Reported Decision : (2002) 54 NSWLR 146 New South Wales Court of Appeal CITATION : Meehan & Ors v Glazier Holdings Pty Ltd [2002] NSWCA 22 FILE NUMBER(S) : CA 40172/01 HEARING DATE(S) : 12 February 2002 JUDGMENT DATE : 7 March 2002 PARTIES : Graham Meehan, Anthony Murphy and Treykell Pty Ltd - Appellants Glazier Holdings Pty Ltd - Respondent JUDGMENT OF : Sheller JA at 1; Beazley JA at 2; Giles JA at 3 LOWER COURT JURISDICTION : Supreme Court - Equity Division LOWER COURT ED 4905/97 FILE NUMBER(S) : LOWER COURT Austin J JUDICIAL OFFICER : COUNSEL : M L D Einfeld QC & S G Habib - Appellants A L J Bannon SC & P L Dodson - Respondent SOLICITORS : Paul Bard - Appellants Henry Davis York - Respondent CATCHWORDS : EQUITY - order for accounts in common form - application to vary order to have accounts taken on wilful default basis - whether order a final order which can not be varied - whether grounds established for accounts on wilful default basis. D. Bailey v Marinoff (1971) 125 CLR 529; Ballas Theophilos (No 2) (1957) 97 CLR 186; Barber v Mackrell (1879) 12 Ch D 534; Barnes v Addy (1874) 9 Ch App 244; Bartlett v Barclays Bank Trust Co Ltd (No 2) (1980) 1 Ch 515; Derrawee Pastoral Company Pty Ltd v McConachie (Handley JA, 24 February 1995, unreported); Gava v Grljusich (WAFC, 18 September 1997, unreported; on remittal (1999) WASC 13); In re Barclay; Barclay v Andrew (1899) 1 Ch 674; In re Jerome (1907) 2 Ch 145; In re Symons (1882) 21 Ch D 757; In re Wood; Ebert v Union Trustee Company of Australia Ltd (1961) Qd R 375; CASES CITED: In re Wrightson: Wrightson v Cooke (1908) 1 Ch 789; In re Youngs; Doggett v Revett (1885) 30 Ch D 421; Job v Job (1877) 6 Ch D 562; Kara Kar Holdings Pty Ltd v Brookton Holdings No 5 Pty Ltd (CA, 27 March 1997, unreported); Kraft v Kupperwasser (1991) 22 NSWLR 236; Mayer v Murray (1878) 8 Ch D 424; Partington v Reynolds (1858) 4 Drew 253; 62 ER 98; re Tebbs (1976) 2 All ER 858; Russell v Russell (1891) 17 VLR 729; Sleight v Lawson (1857) 3 K & J 292; Smith v Davies (1885) 31 Ch D 595; Southern Cross Exploration NL v Fire and All Risks Insurance Company (No 2) (1990) 21 NSWLR 200. DECISION : (1) Appeal allowed; (2) Paragraphs 1, 2, 7, 8, 15 and 16 of the orders of Austin J made on 19 March 2001 set aside and para 3 of the orders varied by the deletion of the words "as varied by order 2 above"; (4) Remit the proceedings to the Equity Division for such further directions, if any, as may be appropriate for the taking of accounts; (4) The respondent pay the appellants' costs of the notices of motion filed on 1 May 2000 and 30 August 2000 and of the appeal, and have a certificate under the Suitors Fund Act if qualified. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40172/01 ED 4905/97 SHELLER JA BEAZLEY JA GILES JA Thursday 7 March 2002 MEEHAN & ORS v glazier holdings pty ltd Judgment 1 SHELLER JA: I agree with Giles JA. 2 BEAZLEY JA: I agree with Giles JA. 3 GILES JA: At issue in this appeal was the basis on which accounts are to be taken. Orders were made which included an order that accounts be taken in common form. The order was then varied to provide that the accounts be taken on the basis of wilful default. The accounting party appealed from the decision to vary the original order. The original order for taking accounts 4 Australian Men's Health Pty Ltd ("AMH") was the trustee of the Australian Men's Health Unit Trust ("the Trust"). From April 1997 the Trust conducted the business of providing medical services and pharmaceutical products for the treatment of sexual dysfunction in men in a number of clinics throughout Australia. 5 The Trust was established following the merger of two similar businesses, one conducted by a company under the control of Mr Graham Meehan and the other controlled by Dr Con Keramianakis and Dr Albert Smagarinsky. Treykell Pty Ltd ("Treykell"), a company of Mr Meehan, and Glazier Holdings Pty Ltd ("Glazier"), a company of Drs Keramianakis and Smagarinsky, became the holders of units in the Trust. They were beneficially entitled to the capital of the Trust and to distributions of the net income of the Trust in accordance with the terms of the trust instrument and a unit holders' deed. 6 Initially Mr Arthur Brain and Mr Roger Hyde were appointed as directors of AMH, representing the interests of Treykell and Glazier respectively. The day to day operations of the business were under the direction of Mr Meehan as its chief operating officer, to whom its financial controller, Mr Anthony Murphy, reported. In December 1997 Mr Brain ceased to be a director of AMH, and was replaced by Mr Meehan. In March 1998 Mr Hyde ceased to be a director of AMH, and was replaced by Mr Murphy. 7 Almost from the beginning there was disputation between Messrs Meehan and Murphy of the one part and Drs Keramianakis and Smagarinsky of the other part. Towards the end of 1997 it matured into proceedings brought by Glazier against AMH, Mr Meehan, Mr Murphy, Mr Brain and Treykell. 8 In a statement of claim filed on 19 January 1998 it was alleged that AMH by its servants and agents, including Messrs Meehan, Murphy and Brain, had breached the terms of the trust instrument and the unit holder's deed in a great many respects; that another trustee should be appointed in place of AMH as trustee of the Trust; and that AMH and Treykell had declined to consent to the appointment of a new trustee. The relief claimed was - "1. An order that Australian Mens Health Pty Limited be removed as trustee of the trust created by deed dated 14 April 1997 made between Henton Pty Limited as settlor and Australian Mens Health Pty Limited as trustee and known as the Australian ens Health Unit Trust. 2. An order that Martin Madden of 141 Walker Street, North Sydney, accountant, or some other fit and proper person be appointed as trustee of the Australian Mens Health Unit Trust. 3. An order that the assets of the Australian Mens Health Unit Trust vest in the new trustee upon the trusts of the said deed. 4. An order that an account be taken of the dealings and transactions of the first defendant as trustee and that the defendants be ordered to pay to the new trustee the amount found to be due on the taking of such accounts together with interest. 5. An order that the costs of the plaintiff be paid by the defendants on an indemnity basis. 6. An order, pending the final hearing of the action, that Martin Madden be appointed Receiver and Manager of the First Defendant. 7. Such further other order as the Court considers just and convenient." 9 There was no interlocutory appointment of Mr Madden as receiver and manager of AMH - so far as appears, Glazier did not move for that relief. The hearing of the proceedings began before Young J on 16 March 1998. 10 On 18 March 1998 the defendants consented to the making of orders in accordance with the claims to relief in the statement of claim. With appropriate grammatical changes, orders were made in the terms of paras 1 to 5 of the relief claimed in the statement of claim. The order for taking accounts, order 4, was - "4. An account be taken of the dealings and transactions of the first defendant as trustee and that the defendants be ordered to pay to the new trustee the amount found to be due on the taking of such accounts together with interest." 