Reported Decision: 63 ACSR 557 Appeal Outcome: Special leave application refused with costs by the High Court - 7 March 2008 New South Wales Court of Appeal CITATION: Kalls Enterprises Pty Ltd (In Liquidation) & Ors v Baloglow & Anor [2007] NSWCA 191 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S): 10, 11 and 23 May 2007 JUDGMENT DATE: 9 August 2007 JUDGMENT OF: Giles JA at 1; Ipp JA at 210; Basten JA at 230 DECISION: (1) Appeal allowed; (2) Set aside orders 1, 3 and 5 in the form of orders dated 5 July 2006 recording orders made by the trial judge and in lieu thereof order: (2.1) that there be judgment for the second plaintiff against the first defendant for $555,000 plus interest as calculated by the second plaintiff and the first defendant and notified to the Registrar, or in the event of disagreement upon calculation as determined by the Court upon written submissions filed in accordance with order 3 below; and (2.2) that the first defendant pay the plaintiffs' costs; (3) Direct that the second appellant and the first respondent calculate the interest and notify the Registrar of the calculated amount within 14 days, and that in the event of disagreement upon calculation the second appellant file written submissions stating the interest for which it contends and the reasons therefor within a further 14 days and the first respondent file responsive written submisisons within a further 14 days; (4) Order that the first respondent pay the appellants' costs of the appeal and have a certificate under the Suitors Fund Act if otherwise qualified; (5) Order that the appellants pay the second respondent's costs of the appeal relating to repayment of the $5,000 paid pursuant to order 5 made by the trial judge; (6) Cross-appeal dismissed; (7) Order that the cross-appellant pay the cross-respondent's costs of the cross-appeal; (8) Reserve liberty to the appellants to apply for an order for repayment of the $5,000 referred to in order 5 made by the trial judge and variation of order 5 above, any such application to be made by notice of motion filed within 14 days accompanied by written submissions with responsive written submissions within a further 14 days; the Court's determination to be made upon the written submissions. CATCHWORDS: CORPORATIONS LAW - voidable transaction under Pt 5.7B Corporations Law - business of either company A or company B sold - proceeds of sale paid to creditor of director of both companies - claim that a Transaction as defined which included the payment was a voidable transaction - whether one or other company party to the Transaction - whether a Transaction of the company - by majority, was a Transaction of the company - was voidable transaction. EQUITY - first limb of Barnes v Addy - whose business was it - whether loan to director who then paid creditor - whether breach by director of fiduciary duty owed to either company - whether receipt of trust property by creditor - whether creditor had knowledge of breach of fiduciary duty - business was business of company A - not loan to director - proceeds of sale to be held by company B for company A - breach of fiduciary duty owed to both companies - company B could not account to company A - money put out of reach of company A - disregard of interests of creditors of both companies - creditor knew business was business of company A and that payment meant company B could not account to company A and that money put out of reach of company A - also had knowledge from which honest and reasonable man would have thought was risk of prejudice to creditors - had knowledge of breach of fiduciary duty. LEGISLATION CITED: Corporations Law, Pt 5.7B Australian Postal Corporation v Lutak (1991) 21 NSWLR 584; Baden v Societe Generale Pour Favoriser le Developpement du Commerce et de L'Industrie en France SA (1993) 1 WLR 509; Bank of Credit and Commerce International (Overseas) Ltd v Akindele (2001) Ch 437; Barnes v Addy (1874) LR Ch App 244; Bartercard Pty Ltd v Wily (2001) 39 ACSR 94; Belmont Finance Corporation v Williams Furniture Ltd (No 2) (1980) 1 All ER 393; Black v S Freedman & Co (1910) 12 CLR 105; Creak v James Moore & Sons Pty Ltd (1912) 15 CLR 426; Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371; DPC Estates Pty Ltd v Grey and Consul Development Pty Ltd (1974) 1 NSWLR 443; El Ajou v Dollar Land Holdings plc (1994) 2 All ER 685; re Emanuel (No 14) Pty Ltd (in liquidation); Macks v Blacklaw & Shadforth Pty Ltd (1997) 24 ACSR 292; Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; Fink v Fink (1946) 74 CLR 127; Farrow Finance Co Ltd (in liquidation) v Farrow Propeties Ltd (in liquidation) (1997) 26 ACSR 544; Greater Pacific Investments Pty Ltd (in liquidation) v Australian National Industries Ltd (1996) 39 NSWLR 143; Grove v Flavel (1986) 43 SASR 410; Hancock Family Memorial Foundation Ltd v Porteous (1999) 151 FLR 191; Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; CASES CITED: re International Vending Machines Pty Ltd and Companies Act (1962) NSWR 1408; Kinsela v Russell Kinsela Pty Ltd (in liquidation) (1986) 4 NSWLR 722; re Lands Allotment Co (1894) 1 Ch 616; Lifestyle Earls Court Pty Ltd (in liquidation) v Mentone Mansions Pty Ltd [2006] VSC 2; Linter Group Ltd v Goldberg (1992) 7 ACSR 580; Lipkin Gorman (a firm) v Karpnale Ltd (1991) 2 AC 548; Macquarie Health Corporation Ltd v Commissioner of Taxation (1999) 96 FCR 238 at [133]; Mann v Sangria Pty Ltd (2001) 38 ACSR 307; Mills v Mills (1938) 60 CLR 150; Mulkana Corporation NL (in liquidation) v Bank of New South Wales (1983) 8 ACLR 278; O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262; Prentice v St George Bank (2002) 20 ACLC 923; Robins v Incentive Dynamics Pty Ltd (in liquidation) (2003) 45 ACSR 244; Rolled Steel Products Ltd v British Steel Corporation (1986) 1 Ch 246; Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309; Spies v The Queen (2000) 201 CLR 603; Taylor's Fashions Ltd v Liverpool Trustees Co (1982) 1 QB 133; Tosich Constructions Pty Ltd (in liquidation) v Tosich (1997) 23 ACSR 466; V R Dye & Co v Peninsual Hotels Pty Ltd (1999) 3 VR 201; Walker v Winborne (1976) 137 CLR 1; Wily v Bartercard Pty Ltd (2000) 34 ACSR 186. Kalls Enterprises Pty Ltd (In liquidation) - First Appellant AA Australian Commercial Laundries Pty Ltd - Second Appellant PARTIES: Christopher Damien Darin (in his capacities as Liquidator of Kalls Enterprises Pty Ltd (In Liquidation) and AA Australian Commercial Laundries Pty Ltd (In Liquidation) - Third Appellant Theo Baloglow - First Respondent and Cross-Appellant Peter Kaliaropoulos - Second Respondent and Cross-Respondent FILE NUMBER(S): CA 40441/06 R G Forster SC & P A Fury - Appellants COUNSEL: B W Rayment QC and C P Locke - First Respondent and Cross-Appellant T Alexis SC - Second Respondent and Cross-Respondent Koffels - Appellant SOLICITORS: Oliveri Attorneys - First Respondent and Cross-Appellant Hazan Hollander - Second Respondent and Cross-Respondent LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): 1841/99 LOWER COURT JUDICIAL OFFICER: Hamilton J LOWER COURT DATE OF DECISION: 21 June 2006 LOWER COURT MEDIUM NEUTRAL CITATION: Kalls Enterprises Pty Ltd (In Liq) v Baloglow [2006] NSWSC 617 and [2006] NSWSC 1021 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40441/06 SC 1841/99 GILES JA IPP JA BASTEN JA Thursday 9 August 2007 (addendum 28 August 2007) KALLS ENTERPRISES PTY LTD (In liquidation) & ORS v BALOGLOW & ANOR Judgment 1 GILES JA: Kalls Enterprises Pty Ltd ("KE") sold to Decision Technology Pty Ltd ("DT") a laundry business known as Total Quality Laundry Service ("TQLS"). Although the sale was by KE, an issue in the proceedings was whether all or most of the assets of the laundry business were owned by AA Australian Commercial Laundries Pty Ltd ("AA"). 2 The sale was settled on 19 December 1995. A cheque for $660,611.17 drawn in favour of Dowe Xenos ("Dowe"), the solicitors acting for the vendor, was endorsed by them to the trust account of Konstan & Associates ("Konstan"), the solicitors acting for Mr Theo Baloglow. After what amounted to a refund of some of the money, Mr Baloglow received $555,000 in satisfaction of a liability of Mr Con Kalls and Mr Peter Kaliaropoulos to pay him that amount. Mr Kalls was a director of each of KE and AA. 3 In April 1996 both KE and AA went into liquidation. In 1999 they and their liquidator brought proceedings in which, by the amended statement of claim filed on 11 November 2001, relief was claimed against Mr Baloglow which included - (a) claimed by the liquidator, an order for payment of $555,000 and interest to KE, alternatively to AA; and (b) claimed by KE and AA, an order for payment of equitable compensation and compound interest to KE, alternatively to AA. 4 The claim to an order for payment of $555,000 was made under Pt 5.7B of the Corporations Law ("the Law"), on the ground that the $555,000 was paid under, or represented the benefit received because of, a transaction of KE or AA which was a voidable transaction as described in s 588FE of the Law. The claims to equitable compensation were on the ground that the $555,000 had been received by Mr Baloglow with knowledge that it was paid in breach of fiduciary duty under the first limb of Barnes v Addy (1874) LR Ch App 244. There were other claims in the amended statement of claim, but they are no longer relevant and need not be described. 5 Mr Balogow cross-claimed in the proceedings against Mr Kaliaropoulos for a declaration that, if he was ordered to pay $555,000 under Pt 5.7B, he could enforce a judgment for $620,000 and interest obtained against Mr Kaliaropoulos on 25 September 1995. There were other cross-claims, but they also need not be described. 6 The hearing took place before Hamilton J over eighteen days in the latter part of 2005 and the early part of 2006. 7 In reasons published on 21 June 2006 (Kalls Enterprises Pty Ltd (in liq) v Baloglow [2006] NSWSC 617) the judge held that the payment of the $555,000 was not part of the transaction of KE or AA on which the plaintiffs relied for the voidable transaction. It followed that there could not be a voidable transaction. It was not necessary for the judge to consider whether the transaction was a voidable transaction within s 588FE, whether defences available to Mr Baloglow under s 588FG had been made out, or what order should be made under s 588FF, and he did not do so. The judge held that the money was paid in breach of the fiduciary duty owed to KE by Mr Kalls, but declined to hold that it was paid in breach of Mr Kall's fiduciary duty owed to AA. He held that in relation to the breach of fiduciary duty owed to KE Mr Baloglow did not have the knowledge of misapplication of trust property necessary for Barnes v Addy liability. 8 The claims against Mr Baloglow were accordingly dismissed, and the cross-claim against Mr Kaliaropoulos was consequentially dismissed. 9 In reasons published on 23 June 2006 (Kalls Enterprises Pty Ltd (in liq) v Baloglow [2006] NSWSC 1021) the judge held that there should be a Bullock order that the costs payable by the plaintiffs to Mr Baloglow included the costs payable by Mr Baloglow to Mr Kaliaropoulos. That order was made, together with an order that $5,000 paid into court by the plaintiffs be paid to Mr Kaliaropoulos on account of the costs payable by Mr Baloglow to Mr Kaliaropoulos. 10 KE, AA and the liquidator appealed against the dismissal of their claims, contending that the judge had erred in his holding as to the transaction and in failing to find a voidable transaction and make an order against Mr Baloglow; and further, that the judge had erred in failing to find breach of fiduciary duty owed to AA and in his finding as to Mr Baloglow's knowledge necessary for Barnes v Addy liability. By a notice of contention Mr Baloglow contended that if there was relevantly a transaction of KE or AA, it was not a voidable transaction, that there was a defence under s 588FG, and that an order for payment should otherwise not be made; and further, that payment to him in breach of fiduciary duty owed to KE had not been proved, nor had it been proved that any money received by Mr Baloglow was "impressed with a trust in favour of KE or AA". In substance, all issues agitated at the trial were re-agitated on appeal, including some with which the judge had not dealt. 11 The appellants also appealed against the Bullock order and sought recovery of the $5,000. Mr Baloglow cross-appealed in relation to his cross-claim against Mr Kaliaropoulos, but protectively in the event that the appeal as to the claim under Pt 5.7B was upheld. The notice of cross-appeal was inappropriately worded, but in submissions it was said that no more was sought than had been sought in the cross-claim. 12 For the reasons which follow, in my opinion the appeal against the dismissal of the plaintiffs' claims should be upheld as to the Barnes v Addy claim but not as to the claim under Pt 5.7B. The Bullock order should consequentially be set aside; recovery of the $5,000 is not finally decided. It is not necessary to consider the cross-appeal, which should be dismissed. Events to 2 November 1995 13 The date of 2 November 1995 is adopted because, as will later be seen, the transaction on which the plaintiffs relied for the claim under Pt 5.7B was made up of a composite of dealings commencing with the entry on that date into an agreement for the sale of the laundry business. The composite transaction must, however, be understood against earlier events, which are also relevant to the Barnes v Addy claim. 14 Prior to 22 February 1994 KE conducted the laundry business. The directors of KE were Mr Kalls and Mr Kaliaropoulos, who were brothers. Its effective controller was Mr Kalls. 