New South Wales Court of Appeal CITATION: Mario Salvo & 2 Ors v New Tel Limited [2005] NSWCA 281 HEARING DATE(S): 5 May 2005 JUDGMENT DATE: 25 August 2005 JUDGMENT OF: Spigelman CJ at 1; Handley JA at 71; Young CJ in Eq at 83 DECISION: 1 Appeal and Cross-Appeal dismissed; 2 No order as to costs. CATCHWORDS: TRUSTS - Express trusts - Where money borrowed for purpose of purchasing company - Where money held on trust for lender - Where money paid as deposit - Where deposit returned - Whether returned deposit held on trust for lender - Discussion of Quistclose trusts - TRUSTS - Express trusts - Where subscription agreement created express trust of subscription price - Where subscription monies paid by cash and amounts set-off - Whether amounts set-off part of subscription price - Whether amount set-off held on trust - Whether any property capable of being subject-matter of trust - TRUSTS - Resulting trusts - Discussion Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In Liq) (2000) 202 CLR 588 Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (In liq) (1978) 141 CLR 335 Bahr v Nicolay (No 2) (1988) 164 CLR 604 Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Black Uhlans Inc v New South Wales Crime Commission (2002) 12 BPR 22,421 Boogadah Investments Pty Ltd v Westpac Banking Corporation (Unreported, New South Wales Court of Appeal, Mason P, Handley and Beazley JJA, 18 March 1998) Commonwealth v Booker International Pty Ltd [2002] NSWSC 292 Re Drucker; Ex parte Basden [1902] 2 KB 55 Edwards v Glyn (1859) 2 El & El 29; 121 ER 12 Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 Re EVTR Ltd [1987] BCLC 646 CASES CITED: Re Goldcorp Exchange Ltd; Kensington v Liggett [1995] 1 AC 74 Re Harmony & Montague Tin & Copper Mining Co (1873) LR 8 Ch App 407 Re Rogers; Holland v Hannen (1891) Morr 243 Re Watson (1912) 107 LT 96 Henry v Hammond [1913] 2 KB 515 Mac-Jordan Construction Ltd v Brookmount Erostin Ltd [1992] BCLC 350 Napier v Public Trustee (Western Australia) (1980) 32 ALR 153 Rob Evans v European Bank Ltd (2004) 61 NSWLR 75 Tito v Waddell (No 2) [1977] Ch 106 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 Twinsectra Ltd v Yardley [2002] 2 AC 164 Walker v Corboy (1990) 19 NSWLR 382 Mario Salvo (First Appellant/First Cross-Respondent) Bilpin Projects Pty Limited (Second Appellant/Second Cross-Respondent) PARTIES: New Era Telecommunications Pty Limited as trustee for Elray Property Group Trust (Third Appellant/Third Cross-Respondent) New Tel Limited (in liquidation) (Respondent/Cross-Appellant) FILE NUMBER(S): CA 40861/04 B Coles QC, R Brender (Appellants/Cross-Respondents) COUNSEL: D Hammerschlag SC, I Pike (Respondent/Cross-Appellant) Baker & McKenzie (Appellants/Cross-Respondents) SOLICITORS: Blake Dawson Waldron (Respondent/Cross-Appellants) LOWER COURT JURISDICTION: Supreme Court LOWER COURT FILE NUMBER(S): 50200/02 LOWER COURT JUDICIAL OFFICER: McDougall J - 26 - IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40861/04 SPIGELMAN CJ HANDLEY JA YOUNG CJ in Eq Thursday 25 August 2005 MARIO SALVO & 2 ORS v NEW TEL LIMITED The Appellants/Cross-Respondents ("the Investors") are investors who provided funds to New Tel Ltd ("New Tel") for the purpose of financing its business ventures. New Tel entered an arrangement to acquire Digiplus Investments Ltd ("Digiplus"), towards which purchase $2 million ("the Subscription Price") was to be raised by the issue of convertible notes to the Appellants pursuant to a Subscription Agreement. It was agreed that prior to the acquisition of Digiplus the Subscription Price was to be held in an account owned by New Tel's solicitors, Acuiti Legal ("the Acuiti Account"), on trust for the Investors. Pursuant to an earlier arrangement, the Investors were holders of other Convertible Notes issued by New Tel, which New Tel elected to redeem for a value of $850,000. This debt was "set-off" against the Investors' obligation to pay the Subscription Price. Accordingly, only $1.15 million was transferred into the Acuiti Account in fulfilment of the Investors' obligation to provide the Subscription Price. The purchase by New Tel of Digiplus required the payment of a $4 million deposit. With the consent of the Investors, $750,000 was taken from the Acuiti Account and applied towards the deposit. The acquisition of Digiplus did not go ahead, and the deposit was returned to New Tel. New Tel went into liquidation. The Investors claim that $1.6 million of the returned deposit is held on trust for their benefit. That sum is said to be comprised of the $750,000 transferred from the Acuiti Account, and the $850,000 paid by way of "set-off". At first instance, McDougall J found that a trust existed in respect of the $750,000, but not in respect of the $850,000. The Investors appealed the finding in relation to the $850,000. New Tel cross-appealed in respect of the $750,000. Held 1. In respect of the $750,000: (Per Spigelman CJ and Young CJ in Eq) (i) The sum was held on express trust for the Investors. [53], [96]. Re EVTR [1987] BCLC 646 followed. Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107; Walker v Corboy (1990) 19 NSWLR 382; Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In Liq) (2000) 202 CLR 588; Tito v Waddell (No 2) [1977] Ch 106; Commonwealth v Booker International Pty Ltd [2002] NSWSC 292 applied. Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567; Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (In liq) (1978) 141 CLR 335; Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491; Re Goldcorp Exchange Ltd; Kensington v Liggett [1995] 1 AC 74; Black Uhlans Inc v New South Wales Crime Commission (2002) 12 BPR 22,421 considered. Re Rogers; Holland v Hannen (1891) Morr 243; Edwards v Glyn (1859) 2 El & El 29; 121 ER 12; Re Drucker; Ex parte Basden [1902] 2 KB 55; Re Watson (1912) 107 LT 96; Henry v Hammond [1913] 2 KB 515; Twinsectra Ltd v Yardley [2002] 2 AC 164; Rob Evans v European Bank Ltd (2004) 61 NSWLR 75; Napier v Public Trustee (Western Australia) (1980) 32 ALR 153 referred to. (Per Handley JA) (ii) The sum was held on resulting trust for the Investors. [79]. Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 and Twinsectra Ltd v Yardley [2002] AC 164 followed. Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 considered. (Per Curiam) 2. There was no trust in respect of the $850,000. [64]-[67], [81], [84]. Mac-Jordan Construction Ltd v Brookmount Erostin Ltd [1992] BCLC 350 referred to. Re Harmony & Montague Tin & Copper Mining Co (1873) LR 8 Ch App 407; Boogadah Investments Pty Ltd v Westpac Banking Corporation (Unreported, New South Wales Court of Appeal, Mason P, Handley and Beazley JJA, 18 March 1998) distinguished. Orders 1. Appeal and Cross-Appeal Dismissed. 2. No order as to costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40861/04 SPIGELMAN CJ HANDLEY JA YOUNG CJ in Eq Thursday 25 August 2005 MARIO SALVO & 2 ORS v NEW TEL LIMITED Judgment 1 SPIGELMAN CJ: The Respondent, which is now in liquidation, owes the Appellants money which, by reason of two sets of circumstances, it is convenient to consider in two separate amounts of $750,000 and $850,000. The issue before the Court is whether either or both amounts are held in trust for the Appellants or whether the Appellants have to make their claims with the general body of unsecured creditors of New Tel. 2 McDougall J held that the amount of $750,000 was the subject of a Trust. His Honour held that the amount of $850,000 was not held on trust. The Appellants appeal from his Honour's judgment with respect to the $850,000. The Respondent cross-appeals with respect to the $750,000. 3 The Appellants are investors who provided or agreed to provide funds to the Respondent for the purpose of financing its business ventures. There were two distinct financing schemes relating, respectively, to Digiplus Investments Ltd ("Digiplus") and Delta Phones Pty Ltd ("Delta"). 4 New Tel entered into an arrangement to acquire Digiplus for a purchase price of $50 million. Of this amount $2 million was to be raised by the issue of convertible notes in New Tel ("the Digiplus Convertible Notes") pursuant to a Convertible Notes Subscription Agreement ("the Subscription Agreement"), to the relevant provisions of which I will refer below. That Agreement was varied in the manner which I will presently outline. 