11 The statement of claim did not spell out the ground for an order that the amount found to be due on the taking of accounts be paid by Mr Meehan, Mr Murphy, Mr Brain and Treykell as well as by AMH – perhaps it was the participation with knowledge for which Barnes v Addy (1874) 9 Ch App 244 is conventionally cited. The consent of the defendants other than AMH made and makes inquiry into the ground unnecessary. 12 The orders were entered on 19 March 1998. Alternative bases for taking accounts 13 Although it had earlier been in contest, in the appeal it was accepted that order 4 was an order for taking accounts in common form. Under such an order the accounting party accounts only for what has actually been received and disposed of. The other party to the accounting can challenge the accounting party's account by asserting that more was received (in the old terminology, surcharging) or by asserting that less was disposed of (in the old terminology, falsifying). 14 There is an alternative basis for taking accounts. An order may be made for taking accounts on the basis of wilful default (sometimes the words are wilful neglect and default). Under such an order the accounting party must account not only for what has actually been received, but also for what should have been received: that is, for what would have been received if the relevant duties of the accounting party had been properly discharged. Thus in Partington v Reynolds (1858) 4 Drew 253; 62 ER 98 it was said (at 255; 98) that on this basis an executor or administrator must account "not only for what he has received, but also for what he might, without his wilful neglect or default have received, although he has not received it". 15 For the present what amounts to wilful default, with consequential enlargement of the accounting, need not be further explored. An accounting on the basis of wilful default is more onerous than an accounting in common form, and can result in the accounting party having to pay more to the other party to the accounting. This no doubt explains the application to vary order 4, and the opposition to it. The variation of order 4 16 Order 4 did not say by whom the accounts were to be taken or how they was to be taken. Pursuant to Pt 49 r 2 of the Supreme Court Rules any party could move to proceed under order 4, and by Pt 49 r 4 the Court would give directions as to the conduct of the proceedings. 17 By a notice of motion filed on 1 May 2000 Glazier applied for leave to proceed and for directions. The directions claimed included a direction that the taking of accounts be "an account upon the footing of wilful neglect and default by the first, second and third defendants", with consequential directions presumably thought to be appropriate to that more onerous basis for taking accounts. 18 Against the possibility that amendment was necessary before these directions could be given, by a further notice of motion filed on 30 August 2000 Glazier applied for leave to amend the statement of claim so that the relevant relief claimed was - "An order that an account be taken of the dealings and transactions of the first defendant as trustee and in respect of the moneys which ought to have been received or retained by the defendant but for its wilful default or neglect by itself or by its servants or agents the second, third and fourth defendants and an order that the defendant be ordered to pay to the new trustee, alternatively the plaintiff , the amount found to be due on the taking of such accounts together with interest." 19 The two applications were heard by Austin J in August and September 2000. In his reasons published on 22 January 2001 his Honour concluded that Glazier "has made out its case for an order for the taking of accounts on the basis of wilful default, and for leave to amend its statement of claim to plead and seek relief on that basis." 20 On 2 March 2001 his Honour received submissions on, amongst other things, the form of orders to be made. On 19 March 2001 an order was made that Glazier have leave to file an amended statement of claim relevantly claiming, more concisely, "that an account, on the basis of wilful default, be taken … ", and an order was made that order 4 be varied so that it read - "4. An account, on the basis of wilful default or neglect, be taken of the dealings and transactions of the first defendant as trustee and that the first, second, third and fifth defendants be ordered to pay to the new trustee the amount found to be due on the taking of such account together with interest." 21 The difference in terminology between wilful default and wilful default or neglect is of no consequence, nor is why the fourth defendant, Mr Brain, was excluded from the order. Leave was granted to proceed under order 4 as varied, and the consequential directions claimed by Glazier were given. The appeal 22 There were many grounds of appeal. Attention may be focused on two of the questions they raised. The first was whether there was power to vary order 4 to provide for taking accounts on the basis of wilful default. The second was whether the findings made by Austin J provided the necessary foundation for an order for taking accounts on that basis. 23 In my opinion there was no power to vary order 4. It was a final order, and had been entered. Perhaps it could have been set aside if making the order were successfully challenged in other proceedings, for example on the ground of fraud or mistake. That was not what Glazier sought to do. Order 4 could not be varied pursuant to the first application made by Glazier, and if it could not be varied there was no utility in amendment to the statement of claim pursuant to the second application. 24 Further, in my opinion the findings made by Austin J did not provide the necessary foundation for an order for taking accounts on the basis of wilful default. For such an order it was necessary that at least one instance of wilful default be established, and the matters which his Honour found and relied on for that purpose were not instances of wilful default. 25 These answers to the questions, each sufficiently in itself, require that the appeal should be upheld. It is unnecessary to go to other matters canvassed in the appeal. My detailed reasons follow. Power 26 The principle that there must be finality of judgment requires that, putting aside challenge in other proceedings, as a general rule a judgment which finally disposes of the rights of the parties can only be varied on appeal. As Barwick CJ said in Bailey v Marinoff (1971) 125 CLR 529 at 530 - "Once an order disposing of a proceeding has been perfected by being drawn up as the record of a court, that proceeding apart from any specific and relevant statutory provision is at an end in that court and is in its substance, in my opinion, beyond recall by that court. It would, in my opinion, not promote the due administration of the law or the promotion of justice for a court to have a power to reinstate a proceeding of which it has finally disposed." 