15 On 22 February 1994 TQLS was sold to AA. KE and Swanhill Pty Ltd ("Swanhill") were equal shareholders in AA, the latter company being controlled by Mr Baloglow. The directors of AA were Mr Kalls and Mr Baloglow. Under a deed dated 22 February 1994 ("the February 1994 deed"), KE and Swanhill were each to lend $600,000 to AA, in order that it could pay to KE the purchase price of $600,000 plus stock at valuation estimated to be a further $600,000. Swanhill paid its $600,000. 16 Mr Kalls had made misrepresentations to Mr Baloglow concerning the financial state of TQLS. AA did not trade successfully. By July 1994 Mr Baloglow was complaining about the misrepresentations, and was seeking to extricate himself and his company from AA. By September 1994 Mr Baloglow had withdrawn from involvement in the management and affairs of AA. 17 The judge said - "9 After Baloglow's departure, it would seem that TQLS was conducted by KE with funds provided by KE. There is no evidence that the sale of TQLS by KE to AA was ever formally rescinded. Nor is there any evidence of any arrangement between AA and KE as to the assets or conduct of the business. There are appearances that AA played some part in the conduct of the business, eg, by continuing to be the employer of the workers, although it would seem that KE provided the wages. AA continued to be the owner of the business name TQLS. However, whatever arrangements there were between the companies concerning these matters are under the veil of mystery drawn by the absence of any evidence, in or out of court, from Kalls, who was the effective controller of both companies at this time, so that the arrangements were known to him alone." 18 At a later point in his reasons the judge said - "63 ... During the hearing, the evidence as to the relations between KE and AA as to the ownership and conduct of TQLS after the departure of Baloglow and while Kalls was the controller of both companies was described as a morass. Nothing ever happened to dispel that impression. It would seem that the money to fund the operation came from Kalls via KE; there is certainly nothing to suggest that AA had the requisite funds. Perhaps the reason the employees were continued on in the name of AA was to avoid the redundancy payments that would likely have been necessary had their employment been terminated with AA and resumed with KE. The cupboard is bare of any evidence as to what arrangement was come to (presumably through the agency of Kalls on both sides) concerning these matters. However, equally it is not clear that it was to the detriment of AA that KE should take over and run with its funds a business that it would seem AA could not afford to run. Baloglow initially questioned the apparent assumption of proprietorship by KE, but desisted from any protest." 19 On 24 February 1995 a deed was was entered into ("the February 1995 deed"), according to its recitals in order to resolve the dispute over Mr Baloglow's complaints of misrepresentation. 20 Mr Kalls and Mr Kaliaropoulos agreed to pay $700,000 to Mr Baloglow. A first instalment of not less than $100,000 was to be paid as agreed between Mr Kalls and Mr Baloglow, and it was acknowledged that $80,000 had already been paid by Mr Kalls. The balance was to be paid in full – " … by 31 May, 1995 or in the event that either [AA, TQLS or assets of AA] are sold or otherwise disposed of before 31 May 1995 and completion of the sale takes place before 31 May 1995 then payment in full is to be made upon completion of such sale." 21 It was further agreed that mortgage security should be given to Mr Baloglow by Hapana Pty Ltd ("Hapana"), a Kalls company, over its property at Marrickville, and by Mr Kalls and his wife Mrs Denise Kalls over their property at Blakehurst. Mr Kalls agreed to provide a statutory declaration that the assets of AA were not then encumbered, and not to encumber AA without first obtaining Mr Baloglow's consent which consent was not to be withheld in the event that arrangements satisfactory to Mr Baloglow were made for the payment of the money owing to him under the deed. AA was to pay a weekly sum to Mr Baloglow, initially $2,500 and then $2,000. 22 A guarantee was given by Mr Kalls, Mr Kaliaropoulos and Mrs Kalls (notwithstanding that Mr Kalls and Mr Kaliaropoulos were primarily liable). Mr Balogow agreed to resign as a director of AA, effectively on payment of the $100,000, and Swanhill agreed to transfer its shares in AA to Mr Kalls or his nominee upon payment of the full $700,000. 23 The execution of the February 1995 deed by Mr Kaliaropoulos was by Mr Kalls as his attorney. Mr Kaliaropoulos later maintained that the execution was without his knowledge and approval. He had, however, been involved in the negotiations leading to the February 1995 deed, although perhaps not their culmination. Mrs Kalls executed the February 1995 deed herself, but later maintained that she had done so without understanding its nature and in circumstances of unfairness. 24 Mr Baloglow resigned as a director of AA on 5 May 1995. Mr Kaliaropoulos resigned as a director of KE on 8 May 1995, and Mrs Kalls was appointed as a director. Mrs Kalls was appointed as a director of AA on 15 May 1995. 25 Although Mr Baloglow resigned as a director of AA, nothing beyond the $80,000 was paid. The mortgage security was not provided, and Mr Baloglow lodged caveats with respect to the relevant properties. Most if not all of the weekly payments were not made; a number of cheques for the weekly payments were not met on presentation. 26 On 14 June 1995 Mr Baloglow brought proceedings in the Commercial Division of the Supreme Court against Mr and Mrs Kalls and Mr Kaliaropoulos, claiming the remaining $620,000 and interest. A form of consent orders in the Commercial Division proceedings dated 7 July 1995 provided for the filing of defences and affidavits, and included (the strange wording is in the original) - "3. Defendants and Kalls Enterprises P/L and AA Australian Commercial Laundry P/L undertake to the Court to provide to the Plaintiff seven (7) days prior notice before the disposal of (other than in the ordinary course of business) or the further encumbrance of any interest owned by the Defendants or of any interest in the business known as Total Quality Laundry Services". 27 In the second half of 1995 Mr Kalls negotiated for the sale of TQLS to DT. He did so as a sale of the laundry business by KE. As appears from the letters to which I shortly refer, Mr Baloglow initially protested over the sale by KE of what he said was AA's laundry business, but eventually went along with a sale by KE. The reason for a sale by KE is obscure. Mr Baloglow gave evidence that Mr Kalls told him it was because KE held the equipment leases which were to be taken over by DT. The letters refer to "practical circumstances". DT was aware of AA's involvement but chose to contract with KE, and it may have had something to do with an order for winding up of AA on 18 May 1995 on the application of the Deputy Commission of Taxation, later set aside, and subsequent demands of the Deputy Commissioner of Taxation on AA. 28 The letters show that it was contemplated that Mr Baloglow would be paid from the purchase money from the sale of TQLS. 29 A letter dated 9 August 1995 from Konstan to Jordans, the then solicitors for Mr Kalls, headed "Re Baloglow v Con Kalls & Ors", included - "5. Please advise the present position in relation to the sale of the laundry. We note that the business of the laundry is owned by AA Commercial Laundries Pty Ltd. We are instructed that your client may have represented to the Liquidator and others that Kalls Enterprises Pty Ltd owns the laundry, when in fact it does not." 30 The Liquidator was the liquidator in the winding up of AA of 18 May 1995, which had already been set aside. The reply from Jordans dated 10 August 1995 included the statement that "[t]he laundry as we understand it is owned by AA Australian Commercial Laundries Pty Ltd", and expressed ignorance of any representations made to the Liquidator. 31 A letter from Konstan to Jordans dated 23 August 1995 again asked, "What is the position with the sale of the laundry", and said that "the plaintiff" (that is, Mr Baloglow) elected to appoint a named solicitor (the then solicitor for Mr Kaliaropoulos) to act for the vendor on the sale. 32 An agreement for the sale of the business was entered into on 25 August 1995. The sale price was $700,000. The subsequent correspondence included contention over who should act for the vendor, but in the result Jordans did so. 33 Jordans' letter to Konstan dated 28 August 1995 advising of the exchange of contracts included - "As has been requested we shall notify you of any further developments in relation to settlement date. In this respect we note that we have instructions from our client to pay to your client on settlement funds in reduction of your client's alleged claim against our client." 34 Konstan immediately wrote to Jordans, their letter of 28 August 1995 expressing "great surprise that your client has purported to execute a Contract on the sale of the business [of?] which, as you are aware, our client is a 50% shareholder". There was further correspondence concerning the sale by KE rather than AA, but the position as ultimately accepted was expressed in a letter from Konstan to Jordans dated 1 September 1995 and a reply dated 5 September 1995 35 The Konstan letter of 1 September 1995 included - "In this regard we write to advise you that on our client's instructions the agreement between our respective client's [sic] was that the sale was to be under the name of AA Australian Commercial Laundries Pty Ltd, especially because of the floating charges over Kalls Enterprises Pty Ltd. As you are aware AA Australian Commercial Laundries Pty Ltd is the rightful owner of the business and any sale ought to proceed with that company as vendor. Our client, however, recognises the practical circumstances of this matter and in this regard requires as a matter of urgency that you immediately seek the advices of Messrs Dibbs Crowther & Osborne [the solicitors for DT] and thereby extinguishing Special Condition 32 and making the contract unconditional." 36 The Jordans letter of 5 September 1995 included - "We note your comments about the identity of the vendors with respect to the business. Please note that the name Kalls Enterprises Pty Limited was entered onto the contract at the request of the purchaser after the identity of AA Australia Commercial Laundries Pty Limited had been disclosed to the purchaser's solicitors. As your client recognises, however, the practical circumstances of this matter led to the purchaser requesting that the sale be by Kalls Enterprises Pty Limited but that Con Kalls do all things necessary to procure the correct and proper transfer of the business of Total Quality Laundry Services to the purchaser upon completion." 37 There were other letters from Konstan in which they stated Mr Baloglow's position that AA owned the laundry business. No letter from Jordans controverted this position. 38 There was ongoing correspondence concerning settlement of the sale of TQLS and payment to Mr Baloglow. In a letter dated 29 August 1995 Konstan asked for an undertaking that Jordans "will advise us of each and every step of the sale" and said, "Our client also requires that we attend on settlement and receive the full amount due to our client". Jordans did keep Konstan informed up to a point, although there were complaints by Konstan and, as will be seen, later significant default by Mr Kalls in this respect. 39 By a letter dated 30 August 1995 Jordans conveyed their "client's" (sic) instructions that Mr Baloglow "is to attend settlement to receive payent of balance of amount outstanding, as agreed between the parties". In the letter of 5 September 1995 they said that their client irrevocably undertook that the balance of the funds of the sale "shall be to the account of Theo Baloglow or as Theo Baloglow may direct", and undertook to "ensure that on settlement of the sale of the business your client will receive the sum of $620,000.00 irrespective if there is a shortfall from the proceeds of the sale". The solicitors undertook to arrange to have Konstan or Mr Baloglow attend on settlement to collect settlement money, but asked that there be contemporaneously a deed of release, transfer of shares in AA and withdrawal of caveats. 40 As between Mr Baloglow and Mr Kaliaropoulos, as a result of negotiations commencing in August 1995 terms of settlement were entered into on 7 September 1995 providing for judgment against Mr Kaliaropoulos for $620,000 plus interest, but - "3. The plaintiff shall not seek to enforce or execute the judgment against the Third Defendant until the first occurance [sic] of either of the following - (i) Seven (7) days after the business (the subject of the proceedings) the property at Marrickville, and the property at Blakehurst have been sold and settled, or (ii) Three months have elapsed from the date upon which judgment is formally entered and registered against the Third Defendant in these proceedings, and a copy of such judgment is served upon the Third Defendants [sic] solicitors." 41 Pursuant to the terms of settlement, on 25 September 1995 Mr Baloglow obtained judgment against Mr Kaliaropoulos. 42 Konstan was rightly concerned, in the letter of 1 September 1995, that the agreement for the sale of TQLS was conditional. On 25 October 1995 DT rescinded the agreement for sale, relying on a condition concerning obtaining finance approval. 