5 The Appellants agreed to subscribe for the Digiplus convertible notes and to pay the $2 million to be held in escrow pending completion of the acquisition by New Tel of Digiplus. The funds so subscribed were to be held by Acuiti Legal ("Acuiti"), New Tel's solicitors, on an express trust for the Appellants. In the event, New Tel did not proceed with the acquisition of Digiplus. 6 Pursuant to an earlier arrangement, relevant Appellants were the holders of other convertible notes ("the Delta Convertible Notes"), which had been issued by New Tel to fund the acquisition of a business conducted by Delta. Each of the note holders had given New Tel a conversion notice requiring their Delta Convertible Notes to be converted into shares in New Tel. New Tel elected to redeem those notes, rather than to have them converted into shares. Accordingly, New Tel owed the relevant Appellants the amount of the face value of these notes. 7 Of the $2 million that was to have been paid and held in escrow for the Digiplus Convertible Notes an amount of $850,000 was never paid. By means of what was called a "set-off", the obligation to pay that part of the $2 million was agreed to have been paid. 8 An amount of $1.15 million was paid into the escrow account of which $400,000 has been refunded. The balance of $750,000 is in dispute. 9 The difficulties that gave rise to these proceedings came about because the amount of $750,000 and, less clearly, the amount of $850,000, were each transferred, with the agreement of all relevant parties, to Henry Davis York ("HDY"), the solicitors for the vendors of the Digiplus business. Each amount was transferred to constitute part of a deposit which New Tel was contractually obliged to pay pursuant to the terms of the agreement under which it could acquire Digiplus. The balance of $400,000, which has been repaid, was never transferred by New Tel's solicitors to the solicitors for the vendors of Digiplus. 10 In the event, New Tel became entitled to a refund of its deposit, having properly terminated the acquisition agreement. The Appellants assert that, with respect to each of the amounts of $750,000 and $850,000, New Tel's entitlement is held on trust for the Appellants. The trust is said to be an express trust or, alternatively, an implied, resulting or constructive trust. The Respondent contests this contention. 11 There is no issue that New Tel does owe the two amounts to the Appellants. The purpose for which the funds were provided under the Subscription Agreement cannot be carried into effect in the light of New Tel's failure to proceed with the acquisition of Digiplus. The question is whether or not the Appellants are unsecured creditors. The Documentation 12 The relevant provisions of the Subscription Agreement are: "1.1 … Subscription Price means the amount of $2,000,000. 2 Condition Precedent 2.1 Condition Precedent Completion of this Agreement is conditional upon the completion of the purchase by the Company of the Digiplus Group of Companies. 2.2 Best Endeavours The Company must use its best endeavours to satisfy the condition precedent in clause 2.1 and promptly notify the Investors once it becomes apparent that the condition will be satisfied or is incapable of being satisfied. 2.3 Termination This Agreement will terminate and neither party will have any liability to the other (other than accrued prior to termination) if the condition precedent in clause 2.1 is not satisfied by 31 December 2002. 2.4 Pending Completion Pending satisfaction of the condition precedent the parties will hold the Subscription Price in accordance with clause 4. … 4 Escrow 4.1 Within 14 days of the date the Company gives notice to the Investors that the condition precedent set out in clause 2.1 will be satisfied, the Investors must pay the Subscription Price to the Company. 4.2 The Company will hold the Subscription Price pending Completion on the following terms: (a) The Subscription Price will be paid into the 'New Tel Digiplus Purchase Account'; (b) the company will hold the Subscription Price on trust for the Investors; (c) all interest which accrues on the Subscription Price whilst being held in the escrow account will be for the account of the Investors and such amount will be remitted to the Investors on Completion; (d) the Company must not release the Subscription Price from escrow until the condition precedent set out in clause 2.1 is satisfied and the Investors have provided a written authority authorising the funds to be released or until the Company receives written authorisation from all of the Investors giving another direction. 4.3 Pending the notification given by the Company to the Investors in clause 4.1 above, the Investors will provide to the Company a bank guarantee or similar confirmation from a major retail bank that the Investors will have the Subscription Price available to complete the subscription for the Convertible Notes as and when the Subscription becomes due and payable. 4.4 Upon the provision of the Subscription Price to the Company to be held on the terms noted in clause 4.2, should the acquisition of the Digiplus Group of Companies not complete for whatever reason within thirty (30) days of the Investors transferring the Subscription Price to the Company, the Investors may issue a notice to the Company requesting a refund of the Subscription Price together with all interest earned and the Company shall upon receipt of such notice refund to the Investors the Subscription Price together with all interests earned on the Subscription Price up to the date the Subscription Price is returned to the Investors." 13 By exchange of emails on 23 and 24 September 2002, the parties agreed to substitute the Acuiti Legal trust account for the account nominated in cl 4.2(a). 14 The "set-off" transactions occurred in two tranches. 15 The first letter of set-off involved an amount of $600,000. It provided: "We refer to the Convertible Note Subscription Agreement dated 24 June 2002 (Subscription Agreement) between New Tel Limited (Company) and New Era Telecommunications Pty Limited as trustee for the Elray Property Group Trust (New Era), Bilpin Projects Pty Limited (Bilpin) and Mario Salvo (Salvo) (each an Investor and together the Investors). We refer to the convertible note with note face value of $1,333,333 (Delta Convertible Note) issued by the Company on 8 August 2002 to each of Distinctive FX Pty Limited (DFX), Bilpin and Elray Property Group Pty Limited (Elray) (each a Vendor and together the Vendors) pursuant to clause 3.2 of the Share Purchase Agreement dated 24 July 2002 in respect of shares in Delta Phones Pty Limited (Delta) between the Company, Delta and the Vendors. We refer to the conversion notes dated 11 September 2002 issued by each Vendor to the Company in respect of the face value amount of $200,000 of the Delta Convertible Note. The Company has elected under clause 4(b) of the conditions of Issue of the Delta Convertible Note and hereby gives each Vendor notice that it shall redeem in whole the $200,000 face value amount and not convert that amount into shares of the Company. The parties hereby agree that the Company's payment of $600,000 to the Vendors in respect of the Delta Convertible Notes shall be set-off against the payment by the Investors of $2 million under the Subscription Agreement. Accordingly, the relevant parties hereby agree and undertake to each other that upon payment by the Investors of $1.4 million to the Company by close of business 20 September 2002: (a) the Investors shall have satisfied in full their obligation to pay the $2 million subscription price to the Company under the Subscription Agreement; and (b) the Company shall have satisfied in full its obligation to pay the $200,000 specified conversion amount to each vendor under the Delta Convertible Note." 16 The second letter of set-off involved an amount of $250,000. It provided: "BACKGROUND 1 Pursuant to the Convertible Note Subscription Agreement dated 24 June 2002 (Subscription Agreement) between New Tel Limited (New Tel) and New Era Telecommunications Pty Limited as trustee for the Elray Property Group Trust (New Era), Bilpin Projects Pty Limited (Bilpin) and Mario Salvo (Salvo) (each an Investor and together the Investor parties) the Investor parties agreed to pay New Tel a total of $2 million (Subscription Price) for convertible notes to be issued at a note face value of $0.225 subject to the completion of New Tel's purchase of the Digiplus Group of Companies. The individual subscription amounts and number of convertible notes are set out in Part A of Schedule 1. 