27 The possible overlay when the judgment is by consent and may rest upon an enforceable agreement need not be considered in this case. What is the status of order 4, and where is the power to vary it? 28 Austin J considered that there was power under Pt 42 r 12 of the Supreme Court Rules. By that rule "[a] person bound by a judgment may move the Court for a stay of execution of the judgment, or for some other order, on the ground of matters occurring after the date on which the judgment takes effect and the Court may, on terms, make such order as the nature of the case requires." 29 However, Glazier was not bound by order 4 within the meaning of the rule. "Person bound" is defined in Pt 1 r 8 of the Rules, effectively to mean the person burdened rather than the person benefited. For that reason alone, and other submissions were put against the availability of the rule, his Honour was in error. Glazier did not seek to support his reliance on this source of power. 30 Under a notice of contention, Glazier submitted that order 4 could be varied either pursuant to Pt 40 r 9(4) of the Rules or in the inherent jurisdiction of the Court to control its interlocutory processes. So far as material, by Pt 40 r 9(4) the Court may vary an order "except so far as the order determines any claim for relief … ", this power being available even where the order has been entered. For the submission to be accepted order 4 had to be other than a final order, that is, it had to be an order which did not determine a claim for relief or was interlocutory. 31 The normal Chancery procedure on an application for an order for taking accounts has long been to order that the accounts be taken before a Master and to adjourn the proceedings for further consideration. When the Master has certified what is due to be paid the proceedings are relisted for further consideration and an order is made that the amount certified be paid. In simple cases an immediate order can be made that the amount certified be paid by the party from whom to the party to whom it is certified to be due, but that is not the usual course. The normal procedure is described or reflected in, for example, Daniell's Chancery Practice, 8th ed (1914), vol 1, pp 683, 686. 1009; Parker's Practice in Equity, 2nd ed (1949) p 250-2, and in the forms in Seton's Judgments and Orders, 3rd ed (1862), vol 1 and 7th (last) ed (1912), vol 2, pp 97 and 1309 respectively (alternate forms of order), 107 and 1342 respectively (stating the usual course); Miller and Horsell, Equity Forms and Precedents, p 287. 32 The cases in which the normal procedure has been followed are legion. In Kraft v Kupperwasser (1991) 23 NSWLR 236, in which it was not, Powell J pointed out (at 242-4) that the orders for dissolution of a partnership should include an order for taking accounts and reservation of further consideration; see also Kara Kar Holdings Pty Ltd v Brookton Holdings No 5 Pty Ltd (CA, 27 March 1997, unreported), in which Powell JA said in relation to an inquiry into damages that the trial judge should have determined the parties' rights in principle, made orders for the inquiry, and "if need be reserved further consideration for the purpose of determining what, if any, supplemental orders required to be made in order to give effect to the original decree in the light of the result of the inquiries had before the Master". 33 If order 4 had ordered no more than the taking of accounts, and the orders made on 18 March 1998 had included that the proceedings be adjourned for further consideration, it could readily enough be said that order 4 did not determine Glazier's claim for relief and was interlocutory. The composite claim to relief had two stages, and its culmination was the order that money be paid. Until the order that money be paid there would not be "a perfect judgment": I take the expression from Daniell's Chancery Practice, 8th ed, Vol 1, p 683 - "But the most usual ground for not making a perfect judgment in the first instance is the necessity which frequently exists to make inquiries, or to take accounts, or sell estates, and adjust other matters, which must be disposed of before a complete decision can be come to upon the subject-matter of the action." So it is said in Daniell's Chancery Practice , 8th ed, Vol 1, p 1009 that where at the trial the further consideration of the action has been adjourned "it is necessary in order to obtain a final judgment that the action should be set down to be heard on further consideration, which process must be repeated as often as the further consideration of the action has been adjourned by the last order or judgment in the action." 34 But order 4 was not in that form. Glazier claimed orders for a new trustee, the vesting of the trust property in the new trustee, and an accounting by the old trustee. It obtained all the orders (and indemnity costs). The orders included that accounts be taken and that the amount found to be due be paid by the defendants to the new trustee. The orders made were precisely as claimed. Order 4 purported to be a final order, dealing with the composite claim to relief and extending to the order that money be paid. And the order that money be paid was an order for payment of the amount found to be due on the taking of "those accounts", that is, the accounts at the same time ordered to be taken. Varying the basis for taking the accounts would also vary the order for payment, because the defendants could have to pay a different amount. The finality of the order for payment meant finality of the order for taking accounts. 35 It is not inconsistent with order 4 being a final order that further orders or directions would be required to enable the accounts to be taken. In Derrawee Pastoral Company Pty Ltd v McConachie (Handley JA, 24 February 1995, unreported) consent orders were made by which one party was to purchase the shares of another at a price determined by an accountant and the purchase was to be completed within 21 days of the accountant's report. There was no reservation of further consideration (although there was liberty to apply, which is different: see Kraft v Kupperwasser). After the accountant provided his report orders were made to compel completion of the purchase. Handley JA said that the consent orders were the final orders, because they finally determined the rights of the parties, and the subsequent orders "merely worked out the rights of the parties under that final order". The cases to which his Honour referred included statements or decisions that an order nisi in a foreclosure action was a final order, notwithstanding that the amount due had to be certified and left unpaid (Smith v Davies (1885) 31 Ch D 595), and that an order for taxation of costs and payment of the amount found to be due was a final order (In re Jerome (1907) 2 Ch 145 at 147), and his Honour noted that orders for specific performance were treated by the High Court as final, as to which see Ballas v Theophilos (No 2) (1957) 97 CLR 186. 