43 An application for summary judgment against Mr Kalls was pending in the Commercial Division. It was heard on 27 October 1995, on which date Bainton J ordered that there be judgment against Mr Kalls for $610,000 and interest of $29,881.64 and that Mr Kalls pay some but not all of the costs of the proceedings to that time. It seems that the judgment was for $610,000 rather than $620,000 because Mr Kalls contended that $90,000 rather than $80,000 had been paid. It further seems that summary judgment was not sought against Mrs Kalls because of her contention that she had entered into the February 1994 deed without understanding its nature and in circumstances of unfairness. Events on and from 2 November 1995 44 According to a memorandum from counsel who appeared for Mr Kalls on 27 October 1995, with the judgment against him Mr Kalls was "working on a 'Plan B' in relation to his affairs generally". Whether or not it was part of Plan B, on 2 November 1995 a second agreement for the sale of TQLS was entered into. Save for one of the special conditions and the settlement date, it was in the same terms as the first agreement. 45 In due course, but later than the contractual settlement date, settlement was arranged for 15 December 1995. On 14 December 1995 Jordans advised Konstan that they had ceased to act "due to receiving instructions contrary to our undertakings of the 5th September 1995, and to a resulting conflict with our client". Mr Kalls instructed Dowe, who gave the solicitors for DT a direction to pay by which none of the purchase money would go to Mr Baloglow. The bulk of it, $414,000, was to go to Lefti Steel Fixers Pty Ltd, it seems another company controlled by Mr Kalls. The contrary instructions to Jordans can readily enough be inferred. 46 Konstan had not been told of the settlement. They found out about it, and advised the solicitors for DT of Mr Baloglow's judgment against Mr Kalls and that Mr Kalls had irrevocably undertaken, through Jordans, to pay the balance of the settlement money to Mr Baloglow or Mr Baloglow's nominee. They enclosed a copy of Jordans' letter of 5 September 1995. The proposed settlement was called off. 47 There were discussions, and on 18 December 1995 Konstan wrote to Dowe - "Further to our discussions 16 December, 1995, we confirm the subsequent settlement of this matter following discussions between your client and Simon Konstantinidis of this Office on the following terms - (a) Con Kalls to pay to Theo Baloglow the sum of FIVE HUNDRED AND FIFTY FIVE THOUSAND DOLLARS ($555,000). (b) Theo Baloglow to release Con Kalls and Peter Kaliaropoulos from any liability pursuant to the Judgment entered in the Supreme Court, Sydney on 27 October, 1995, together with interest and costs arising therefrom and Terms of Settlement filed 25 September, 1995, respectively. (c) Theo Baloglow to withdraw all Caveats registered herein. (d) Con Kalls, Peter Kaliaropoulos, Kalls Enterprises Pty Ltd and AA Australian Commercial Laundry Pty Ltd [sic] to indemnify Theo Baloglow and Swanhill Holdings Pty Ltd [sic] in respect of all claims/actions brought by alleged creditors of Total Quality Laundry Services at all times. (e) Mr Baloglow also requires an indemnity from the abovementioned in respect of any claims or actions which may at any time be brought by Decision Technology Pty Ltd. This requirement is raised by Mr Baloglow this morning. To give effect to this settlement, we confirm the further agreement that - (f) The transaction between Kalls Enterprises Pty Ltd and Decision Technology Pty Ltd is not to take place without the attendance of Simon Konstantinidis of this Office. (g) At such settlement, you are to assign all settlement cheques to the Trust Account of Konstan & Associates. Mr Baloglow requires your undertaking in this regard." 48 By a later letter of the same date Konstan wrote to Dowe - "We confirm settlement of this matter subject to your client endorsing to our trust account the balance of the settlement funds coming from the sale of the business. In respect of such endorsed funds we are irrevocably authorised and undertake to retain the sum of $555,000.00 and release to your client the balance or pay as he may direct. Our client will release your client from any liability pursuant to the judgment entered in the Supreme Court on 27 October, 1995 and will release Peter Kaliaropoulos from any liability pursuant to the Terms of Settlement filed 25 September, 1995. We will deliver all Withdrawals of Caveat in relation to the matter. We of course require that your client execute a letter of indemnity as detailed in paragraph (d) of our letter 18 December 1995. We understand that all of this is acceptable to your client. Please let us have the time and place of settlement." 49 Settlement was arranged for 19 December 1995. Dowe gave the solicitors for DT a direction to pay the purchase money by three cheques totalling $678,933.40. One was a cheque for $660,611.17 payable to Dowe. The others were a cheque for $11,471.60 payable to Commonwealth Development Bank and a cheque for $6,850.63 payable to St George Partnership Finance Ltd ("St George"). Dowe was to provide a cheque in favour of DT for $48,933.40. 50 By a letter dated 19 December 1995 Dowe wrote to Konstan advising of the time for settlement and saying - "Upon settlement a cheque in the amount of $678,933.40 will be handed over to us by the Purchaser's Solicitors. We note that you require the Bank Cheque which is to be received by us to be endorsed for payment into your Trust Account. Notwithstanding the unusual nature of this transaction and after confirmation from the Law Society, and our client that this may be attended to, we confirm that we will endorse the cheque as noted above." 51 The reference to a cheque for $678,933.40 was an error, later corrected; the cheque to Dowe was to be for $660,611.17. The letter went on to deal with cheques to be provided by Konstan. One was in favour of DT for $48,933.40 being the cheque to be provided in turn by Dowe. The others were for $56,341.87 in favour of the lessors of the premises where the laundry business was conducted and $335.90 in favour of Dowe. The letter included - "In addition to the above, our client would require the enclosed Deed of Release and Indemnity to be signed and handed over by you at settlement. You are well aware that we have no knowledge whatsoever of the Supreme Court proceedings and as such, you may care to insert the details that have been omitted prior to execution. Please consider the contents of the Deed and advise as to whether you require any amendments." 52 Konstan replied agreeing to the arrangements for the endorsed cheque and cheques in exchange, and suggesting amendments to the proposed deed. Save for a suggested amendment making Mr Kaliaropoulos an indemnifying party, Dowe agreed to the amendments. Konstan accepted that Mr Kaliaropoulos should not be made an indemnifying party, providing that Mrs Kalls became an indemnifying party. 53 The deed was executed and dated 19 December 1995 ("the December 1995 deed"). The parties to the December 1995 deed were Mr Baloglow, Mr Kalls, Mr Kaliaropoulos, Mrs Kalls, KE and AA. Mr Kalls and Mr Kaliaropoulos were referred to as "Kalls". 54 The material operative provisions of the December 1995 deed were - "1. Kalls shall pay to Baloglow upon execution of this Deed an amount of $555,000 in full and final satisfaction of the Judgment Debt. 2. Baloglow undertakes to discontinue the proceedings commenced against Denise Kalls referred to in B, herein and he further undertakes not to enforce action to recover the balance of the Judgment Debt in consideration of the payment referred to in Clause 1 herein. 3. Con Kalls, Denise Kalls, Kalls Enterprises Pty Limited and AA Australian Commercial Laundry Pty Ltd [sic] forever indemnify Baloglow and Swan Hill Holdings Pty Limited [sic] from all actions, suits, causes of action, claims, costs, damages, decrees, expenses, judgments, losses, orders, proceedings, summonses, writs and demands of any nature arising from the operation of the laundry business known as Total Quality Laundry Services. Such indemnity shall extend whether any claim or action referred to above was brought or arose either before, during or after the period that Baloglow became involved in the business, Total Quality Laundry Services. These parties agree to further indemnify Baloglow and Swanhill Holdings Pty Limited in respect of any actions, claims, suits or demands that may be brought by the purchaser, Decision Technology Pty Limited, of the laundry business known as Total Quality Laundry Services against Baloglow. 4. Provided payment is received by Baloglow in accordance with Clause 1 of this Deed, Baloglow forever releases Kalls and Denise Kalls from all actions, suits, causes of action, claims, costs, damages, decrees, expenses, judgments, losses, orders, proceedings, summonses, writs and demands of any nature which Baloglow now has or but for the execution of this Deed, could or may have against Kalls and Denise Kalls arising out of or in connection with the Proceedings and/or the matters arising therefrom." 55 At the settlement on 19 December 1995 cheques were handed over and the cheque for $660,611.17 was endorsed to the trust account of Konstan, in accordance with the arrangements. The result was that the whole of the purchase money went to pay St George for arrears under equipment leases ($6,850.60), the lessors for arrears of rent ($56,341.87) and Mr Baloglow (a net $555,000). There was no express evidence, but presumably a transfer of Swanhill's shares in AA was provided to Dowe. 56 Returning to the issue of the sale by KE rather than AA, in a letter to DT's solicitors dated 18 December 1995 Konstan said that they were "instructed to confirm", amongst other things, that the business sold to DT "following agreement between our respective clients is the sole property of Kalls Enterprises Pty Limited". They went on to say that, subject to receiving "certain funds" on settlement, Mr Baloglow would "make no claim or interest in the business Total Quality Laundry Services", and that they were "in the process of drafting this with the appropriate attestation clauses and our clients will be executing same and shall hand over the original duly executed at settlement of this matter". 57 Mr Baloglow and his wife Mrs Fay Baloglow signed a document addressed to DT and its solicitors, apparently the document to be handed over on settlement. It read - "1. The business sold under the Agreement for Sale of Business dated 2nd November, 1995 between Kalls Enterprises Pty Limited and Decision Technology Pty Ltd following agreement between our respective clients [sic] is the sole property of Kalls Enterprises Pty Limited. 2. Mr and Mrs Baloglow, Swanhill Pty Limited, and in so far as Swanhill's interest in AA Laundry Services Pty Limited [sic] is concerned (herein collectively referred to as 'Baloglow') lay no claim to the ownership of any of the assets of Total Quality Laundry Services. 3. The Shareholders of AA Laundry Services Pty Limited are Swanhill Pty Limited and Kalls Enterprises Pty Limited, in equal shares. 4. Theo Vasillis Baloglow and Fay Lynette Baloglow are both Directors and Shareholders of Swanhill Pty Limited. No other person or parties has any interest in AA Laundry Services Pty Limited." 58 There was no evidence of an agreement between Mr Baloglow and Mr Kalls as referred to in the solicitor's letter and the document set out above. Mr Baloglow gave evidence at the trial to the effect as far as he was concerned the laundry business was owned by AA until 19 December 1995. He was cross-examined on the document. He denied that the statement that the business was KE's business was false, saying that "you have to take it in its context"; the following explanation was all but incomprehensible, ending that he didn't think he read the document, but it did not include that he had come to an agreement with Mr Kalls. I conclude that there was no such agreement. Ownership of the assets of the laundry business 59 The appellants submitted that the judge did not expressly find whether KE or AA owned the assets sold to DT, or whether KE owned some of them and AA owned some of them. They said that the judge's reasons proceeded on an implicit finding that KE was the owner, without analysis of the evidence, but that the correct position was that AA was the owner save for some linen which was either owned by KE or held by KE on trust for AA. An express finding was necessary, they said, so that it could be determined whether the voidable transaction was a transaction of KE, of AA or of both, and whether any breach of fiduciary duty by Mr Kalls was of a fiduciary duty owed to KE, to AA or to both. The finding was also necessary so that there could be proper consideration of matters such as the uncommerciality of the transaction when determining whether it was a voidable transaction, of Mr Baloglow's knowledge relating to insolvency of the company whose transaction it was when addressing defences under s 588FG, and of Mr Baloglow's actual or constructive knowledge of any breach of fiduciary duty in relation to the Barnes v Addy claim. 60 In the manner the judge disposed of the claim under Pt 5.7B, it did not matter whether the transaction was a transaction of KE or of AA. Whichever company it was, the payment of the $555,000 was not part of the transaction, and the judge did not need to go to the further matters which might have called for a finding as to ownership of the assets of the laundry business. 