2 Pursuant to the Share Purchase Agreement in respect of Delta Phones Pty Limited dated 24 July 2002 between New Tel as purchaser and Bilpin, Distinctive FX Pty Limited (DFX) and Elray Property Group Pty Limited (Elray) (each a Vendor and together the Vendor parties), New Tel issued on 8 August 2002 to each Vendor a convertible note each with note face value of $1,333,333 (Delta Note) as payment of part of the purchase price. 3 On 11 September 2002 each Vendor party issued to New Tel a notice requesting $200,000 of the Delta Note to be converted into shares of New Tel (each a First Conversion Notice). New Tel exercised its option to redeem all of the $200,000 amount instead of issuing shares under the Delta Note. 4 On 19 September 2002 each Vendor party issued to New Tel a notice requesting a further $300,000 of the Delta Note to be converted into shares of New Tel (each a Second Conversion Notice). 5 By Letter of Variation dated 20 September 2002 between New Tel and the Investor parties the note face value of the convertible notes to be issued pursuant to the Subscription Agreement was amended from 22.5 cents to 20 cents per share. 6 By Letter of Set-Off of Payments dated 20 September 2002 between New Tel, the Investor parties and the Vendor parties agreed to set-off certain amounts due to the Vendor parties under the First Conversion Notice against the subscription monies due from the Investor Parties under the Subscription Agreement. The individual subscription amounts, set-off amounts and number of convertible notes as amended by the above-mentioned Letters are set out in Part B of Schedule 1. 7 On 27 September 2002, $1,150,000 of the $2 million Subscription Price was paid to New Tel. Salvo provided $683,334 by way of electronic transfer of funds and Bilpin provided $466,666 by way of cheque. By agreement between the parties the $1.15 million was deposited into the trust account of Acuiti Legal ('Acuiti Legal Trust Account' No. 182-222 3004-28984 at Macquarie Bank, 20 Bond Street, Sydney NSW) instead of New Tel's 'New Tel Digiplus Acquisition Account'. 8 By Authority to Transfer Funds dated 9 October 2002 New Tel and the Investor parties, the Investor parties authorised the transfer of the $1.15 million funds of the Subscription Price from the Acuiti Legal Trust Account to the Henry David York Trust Account – Account No: 30-0114, BSB No: 032-000 at Westpac Bank Corporation, 341 George Street, Sydney. New Tel confirmed its permission to the transfer of these funds. The parties acknowledged that the $1.15 million funds of the Subscription Price shall be held in the Henry Davis York Trust Account subject to and until completion of New Tel's acquisition of the Digiplus Group of Companies. AGREEMENT … 3 In respect of the Second Conversion Notice issued by Elray, New Tel has agreed to convert $50,000 of the $300,000 Second Conversion Notice amount into shares in New Tel and to redeem the balance of $250,000 by setting-off this amount against and in full satisfaction of the amount of $250,000 due from New Era as part of the Subscription Price. The number of shares to be issued is as set out in Part D of Schedule 1 and is calculated by reference to the closing price of New Tel's shares on 8 October 2002, being 9.2 centres per share. These shares shall be issued by close of business on Friday, 11 October 2002. 4 The parties acknowledge and agree that $1.15 million represents the total cash component of the Subscription Price payable to and received by New Tel from the Investor parties following set-off of the various redemption amounts referred to above. Further, subject to and upon completion of New Tel's purchase of the Digiplus Group of Companies, the Investor parties shall be issued convertible notes under the Subscription Agreement for the individual amounts and number of notes as set out in Part E of Schedule 1." 17 As noted above, investors including the Appellants authorised the transfer of funds from Acuiti to HDY for the vendors. The Authority to Transfer Funds of 11 October 2002 provided: "We refer to the Convertible Note Subscription Agreement dated 24 June 2002 (Subscription Agreement) between New Tel Limited (Company) and New Era Telecommunications Pty Limited as trustee for the Elray Property Group Trust (New Era), Bilpin Projects Pty Limited (Bilpin) and Mario Salvo (Salvo) (each an Investor and together the Investor parties) and the Letter of Set-Off of Payments dated on or about 20 September 2002 between the above parties and others. We confirm that on 27 September 2002, $1,150,000 of the $2 million Subscription Price under the Subscription Agreement was paid to New Tel (Salvo provided $683,334 by way of electronic transfer of funds and Bilpin/Joseph Touma provided $466,666 by way of cheque). The $1.15 million was deposited into the trust account of Acuiti Legal ('Acuiti Legal Trust Account' No. 182-222 3004-28984 at Macquarie Bank, 20 Bond Street, Sydney NSW). None of the outstanding $850,000 is to be received by New Tel in cash as this amount has been set-off against the purchase price for the acquisition of Delta Phones Pty Ltd. The Investor parties authorise and direct the transfer of the $1.15 million funds of the Subscription Price from the Acuiti Legal Trust Account to the Henry Davis York Trust Account (Account No: 30-0144, BSB No: 032-000 at Westpac Bank Corporation, 341 George Street, Sydney). New Tel confirms its written permission to the transfer of the $1.15 million funds from the Acuiti Legal Trust Account to the above-mentioned Henry David York Trust Account. The parties acknowledge and agree that the $1.15 million funds of the Subscription Price shall be held in the Henry David York Trust Account subject to and until completion of the Digiplus acquisition." 18 New Tel's solicitors received a Deed of Release from the Appellants which provided in part: "By Authority To Transfer Funds dated 10 October 2002, the Investor parties authorised the transfer of $750,000 of the Subscription Price from the Acuiti Legal Trust Account to the Henry David York Trust Account (Account No: 30-0114, BSB No: 032-000 at Westpac Bank Corporation, 341 George Street, Sydney). By signing this Deed of Release and authorising Acuiti Legal to transfer the funds to Henry Davis York, we hereby: (a) mutually forever release and discharge Acuiti Legal in respect of any obligations, or liabilities, actions, proceedings, Claims, costs, rights and demands which any Investor party now has or might have or would have had whether existing now or arising in the future but for the execution of this Deed; (b) Individually waive any rights or powers an Investor party may have or may have had; and (c) promise not to institute, or threaten to institute, any proceedings or any other action, under or in relation to or in any way connected with the transfer of $750,000 previously held in Acuiti Legal's Trust Account." 19 The $750,000 received by HDY was part of a total of $4 million paid on 11 October 2002 as a deposit under the Share Purchase Agreement, pursuant to which New Tel would acquire Digiplus, specifically under a Deed of Variation thereof which provided: " 5.10 Second Deposit (a) On or before 11 October 2002, the Buyer must (subject to the Buyer receiving an undertaking from the Deposit Holder, to the Buyer's reasonable satisfaction, that the Deposit Holder will hold the Second Deposit in accordance with the terms of clause 5.10) pay the Second Deposit to the Deposit Holder. (b) The Buyer and the Sellers must jointly instruct the Deposit Holder to: (1) invest the Second Deposit in an interest bearing trust account with a reputable bank in Australia; and (2) withdraw the Second Deposit and accrued interest on Completion or termination of this agreement and pay it to the person entitled to it under this clause 5.10. (c) The Sellers are entitled to the Second Deposit (in equal proportions) together with any interest accrued on the Second Deposit: (1) if Completion occurs, in all circumstances; (2) if Completion does not occur or this agreement terminates, in all circumstances except if the Second Deposit is forfeited by the Seller under clause 5.10(d) of this agreement. (d) The Sellers forfeit the Second Deposit: (1) if the Sellers or the Guarantors or Digiplus or any of them is in material breach of any term of this agreement and Completion does not proceed; or (2) if Completion does not proceed because: (A) the Sellers elect not to waive the condition precedent to Completion set out in clause 2.1(h); or (B) the Sellers or Guarantors fail to take any action required to satisfy the condition precedent set out in clause 2.1(l) and 2.1(m); … (e) The person(s) who are entitled to the Deposit bear the risk of losing the Deposit." 