36 These cases, and Derrawee Pastoral Company Pty Ltd v McConachie itself, were in connection with rights of appeal, where the distinction between final and interlocutory orders presents difficulties and "no golden thread of logic runs through the cases" (Southern Cross Exploration NL v Fire and All Risks Insurance Company Ltd (No 2) (1990) 21 NSWLR 200 at 207 per Kirby P). But they illustrate that an order may finally determine the rights of the parties although other orders may be necessary to give effect to the rights. 37 Glazier submitted that order 4 was "not final in the relevant sense". It submitted that authority established that an order for taking accounts on the basis of wilful default may be made at any stage of the proceedings prior to final judgment, even after an order for common accounts had been made, if new evidence justifying such an order arises before final judgment. The submission accepted that final judgment precluded variation of the basis for taking accounts, and the reference to authority was really in aid of order 4 not being final. 38 The high point of the authority on which Glazier relied was a passage from the judgment of Cotton LJ in In re Youngs; Doggett v Revett (1885) 30 Ch D 421 at 431 – "Then as regards the enquiry as regards wilful default. Such an enquiry cannot be obtained adversely unless one instance at least of wilful default is proved. In former days it had to be proved at the hearing, because no such inquiry could be added afterwards. At the present day the substance remains the same but the form is altered. If, in the prosecution of inquiries under an ordinary decree, facts come out which, if proved at the hearing, would have enabled the plaintiff to obtain then an inquiry as to wilful default, that inquiry will be added. But the rule still remains that an account on the footing of wilful default and neglect will not be granted until evidence has been granted of at least one instance of wilful default." 39 In that case the defendant had consented to an order for the taking of accounts on the basis of wilful default, and it was alleged that he should not have done so and had colluded with the other party to the accounting. The point of what Cotton LJ said was that his Lordship then suggested the defendant had consented to avoid useless expense because he appreciated that wilful default would come out in an inquiry on the basis of common accounts and that the basis of wilful default would be added. His Lordship referred to prosecution of inquiries "under an ordinary decree", and as I have explained the normal procedure was to order that accounts be taken and that there be adjournment for further consideration. What his Lordship said must be read in that context. 40 In Job v Job (1877) 6 Ch D 562 at 564 Jessel MR said that an order charging a defendant with wilful default may be made at any time on a proper case being made. In Mayer v Murray (1878) 8 Ch D 424 at 426-7 his Lordship explained that the charge must be introduced by amendment "at any stage of the action at which amendments may be made, that is, before judgment". It is apparent from the report of Job v Job that the proceedings were before his Lordship on further consideration after the making of an order for taking accounts. In Mayer v Murray his Lordship was resolving the terms of an original order. Neither case supports variation of a final order; the explanation in Mayer v Murray is against it, because referring to amendment before judgment. 41 In Barber v Mackrell (1879) 12 Ch D 534 Fry J acceded to an application to enlarge the basis for the taking of accounts, relying on what Jessel MR had said in Job v Job and Mayer v Murray. The original accounting was said to be "the ordinary partnership accounts", and it appears that the Master had conducted an inquiry and produced a certificate and that the decree had gone no further – that is, consistently with what Jessel MR had said, there had not been judgment. The enlargement ordered by Fry J was upheld on appeal, although on the basis that the Court was administering an estate and could do by administration what was sought to be done by the enlarged enquiry. 42 In In re Symons (1882) 21 Ch D 757 an order for "ordinary accounts and inquiries" was made, the accounting was undertaken and a certificate was issued. Evidence of wilful default having emerged, application was made for taking accounts on the basis of wilful default. Fry J granted the application, referring to Job v Job and Mayer v Murray and saying (at 761) that "if wilful default is charged in the pleadings, and evidence of it is adduced, accounts and inquiries on that footing may be directed at any stage of the proceedings". It is clear from his Lordship's express reference to what Jessel MR had said in Mayer v Murray that he meant any stage of the proceedings prior to judgment, and again the proceedings were before his Lordship on a hearing on further consideration. 43 Glazier referred to a number of other cases, but they do not advance its position. Variation when there has been an order for taking accounts and adjournment for further consideration does not translate to variation when there has been an order in the terms of order 4, part of the claimant obtaining the complete relief claimed. For example In re Barclay; Barclay v Andrew (1899) 1 Ch 674 was not a case of variation of an order, and in any event was a hearing on further consideration; in Gava v Grljusich (WAFC, 18 September 1997, unreported; on remittal, Kennedy J (1999) WASC 13) the orders had not gone beyond orders for the taking of accounts, although there had not been reservation of further consideration, and in any event the application to amend to charge wilful default was refused on discretionary grounds. Whatever might have been if order 4 had been confined to an order for taking accounts and there had been adjournment for further consideration, that was not what was done. The part of order 4 ordering the taking of accounts can not be separated from the order for payment of the amount found to be due and treated as an order made prior to judgment. 44 Glazier submitted that, because instances of wilful default will or may come out in the course of taking accounts, an order for taking accounts in common form should be capable of variation to extend to taking accounts on the basis of wilful default. The normal Chancery procedure accommodates this. The impediment in the present case is that Glazier sought and obtained an immediate order for payment of the amount found to be due on the taking of accounts in common form. Glazier was in no different position from any other litigant which, after obtaining judgment, discovers facts which would have changed its conduct of the proceedings and the relief it claimed. 