61 It was otherwise as to the Barnes v Addy claim. The judge considered breach of fiduciary duty owed to KE and Mr Baloglow's knowledge as if the assets were owned by KE, or at least as if the $555,000 was KE's money. It is not clear what regard to ownership of the assets he had in declining to hold that the $555,000 was paid in breach of Mr Kalls' fiduciary duty owed to AA. 62 It is convenient now to consider ownership of the assets of the laundry business. Mr Baloglow submitted that the evidence – the "morass" in the judge's [63] earlier set out – did not permit a finding. Difficulty is not a bar to making a finding (Fink v Fink (1946) 74 CLR 127 at 143), and in my view a finding should and can readily enough be made. 63 TQLS was sold by KE to AA in February 1994. It is not clear whether AA paid the full purchase money to KE. Swanhill lent its $600,000 to AA, and presumably that money found its way to KE. Whether KE lent its $600,000 to AA was not clearly shown, but in the loose manner in which the companies' affairs were conducted there may have been an implicit set-off against the further $600,000 or thereabouts payable by AA to KE. Be that as it may, AA took over and conducted TQLS, and the assets of the laundry business must have passed to it. 64 As the judge found, there was no formal undoing of the sale, and AA continued as the employer although in later times funding came from KE. The judge's reference to KE conducting the laundry business, see his [9] set out above, was because after about September 1994 AA did not operate a bank account, and TQLS money was paid to KE bank accounts from which TQLS liabilities were paid. This did not mean that the laundry business became KE's business. As the judge noted, AA continued to employ the persons working in the business, and it continued as the company with which carriers of laundered goods contracted. KE obtained and used overdraft accommodation, formal or de facto, but that also did not mean that the laundry business became KE's business. 65 Implicit in the February 1995 deed was that AA owed the assets of the laundry business. The assets of AA were not to be encumbered, acceleration of payments was in the event that AA, TQLS or assets of AA were disposed of, and the weekly payments were to be made by AA. In August-September 1995 Mr Baloglow and Mr Kalls were at one in saying that TQLS was the laundry business of AA. The sale by KE for obscure "practical circumstances" did not deny this. By the effective recognition that it was not the correct position, but one taken only because of whatever the practical circumstances were, they affirmed that it was the laundry business of AA, one which Mr Kalls had to ensure ended up with DT (see Jordans' letter of 5 September 1995). 66 There was no agreement between Mr Kalls and Mr Baloglow as suggested in Konstan's letter of 18 December 1995 and the document apparently handed over on settlement. The document does no credit to Mr Baloglow, and one can only wonder at the participation of all the solicitors in what occurred, but assertions contrary to the accepted correct position did not alter that position. AA became the registered holder of the business name TQLS, and remained the holder until 19 December 1995. KE was the financier for the laundry business, but in my opinion the laundry business remained the business of AA. 67 The agreement for the sale of TQLS by KE to AA was not in evidence, but according to a recital in the February 1994 deed what was sold as the business was all plant, fittings, chattels and fixtures used by KE in connection with TQLS. The assets may have changed, in particular linen which was the principal stock in trade. Additional or replacement assets would have become assets of the business. A list of the assets sold under the February 1994 deed was provided to the ANZ bank in or about February 1994, and an identical list was used in the second sale agreement of 2 November 1995. It included the same "schedule of linen". The linen must have changed, and other plant may have changed, but it would be absurd if replacement linen or plant was not sold to DT. It is clear that the linen and plant then used in the business was to go to DT. 68 The appellants drew attention to the purchase of linen in the period between 26 September 1994 and 19 December 1995 with cheques drawn on KE's bank accounts. The money in those accounts came substantially from the laundry business. Analyses were provided to the judge, with submissions apportioning the linen and consequentally the assets of the laundry business between KE and AA but also the submission that so far as KE paid for linen, the linen was held by it on trust for AA. In my opinion a more direct reason for the same functional result is that KE was acting as the financier for TQLS, and that the linen for which it paid was AA's linen for which AA had to reimburse KE. 69 In my opinion, all the assets sold to DT were assets of AA. KE was named as the vendor with both KE and AA (through Messrs Kalls and Baloglow) knowing that it was not the owner of the laundry business, and the proceeds of sale payable to it would be received and held for the owner of the laundry business it purported to sell, that is, for AA. Stolen money is held on trust for the true owner (Black v S Freedman & Co (1910) 12 CLR 105 at 110; Creak v James Moore & Sons Pty Ltd (1912) 15 CLR 426 at 432; see also as to money drawn from a bank account without authority Lipkin Gorman (a firm) v Karpnale Ltd (1991) 2 AC 548 at 565-6, 572). Similarly the money obtained by selling stolen property (Australian Postal Corporation v Lutak (1991) 21 NSWLR 584 at 589). In my opinion, the money obtained by KE selling AA's laundry business was akin to the money obtained by selling stolen property, only more obviously held on trust because KE (through Mr Kalls) acknowledged AA as the true owner. In lay terms, it was AA's money. In legal terms, the money was held on trust for AA. The claim under Pt 5.7B of the Law: the transaction on which the plaintiffs relied 70 Before going to the relevant provisions of the Law, it is convenient to note how the events I have described were alleged to make up the composite transaction on which the plaintiffs relied. 71 The amended statement of claim contained a lengthy and detailed recitation of events. It included paragraphs taken up as the constituents of a defined "Transaction". I state the events in those paragraphs in summary form - · the second agreement for the sale of TQLS (para 64); · retention of the deposit paid under the first agreement for sale as the deposit under the second agreement for sale (para 65); · entry into the December 1995 deed (para 73); · an agreement or understanding at the time of the December 1995 deed that the money required by Mr Kalls and Mr Kaliaropoulos to pay the $555,000 would be obtained from the purchase money payable under the second agreement for sale and would be paid at the settlement of the sale of TQLS (para 76); · completion of the sale of TQLS with Konstan present to collect the money (para 77); · the payment of the purchase money by DT to KE, receipt of the cheque for $660,611.17 by Dowe on behalf of KE, endorsement by Dowe of the cheque to the trust account of Konstan and the payment by way of partial refund (paras 80-85); · that this occurred in consequence of entry into an agreement or arrangement to that effect after Konstan on behalf of Mr Baloglow had required assignment of all cheques if the settlement was to proceed (para 86); · receipt by Mr Baloglow of $555,000 in satisfaction of the obligation of Mr Kalls and Mr Kaliaropoulos under the December 1995 deed to pay that sum (paras 87-8); and · some other matters in the nature of giving effect to the sale of TQLS and the December 1995 deed (paras 90-92 and 94-97); 72 It was then alleged - "98. The acts or dealings referred to in paragraphs 64, 65, 73, 76, 77, 80 to 88, 90 to 92 and 94 to 97 together with all other acts or dealings ancillary or incidental to them jointly constitute a transaction (the "Transaction") within the meaning of section 9 of the Corporations Act to which AA, Mr Baloglow, KE, Mr Kalls, Mrs Kalls, Mr Kaliaropoulos and Hapana were party. 99. The Transaction was entered into on or about 2 November 1995, being a date during the two years ending on 3 April 1996." 73 From there the amended statement of claim made allegations going to insolvency of AA and uncommerciality as regards it, and specifically that the Transaction was an uncommercial transaction of AA (para 112) and a voidable transaction of AA (para 113). It was alleged that Mr Baloglow had received a benefit, namely the payment to him or for his benefit of the $555,000, because of the Transaction (para 116). Later in the amended statement of claim the paragraphs making up the Transaction were repeated by reference, and there were like allegations in relation to KE rather than AA, including that the Transaction was an uncommercial transaction of KE (para 178) and a voidable transaction of KE (para 179). 74 In these reasons I will use the term Transaction to refer to the transaction on which the plaintiffs relied. It would be wrong to see too much in the allegation that the Transaction was entered into on or about 2 November 1995, as if the complete Transaction then came into being. The allegation is probably explained by the provision, in s 588FE(3), that a transaction is voidable if entered into during the two years ending on the relation back day. It should be understood as an allegation that the first constituent of the Transaction occurred on or about 2 November 1995. 75 The Transaction was a transaction to which a number of persons and companies were said to be parties, including Hapana presumably because it was to receive a withdrawal of caveat under the December 1995 deed. Mr Baloglow was not said to be a third party beneficiary, but to be one of the parties to the Transaction. The claim under Pt 5.7B of the Law: relevant provisions 76 The path to a voidable transaction in the present case was through an uncommercial transaction, which was defined in s 588FB - " 588FB(1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (a) the benefits (if any) to the company of entering into the transaction; and (b) the detriment to the company of entering into the transaction; and (c) the respective benefits to other parties to the transaction of entering into it; and (d) any other relevant matter. (2) A transaction may be an uncommercial transaction of a company because of subsection (1): (a) whether or not a creditor of the company is a party to the transaction; and (b) even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency." 77 This definition picked up the definition of "transaction" in s 9, relevantly - " transaction , in Part 5.7B in relation to a body corporate … means a transaction to which the body is a party, for example (but without limitation): (a) a conveyance, transfer or other disposition by the body of property of the body; and (b) a charge created by the body on property of the body; and (c) a guarantee given by the body; and (d) a payment made by the body; and (e) an obligation incurred by the body; and (f) a release or waiver by the body; and (g) a loan to the body; and and includes such a transaction that has been completed or given effect to, or that has terminated." 78 An uncommercial transaction was then taken up in s 588FC as part of one way of being an insolvent transaction, relevantly - " 588FC A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and: (a) any of the following happens at a time when the company is insolvent: (i) the transaction is entered into; or (ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or (b) the company becomes insolvent because of, or because of matters including: (i) entering into the transaction; or (ii) a person doing an act or making an omission, for the purpose of giving effect to the transaction." 79 An insolvent transaction was then made a species of a voidable transaction under s 588FE, which relevantly provided - " 588FE (1) Where a company is being wound up, a transaction of the company that was entered into at or after the commencement of this Part may be voidable because of any one or more of the following subsections. (2) … (3) The transaction is voidable if: (a) it is an insolvent transaction, and also an uncommercial transaction, of the company; and (b) it was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation back day." 80 The conjunction of an insolvent transaction and an uncommercial transaction is explained by the alternative way of being an insolvent transaction in s 588FC, through an unfair preference. In the present case, if the Transaction was an insolvent transaction it was also an uncommercial transaction. 81 If there was a voidable transaction, s 588FF provided that a court might make orders about it, relevantly - " 588FF (1) Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders: (a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction; … (c) an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction; … (h) an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time; (i) an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time; (j) an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable. (2) Nothing in subsection (1) limits the generality of anything else in it." 82 Limitations upon making orders under s 588FF were imposed in s 588FG, aptly enough described as providing defences to persons against whom orders might be made. In the view I take, it is not necessary to go to s 588FF. The claim under Pt 5.7B: the judge's reasons 83 The judge said at [22] that the plaintiffs sought to rely on a composite transaction as being a transaction of a company. He set out in a descriptive manner in sub-paras lettered (a) to (h) elements of the transaction, generally to the effect of the events in the paragraphs in the amended statement of claim to which I have referred. The sub-paragraphs included - "(c) The dealings between 16 December and 18 December 1995 leading up to and including an agreement being finalised on 18 December 1995 which involved, inter alia, the payment by Kalls to Baloglow of $555,000 from the proceeds of the sale of the business of TQLS. (The relevant dealings are referred to, and the agreement is set out, in two letters dated 18 December 1995 from Konstan to Xenos.)" (emphasis added) "(f) The payment to or for the benefit of Baloglow of the sum of $555,000 in discharge of the liability of Kalls and Kaliaropoulos under the December 1995 deed from the settlement cheque in the sum of $660,611.17 made payable to Xenos." (The reference to "Xenos" was to the firm Dowe Xenos, referred to above as "Dowe".) 