20 The undertaking referred to in 5.10(a) was given. Ultimately, 5.10(d)(2) had effect and the sellers forfeited the deposit. 21 On 31 October the Digiplus acquisition by New Tel failed to complete and on that day, pursuant to cl 4.4 of the Subscription Agreement, the Appellants served a notice on New Tel which, relevantly, stated: "… the Investors hereby demand a refund of the Subscription Price paid together with all accrued interest earned …" 22 On 14 November New Tel sent to Digiplus and HDY a document entitled "Irrevocable Authority to Transfer Funds". The document stated: "We note that an amount of $1,600,000.00 was provided by New Tel Limited ('the 'Company') by New Era Telecommunications Pty Limited as trustee for the Elray Property Group Trust, Bilpin Pty Limited and Mario Salvo (together the 'Investor Parties') and which was held on trust by the Company pending the completion of the Digiplus Group of Companies is currently held by Henry Davis York Solicitors as part of the second deposit of $4,000,000.00 which was provided by the Company to Digiplus (the 'Second Deposit'). A demand has been made for the return of the Second Deposit and the Investor Parties have maintained a proprietary claim in relation to the amount of $1,600,000.00 of the Second Deposit as being held on a purpose trust for the Investor Parties. The Company hereby directs Henry Davis York Solicitors (the 'Law Firm') to immediately pay the amount of $1,600,000.00 plus any accrued interest, as notified by the Company, from the Trust Account of the Law Firm to Acuiti Legal in the form of a cheque. In consideration of the terms hereof the Company agrees that this Authority to Transfer shall be irrevocable." The Sum of $750,000 23 An express trust was created pursuant to cl 4.2(b) of the Subscription Agreement. McDougall J held that notwithstanding the series of transactions that occurred, including critically the transfer of this amount from the Acuiti Legal Trust Account to the HDY Trust Account, the sum of $750,000 remained subject to the cl 4.2(b) trust. His Honour identified an intention to create, or rather to maintain, the trust established by cl 4.2(b) of the Subscription Agreement which, his Honour concluded, was varied by the agreement to substitute the Acuiti Legal Trust Account, by the two letters of set-off and by the Deed of Variation. His Honour referred to the terms of the Authority to Transfer Funds and of the Deed of Release as confirming his Honour's conclusion about the intention of the parties to create a trust and to identify the subject matter of that trust. 24 The steps in his Honour's reasoning were as follows: (i) An express trust for the Subscription Price was created under cl 4 of the Subscription Agreement ([58]). (ii) The Acuiti Legal Trust Account replaced the New Tel Digiplus Purchase Account for purposes of the Subscription Agreement ([62]). (iii) The parties intended that Acuiti Legal would hold the amount received, relevantly $750,000, on the terms of the trust established under the Subscription Agreement on trust for, relevantly, the Appellants ([67]-[69]). (iv) The second letter of set-off confirmed that the sum of $750,000 had been paid and received on the terms of the Subscription Agreement and the payment to the Acuiti Legal Trust Account had not affected its status ([72]-[73]). (v) After the transfer of the funds HDY held the amount of $750,000 on the terms of cl 5.10 of the Share Purchase Agreement, not as a trustee under the terms of cl 4.2(b) of the Subscription Agreement ([76]). (vi) If New Tel became entitled to a return of the deposit then it would hold its interest in the deposit on trust for the Appellants under cl 4.2(b) ([78]-[79]). (vii) Specifically, the reference in the Authority to Transfer Funds to the effect that the amount transferred "shall be held in the Henry David York Trust Account subject to and until completion of the Digiplus acquisition" was intended as an acknowledgment between, relevantly, the Cross-Appellants and the Cross-Respondents, that the amount transferred to the HDY Account "would remain impressed with a trust on the terms, so far as applicable, of cl 4.2(b)" ([79]). (viii) Accordingly, if the sellers forfeited their interest in the deposit and the entitlement to it reverted to New Tel "New Tel would hold the entitlement at least as to $750,000 on trust for the plaintiffs" ([80]). (iv) The references in the irrevocable authority of 14 November 2002 to the moneys being held in trust confirmed that the parties intended that, as between them, "the sum of $750,000 should be treated as subject (so far as possible) to the cl 4.2(b) trust notwithstanding it was paid to Henry Davis York to be held as part of the second deposit" ([88]). 25 Mr D Hammerschlag SC, who appeared for the Respondent/Cross-Appellant, accepted that a trust pursuant to the Subscription Agreement existed up to the point of time when the monies were released from the Acuiti Trust Account. However, once the monies were released to Henry Davis York there was, he submitted, no trust under the Subscription Agreement. Contrary to his Honour's conclusion, he submitted, there was no trust because the mechanism for dealing with the trust funds under the Subscription Agreement could no longer operate. Once the sum was transferred, HDY held it under the terms of cl 5.10 of the Share Purchase Agreement. Clause 4.2(d) made provision for the release of the funds pursuant to "another direction" by the Investors. Such a direction was given, i.e. the direction to pay the monies to the HDY Trust Account. He submitted that once the monies were so released, the trust had done its work. He submitted that the trust had ceased to exist either by mutual discharge or by operation of the "direction" under cl 4.2(d). 26 The Appellants/Cross-Respondents supported his Honour's conclusion that the parties intended to create an express trust with respect to the sum of $750,000. Mr B Coles QC, who appeared for the Appellants/Cross-Respondents, adopted his Honour's reasons. The change in the nature of the trust, with the effect that the Investors were put at risk if the deposit were forfeited, was not, he submitted, inconsistent with the continued existence of a trust. 27 Mr Coles QC submitted that the possibility of forfeiture of the deposit constituted an agreement by the beneficiaries that there would be no breach of trust if the monies were to be lost in that fashion. That, however, was the full extent of the dispensation which the beneficiaries gave to the trustee. There was no intention to extinguish the trust. They were, in effect, consenting to a release of the trust on a condition, which condition did not eventuate. Accordingly, he submitted, New Tel remained a trustee for the Appellants. 28 The submission of Mr Coles QC, that the same trust persisted throughout, was directed in large measure to support the appeal with respect to the sum of $850,000. It was not a necessary basis for the case of the Cross-Respondents with respect to the sum of $750,000. Mr Coles QC put an alternative submission that New Tel held on trust for the Investors the chose in action constituting its entitlement to the relevant part of the funds in the HDY trust account. 