Barnes v Addy; secondly, that the recipient liability of the corporate entity, the successor trustee, can be founded upon knowledge obtained after the time of receipt by the four individual trustees; thirdly, that the receipt by a knowing recipient of property conveyed to it by an unknowing intermediary recipient who has provided value can be sufficient to found knowing receipt in the case of the successor trustee, that is, the successor trustee in this case could be liable in knowing receipt in circumstances where the predecessor trustee would not be; and, next, that that which was received by the second trustee was relevantly the same as that which was received by the individual trustees, the first trustee.

NETTLE J: What do you mean by that?

MR OSBORNE: That the characterisation of the receipt by the second trustee was the same as the characterisation of the receipt by the first trustee and the distinction, we submit, is that the first trustee, the four individuals, they received the payments as they were made from time to time into the super fund. What the second trustee received, the successor, was not those funds, not those payments, but received legal title to the assets of the super fund in the form which they were in immediately prior to the successor trustee replacing the initial trustee.

The final proposition which flows from those three sentences is that Rowley Super Fund – albeit that Rowley Super Fund had legal title to the funds which originated from Australasian Annuities, but that Australasian Annuities had the right, whatever that may mean, to those funds. Now, the claim for knowing receipt with respect to the post-13 February payments really only involved two issues: involved whether Steven’s knowledge could be properly imputed to the corporate entity – Rowley Super Fund – and we have dealt with that – our complaint there in our outline - - -

GORDON J: Was that pleaded? Was it pleaded that way at trial?

MR OSBORNE: No.

GORDON J: Justice Almond seemed to suggest it was not and the Chief Justice seemed to suggest that she would dismiss it on the basis that it was not pleaded. Is that right?

MR OSBORNE: That is so. One sees the pleading recited in the Chief Justice’s judgment at paragraphs 92 and 93 of her judgment which appear at pages 89 and 90 of the application book. That is where her Honour recites the pleading, and the pleading sought to visit.....category knowledge on each of the four individuals, both with respect to the payments made pre-13 February 2008 and post-13 Feburary-2008.

The argument that was advanced at trial, contrary to the pleading, was that firstly Steven’s knowledge could be imputed or regarded as the knowledge of the four individual trustees with respect to the pre-13 February 2008 payments on the basis he was their agent. That was rejected by Justice Almond and, indeed, that rejection was upheld by the Court of Appeal, albeit that Justice Almond and the Chief Justice said that they ought not to have been permitted to run that case because it was not pleaded.

The argument with respect to the post-13 February 2008 period that was also advanced at trial, but in the face of what we say was the pleaded case, was that Rowley’s knowledge could be regarded as the guiding mind and will of the corporate entity.

NETTLE J: It was run. It was dealt with. It has been dealt with by the Court of Appeal. You are not seeking special leave on the basis that they should not have, are you?

MR OSBORNE: No, we are not, not on that alone. What we say - the critical issue that was not dealt with satisfactorily in the Court of Appeal, with respect, was even if it is assumed as against us that company property that is dealt with contrary to a fiduciary obligation owed by the company director to the company, let us assume that against us and let us assume that is first limb Barnes v Addy trust property, what Justice Garde did in the three sentences that I took your Honours to was in the face of a holding by his Honour and the Chief Justice that Steven’s knowledge could not be visited upon the other three trustees, that ought to have had the effect, in our submission, and given the holding that the trustees provided consideration and were not volunteers, it necessarily followed that had those four trustees remained as the trustees of the fund that they would not have been liable. There might have been an argument that Steven, in relation to an aliquot share possibly, could have been liable, but the remaining three could not.

Now, what then happened post-13 February 2008 was that the company was incorporated. It succeeded to the right, title and interest of the four individual trustees in the assets of the fund. Now, what the second trustee received was not that which the first trustee received, because the first trustee receives the payments and, having provided value and not having relevant knowledge, what may have constituted first limb Barnes v Addy trust property, had they had the knowledge, ceased that characterisation.

NETTLE J: You have two points. You have the Cassegrain point at the first level and you have the Barrow Case point to deal with the second, have you not?

MR OSBORNE: Yes.

NETTLE J: I understand.

MR OSBORNE: Those three sentences did not adequately deal with those issues, because whilst this - - -

NETTLE J: Did anyone deal with those issues down in the Court of Appeal or is this something which has been constructed in light of the decision of the Court of Appeal?