84 The judge said that the transaction was alleged to have been made up of elements (a) to (h), alternatively (c) to (h). Elements (a) and (b) were the second agreement for the sale of TQLS and the retention of the deposit paid under the first agreement for sale under the second agreement for sale. 85 The judge said that for the plaintiffs to succeed "they must establish that the relevant concatenation of dealings was a single transaction and a transaction of a company". Referring to a number of cases, his Honour said that there could be extracted from them the propositions that "transaction" in s 9 of the Law was to be given a wide meaning, that a number of separate dealings could together be regarded as constituting one transaction, but that it was vital that however the transaction was constituted it must be able to be characterised as a transaction of a company. 86 The judge continued - "31 It is vital to the success of the case pleaded and argued by the plaintiffs that the dealing lettered (c) in their alternative summaries of the composite transaction set out in [22] and [23] above respectively be found to be part of the transaction. It is paragraph (c) that contains the allegation that Kalls paid to Baloglow the sum of $555,000 on 19 December 1995. It is significant that the plaintiffs' allegation is in terms that this payment was made to Baloglow by Kalls and not by KE, as is clear on the facts. 32 The conclusion that I have come to is that the plaintiffs' case that there was a voidable transaction fails, because it is impossible to conclude that this payment by Kalls to Baloglow was comprehended in a transaction of a company. It cannot, in my view, be characterised as comprehended in a transaction by KE, much less by AA. The evidence shows that the genesis of this payment was in the claim made by Baloglow against Kalls that misrepresentations by Kalls to Baloglow had led to the acquisition by Baloglow through Swanhill and AA of a half share in TQLS. The pressing of those claims led to the February 1995 deed, by which those claims were compromised upon the promise of payment to Baloglow of $700,000 by Kalls, Denise and Kaliaropoulos. The default in those obligations led to the commencement of the Proceedings by Baloglow, in which judgments were obtained against Kaliaropoulos and Kalls, leaving the claim against Denise outstanding. The undertaking was given to the Court in the Proceedings that no interest in TQLS would be disposed of without seven days prior notice to Baloglow. When Baloglow learned of the proposal to sell TQLS without giving notice pursuant to the undertaking, he insisted on being allowed to attend at settlement of the sale. By the letter of 18 December 1995, followed by the December 1995 deed, he agreed to compromise his claims against Kalls, Denise and Kaliaropoulos, including his rights under the judgments against Kaliaropoulos and Kalls, upon payment to him of $555,000. By both the letter and the deed, the payment was to be made to him by Kalls. At the settlement, a bank cheque for $660,611.17 made out to Xenos was received from the purchaser by Xenos as KE's solicitors. Xenos then as Kalls' solicitors endorsed the bank cheque to Konstan as Baloglow's solicitors, upon their undertaking to deposit it in the firm's trust account and to pay out in agreed ways the excess over $555,000. Konstan was then authorised to account to Baloglow for the $555,000, which was done. In my view, the correct characterisation of what happened upon all the material available is that, upon the receipt by KE of the proceeds of sale, Kalls received from KE the $555,000, which he then paid to Baloglow. As I have said, I have concluded that it is impossible to characterise this payment by Kalls to Baloglow as part of a transaction of KE or AA. The claim that there was a voidable transaction within Part 5.7B accordingly fails." 87 The judge did not at this point expand on the receipt of the $555,000 by Mr Kalls from KE. He said that the cheque for $660,611.17 was received by Dowe as KE's solicitors and endorsed by Dowe as Mr Kalls' solicitors, and that must have been when in his view Mr Kalls received the money from KE. 88 It is evident from elsewhere in the judge's reasons that he found that the receipt was by way of loan. In considering the Barnes v Addy claim he said at [36] that he found that "the making and receipt of the advance by KE to Kalls was in breach of Kalls' fiduciary duties towards KE" (emphasis added), and at [63] that "unlike the case based on breach of duty towards KE, I am not prepared to find that the advance of funds to Kalls or the payment of $555,000 to Baloglow constituted a breach of trust or a breach of fiduciary duty in relation to AA" (emphasis added). This is consistent with his observations at [6], in connection with the absence of evidence from Mr Kalls, that Mr Kalls alone was privy to what arrangements were made amongst KE, Mr Kalls, Mrs Kalls and Mr Kaliaropoulos "concerning the payment by KE to Kalls of $555,000, including any arrangements as to its repayment to KE", and his observations at [60] in considering the Barnes v Addy claim - "60 I bear in mind in assessing the relevant material that it is not uncommon for proprietary companies to pay sums, sometimes large sums, on behalf of directors or to advance to directors funds to meet private obligations or for private purposes. This is illustrated by the facts in Hancock. Occasionally, the taking of these sums constitutes bald misappropriation of company funds by a director. But generally the takings are part of perfectly proper transactions under which the funds are debited to the director's loan account with the company, or there are other arrangements between the company and the director for the due repayment of these funds to the company." 89 It may be noted that, also in considering the Barnes v Addy claim, the judge said at [36] - "36 … The liquidator deposed that he could find no written record of an arrangement concerning the terms on which the $555,000 was advanced to Kalls or providing for its repayment . Apart from his taking of the $555,000, there is silence. Kalls was not called to give any evidence as to the existence or absence, or the terms, of any arrangement. Nor was Denise. Kaliaropoulos did give evidence, but no evidence was led from him, nor was he cross examined on behalf of the plaintiffs, as to his knowledge, if any, of any arrangements concerning the advance or its repayment ." (emphasis added) The claim under Pt 5.7B: consideration 90 The appellants submitted that the judge was in error in saying in his [31] that the plaintiff's allegation was in terms that the $555,000 was paid to Mr Baloglow by Mr Kalls and not by KE, an error which they said flowed from the emphasised portion of his description of element (c) in the composite transaction involving payment by Mr Kalls to Mr Baloglow. They said that the allegations in the amended statement of claim had not characterised the payment as a payment by Mr Kalls, but rather as a payment of money received by KE in satisfaction of the obligations of Mr Kalls and Mr Kaliaropoulos under the December 1995 deed; that the judge had misled himself into characterising what happened as payment by KE to Mr Kalls followed by payment by Mr Kalls to Mr Baloglow, with the consequence that he did not regard the payment by Mr Kalls to Mr Baloglow as part of a transaction of KE or AA. They said that the correct vital element was element (f) in the composite transaction. 91 There is force in the proposition that the allegations in the amended statement of claim had not characterised the payment as a payment by Mr Kalls. Their thrust was payment by KE to Mr Baloglow. But the judge's subparas (a) to (h) reproduced the paragraphs in the plaintiffs' written submissions in which they set out "the dealings that made up the transaction". He can not be criticised for taking up the way in which the plaintiffs put the transaction in submissions, which was indeed in terms that the payment was by Mr Kalls. 92 The judge said also that payment to Mr Baloglow by Mr Kalls and not by KE was "clear on the facts". This followed from his view that there had been an advance by KE to Mr Kalls, Mr Kalls then paying the money to Mr Baloglow. 93 In written and oral submissions made to the judge the plaintiffs had disclaimed a case that the $555,000 was lent by KE to Mr Kalls. Mr Baloglow had contended for that conclusion, indeed for the conclusion that the loan was to Mr Kalls and Mr Kaliaropoulos. He plainly enough did so in aid of his submissions to the effect that it had not been shown that the transaction was an uncommercial transaction, and no breach of fiduciary duty had been established, because it had not been shown that Mr Kalls was unable to repay and Mr Kaliaropoulos was able to repay. 94 It may have been that the judge saw too much in the description of element (c) in the composite transaction, and took it that payment by Mr Kalls to Mr Baloglow meant that the money had been lent to Mr Kalls. It does not follow. There could have been plain misappropriation by Mr Kalls, and dissection into payment by KE to Mr Kalls and by Mr Kalls to Mr Baloglow was in the circumstances rather artificial. 95 The appellants submitted that the judge's view that Mr Kalls received the $555,000 from KE and then paid it to Mr Baloglow was incorrect, and that the correct view was that there was a payment by KE to Mr Baloglow which was part of a transaction of KE or AA. As a fallback position, they submitted that even if there were payment by KE to Mr Kalls by way of loan, and then payment by Mr Kalls to Mr Baloglow, the payment to Mr Baloglow via Mr Kalls was part of a transaction of KE or AA. Mr Baloglow sought to uphold that there had been a loan from KE to Mr Kalls, as had been his contention before the judge, and submitted that it was not open to the appellants now to maintain their fallback position because it was contrary to the way their case had been put in the amended statement of claim and in the conduct of the trial. 96 The parties put submissions, more generally, on whether there was a transaction of KE or AA. What is in issue is the Transaction, and in my opinion payment by KE to Mr Kalls by way of loan and by Mr Kalls to Mr Baloglow, if that were the correct view of what occurred, is not determinative of the question whether the Transaction was a transaction of KE or AA. When the judge asked whether the payment by Mr Kalls to Mr Baloglow was part of a transaction of KE or AA, he did not ask that question. As appears later in these reasons, I do not think it correct that the $555,000 was lent by KE to Mr Kalls. That is particularly material to the Barnes v Addy claim, but need not presently be explained. In my opinion, for other reasons the question should be answered no. 97 For an order pursuant to s 588FF there must be a "transaction of the company" of a particular kind. The identification of the transaction governs whether it was an uncommercial transaction, since entry into "the transaction" (s 588FB(1)) must be considered. It may govern whether it was an insolvent transaction, for example through consideration of whether the company became insolvent because of entering into "the transaction" (s 588FC(b)(i)). And it is material to the orders which may be made under s 588FF, not only because orders about payment of money are tied to what was paid under or received because of "the transaction" (s 588FF(1)(a), (b)) but also because, for example, an agreement constituting, forming part of or relating to "the transaction" can be declared void (s 588FF(1)(b)). The limitations in s 588FG are also tied in various ways to "the transaction". The identification of the transaction is fundamental, and the transaction must be a transaction "of the company". 98 Identification of the transaction was discussed by Bryson J in Mann v Sangria Pty Ltd (2001) 38 ACSR 307, especially at [39]-[42]. It was claimed that payments for meat were voidable transactions because they were unfair preferences. His Honour pointed out that the definition of "transaction", if read literally, made payment alone a transaction, but that if that were so an unfair preference was inescapable; he said at [39] - "Paring down the characterisation of the relevant transaction to such a narrow sliver involves ignoring the facts which make the payment comprehensible and which can be taken together with the payment to constitute a transaction, defensibly a transaction within the ordinary meaning of that word and within the defined meaning." 99 Bryson J said at [41] - "In the application of subs.588FA(1) I am required to take the step, applying the subsection to the facts, of deciding what is to be recognised as a transaction, or what are to be recognised as transactions. This point of characterisation, which is a turning point for disposing of the claim of unfair preferences, does not seem to me to be a point where the grounds of decision can be completely certain or fully articulated. In my view the transaction to which s 588FA(1) is to be applied if the purpose of the subsection is to be regarded and the connotation of the words "unfair preference" is to have an appropriate influence on its application is the whole series of events including, in each of the six cases, the order for supply of meat, its delivery, the contemporaneous delivery of the invoice, handing over a cheque or sending it on either at or soon after delivery, in five of the six cases a post-dated cheque for exactly the price, and when the post-date arrived, payment of the cheque." 