29 Mr Hammerschlag SC accepted (see T26 12-16) that his Honour's analysis was to the effect that New Tel held in trust for the Appellants whatever entitlement New Tel had with respect to the deposit of $750,000. That does appear to be the intent of his Honour's analysis, although not expressed in that way. On this basis the trust created under the Amended Subscription Agreement, with Acuiti as trustee and the trust property as the funds in the Acuiti Trust Account, had been substituted by a trust in which New Tel was the trustee of trust property constituted by its entitlement to the deposit, whatever that entitlement might be from time to time. This is not accurately described as a trust under cl 4.2(b) of the Subscription Agreement but it reflects, in my opinion, the thrust of his Honour's analysis. 30 In my opinion the express trust created by the Subscription Agreement, as amended to substitute Acuiti Legal as trustee of the Subscription Price, was terminated upon the transfer of the funds to HDY. The authority to transfer to HDY was "another direction" within cl 4.2(d) and, thereafter, neither New Tel nor Acuiti could satisfy the description in cl 4.2(b) that it would "hold the Subscription Price on trust for the Investors". At no time did New Tel "hold" anything that could answer the description of the "Subscription Price". 31 Upon the transfer of the funds to HDY, there was a risk that the deposit could be lost by New Tel and, therefore, terminate any beneficial interest of the Appellants in the funds. The existence of that risk is not, however, in my opinion, determinative of the issue before the Court. The issue to be determined is whether or not a new express trust was created between New Tel as trustee and the Appellants as beneficiaries, with the relevant trust property being the chose in action constituted by New Tel's entitlement to the return of that part of the deposit constituted by the $750,000 transferred from the Acuiti Trust Account. 32 In my opinion, the present is a case such as that determined to exist in Bahr v Nicolay (No 2) (1988) 164 CLR 604, where Mason CJ and Dawson J said at 618–619: "If the inference to be draw is that the parties intended to create or protect an interest in a third party and the trust relationship is the appropriate means of creating or protecting that interest or of giving effect to the intention, then there is no reason why in a given case an intention to create a trust should not be inferred. The present is such a case. The trust is an express, not a constructive, trust." 33 It is well established that an intention to create an express trust can be inferred from the full range of relevant circumstances, including the nature of the transaction and the construction of the words used. (See Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 120; Walker v Corboy (1990) 19 NSWLR 382 esp at 395–399; Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In Liq) (2000) 202 CLR 588 at [34]; Tito v Waddell (No 2) [1977] Ch 106 at 211. The relevant case law has been summarised by Campbell J in Commonwealth v Booker International Pty Ltd [2002] NSWSC 292 at [34]–[45].) There are cases in which it is pertinent to consider the mutual intention of the parties to a transaction. (See Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 at 580B; Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (In liq) (1978) 141 CLR 335 at 353; Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 at 502–503; Re Goldcorp Exchange Ltd; Kensington v Liggett [1995] 1 AC 74 at 100.) 34 As Gummow J put it in Re Australian Elizabethan Theatre Trust supra at 503: "The relevant intention is to be inferred from the language employed by the parties in question and to that end the court may look also to the nature of the transaction and the relevant circumstances attending the relationship between them: Walker v Corboy (1990) 19 NSWLR 382; Scott, The Law of Trusts , 4th ed, 1987, s25.2. There is no need for particular caution in drawing the inference that a trust was intended: Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 618–19. However, it also is important to appreciate both the flexibility of the institution of the express trust and the range of equitable institutions which fall short of but have some of the characteristics of a trust." 35 In the present case the relevant circumstances include the existence of an express trust; the nature, scope and purpose of the transaction by which funds were received by Acuiti and subsequently released from the Acuiti Trust Account to the HDY Trust Account, and the language of both the Authority to Transfer and the second letter of set-off. In my opinion, the combined effect of the circumstances indicates an intention to create an express trust. 36 In determining the intention of the parties in this case, the existence of the express trust under cl 4.2(b) of the Subscription Agreement is, of course, the starting point. It is most unlikely that the relevant parties, i.e. New Tel and the Appellants, would authorise the disposition of funds so held on any basis other than the retention of a beneficial interest on the part of the Appellants. There is nothing in the evidence to suggest that anyone intended that the Investors' beneficial interest in the funds had been transmogrified into a mere debt. 37 The original purpose to be served by keeping the funds identifiable and separate was to ensure their return if the transaction did not go ahead. The transfer to HDY did add a level of risk, however the original purpose remained. (I do not intend by the use of the word "purpose" to identify a distinct species of express trust. See Jacobs Law of Trusts in Australia 6th ed, Butterworths, Sydney, 1997 [214] at p15; Re Australian Elizabethan Theatre Trust supra at 502, commenting on the use of the word "purpose" in Quistclose.) Equity has often intervened to ensure that funds advanced for a particular purpose are not applied otherwise. (See e.g. Re Rogers; Holland v Hannen (1891) Morr 243 at 248; Edwards v Glyn (1859) 2 El & El 29; 121 ER 12 at 50–51; Re Drucker; Ex parte Basden [1902] 2 KB 55; Re Watson (1912) 107 LT 96 at 183.) 38 It is of significance that the sum of $750,000 was never released to New Tel but was always kept separate, until transferred to HDY in satisfaction of New Tel's obligation to pay a deposit. The balance of the deposit was met, in large measure, from New Tel's own funds. Segregation of funds is indicative, but not conclusive, on the intention to create a trust. (See e.g. Henry v Hammond [1913] 2 KB 515 at 521; Walker v Corby supra at 397–398; Re Australian Elizabethan Theatre Trust supra at 505–506.) In the present case there was no segregation in the HDY Trust Account, but as between New Tel and the Appellants, the funds flowed in separate streams. 39 Subsequent documentation referred to the sum of $1.15 million of which, as noted above, $400,000 has been repaid, leaving the balance of $750,000 in issue. For purposes of clarity, hereafter I substitute "$750,000" for references in the documents to "$1.15 million". 40 In the second letter of set-off, to repeat, the parties stated: "Background … 8 … The parties acknowledge that the [$750,000] funds of the Subscription Price shall be held in the Henry Davis York Trust Account subject to and until completion of New Tel's acquisition of the Digiplus group of companies. Agreement … 4 The parties acknowledge and agree that [$750,000] represents the total cash component of the Subscription Price payable to and received by New Tel from the investor parties … Further, subject to and upon completion of New Tel's purchase of the Digiplus group of companies, the investor parties shall be issued convertible notes under the Subscription Agreement …" 41 These references clearly relate the sum of $750,000 to the Subscription Agreement and the twice repeated formulation "subject to and until completion of New Tel's acquisition of the Digiplus group of companies" identifies the condition precedent in cl 2.1 of the Agreement. This formulation is not a reference to the acquisition under the Share Purchase Agreement, which is a document entered into between parties to whom the letter of set-off does not refer. The contingency that the deposit may be lost to New Tel is not treated as in any way pertinent to the relationship between the parties to the letter of set-off. That the parties inter se agree that the $750,000 is held by HDY "subject to" completion of the acquisition, when the convertible notes will issue, does support an inference that, as between the parties, there is an intention to create an express trust. 