MR OSBORNE: The reason why it was not dealt with in the Court of Appeal was because the basis upon which the case was found against us in the Court of Appeal was not put, argued at trial. It appeared in the judgment of the Court of Appeal in those three sentences in Justice Garde. The case was never put – pleaded nor put at trial, nor on appeal, that it was sufficient for the plaintiff below to simply go straight to the question of the position of Rowley Super Fund Pty Ltd – the end recipient, never put. That case was never put on that basis.

NETTLE J: Are you saying it was accepted, at least in the course of argument before the Court of Appeal, that the plaintiff had to establish that the four individual trustees are all infected by the fraud of Steven?

MR OSBORNE: That is right, and that is why there was so much – the interesting debate and the hurdle for the plaintiff was much higher with respect to imputing Steven’s – the knowledge of one trustee to the remaining three trustees.

NETTLE J: That is what it was all about.

MR OSBORNE: That is what it was all about.

GORDON J: And they failed.

MR OSBORNE: And they failed.

NETTLE J: The rest of this, you say, this imputing it through to RSF, emerged for the first time in the reasons for judgment of the Court of Appeal?

MR OSBORNE: Only with respect – not with respect to the post-13 February 2008 receipts. We accept that was also put at trial. We said ought not to have been.

GORDON J: Your complaint is about the $1.4 million which was pre-13 February.

MR OSBORNE: Pre-13 February.

GORDON J: Which came from trustee number one.

MR OSBORNE: Came from trustee number one to trustee number two, not from AA to whoever the trustee was. So the title of trustee - - -

GORDON J: Just so that I am clear, when you talk about trustee number one you are talking about the four individuals.

MR OSBORNE: I am, and I am talking about trustee number two as being Rowley Super Fund, the corporate entity. It was certainly put at trial that Rowley Super Fund is a corporate entity. Its knowledge – or Steven’s knowledge could be imputed to it and in respect of the post-13 February 2008 payments that was something that they could have succeeded upon. The transmission, as it were, of what was received by the individual trustees and then subsequently passed on to the corporate trustee was not pleaded nor put.

NETTLE J: Even in the Court of Appeal?

MR OSBORNE: Even in the Court of Appeal. We also submit, with respect, that the mere finding or characterisation by Justice Garde in those sentences, it exposes issues which call for resolution. Assuming that it is first limb Barnes v Addy trust property to begin with, that is the point at which knowledge to found recipient liability arises. Is it on receipt or can it arise subsequent to receipt?

It also brings into question the issue of whether – if it be the case that it was trust property when paid to the four individual trustees, it remains trust property in a sort of a suspensory sense pending its receipt by someone who did have knowledge, notwithstanding that the intermediary recipient did not have knowledge. Now, that raises fairly directly an appropriate characterisation of the nature of what is received.

NETTLE J: Is there not a difficulty in the absence of evidence the result of these issues not having been dealt with at trial? If we were to take it on the basis of the two points of principle you identify we would still be left up in the air, would we not, as to how they would work out in application?

MR OSBORNE: No, your Honour, with respect. The facts upon which the case was run and relevantly decided both at trial and on appeal were uncontroversial. There was an agreed statement of facts. We know what happened. We know when the payments were made by the company. We know where they went. We know how they were treated in the company books of account. We know to whom they went. We know when they went into the super fund and who were the trustees of the super fund at that time and we know that the successor trustee, the corporate entity, simply succeeded to the title of the four trustees.

NETTLE J: You still want to argue though, do you not, that the property was not Barnes v Addy trust property?

MR OSBORNE: We do, notwithstanding – and I have to accept this – that we did not put that before the Court of Appeal.

NETTLE J: No. This is hardly the time to raise it for the first time, is it?

MR OSBORNE: Well, two things can be said about that. The first is obviously it is a factor that counts against us. What I say in response though to it is this. It is a legal issue, firstly, which does not call for any difference in evidence. Secondly, the other proposition that might be put against us is that this Court would have been assisted by argument and reasoning from the intermediate Court of Appeal to assist its consideration of that issue.

But with respect to that issue of principle, which is the first issue that would follow if we got leave on this point, this Court is – intermediate courts have dealt with this issue that the arguments as to whether it does or does not constitute trust property are understood, but what they have not been is pronounced upon by this Court.