100 In the present case, the step of deciding what was to be recognised as a transaction was taken by the plaintiffs' identification of the Transaction. At the trial the variation of elements (c) to (h), rather than all elements (a) to (h) in his [22], was put forward. The judge was called upon to decide whether the Transaction in either of these forms was a voidable transaction, not whether some other transaction was a voidable transaction. 101 For a transaction to be a transaction "of the company", at the least the company must be a party to the transaction: see the definition of "transaction". Being a party to a transaction will often be plain, but it is not a precise concept. The bank which provided finance to DT could be said to have been a party to the Transaction, in that providing finance was necessary for the Transaction to occur, but I do not think it would be a party for the purposes of Pt 5.7B. Being a party to a transaction requires a nature and extent of involvement, for which there is no simple test. Whether the involvement is sufficient may in some circumstances call for consideration. 102 In Pt 5.7B the words "of the company" add something. As well as being a transaction to which the company is party, which comes from there being a transaction, the transaction must warrant the description of a transaction of the company. Unless being a party to a transaction requires such involvement that the description applies without more, which does not seem to me a correct understanding, being a transaction to which the company is a party and being a transaction of the company are not co-extensive. In this I do not accept the appellants' submission that all that was required for there to be a transaction of a company was that the transaction be one to which the company was a party, referring to Prentice v St George Bank (2002) 20 ACLC 923 at [24]. Austin J there said that it seemed to him the limitation of a transaction to one to which the company was a party was "no different from" the limitation in ss 588FC and 588FE(2) to a transaction of a company. On the facts, however, in that case the transaction did not involve any conduct or dealing by the relevant company (see especially at [45]), and I do not think his Honour's observation can support the submission. 103 Entry into the second agreement for sale would itself be a transaction of KE within a literal reading of the definition, as would payment of money itself whether to Mr Kalls or direct to Mr Baloglow. The plaintiffs did not rely on one or other of these dealings, or any other single event, as the transaction of KE or AA, but on the Transaction with its composite of dealings. A composite transaction can be a transaction for the purposes of Pt 5.7B: re Emanuel (No 14) Pty Ltd (in liquidation); Macks v Blacklaw & Shadforth Pty Ltd (1997) 24 ACSR 292. But a composite transaction may include events or actors which are not dealings by the company or actors acting on behalf of the company, and the collection of dealings may not warrant the description of a transaction of the company. In the present case the composite transaction went beyond a single event, and included dealings not of KE or AA. Were KE or AA parties to the Transaction, and was it a transaction of KE or AA? 104 In re Emanuel (No 14) Pty Ltd (in liquidation); Macks v Blacklaw & Shadforth Pty Ltd the composite transaction was specifically the totality of dealings initiated by the company, intended to and in fact bringing about a result albeit with the participation of a third party: see at 299-300. In Wily v Bartercard Pty Ltd (2000) 34 ACSR 186 (Austin J); Bartercard Pty Ltd v Wily (2001) 39 ACSR 94 (CA) the transaction, not really a composite transaction, was found in the company's acquiescence in an arrangement giving rise to either a contract or an estoppel. Neither case supports that being involved in or part of a composite transaction is of itself sufficient for it to be a transaction of the company. It will be a question of fact, involving an evaluative judgment again having regard to the nature and extent of involvement, whether the particular composite transaction is a transaction of the company. 105 In V R Dye & Co v Peninsula Hotels Pty Ltd (1999) 3 VR 201 Ormiston JA said at 214 that the transactions between the parties must be looked at "in a manner which accords with the commercial realities". In Lifestyle Earls Court Pty Ltd (in liquidation) v Mentone Mansions Pty Ltd [2006] VSC 2 the commercial realities meant that there was one transaction being the composite of three related contracts for sale, which when the three contracts for sale were taken together were not an uncommercial transaction. There were not two transactions, each being one of the contracts for sale. In the same way, in deciding whether a composite transaction is a transaction of the company there must be a practical and realistic appraisal of the constituent dealings and the overall transaction. 106 In the present case the Transaction was a succession of events which, seen against the events prior to 2 November 1995, were directed to satisfaction of the initial liability of Mr Kalls and others to pay $700,000 to Mr Baloglow. In the end only $555,000 was paid, and it went to satisfy the liability of Mr Kalls and Mr Kaliaropoulos under the December 1995 deed, but that deed was part of the Transaction and itself brought partial satisfaction through reduction in the amount which had to be paid. It was contemplated, and by December 1995 the contemplation could be regarded as an intention on the part of both Mr Kalls and Mr Baloglow, that the money payable to Mr Baloglow would come from the sale of TQLS. It was sought by Mr Baloglow to have strict arrangements to make sure that he was paid. But paying Mr Baloglow was an objective of Mr Kalls and others, at the last of Mr Kalls and Mr Kaliaropoulos, and at no time did KE or AA undertake an obligation to pay. Save that they became indemnifiers under the December 1995 deed, their involvement was because the sale of TQLS was Mr Kalls' source of money. 107 As well as acting for Mr Kalls in his dealings with Mr Baloglow, Jordans were acting for KE on the sale of TQLS. But the correspondence concerning payment to Mr Baloglow from the sale of TQLS reflected the reality that payment from that source was directed by Mr Kalls in his own interests of satisfying the liability to Mr Baloglow. The reality included that Mr Kalls endeavoured to renege on the arrangements, and to bring about payment of the money to another of his companies; a material indication, in my view, that KE and AA were no more than a source of money for Mr Kalls and that, if he could get away with it, the sale of TQLS would not be used to satisfy the liability to Mr Baloglow. Even when KE and AA were made parties to the December 1995 deed as indemnifiers in relation to TQLS and its sale to DT, that was as part of a settlement arrived at between Mr Konstantinidis and Mr Kalls recorded in the letters of 18 December 1995, and seemingly a quid pro quo offered or agreed to by Mr Kalls in return for reduction of the liability to Mr Baloglow to $555,000. This involvement also was in Mr Kalls' own interests of satisfying the liability to Mr Baloglow. 108 In my opinion, the practical and realistic view of the Transaction is that it was a transaction of Mr Kalls, or at most of Mr Kalls and Mr Kaliaropoulos through Mr Kalls. It could be said that KE and/or AA were a party to the Transaction, but only because Mr Kalls made use of them as the source for the money he was to pay to Mr Baloglow and to provide what can be regarded as a "sweetener" in the settlement arrived at in December 1995. The Transaction included a transaction, indeed a number of transactions, of KE or AA, but the Transaction was a transaction of Mr Kalls or Mr Kalls and Mr Kaliaropoulos: I do not think that the Transaction was a transaction of KE or AA. 109 The appellants said that the Transaction had the effect of changing KE's or AA's rights, liabilities or property, referring to Macquarie Health Corporation Ltd v Commissioner of Taxation (1999) 96 FCR 238 at [133]. Those words were used to describe the effect of conduct engaged in by the company, and to express what was necessary rather than what was sufficient. The appellants' submissions to the judge had included that, from the nature of an uncommercial transaction, a transaction of a company may well not effectuate any purpose of the company. They cited Tosich Constructions Pty Ltd (in liquidation) v Tosich (1997) 23 ACSR 466, in which Lehane J treated a series of steps ending with payment to the director's daughter as a transaction. However, his Honour regarded the transaction, from the company's point of view, as one of reducing its indebtedness to the director, not a "hiving off" of the company's assets, and I do not think the case assists the appellants. If the transaction is, for example, the single event of a payment by the company to a third party for the benefit of the director, it will be a transaction of the company. The Transaction involved much more. 110 Accordingly, although for reasons rather different from those given by the judge, in my opinion the claim under Pt 5.7B of the Law was correctly dismissed. The Barnes v Addy claim: introduction 111 In Barnes v Addy Lord Selborne LC said at 251-2 - "Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort , or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust . But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees." 112 The liability referred to by the words "receive and become chargeable with some part of the trust property" is commonly described as liability under the first limb of Barnes v Addy, and in shorthand as "knowing receipt". Lord Selborne did not refer to knowledge in connection with the first limb but, as was succinctly stated by Gleeson CJ and Gummow, Callinan, Heydon and Crennan JJ in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 at [112], "persons who receive trust property become chargeable if it is established that they have received it with notice of the trust". 113 The amended statement of claim included allegations that certain conduct of Mr Baloglow was dishonest (paras 143, 206) and "constituted knowing participation in" breach by Mr and Mrs Kalls of fiduciary duties owed to AA and KE (paras 144, 207). This appears to have been a "knowing assistance" claim under the second limb of Barnes v Addy. The judge considered only liability under the first limb, and in this Court the appellants expressly relied only on liability under the first limb. 114 In the pleading apparently directed to liability under the first limb, the amended statement of claim alleged that the purchase money paid by DT was in equity the property of AA and was held by KE, alternatively by Mr and Mrs Kalls, alternatively again by Mr Kalls, on trust for AA. The money was called "the AA Trust Moneys" (para 137). With allegations intended to reflect the refund to DT, it was alleged that the money received by Mr Baloglow was "knowingly received" by him and was "paid in breach of trust and thereby misapplied" (para 139), and that Mr Baloglow had "actual or constructive knowledge" of the breach of trust and misapplication (para 240) and was "liable to account" to AA (para 141). There were corresponding allegations concerning KE and "the KE Trust Moneys" (paras 200-204), save that the purchase money, while still said to have been in equity the property of AA, was said to have been held by Mr and Mrs Kalls or by Mr Kalls on trust for KE. 115 The framing of the allegations to allow for part of the purchase money being KE's money rather than AA's money raised the question of ownership of the assets of the laundry business discussed earlier in these reasons, and made the paragraphs quite convoluted. The AA Trust Moneys were said to be such part of the purchase money as represented, in effect, the assets sold by KE to AA in February 1994. The KE Trust Moneys were said to be such part of the purchase money as represented, in effect, assets owned by KE although in equity the property of AA. 116 The allegations that Mr and Mrs Kalls held the money on trust were not explained in the amended statement of claim; paras 137 and 200 began "By reason of, inter alia, the aforesaid matters", which is an unhelpful form of pleading and should not have been employed. Anticipating a matter later in these reasons, I take the holding on trust to have been founded on the view in Belmont Finance Corporation v Williams Furniture Ltd (No 2) (1980) 1 All ER 393 and other cases that, for Barnes v Addy purposes, a director of a company is treated as if he were a trustee of the property of the company under his control. 117 The judge's reasons included consideration of Barnes v Addy liability as restitutionary liability, that approach having been taken by this Court in Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309. The submissions in this Court were also directed to restitutionary liability. In Farah Constructions Pty Ltd v Say-Dee Pty Ltd, judgment in which was delivered after the hearing of the appeal, the High Court firmly rejected restitutionary liability. The parties were invited to provide, and provided, supplementary written submissions. I mention this because, as will be seen, the structure of the judge's reasons reflected his consideration of restitutionary liability then in contention, and because the reasons of the High Court brought contention on appeal in another respect. The Barnes v Addy claim: the judge's reasons 118 The judge said at [35] that the basis of the Barnes v Addy claim as pleaded was - " … in effect, that the monies held by Kalls after the completion of the sale of TQLS from the proceeds of that sale were held by him in trust for KE and, to the extent they were paid by Kalls to Baloglow, were paid in breach of trust and thereby misapplied (par 202)." 