45 In my opinion, order 4 determined Glazier's claim for relief, and was not interlocutory; so the basis for taking accounts could not be varied either pursuant to Pt 40 r 9(4) or in the Court's control of interlocutory processes. Findings 46 Austin J held, referring to Sleight v Lawson (1857) 3 K & J 292 at 298; 69 ER 1119 at 1121-2 and Gava v Grljusich (Kennedy J), that before an order for taking accounts on the basis of wilful default could be made at least one instance of wilful default had to be established. His Honour also accepted that there had to be evidence from which arose a reasonable suspicion that there may have been other defaults (see re Tebbs (1976) 2 All ER 858). Neither requirement was in question in the appeal. The findings of instances of wilful default was in question in the appeal. 47 For an understanding of Austin J's findings, it is necessary to begin with an earlier application with which his Honour dealt. 48 Austin J heard an application by Mr Madden for judicial advice following his appointment as new trustee of the Trust and an associated appointment as receiver of the assets of the Trust. Mr Madden had prepared a lengthy report on his endeavours to conduct an account of the dealings and transactions of AMH as trustee of the Trust. The report was before his Honour in the application, in which Mr Madden asked whether he would be entitled to take no further steps as trustee and receiver, other than in relation to any liabilities of the Trust, until further order of the Court. In reasons published on 3 April 2000 his Honour gave that advice. 49 In those reasons Austin J began his consideration of Mr Madden's report as follows - " Mr Madden's Report Sources, approach and conclusions 53 According to his Report (para 1.1), Mr Madden investigated the financial records of the Trust and AMH, and the audited financial statements of AMH, in order to prepare an account of the dealings and transactions of AMH as trustee of the Trust, in accordance with the orders made by the Young J on 18 March 1998. He was given access to some financial statements of AMH and the service companies, and the general ledgers of AMH, On Clinic and the service companies, together with some supporting documentation. He conducted interviews with Mr Murphy, Mr Meehan and their legal advisers, and also with the two Doctors and their legal advisers, and the financial adviser of the Doctors, Mr Adrian Abbott. 54 His investigation covered the period from 14 April 1997, when AMH became trustee of the Trust, to 25 March 1998 when he took up his position as receiver. He summarised the tasks which he performed in section 3 of the Report. Briefly, the focus of his investigation was to review receipts and payments, reconciling documentary records relating to the movement of money. Thus, he tested the tail sheets, which recorded the daily sales of medical services and medication, to determine whether all of the sales were recorded as income of the Trust. Then he reconciled the total sales recorded in the tail sheets to the amounts banked into the Harveys account, to ensure that all the Trust income was banked. He compared the daily sales records with the Trust's general ledger, to determine if the income was correctly recorded in the ledger. He reconciled transfers from the Harveys account to the trustee' s bank account (originally the On Clinic account, until AMH opened an account) to ensure that the Trust received the income to which it was entitled. 55 He also endeavoured to vouch items in various expense accounts which together made up about 78 percent of total expenses of the Trust (that is, the expense accounts for advertising, medical supplies, legal expenses, travel, salaries and wages, and consulting fees), and to reconcile them with the Trust's general ledger. He examined payments to known related entities, and endeavoured to reconcile a sample of expense journals in the Trust's general ledger for each of the service companies to the relevant source documents. He reviewed the general ledgers of the service companies and endeavoured to reconcile them to source documents. He examined legal agreements between the Trust and related entities. 56 His review of these materials led Mr Madden to conclude that AMH had failed to maintain adequate books and records of the Trust which would enable true and fair accounts of the Trust to be produced . He set out his reasons for this conclusion in 14 bullet points at paragraph 1.23 of the Report. The reasons included the following: the Trust used On Clinic's bank account from 14 April 1997 to 22 August 1997; there was insufficient documentation to support payments made to entities associated with Mr Meehan; there was also insufficient documentation to evidence numerous Trust expenses, such as advertising, rent and travel; the contractual arrangements with consulting medical practitioners, unitholders and managers of the Trust were not adequately documented; there was inadequate monthly management reporting; and there were inadequate reconciliations of transfers between the Harveys Account and the bank accounts used by the Trust. Significantly for present purposes, Mr Madden found that there were inadequate controls surrounding related party transactions; and that Trust funds, third party funds and other funds were intermingled without adequate control. 57 In section 15 of the Report Mr Madden found that the requirement of the unitholders' deed that monthly management accounts be prepared, had not been observed. Moreover, he concluded that AMH would not have been able to prepare monthly accounts giving a true and fair view of the Trust's financial position from the inadequate books and records which were maintained . He noted that although the Trust had only two employees, salary and wage expenses relating to more than two employees were shown in the profit and loss accounts of AMH. AMH's stock records did not reconcile with amounts appearing in its financial statements. Approximately 35 percent of the total dollar value of travel expenses could not be substantiated. The majority of transactions between the Trust and entities associated with Mr Meehan did not have any supporting documentation. 