NETTLE J: I suppose one option would be to deal with the appeal upon the basis that you are not permitted to dispute the finding that it is trust property and to deal with it then only on the Cassegrain and Barrow Case point.

MR OSBORNE: Well, that would be one approach. It could be assumed against us for the purposes of any appeal if leave was granted that it did constitute trust property first limb, Barnes v Addy trust - - -

NETTLE J: Apart from the bare assertions of Justice Garde to which you have taken us, do we have any consideration by an intermediate appellate court of either of those issues, either in this case or otherwise?

MR OSBORNE: There is some suggestion – Grimaldi touches upon it.

NETTLE J: Touches is the right word.

MR OSBORNE: It touches upon it, but they are issues which frankly cry out for determination and this, with respect, is an appropriate vehicle not simply because of the absence of real factual contest, but because the consequence of a refusal of our application really would be, as we would

submit it, that we have been the subject of a substantial monetary order in circumstances where the case is not pleaded and even more so - - -

GORDON J: I think that is what worries me, Mr Osborne, is it is not pleaded. What was the factual position? It was run at trial in front of Justice Almond on an agreed statement of facts. Is that the position?

MR OSBORNE: There was a conclusion – take two things. The evidence itself only took, I think, two days. At the conclusion of the trial before Justice Almond, Justice Almond observed to the parties that there was very little, if any, factual contest. The transactions happened. We know how they were treated. Required the parties to put before him an agreed statement of key facts which is what happened and which formed the basis of his Honour’s findings and which subsequently formed the basis of the summary that was put before the Court of Appeal, and is largely replicated in Justice Garde’s judgment at paragraphs 180 to 215 where his Honour goes through each of the payments and how they were treated and how they made their way into the super fund. The question of the identity of the trustee is non-controversial because it was plainly the four individuals until 13 February 2008. So the geometry of the case has the potential to confuse - - -

NETTLE J: It does.

MR OSBORNE: - - - but the facts, ultimately, were not controversial. Even going back to the issues of breach, we know what the facility agreement said, we know how the payments were treated in Australasian Annuities’ accounts, we know the manner in which it found its way into the super fund - - -

NETTLE J: I see that the light is on.

MR OSBORNE: Otherwise, I did not get the chance to address you on the first point of breach which we have dealt with in our outline.

NETTLE J: Thank you, Mr Osborne. Yes, Mr Glick.

MR GLICK: As to the point of is a breach by a director of fiduciary duties a first limb Barnes v Addy point, that point was disavowed before the Court of Appeal. Your Honour will notice that in the judgment of the Chief Justice. I think that was point number five.

NETTLE J: We do not need to hear you on that point any further.

MR GLICK: There are a number of factual issues in this matter which did not run according to the pleadings and which were assumed to be the case. For example, you will notice from the judgment of the primary judge that the funds were borrowed by AA in its personal capacity, yet the parties proceeded on the basis that they were trust funds.

NETTLE J: We do not need to hear you on the question of whether they were trust funds for the purposes of Barnes v Addy. What we would wish to hear you on are the two issues identified by Mr Osborne, the Cassegrain issue and the Barrow Case issue.

MR GLICK: Yes, your Honour. As to the first issue, we say this. We were not able to persuade the court that the four individual – that three of the four individual trustees had knowledge, or should be imputed with the knowledge of the first trustee.

NETTLE J: Yes.

MR GLICK: Assume that to be the case and assume that finding of fact remains the finding of fact. Thereupon we argued in the Court of Appeal that it does not matter because under the Trustee Act (Vic), section 45, the new trustee took the property of the old trustee and it is not a bona fide purchaser for value and without notice. It took that property – and this was the argument we put again – and it then had notice, it then had notice of the earlier breach which was the point of Agip (Africa).

So, your Honours, take this point and this is the example we use, this very fact. Mr Steven Rowley misuses his position, transfers over a million dollars or over two million dollars to the four individuals of which he is one. We cannot prove that three of them have the relevant knowledge. They then the very next day incorporate and transfer it to him as the sole director. My friend says he wins, he wins. Because the new company takes, free of all of the earlier impediments, that is his point. We say no. The point was dealt with in our submissions in Agip.

The new trustee has notice of the breach, so it has far-reaching implications. The new trustee has notice of the breach. We take up the hard case. As her Honour the Chief Justice mentioned, I put the hard case. I steal money, steal it. I give it to four trustees, of which I am one, and they do not have notice and then they give it to me. I am free, me as a corporation that I control.