119 This focussed on purchase money held by Mr Kalls in trust for KE. There was no discussion why Mr Kalls was regarded as holding the purchase money in trust. 120 The judge went on to find breach of fiduciary duties owed to KE, saying - "36 ... The liquidator deposed that he could find no written record of an arrangement concerning the terms on which the $555,000 was advanced to Kalls or providing for its repayment. Apart from his taking of the $555,000, there is silence. Kalls was not called to give any evidence as to the existence or absence, or the terms, of any arrangement. Nor was Denise. Kaliaropoulos did give evidence, but no evidence was led from him, nor was he cross examined on behalf of the plaintiffs, as to his knowledge, if any, of any arrangements concerning the advance or its repayment. Whether or not Kalls was able to repay the sum, it is not clear that Denise could not at that time repay it and the evidence shows that Kaliaropoulos was able to repay. On the other hand, the evidence establishes that KE was insolvent at the time. I accept the evidence given by the liquidator that leads to that conclusion. This means that the creditors' interests had to be taken into account in relation to dealings of the company. Thus, it could not be said that a dealing otherwise in breach of fiduciary duty could be taken to have the informed consent of all interested parties; indeed, it was not put that such consent was established. Although there was a deal of force in Mr Rayment's submissions, this is a situation where there was a self interested dealing with property of an insolvent company by a person with fiduciary duties to that company and it was not established that that dealing was justified. In those circumstances, I find that, on the evidence, the making and receipt of the advance by KE to Kalls was in breach of Kalls' fiduciary duties towards KE." 121 The appellants accepted the finding of breach of fiduciary duty. Their acceptance of a finding based on advance of the $555,000 by KE to Mr Kalls is rather at odds with their preferred position in relation to the claim under Pt 5.7B of the Law, that the $555,000 was paid directly by KE to Mr Baloglow. 122 It is convenient to note at this point the judge's later finding as to breach of fiduciary duty owed to AA. Part of the passage has already been set out in another connection. He said - "63 ... First, unlike the case based upon breach of duty towards KE, I am not prepared to find that the plaintiffs have established that the advance of funds to Kalls or the payment of $555,000 to Baloglow constituted a breach of trust or a breach of fiduciary duty in relation to AA. During the hearing, the evidence as to the relations between KE and AA as to the ownership and conduct of TQLS after the departure of Baloglow and while Kalls was the controller of both companies was described as a morass. Nothing ever happened to dispel that impression. It would seem that the money to fund the operation came from Kalls via KE; there is certainly nothing to suggest that AA had the requisite funds. Perhaps the reason the employees were continued on in the name of AA was to avoid the redundancy payments that would likely have been necessary had their employment been terminated with AA and resumed with KE. The cupboard is bare of any evidence as to what arrangement was come to (presumably through the agency of Kalls on both sides) concerning these matters. However, equally it is not clear that it was to the detriment of AA that KE should take over and run with its funds a business that it would seem AA could not afford to run. Baloglow initially questioned the apparent assumption of proprietorship by KE, but desisted from any protest. I cannot conclude on the evidence that any breach of trust or of fiduciary duty was established vis a vis AA. That is enough to determine that aspect of the claim." 123 On the question of Mr Baloglow's knowledge of breach of trust, the judge began his consideration immediately after his [36] set out above in which he found breach of fiduciary duty owed to KE. He said - "37 As there is a breach of fiduciary duty established, then the question arises as to Baloglow's knowledge of it. The pleading avers that Baloglow had knowledge and the plaintiffs claim to have proved it. They also claim that the plaintiffs do not need to establish knowledge, but that, once they have proved that the money was paid in breach of trust or breach of fiduciary duty, the recipient is under strict liability, unless he can prove the defence of bona fide purchaser for value without notice or the defence of change of position." 124 The reference to strict liability was in connection with restitutionary liability, and I pass over the judge's consideration of it. As to what he called the "traditional view" under which the plaintiff had to prove knowledge, the judge observed that both sides had argued the question of knowledge in terms of the categories found in Baden v Societe Generale Pour Favoriser le Developpement du Commerce et de L'Industrie en France SA (1993) 1 WLR 509, a case under the second limb of Barnes v Addy. In that case Gibson J had identified a total of six categories comprising actual knowledge (category (i)) and kinds of constructive knowledge of descending stringency (categories (ii) to (v)). 125 The judge took as an accurate statement of the knowledge relevant in a first limb case a passage from the judgment of Anderson J in Hancock Family Memorial Foundation Ltd v Porteous (1999) 151 FLR 191 - "79 As to recipient liability, there is less certainty about what must be proved to sheet home liability to the non-trustee but I adopt, with respect, the reasoning and conclusions of Hansen J in Koorootang Nominees Pty Ltd v Australia & New Zealand Banking Group Ltd [1998] 3 VR 16 on the question. In the first place, it is not necessary to establish that a recipient of trust property acted dishonestly or with want of probity. Recipient liability may be established if the defendant had actual or constructive knowledge at the time he received the relevant property that (a) it was trust property and (b) it was being misapplied. The defendant will be taken to have constructive knowledge if it is proved that he wilfully shut his eyes to the obvious; that he wilfully and recklessly failed to make such inquiries as an honest and reasonable man would make in the circumstances; and that he knew of circumstances which would indicate the true facts to an honest and reasonable man. If all that is proved is that the defendant had knowledge of circumstances which would put an honest and reasonable man on inquiry, that is not enough: see Koorootang at 85 and 105." 126 In this passage Anderson J accepted as sufficient the kinds of constructive knowledge in categories (ii) (wilfully shutting the eyes to obvious), (iii) (wilfully and recklessly failing to make enquiries et cetera) and (iv) (knowing of circumstances which would indicate et cetera). 127 The judge then posed as the relevant question whether Mr Baloglow received payment of the $555,000 without notice that it was money of KE or AA taken by Mr Kalls "in breach of trust or fiduciary duty as a director" and paid to Mr Baloglow equally in breach of trust or duty. He said that he first approached the question on the basis most favourable to the plaintiffs, and asked whether Mr Baloglow had negatived knowledge of circumstances which would indicate the facts to an honest and reasonable man. For the most favourable basis, with the burden of negativing knowledge on Mr Baloglow, the judge plainly enough had in mind the bona fide purchaser defence and the least stringent kind of sufficient constructive knowledge, category (iv) knowledge. 128 The judge set out evidence given by Mr Baloglow, in chief and in cross-examination, broadly to the effect that he was paid by Mr Kalls and others rather than KE and that, while they had received the money from the sale of the laundry business, he believed they had made or would make repayment arrangements with KE and were able to repay the money. 129 The judge said (I repeat in part a passage earlier set out) - "60 I bear in mind in assessing the relevant material that it is not uncommon for proprietary companies to pay sums, sometimes large sums, on behalf of directors or to advance to directors funds to meet private obligations or for private purposes. This is illustrated by the facts in Hancock. Occasionally, the taking of these sums constitutes bald misappropriation of company funds by a director. But generally the takings are part of perfectly proper transactions under which the funds are debited to the director's loan account with the company, or there are other arrangements between the company and the director for the due repayment of these funds to the company. In those circumstances, such transactions are not generally in breach of trust or in breach of the director's fiduciary duties to the company. In so far as knowledge of KE's solvency is relevant, Baloglow had no knowledge of anything that pointed to insolvency. He had never been privy to KE's financial affairs and it had been carrying on the business of TQLS, apparently in the ordinary course. I also bear in mind that, although Kalls had been guilty of a misrepresentation to Baloglow, Baloglow said in cross examination that, in the course of his dealings with Kalls, Kalls had in many instances been truthful to him. I have also recorded that I found Baloglow a truthful and generally reliable witness. In all the circumstances I find that Baloglow has established that he did not have the requisite knowledge on a category (iv) basis for the purpose of the bona fide purchaser defence, ie, knowledge of circumstances which would indicate the facts to an honest and reasonable man." 130 The judge then said that it followed that Mr Baloglow had established that he did not have the lesser constructive knowledge through wilfully and recklessly failing to make such enquiries as an honest and reasonable man would make or wilfully shutting his eyes to the obvious, and that if the onus was on the plaintiffs to prove knowledge the plaintiffs had failed to discharge it. 131 The judge then made the finding in his [63] earlier set out, that breach of trust or fiduciary duty had not been established "vis a vis AA". Although he had referred to AA when posing the relevant question, he did not more directly consider knowledge in relation to breach of fiduciary duty owed to AA. The Barnes v Addy claim: receipt of trust property 132 At the hearing of the appeal Mr Baloglow submitted that the Barnes v Addy claim failed because he did not receive any trust property. He said that the money he received "was not impressed with a trust in favour of anybody", because it had been advanced to Mr Kalls (or Mr Kalls and Mr Kaliaropoulos), and once so advanced "it did not remain subject to any trust". The submissions implicitly accepted that, if the money received by Mr Baloglow had not been advanced to Mr Kalls (or Mr Kalls and Mr Kaliaropoulos), there would have been receipt of trust property. 133 In Farah Constructions Pty Ltd v Say-Dee Pty Ltd the High Court held at [116]-[119] that the first limb of Barnes v Addy did not apply because there had not been receipt of property to which a fiduciary obligation attached. The Court also said at [113] - "In recent times it has been assumed, but rarely if at all decided, that the first limb applies not only to persons dealing with trustees, but also to persons dealing with at least some other types of fiduciary [54]. Since the appellants did not contend that the first limb was incapable of applying on the ground that neither Farah nor Mr Elias was a trustee, the correctness of this assumption need not be examined." 134 The footnote reference [54] gave as examples DPC Estates Pty Ltd v Grey and Consul Development Pty Ltd (1974) 1 NSWLR 443 at 459-60 and El Ajou v Dollar Land Holdings plc (1994) 2 All ER 685 at 700. 135 This brought the further submissions by Mr Baloglow in the supplementary written submissions, first, that it should be similarly concluded in the present case that there was no receipt of property within the meaning of the first limb, and secondly - "Their Honours left open (at [113]) the question whether the first limb applies only to persons dealing with trustees. If it applies only to persons dealing with trustees, it cannot apply here, since at most we were concerned with a breach of duty by one or perhaps two fiduciaries. The appellant [sic] has not referred to any authority showing that the first limb applies to persons who deal with non-trustee fiduciaries. Moreover, one of the persons who made the payment was Mr Kaliaropoulos, and he was neither a trustee nor a fiduciary. There is no reason to extend what Lord Selborne said to such a case." (a) No receipt of trust property 136 Farah Constructions Pty Ltd v Say-Dee Pty Ltd reiterates that there must be receipt of trust property, but does not assist Mr Baloglow in that connection. In that case there was no receipt of property to which a fiduciary obligation attached because the relevant property was information, and for Barnes v Addy purposes trust property did not include information whether confidential or not (at [120]). In any event, the information was not confidential information (at [117]). 