42 A similar analysis applies to the passage in the critical document, the Authority to Transfer Funds of 11 October 2002, which, to repeat, stated: "The parties acknowledge and agree that the [$750,000] funds of the Subscription Price shall held in the Henry Davis York Trust Account subject to and until completion of the Digiplus acquisition." 43 The Authority contains express references to the Subscription Agreement. The funds are throughout characterised as part of the "Subscription Price", invoking the definition of that term in the Subscription Agreement as an amount invested under, and in accordance with the terms of, that Agreement. The particular reference in the Authority to the words "subject to and until completion of the Digiplus acquisition" is, like the equivalent formulation in the second letter of set-off, a reference to the condition precedent in cl 2.1 of the Subscription Agreement, namely the completion of the purchase by New Tel of the Digiplus group of companies. That there may be circumstances in which the deposit may be forfeited under cl 5.10 does not detract from the proposition that, between New Tel and the Appellants, the parties intended New Tel's entitlements to be subject to a trust. 44 In Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 Quistclose lent money to Rolls Razor Limited for the purpose of paying its final dividend. Lord Wilberforce said at 580 that "the arrangements give rise to a relationship of a fiduciary character or trust, in favour, as a primary trust, of the creditors, and secondarily, if the primary trust fails, of the lender". His Lordship added: "…the essence of the bargain, was that the sum advanced should not become part of the assets of Rolls Razor Ltd, but should be used exclusively for payment of a particular class of creditors, namely, those entitled to the dividend. A necessary consequence of this, by process simply of interpretation must be that if, for any reason, the dividend could not be paid, the money was to be returned to the respondents." 45 In Re EVTR Ltd [1987] BCLC 646 funds were advanced for the sole purpose of purchasing equipment. The money was used to pay a deposit for the equipment, but the company was placed into receivership before the equipment arrived. Most of the deposit was returned to EVTR. The Court held that the receiver could not retain the returned deposit money. The funds had to be returned to the lender. Dillon J said: "On Quistclose principles, a resulting trust in favour of the provider of the money arises when money is provided for a particular purpose only, and that purpose fails." 46 Furthermore, Bingham LJ (as his Lordship then was) said at 652: "Until the sums were paid out, the company plainly held them on trust to apply them for the stipulated purpose and no other. Had the purpose failed before payment, the case would have been indistinguishable from Quistclose. But that did not happen. The sums were applied for the stipulated purpose. … It would, I think, strike most people as very hard if the appellant were in this situation to be confined to a claim as an unsecured creditor of the company. While it is literally true that the fund which he provided was applied to the stipulated purpose, the object of the payment was not achieved and that was why the balance was repaid to the respondents. My doubt has been whether the law as it stands enables effect to be given to what I can see as the common fairness of the situation. Our attention has not, I think, been drawn to any case closely analogous to the present. But the company certainly held the fund on trust in the first instance. The purpose for which the fund was paid out partially failed. The repayment to the respondents was a direct result of the company's original holding of the fund as trustee. The balance which was recovered may reasonably regarded as not having been paid out at all. I am happy to be persuaded that the sums repaid are to be treated as held on the same trusts as the original £60,000 and, in the present circumstances, on a resulting trust for the appellant." 47 It is not necessary to determine whether the analysis in English cases of a resulting trust applies in Australia. (See also Twinsectra Ltd v Yardley [2002] 2 AC 164 at [100].) The circumstances in which a trust should be classified as presumed, resulting or constructive are not the subject of any authoritative determination. (See the references set out in Rob Evans v European Bank Ltd (2004) 61 NSWLR 75 at [112]-[116].) 48 The reasoning in EVTR, where a deposit was returned by a third party, applies in the present case to support the conclusion that the original supplier of funds retained a beneficial interest in the funds. 49 In this case, as in EVTR, it was the intention of the supplier of funds, relevantly the Appellants, that the money was to be applied and applied only for a specific purpose (i.e. the purchase of the equipment in EVTR or the Digiplus acquisition in the present case). The money was applied towards a deposit in partial fulfilment of the purpose which was not fulfilled (i.e. the failure of the equipment purchase in EVTR or the Digiplus acquisition in the present case). The return of the deposit in each case meant that the beneficial interest in the funds of the supplier became an express trust of the deposit in the hands of the recipient. 50 Gummow J said in Re Australian Elizabethan Theatre Trust supra at 501: "But the essential reason the insolvency law did not strike at the transaction in question in Quistclose was that the moneys represented by the cheque drawn by Quistclose in favour of Rolls Razor and banked in the special account of Rolls Razor never at any stage became the beneficial property of Rolls Razor. It acquired no more than what Dixon J called a dry legal interest: see Commissioner for Stamp Duties (NSW) v Perpetual Trustee Co Ltd, supra, at 510. On its part, Quistclose had both a contractual right to repayment out of the general assets of Rolls Razor, as a general creditor, and the beneficial interest in a fund, whether by way of resulting trust or as the second limb of an express trust." 51 Here, the beneficial interest was similarly kept from New Tel. In my opinion, at all relevant times, the Investors retained a beneficial interest in the funds – although it was not an exclusive beneficial interest. At no time did the money become the beneficial property of New Tel. 52 The Authority to Transfer Funds itself made it quite clear that the funds were released to the HDY Account only for the purposes of the Digiplus acquisition. In my opinion, New Tel and the vendors could not have agreed between themselves to vary the terms upon which the deposit was held by HDY. Equity would have intervened to prevent the disposition of the funds held in the HDY Trust Account, save in accordance with the terms of the Share Purchase Agreement which existed at the time of the deposit, including the risk of forfeiture of the deposit under cl 5.10. 53 In the present case, there was an express trust of New Tel's chose in action being its bundle of rights to the sum of $750,000 paid as a part of the deposit under the Share Purchase Agreement, in whatever form that chose of action took from time to time. Relevantly, the express trust applied upon repayment of the deposit from the HDY Trust Account to give the Appellants a beneficial entitlement to those funds. 54 Accordingly the cross-appeal should be dismissed. The Sum of $850,000 55 Of the $2 million originally proposed to be paid into the Acuiti Trust Account, an amount of $850,000 was not in fact paid. Pursuant to the two agreements referred to as "set-offs", the obligation to make payment in this amount was treated as having been satisfied. 