NETTLE J: You said that that arose as a matter of section 45 of the Trustee Act or as a result of the principle in Barrow’s Case?

MR GLICK: It results from the proposition that the new trustee takes all of the property and the new trustee then is to be judged, what knowledge did you have when you took it?

NETTLE J: Apart from the passage in Justice Garde’s judgment to which Mr Osborne referred, is there any other analysis of the point in the reasons for judgment in the Court of Appeal?

MR GLICK: It appears at paragraph 268, your Honour, the last sentence. If that is what your Honour is referring to:

Senior Counsel for AA submitted that the trial judge was in error. The knowledge of Steven Rowley should be imputed to RSF . . . RSF was a knowing recipient –

because when Mr Rowley who was the guiding mind of the company became the guiding mind of the corporate trustee he knew he had stolen the money.

NETTLE J: But it is the last sentence.

MR GLICK: The last sentence.

NETTLE J: Was there any more analysis of that point than what one sees in those three lines?

MR GLICK: No, your Honour, there is none.

NETTLE J: That is it?

MR GLICK: That is it, and the footnote 194 which was a reference to the cases.

GORDON J: Just a reference to Agip.

MR GLICK: Yes. No, that is the way we put it. Agip, of course, is – well, it is well known it has been dealt with. That is the analysis, your Honours. That is it. But we say this is not a vehicle for testing that proposition because this is not a third party trustee. My friend says the corporation is a new trustee but it is the same four people who incorporated it. A proper vehicle for testing it would be if the four individuals gave it to equity trustees, for example, a completely independent trustee. But this is them all over again, so we will allow them, your Honours, by incorporating to achieve that result with Mr Rowley keeping his money.

The law was settled, the facts were settled. It was simply the application of the facts to that proposition. The interesting points which could have arisen do not arise, such as, for example, can the directors of the

corporate trustee forgive a breach. That does not arise. That is Justice Garde, it is an interesting point but we put that to one side.

NETTLE J: Has there been any previous consideration of a case in which a corporation which in fact is the alter ego of the fraudster reacquires or acquires, as it were, as the new trustee from innocent intermediaries?

MR GLICK: Partly innocent intermediaries.

NETTLE J: As to the three, yes.

MR GLICK: Yes, not that we could find, your Honour. But we say it does not raise any point of principle different to the – sorry, it can be resolved on current principles which is under the Trustee Act you get the property, when you get it what is your notice?

NETTLE J: The point that is made is as to three-quarters, it was not tainted by fraud.

MR GLICK: As to the three-quarters, they had no notice of the fraud. They had no notice of the fraud.

GORDON J: Your point is that when RSF received the funds - - -

MR GLICK: It had notice.

GORDON J: - - - it had notice.

MR GLICK: Yes, your Honour. So the proper vehicle to test is when RSF is a separate corporation. Then you can work out does it take it free of any claim, but when RSF is itself Mr Rowley – that was the finding by the majority – it is Mr Rowley, it is him, and he is the one that stole the money. It would be an extremely unusual position that when the money goes in a cycle back to him he keeps it. So we say, your Honour, this is not a test. This is not a proper vehicle given – given the failure to have any analysis and any assistance from the lower judge from the lower courts. This is not a proper vehicle to test this case.

NETTLE J: Thank you.

MR GLICK: Thank you, your Honour.

NETTLE J: Any reply, Mr Osborne?

MR OSBORNE: Two points, your Honour. Section 45 does no more than vest in the new trustee the title that the old trustee had. The reason

why section 45 was relevant was because if they succeeded in relation to the pre-13 February 2008 payments the new trustee received that tainted property. That is the relevance of section 45. The second point - the logic of my learned friend’s proposition does carry with it the proposition that if equity trustees did have knowledge they would be liable, notwithstanding that they received different property from intermediary trustee who did not have the knowledge.

NETTLE J: In this matter the Court is not persuaded that it is an appropriate vehicle for consideration of either of the points of equitable principle on which the application for special leave is essentially based. Nor is the Court persuaded that the refusal of special leave would be opposed to the interests of justice in the particular circumstances of the case. Accordingly, the application for special leave is refused with costs.

Thank you, gentlemen.

AT 12.58 PM THE MATTER WAS CONCLUDED