58 There were no financial statements for the Trust. AMH prepared financial statements, which were audited, for the period ending 30 June 1997 and 31 December 1997. However, Mr Madden concluded from the minutes of the directors' meetings that the auditor was not appointed until 22 December 1997 or later. In cross-examination, he was asked why he did not pay greater regard to the audited financial statements. He explained that the auditor had conducted a limited audit of the Trust and had produced two reports, one being an audit report expressing a view on the balance sheet and profit and loss account of the Trust, and the other being an examination of revenue and expenses which the auditor called a 'compilation report'. The latter was a listing of revenue and expenditure of the Trust. The auditor stated that he had not audited this information. Mr Madden noted that under the relevant accounting standard for such a compilation report, what is required is accounting expertise rather than audit expertise. I accept Mr Madden's explanation of the limitations of the audit and I regard it as reasonable for him to proceed in the manner in which he did. 59 Mr Madden reported, as a general conclusion, that he was unable to complete the following tasks: • to obtain confirmation that all of the Trust's income was recorded in the general ledgers of either AMH or On Clinic (and consequently he was unable to confirm that the Trust received all of the income to which it was entitled); • to obtain confirmation that all expenses in the general ledger of On Clinic and AMH were actual expenses of the Trust, since he was unable to find supporting documentation for various payments; • to obtain confirmation that the charges of the service companies related solely to the trading of the Trust; • to reconcile the cash in AMH's bank account to its receipts and payments (Report, paras 3.4 and 1.6). This led him to conclude that it was impossible to prepare the account which Young J's orders of 18 March 1998 required. 60 In addition to the general conclusion, the Report contains findings on a large number of specific deficiencies in the materials that Mr Madden reviewed. The deficiencies related to: • an overall discrepancy between receipts and payments; • receipt of income from consultations and the sale of medication; • transactions with the service companies; • transactions with On Clinic; • transactions with Edgecliff Medical Centre Pty Ltd ('EMC'); • transactions with other entities related to Mr Meehan; • transactions with Impotency Anonymous; • transactions with Urodynamics; • discrepancies with respect to advertising expenditure; • transactions with LNV Medical Supplies Pty Ltd ('LNV'); • transactions with Acornsound Pty Ltd ('Acornsound'); • a payment of legal fees to Turtons; • payments to Ms Nielsen. 61 I believe it is important to set out and comment upon the detailed findings by Mr Madden in the Report, and I shall now do so." (underlining added) 50 I have underlined two parts of these paragraphs because, as will later be seen, they appear to have been particularly taken up by his Honour in his reasons published on 22 January 2001. 51 Austin J then went to the detailed findings in the report, under the headings "Overall discrepancy between receipts and payments"; "Receipt of income from consultations and the sale of medication"; "Transactions with the services companies"; "Transactions with On Clinic"; "Transactions with Edgecliff Medical Centre Pty Ltd (EMC)"; "Transactions with other entitles related to Mr Meehan"; "Transactions with Impotency Anonymous"; "Transactions with Urodynamics";· "Discrepancies with respect to advertising expenditure";· "Transactions with LNV Medical Supplies Pty Ltd ('LNV')"; "Transactions with Acornsound Pty Ltd ('Acornsound')"; "A payment of legal fees to Turtons";· and "Payments to Ms Nielsen". These headings corresponded with the areas of specific deficiency identified by his Honour in the report, Mr Madden's findings in those areas being contrasted by his Honour with the general conclusions summarised in the paragraphs I have set out. 52 As Austin J went through the detailed findings from time to time he observed that a finding did not itself establish a breach of trust, that it would not be appropriate for him to make any firm finding of breach of trust in the application for judicial advice, or to like effect; but that the finding raised a question whether there had been a breach of trust, or that there were at least reasonable grounds for apprehension that there had been a breach of trust, or that there were questions raised about possible breaches of duty, or to like effect. A variety of expressions was used, and do not extract all instances. It is clear that his Honour was at pains not to endorse the detailed findings by Mr Madden as findings by his Honour, and to categorise them as suggesting breaches of trust while refraining from finding breaches of trust. 53 This is confirmed by what his Honour said when considering the criticisms of the report put forward by the defendants. His Honour began - "112 Messrs Meehan and Murphy say two things in response to the Report. First, they emphasise that the Report makes no finding of defalcation or skimming of Trust money by them. This is correct. However, their point does not sufficiently take account of Mr Madden's numerous findings of inadequacies in the books and records of the Trust, and the many occasions upon which Mr Madden identified unexplained discrepancies. Indeed, it was his inability to account for discrepancies on the information available to him, which led him to conclude that it was impossible to prepare the account which (he believed) was required by Young J's orders - and therefore, one assumes, impossible to reach any conclusion as to whether skimming or other defalcation had occurred. It would be wrong to see the Report as exonerating Messrs Meehan and Murphy just because there was no positive finding against them." 54 After going through the particular criticisms constituting the other thing said in response to the report, none of which found favour, his Honour concluded the consideration of the criticisms - "129 Counsel submits that the vice of the Report is that it is calculated to convey an aura of suspicious conduct and improper administration, whereas in truth no misappropriation has been identified. It is true that the Report provides a basis for concern that breaches of trust and duty may have occurred, as I have found. But the Report does not rely on insinuation and innuendo. It focuses on facts about the movements of cash, and identifies inadequacies in the explanation of discrepancies. It does so in the context of a dispute between unitholders with respect to a trust controlled by the controller of the majority unitholder, who caused it to engage in complex and persistent transactions with other entities in which he was interested. The suspicion which naturally arises from these circumstances was created by Mr Meehan's activities, and it does not lie with him to complain if natural inferences are drawn from his conduct." 55 Mr Madden's report was again before Austin J on the applications by the notices of motion filed on 1 May 2000 and 30 August 2000. Its admissibility was contested, as was the significance of his Honour's reasons published on 3 April 2000 so far as his Honour then considered the report. It is not necessary for the disposal of the appeal to decide whether his Honour was correct in ruling that the report was admissible or in the regard he paid to his earlier reasons. 56 In his reasons published on 22 January 2001 his Honour said of Mr Madden's report - "15 In November 1998 Mr Madden prepared a substantial report of financial investigations into the trust. He reviewed receipts of and payments by the trust during the period from 14 April 1997 (when AMH became trustee) to 25 March 1998 when he became receiver. He endeavoured to test the information provided to him by the trustee and service companies against vouchers and other financial records. 