56 The obligation of New Tel, pursuant to the company's election to redeem the face value of the convertible notes, with respect to the respective amounts of $600,000 and $250,000, was described as follows: (i) In the first letter of set-off: "… shall be set-off against the payment by the investors of $2 million under the Subscription Agreement" and upon payment of the balance "the Investors shall have satisfied in full their obligation to pay the $2 million subscription price to the Company under the Subscription Agreement". (ii) In the second letter of set-off: the company will have redeemed the amount of $250,000 "by setting-off this amount against and in full satisfaction of the amount of $250,000 due … as part of the subscription price" and, with respect to the reduced amount now payable in cash, "the parties acknowledge and agree that $1.15 million represents the total cash component of the subscription price payable to and received by New Tel from the investor parties following set-off of the various redemption amounts referred to above". 57 His Honour's analysis with respect to the sum of $850,000 was as follows: (i) There was no "obligation on New Tel to set aside, in a separate fund, the amounts treated as paid by way of set-off" ([97]). (ii) Both of the letters of set-off "make a clear distinction between the process of set-off … and the obligation to pay so much of the Subscription Price as, after the set-offs, remained outstanding" ([98]). (iii) The reference in the second letter of set-off to the "Final Subscription Price" as "comprising cash paid in set-off amounts" did not intend to treat the amount taken to have been paid "as impressed with the trusts that … were impressed on the cash amounts paid" ([99]). (iv) The obligation to pay the $850,000 was, following the execution of the respective letters of set-off, discharged ([101]). (v) Having discharged any obligation to make such a payment the operation of the trust under cl 4.2(b) of the Subscription Agreement was restricted to the amounts that were in fact paid ([102]). (vi) With respect to the amounts so taken to have been paid there was no trust property upon which a trust could operate ([102]) and no basis for an inference of an intention on the part of the parties to create any such trust ([103]). (vii) The admission that these amounts were in fact subject to a trust, referred to in the document entitled the "Authority to Transfer Funds", and entered into after all the relevant events on 14 November 2002, was not of its own sufficient to give rise to any inference as to the intention to create a trust in the absence of any other evidentiary basis on which to base such an inference ([103]-[104]). 58 I agree with the reasons of McDougall J and add the following observations. 59 If there had been no set-off, and payment had been made upon New Tel redeeming the convertible notes, and this had occurred during the relation back period, then it is clear that the Appellants would have had no better status than any other creditor. They would, under those circumstances, have paid over $2 million and, on the above analysis with respect to the $750,000, they would have been entitled to the return of that amount as beneficiaries of an express trust. Nevertheless, with respect to an amount of $850,000 they would have been in no better position than any other creditor. 60 In substance, the Appellants seek to improve the position they would have been in by, in effect, becoming a secured creditor for that amount of $850,000. There is, in these circumstances, no scope for the application of any kind of constructive trust. The Appellants are seeking an advantage, rather than a remedy for conduct that could be described as unconscionable or to involve unjust enrichment. 61 The Appellants' case has to be based on an express trust. The trust under cl 4.2(b) was terminated by "another direction" under cl 4.2(d) or otherwise mutually extinguished. Like McDougall J, I can see no basis for an inference that a new trust was intended. Further, there was, in my opinion, nothing that could answer the description of trust property held by New Tel, or anyone else, as a trustee. No monies were paid. There was no fund. There was no relevant chose in action against some other person, e.g. New Tel's entitlement to a further part of the deposit held in the HDY Trust Account. 62 Mr B Coles QC emphasised the references in the two letters of set-off to the "Subscription Price" and the "Subscription Agreement". However, in the context relevant to the set-off itself, which is fully set out above, these are descriptive words reflecting the effect of each set-off as constituting a discharge of the obligation to make the other payment. 63 The words in the first letter that the investors "shall have satisfied" the obligation to pay the Subscription Price, and in the second letter that the set-off would be "against and in full satisfaction of the part of the Subscription Price" are words of discharge of an obligation. They are not words capable of the construction for which the Appellants contend that the amounts should be taken to have been paid as if they were the subject of the express trust in the Subscription Agreement, or some substituted trust. The two letters of set-off relieve the investors of their obligation to make the payments, but do not treat the money as if it had been paid. 64 I can see no basis for a conclusion that the parties intended to create an express trust with respect to an amount of $850,000. In any event I can identify no relevant trust property. Specifically, there is nothing to suggest that there was any particular fund which could be said to have found its way into the deposit paid by New Tel to HDY, nor anything referring to New Tel's chose in action with respect to the deposit. 65 Just as separate treatment of the sum of $750,000 was indicative of a trust with respect to that amount, so the absence of any segregation with respect to the sum of $850,000 suggests the contrary. In addition to the authorities on a separate fund set out above, see Mac-Jordan Construction Ltd v Brookmount Erostin Ltd [1992] BCLC 350 at 355e–f and 356d–e. 66 Mr Coles QC referred to the proposition that a trustee who mixes trust moneys does not destroy the trust. Here, nothing was mixed. By way of mutual discharge of unrelated obligations, New Tel's financial position was enhanced. Perhaps that enabled it to pay the balance of the deposit to the HDY Trust Account. There is nothing to suggest an intention to create a new beneficial interest in any chose in action or other property. The obligation to subscribe the sum of $850,000 had been discharged. It did not transmogrify into an equitable interest in property. 67 This is not a case in which set-off was employed in order to avoid the formality of cheques or cash of equal amounts being exchanged. (See e.g. Re Harmony & Montague Tin & Copper Mining Co (1873) LR 8 Ch App 407 at 414 applied in Boogadah Investments Pty Ltd v Westpac Banking Corporation (Unreported, New South Wales Court of Appeal, Mason P, Handley and Beazley JJA, 18 March 1998).) This is a case in which parties to a contract chose to terminate or mutually discharge the trust and otherwise deal with the monies that were intended to become, but never in fact became, trust property by a collateral arrangement which did not itself create a trust. 68 The appeal should be dismissed. Costs 69 Each party has been successful in resisting the respective appeals against the judgment of McDougall J. There was no substantive difference in the complexity of the two issues. There should be no order as to costs. 70 The orders I propose are: 1 Appeal and Cross-Appeal dismissed. 2 No order as to costs. 71 HANDLEY JA: In this appeal I have had the benefit of reading the reasons for judgment of the Chief Justice in draft and I agree generally with his Honour's reasons and the orders he has proposed. I will add some brief comments. 72 New Tel Ltd, now in liquidation, has cross-appealed from the judgment of McDougall J who held that $750,000 forming part of a larger sum repaid to Acuity Legal's trust account from the trust account of Henry Davis York & Co was held in trust for the appellants. The amount was originally paid by the appellants into the trust account of Acuity Legal, New Tel's solicitors, pursuant to the Subscription Agreement of 24 June 2002 as varied. 73 While the funds were in the trust account of Acuity Legal they were held on trust for the appellants under cl 4(2)(b) of the Subscription Agreement, to be released to New Tel as subscription moneys for convertible notes to be issued to the appellants when they were satisfied that the conditions precedent to their obligation to pay had been fulfilled. 74 Payment of this sum to Henry Davis York & Co's trust account on 14 October was authorised by the appellants on 10 October and the second letter of set-off recited (recital 8) that the funds would be held in that account "subject to and until completion of New Tel's acquisition of the Digiplus Group of Companies". The appellants' authority to transfer the funds dated 10 October contained a statement to the same effect. 75 The purchase by New Tel of the Digiplus Group did not proceed and the funds held as a deposit in the trust account of Henry Davis York & Co were eventually transferred to Acuity Legal's trust account. The appellants' claim that $750,000 of this amount was held in trust for them was upheld by McDougall J. 76 Nothing appears to turn in this case on whether that trust was an express trust or a resulting trust. In Quistclose Investments Ltd v Rolls Razor Ltd [1970] AC 567, 580 Lord Wilberforce characterised the trust in that case as an express trust because the agreement that the funds "will only be used to meet the dividend" meant in his view that "if, for any reason, the dividend could not be paid, the money was to be returned". In his view there was a primary trust for the creditors and if that failed a secondary trust in favour of the lender (582). 77 However in Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 Gummow J evidently thought that the trust in favour of the lender in the Quistclose case was a resulting trust (above at 500, 501, 502) and in Twinsectra Ltd v Yardley [2002] 2 AC 164, 192-3, Lord Millett said: "I would … hold the Quistclose trust to be an entirely orthodox example of the kind of default trust known as a resulting trust. The lender pays the money to the borrower by way of loan, but he does not part with the entire beneficial interest in the money, and in so far as he does not it is held on a resulting trust for the lender from the outset … it is the borrower who has a very limited use of the money, being obliged to apply it for the stated purpose or return it. He has no beneficial interest in the money, which remains throughout in the lender … When the purpose fails, the money is returnable to the lender, not under some new trust in his favour which only comes into being on the failure of the purpose, but because the resulting trust in his favour is no longer subject to any power on the part of the borrower to make use of the money." 78 In this case a decision that there was a resulting trust seems to accord more closely with the realities. The money was held by Henry Davis York & Co as part of a deposit payable by New Tel under the agreement to purchase the shares in the Digiplus Group of Companies "subject to and until completion". 79 A deposit under a contract of sale held by a stakeholder abides the outcome of the contract. If completion occurs it becomes the property of the vendor as part of the purchase price. If completion does not occur for reasons other than the default of the purchaser it is refunded to the purchaser. However, for the reasons given by Lord Millett, the appellants who had provided $750,000 towards those funds remained the beneficial owners under a resulting trust, and on failure of the stated purpose they were entitled to the money. 80 The appeal as to the amount of $850,000 fails for the simple reason that no trust was ever proved. New Tel owed the appellants this amount following its redemption of their convertible notes. Instead of paying this amount to the appellants it was paid to Henry Davis York & Co as part of the deposit pursuant to the second letter of set-off. This discharged the obligation of the appellants to pay the amount under the Subscription Agreement. 81 As McDougall J and the Chief Justice have held this amount was not appropriated or set aside until it was paid to Henry Davis York & Co and when it was paid to that firm it was paid from New Tel's own funds and not as agent for the appellants. New Tel was the appellants' debtor and it never declared itself a trustee of this amount for them. 82 The orders proposed by the Chief Justice should be made. 83 YOUNG CJ in EQ: I have read in draft the reasons of the Chief Justice and Handley JA. 84 I wholeheartedly agree with the conclusions that each has reached and, insofar as those two learned judges agree, with their reasons. 85 Lest I be categorized by academics as the third judge who apparently agreed with two inconsistent reasons I should make some brief comments on the differences between my brethren which are highlighted in the reasons of Handley JA. 86 Essentially, Handley JA sees that the trust so far as the $750,000 is concerned is a resulting trust, whereas the Chief Justice classifies it as an express trust. 87 I do not consider that the present is the place to define what Australian lawyers mean by the term "resulting trust". 88 This view is reinforced by the considerations: (a) that no counsel argued for a resulting trust; and (b) as Handley JA acknowledges, nothing in this case turns on whether the trust is an express or resulting trust. 89 The English view which has influenced so mush of modern English judicial thought appears to be that which originated from the late Professor Birks , then was adopted by Robert Chambers in his book on Resulting Trusts (Clarendon Press Oxford, 1997) and then passed into the thinking of Lord Millett. 90 This view is that a resulting trust is not the product of the intention of the settlor to create a trust, but is grounded in the response of equity to a case where the recipient has property in circumstances where the settlor never intended he or she should hold that property beneficially. 91 Chambers at page 4 says that "We need to discard the belief that the resulting trust is created by the implied intention of the transferor". He says that that erroneous belief has been the cause of problems and does not explain all the cases. 92 In Australia, the latest authoritative discussion on the subject, that of Campbell J in Black Uhlans Inc v New South Wales Crime Commission (2002) 12 BPR 22,421 at 22,423 approves statements in a textbook that "Resulting trusts are 'intent enforcing' just as much as are the usual express trusts". Campbell J says that this view is reinforced by the multitude of cases of high authority (such as Napier v Public Trustee (Western Australia) (1980) 32 ALR 153) which highlight that it is the intention of the transferor which ultimately determines whether there is a resulting trust or whether the presumption of advancement applies. 93 The holders of the opposing views cannot even agree on the source of the term "resulting". Professor Birks in his Introduction to the Law of Restitution (Clarendon Press, Oxford, 1985) says at p 60 it derives from the Latin "resalire' meaning "to jump back" so that a resulting trust is one where the property jumps back to the transferor or settlor. This appears to be the majority view. The opposing view is that the trust is so named because it results or arises from the peculiar facts of the case, see Black Uhlans at [131]. 94 With respect to Handley JA, I am not at all sure that, in view of the great divergence of academic views one should read too much into the use of the word "resulting" by Gummow J in Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491. 95 It is true that in Re EVTR [1987] BCLC 646, a case close to the present, the English Court of Appeal held that there was a resulting trust on the same terms as a primary failed trust. However, with respect, some of the reasoning to reach that result would, I suspect, annoy both schools of thought in that their Lordships seem to convey the notion that if an express trust fails by reason of some cy pres type principle by virtue of the device of a constructive trust, there is a resulting trust to the transferor. 96 In my view, in Australian classification of the terms, I would prefer, with the Chief Justice, to say that the relevant trust is an express trust. ********** 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.