16 He concluded that AMH had failed to maintain adequate books and records of the trust which would enable true and fair accounts to be produced. He found that there were inadequate controls surrounding related party transactions, and that trust funds, third party funds and other funds were intermingled without adequate control. He found that the requirement of the unitholders' deed that monthly management accounts be prepared, had not been observed, and that AMH would not have been able to prepare monthly accounts giving a true and fair view of the trust's financial position from the inadequate books and records that were maintained. 17 Mr Madden reported that he was unable to complete various tasks because of lack of information. Nevertheless, in addition to his general conclusion he found a large number of specific deficiencies in the materials that he reviewed, and his report listed them in detail. Many of the specific deficiencies concerned related party transactions." 57 After referring to the application for judicial advice, his Honour continued - "19 I decided that it was appropriate to give judicial advice to Mr Madden that he would be justified in taking no further steps as trustee and receiver, until further order of the Court. In the course of my lengthy reasons for this decision delivered on 3 April 2000 ([2000] NSWSC 253), I examined Mr Madden's report in detail and considered the criticisms of it advanced by Messrs Meehan and Murphy and the administrator of AMH. 20 I accepted the report, as amended by a subsequent affidavit by Mr Madden, as a balanced and accurate review of the information and materials presented to him, and I rejected the criticisms made on behalf of Messrs Meehan and Murphy and the administrator (at para 62 of my judgment). This finding implies that I accepted the general conclusions reached by Mr Madden, which I had summarised at paragraphs 56-59 of my judgment. I should emphasise that those general conclusions included Mr Madden's finding that AMH had failed to maintain adequate books and records which would enable true and fair accounts to be produced, and had failed to comply with the requirement of the unitholders' deed that monthly management accounts be prepared, and that financial records be maintained for that purpose. Mr Madden's general conclusions on these matters imply that AMH was in breach of its duties as trustee. 21 I then reviewed the specific findings in Mr Madden's report. Having considered his findings about the way income from consultations and the sale of medication was accounted for, I rejected the contention that the trust deed and the unitholders' deed authorised the intermingling of funds that had occurred. I said that while it would not be appropriate for me to make any firm finding of breach of trust on such a specific matter in an application for judicial advice such as was before me, there were at least reasonable grounds for apprehension that the intermingling of trust money with other money as recorded by Mr Madden was in breach of trust (at para 69). 22 I then considered Mr Madden's findings with respect to transactions between the trust and the service companies. Mr Madden had made it clear that he was hampered by a significant inadequacy of information. I found that Mr Madden's conclusions raised serious doubts as to whether breaches of trust may have occurred with respect to the service companies, and it would be reasonable to expect the parties who were in a position to remove those doubts (namely, Messrs Meehan and Murphy) to undertake the burden of doing so (para 75). 23 I then dealt with various other findings by Mr Madden which, in my view, raised serious concerns as to whether there had been breaches of trust. I reached the overall conclusion that the specific facts presented by Mr Madden provided reasonable grounds for concern that there had been breaches of trust and duty, but that there may be explanations which would overcome those concerns (para 141). 24 For present purposes, two things are significant about the conclusions that I reached in my judgment 3 April 2000. First, I found that in his report, Mr Madden had time and again identified serious grounds for concern about breaches of trust by AMH in which Messrs Meehan and Murphy may have been implicated. I thought it inappropriate to go beyond that finding by deciding that there had been breaches of trust with respect to specific matters, given the nature of the application before me. Secondly, I accepted Mr Madden's general conclusion about the inadequacy of the trust's accounting records. In that respect, I accepted that there was evidence of a breach of trust." 58 In dealing with the significance of his reasons published on 3 April 2000 his Honour said - "The relevance of my earlier reasons for judgment is that they may assist me to determine now, for the purposes of the present applications, whether the plaintiff has proven at least one instance of wilful default so that an order can be made for the taking of accounts on that basis. The question is whether the evidence that has been adduced in the present applications (including Mr Madden's report) satisfies me that there has been at least one instance of wilful default in circumstances raising a reasonable prima facie inference that there may have been other defaults. My reasons for judgment of 3 April 2000 are highly relevant to that question, because they set out the conclusions that I was able to draw upon Mr Madden's report after it had been vigorously challenged by the defendants, and I see no justifiable reason for not referring to them and taking them into account in the present application." 59 In due course his Honour posed the question, "Must at least one act of wilful default be established, and if so, is that requirement satisfied here?" He answered the first limb of the question in the affirmative. He then said - "78 In my opinion the plaintiff has satisfied the requirement to prove at least one instance of wilful default in the present case. I do not agree with the plaintiff that the consent orders imply any such finding. However, the Madden report is in evidence. After hearing evidence about that report including the cross-examination of Mr Madden, I reviewed the report extensively in my reasons for judgment of 3 April 2000. I accept the findings in the Madden report, for the reasons given earlier in this judgment and more fully set out in my previous judgment. Mr Madden's general conclusions included his finding that AMH had failed to maintain adequate books and records which would enable true and fair accounts to be produced, and had failed to comply with the requirement of the unitholders' deed that monthly management accounts be prepared, and that financial records be maintained for that purpose. My acceptance of these conclusions now constitutes a finding of wilful default, for the purpose of making an order for the taking of accounts on that basis." 60 Austin J concluded this section of his reasons - "My view that the Madden report disclosed numerous occasions giving rise to real concern as to breach of trust is more than enough to satisfy the requirement that the past conduct of the trustees must be such as to give rise to a reasonable prima facie inference that other breaches of trust have occurred: cf Re Tebbs at 863." 61 What did Austin J mean when he said that he accepted the findings in the Madden report? 62 Other than in the passages which I have set out above, his Honour did not in his reasons published on 22 January 2001 address the findings in the report. It is clear from those passages that his Honour did not mean that he accepted each and every finding in the Madden report. In the reasons of 3 April 2000 he had, as he said in the reasons of 22 January 2001, thought it inappropriate to go beyond finding serious grounds for concern about breaches of trust by deciding that there had been breaches of trust about specific matters, the specific matters plainly were the detailed findings in the report. The reasons of 22 January 2001 did not consider or explain moving from grounds for concern to actual breaches in relation to the detailed findings in the report. 63 Rather, as I read his Honour's reasons he meant that he accepted the findings to which here thereafter specifically referred, namely, the findings "that AMH had failed to maintain adequate books and records which would enable true and fair accounts to be produced, and had failed to comply with the requirement of the unitholders' deed that monthly management accounts be prepared, and that financial records be maintained for that purpose". Those findings were part of Mr Madden's general conclusions, and had been extracted in the reasons of 3 April 2000 (see the underlined parts of the paragraphs earlier set out). In the reasons of 3 April 2000 his Honour had not specifically accepted the general conclusions, but nor had he treated them as only raising serious grounds for concern. Then in the reasons of 22 January 2001 his Honour did accept general conclusions to which he specifically referred, and said that his acceptance of those conclusions constituted a finding of wilful default. 64 My reading of his Honour's reasons is, I believe, confirmed by regard to the concluding paragraph of that part of the reasons in which he regarded the Madden report as disclosing "numerous occasions giving rise to reasonable concern as to breach of trust", satisfying the requirement of "a reasonable prima facie inference that other breaches of trust have occurred". That is, the detailed findings were still no more than grounds for concern, and his Honour did not accept them as established breaches of trust. 65 It is then necessary to return to what amounts to wilful default, and to ask whether the matters found by Austin J were instances of wilful default. In an accounting by a trustee, the underlying concept is that through breach of trust the trustee has failed to obtain for the trust that which would have been obtained if the trustee's duties had been discharged. There may be simple failure to get in an asset of the trust; sale of a trust asset at an undervalue has been treated as wilful default, presumably because of failure to obtain for the trust the full value of the asset (re Tebbs); failure to obtain rent for a stranger's occupation of a trust property has been treated as wilful default (Bartlett v Barclays Bank Trust Co Ltd (No 2) (1980) 1 Ch 515). The breach of duty need not be conscious wrongdoing (Bartlett v Barclays Bank Trust Co Ltd (No 2) at 546). But wilful default is not coextensive with breach of trust: there may be a breach of trust which is not wilful default (see in re Wrightson: Wrightson v Cooke (1908) 1 Ch 789 at 799-800; Russell v Russell (1891) 17 VLR 729 at 732; In re Wood; Ebert v Union Trustee Company of Australia Ltd (1961) Qd R 375 at 378). 66 It is not necessary to explore in any more detail what may or may not amount to wilful default. It may be accepted that failure to maintain adequate books and records, to prepare monthly management accounts, and to maintain financial records for that purpose, were breaches of trust. It does not follow from the breaches that something was not received by the Trust or otherwise lost to it, on any reasonable amplitude of the concept of wilful default. Although there was a failing in record keeping, all assets of the Trust may have been got in and properly dealt with. I do not think that the matters found by Austin J were instances of wilful default. 67 Glazier did not by notice of contention put forward other instances of wilful default, or seek to have the proceedings remitted for further findings. The result 68 In my opinion the appeal should be upheld. It was not disputed that, if the order varying order 4 were set aside, the associated leave to amend and some of the consequential orders should also go. The adjustments proposed by the defendants in that respect were not disputed, save that the defendants proposed that orders 7 and 8 be set aside in their entirety while Glazier said they should only be amended "so far as is necessary to remove the requirement to account on the footing of wilful default." 69 Within this appears to be dispute over the proper order for common accounts. We heard no argument on that matter, and it is regrettably necessary to remit the proceedings to Austin J to finalise the orders. Orders 7 and 8 should be set aside, but that will not preclude further directions appropriate to taking common accounts. Nor will the orders made in the appeal preclude further directions varying the dates for steps in the taking of accounts. 70 Glazier submitted that regardless of the outcome of the appeal, the question of costs of the motion for directions before Austin J should be referred to his Honour "because the hearing before his Honour and the orders made by his Honour dealt with matters in addition to the wilful default issue". In his reasons of 22 January 2001 his Honour noted that the only substantive issue between the parties, apart from costs, was whether the accounts should be taken on the basis of wilful default. I can see no sufficient reason to take the course suggested. 71 I propose the following orders - 1. Appeal allowed. 2. Paragraphs 1, 2, 7, 8, 15 and 16 of the orders of Austin J made on 19 March 2001 set aside and para 3 of the orders varied by the deletion of the words "as varied by order 2 above". 3. Remit the proceedings to the Equity Division for such further directions, if any, as may be appropriate for the taking of accounts. 4. The respondent pay the appellants' costs of the notices of motion filed on 1 May 2000 and 30 August 2000 and of the appeal, and have a certificate under the Suitors Fund Act if qualified. ___________ DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.