137 Mr Baloglow's submission was otherwise founded on there having been an advance of the $555,000 to Mr Kalls (or to Mr Kalls and Mr Kaliaropoulos). According to the submission, what Mr Baloglow received therefore was not property of KE or AA. It was property of Mr Kalls (or Mr Kalls and Mr Kaliaropoulos). 138 If Mr Kalls had lent himself (or himself and Mr Kaliaropoulos) the $555,000 so as to enable payment to Mr Baloglow, he could still be in breach of fiduciary duty owed to KE or AA. The money would be trust property in his (or their) hands and traceable to Mr Baloglow: El Ajou v Dollar Land Holdings plc at 733 per Hoffmann LJ. However, in my opinion the foundation for the submission is unsound. I respectfully do not agree with the judge's view that the transaction included advance of the $555,000 by KE to Mr Kalls. 139 I have earlier referred to what the judge said in this respect. He began with the observation that it is not uncommon for a proprietary company to pay on behalf of a director money which is debited to the director's loan account or otherwise to be repaid. He appears to have reasoned that when, from the parlous state of KE's records, there was no indication of how the disposition of the money had been treated, and in the absence of evidence from Mr Kalls or Mrs Kalls and of relevant evidence from Mr Kaliaropoulos, it should be concluded that the not uncommon position obtained; or at least that it had not been proved that it did not. 140 To the extent to which such experience can be brought to bear, I accept that it is not uncommon for a proprietary company to pay on behalf of a director money which is debited to the director's loan account or otherwise to be re-paid. The same experience includes that writing up the payment as a loan or making an arrangement for repayment is often an afterthought, and that it is also not uncommon for the payment to amount to use by the director of the company's money without attention to those matters. It is preferable, in my view, to focus on the view to be taken of the payment of the $555,000 on the evidence in this case. 141 Even if there had been a record of an advance to Mr Kalls, it would not necessarily have been concluded that the $555,000 was advanced to him. In Linter Group Ltd v Goldberg (1992) 7 ACSR 580 there were accounting records, although they were not entirely satisfactory, treating the relevant payment as a loan, but Southwell J was prepared to conclude that the entries were made "to provide respectable clothing for the transaction, without a concurrent intention to create a legally binding obligation upon Gibraltar to repay Linter" (at 618). This was partly because, in his Honour's view, the controller of the companies recognised the integrity of the corporate structure only to the extent that it suited him to do so, and the books of account were "regarded as objects to be manipulated as the occasion demanded" (ibid). 142 The liquidator received from Mr Kalls and the companies' accountants "a limited number" of books and records of AA and KE. They do not seem to have included ledgers and journals. There were no financial statements for KE after February 1994, and apart from financial statements for the eight months ending 28 February 1994 no financial statements for AA at all. The liquidator placed little weight on some financial accounts for AA for the year ended 30 June 1995, prepared in connection with setting aside the order for winding-up of AA and in his view not consistent with other documents he was able to obtain. He was plainly correct in that view. The KE balance sheet and financial statements as at 28 February 1994 recorded loans to Mr Kalls. The AA financial statements did not. 143 From the liquidator's description of the records he obtained, Mr Kalls paid no regard to keeping proper books of account for KE and AA. Without for the present attributing ownership of the laundry business, the sale of TQLS was the sale of a major, if not the only, asset of KE or AA, but so far as appears without any regard to formalities such as directors' meetings or resolutions. The sale by KE was made in disregard of Mr Kalls' own recognition, seen in Jordans' letter of 10 August 1995, that the "laundry" was owned by AA: to adapt the words of Southwell J, it did not suit Mr Kalls to recognise the integrity of corporate structures. There had earlier been at the least departure from proper conduct of the companies' affairs in the conduct by KE of the laundry business. Further, Mr Kalls attempted (albeit unsuccessfully) to divert the bulk of the purchase money to Lefti Steel Fixers Pty Ltd, the attempt showing that he regarded the money as his to do with as he wished; and also that he held no concern for the undertakings given through his solicitors' letter of 5 September 1995, which accords with lack of concern for corporate niceties. 144 Whether there was a loan is not to be determined, in my view, by asking how, if written up in the books of KE or AA, the payment of the money could have been treated. In Mr Kalls' conduct of the affairs of the companies, that was scarcely a relevant matter. The money was in fact paid directly from KE to Mr Baloglow, by endorsement to the Konstan trust account of the cheque drawn in favour of the solicitors acting for KE on the sale of TQLS. The solicitors were also Mr Kalls' solicitors, but it was common ground that they received the cheque as KE's solicitors. The fact of direct payment is by no means conclusive, since in the circumstances it could well have been difficult to arrange a more complex routing of money to Mr Baloglow. But the method adopted made it all the more important that, if it was intended that the formal route be via Mr Kalls (or Mr Kalls and Mr Kaliaropoulos), there be some manifestation of the intention. 145 On any view, there was not an advance to Mr Kaliaropoulos. He was not asked directly about the payment of the money, but his evidence was inconsistent with agreement, however informal, to be a borrower and liable to repay the money. Nothing in Jordans' letters, or any of the correspondence, indicated that the payment of the proceeds of sale to Mr Baloglow was to be anything other than a direct payment at the behest of Mr Kalls. For what it is worth, probably little, the directors' reports as to the affairs of KE and AA in early 1996 both asserted nil debtors. I see no reason to attribute to Mr Kalls, as the relevant directing mind of KE and AA, an intention that there should be a legally recognisable loan transaction, when that is at odds with his general conduct of the companies' affairs and there is nothing to support it. 146 In my opinion, the correct conclusion is that there was no intention that the money be advanced by KE to Mr Kalls, let alone to Mr Kalls and Mr Kaliaropoulos. There was no more than use by Mr Kalls of the purchase money from the sale of TQLS for payment to Mr Baloglow. 147 I add that Mr Baloglow submitted that KE and AA were estopped from contending that the payment to him was anything other than a payment by Mr Kalls and Mr Kaliaropoulos. The point of the submission was in part that the payment was by both Mr Kalls and Mr Kaliaropoulos, but it was also that payment by them meant that they must first have been lent the money. The latter does not follows even if the estoppel be accepted, but the estoppel should not be accepted. 148 According to the submission, as parties to the December 1995 deed KE and AA were estopped by deed from contending to the contrary of its first operative provision, namely - "1. Kalls [which meant Mr Kalls and Mr Kaliaropoulos] shall pay to Baloglow upon execution of this Deed an amount of $555,000 in full and final satisfaction of the Judgment Debt." 149 Mr Baloglow referred to Taylor's Fashions Ltd v Liverpool Trustees Co (1982) 1 QB 133 at 159, where Oliver J suggested that estoppel by deed was a variety of estoppel by convention and that it could be created by "a clear and distinct averment in the operative part". His Lordship said that, although it was not necessary for him to decide the point, an operative clause referring to an option conveyed the conventional basis upon which the parties were approaching the transaction between them, and could give rise to an estoppel that there was an option. 150 Even if an operative clause in the December 1995 deed could create an estoppel by deed, I do not think that cl 1 gave rise to an estoppel. It imposed an obligation on Mr Kalls and Mr Kaliaropoulos to pay $555,000 to Mr Baloglow. It did not establish as a conventional basis that they had done something by way of payment, that any satisfaction of the obligation would be by payment made by both of them or with money lent to them, or anything else. The obligation could have been satisfied by payment made by Mrs Kalls if she had been in funds and so minded, or by a good Samaritan. It could also be satisfied, as I have concluded was the case, by Mr Kalls directing to Mr Baloglow misappropriated funds from the sale of TQLS. 151 As part of his submissions, Mr Baloglow said that he could not be held liable as recipient of trust property in the absence of rescission of the loan transaction: see generally Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371; its examination in Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198 at 210 – 220; Greater Pacific Investments Pty Ltd (in liquidation) v Australian National Industries Ltd (1996) 39 NSWLR 143; Robins v Incentive Dynamics Pty Ltd (in liquidation) (2003) 45 ACSR 244 at [73]-[74], [82]. Since I have concluded that the $555,000 was not advanced to Mr Kalls (or Mr Kalls and Mr Kaliaropoulos), this need not be considered. (b) Non-trustee fiduciaries 152 I have referred to the two cases footnoted in Farah Constructions Pty Ltd v Say-Dee Pty Ltd at [113]. In DPC Estates Pty Ltd v Grey and Consul Development Pty Ltd Consul's liability was under the second limb of Barnes v Addy. Jacobs P did not accept that constructive knowledge was sufficient, and in that connection spoke at 459-60 of a person dealing with a fiduciary being held liable to account "not for what he has received by way of the property of the person to whom the fiduciary duty is owed but otherwise". In El Ajou v Dollar Land Holdings plc Hoffmann LJ said at 700 that, for a claim to enforce a constructive trust on the basis of knowing receipt, the plaintiff had to show "a disposal of his assets in breach of fiduciary duty". These were but slight indications of liability for knowing receipt from a non-trustee fiduciary. 153 However, Farah Constructions Pty Ltd v Say-Dee Pty Ltd was a case of breach of a partner's fiduciary duty. The Court was not concerned with breach of a director's fiduciary duty owed to the company, and any questioning at [113] of liability for knowing receipt from a non-trustee fiduciary was not directed to that situation. A number of cases have applied the first limb to persons receiving property with knowledge of breach of a director's fiduciary duty. 154 In Belmont Finance Corporation v Williams Furniture Ltd (No 2) the directors of Belmont misapplied its money in breach of their fiduciary duties. A large part of the money was received by City, which because of common directors had full knowledge. It was held that City was accountable to Belmont as a constructive trustee of the money, under the first limb of the rule in Barnes v Addy. In that connection Buckley LJ, with whom Goff and Waller LJJ agreed while also giving their own reasons, said at 405 - "A limited company is of course not a trustee of its own funds: it is their beneficial owner; but in consequence of the fiduciary character of their duties the directors of a limited company are treated as if they were trustees of those funds of the company which are in their hands or under their control, and if they misapply them they commit a breach of trust (Re Lands Allotment Co , per Lindley and Kay LJJ). So, if the directors of a company in breach of their fiduciary duties misapply the funds of their company so that they come into the hands of some stranger to the trust who receives them with knowledge (actual or constructive) of the breach, he cannot conscientiously retain those funds against the company unless he has some better equity. He becomes a constructive trustee for the company of the misapplied funds. This is stated very clearly by Jessel MR in Russell v Wakefield Waterworks Co , where he said: 'In this Court the money of the company is a trust fund, because it is applicable only to the special purposes of the company in the hands of the agents of the company, and it is in that sense a trust fund applicable by them to those special purposes; and a person taking it from them with notice that it is being applied to other purposes cannot in this Court say that he is not a constructive trustee.'" 155 In his reasons Goff LJ said at 410 that Belmont had to show that the payment of the money "was a misfeasance, which for this purpose is equivalent to breach of trust". Waller LJ said at 417 that he did not wish to add anything on the question of constructive trust to that which had been said by Buckley and Goff LJJ. 156 In Re Lands Allotment Co (1894) 1 Ch 616, to which Buckley LJ referred, Lindley LJ said at 631 that, although directors were not properly speaking trustees, they had always been considered and treated as trustees of money which came to their hands or which was actually under their control. Kay LJ said at 638 - "Now, case after case has decided that directors of trading companies are not for all purposes trustees or in the position of trustees, or quasi trustees, or to be treated as trustees in every sense; but if they deal with the funds of a company, although those funds are not absolutely vested in them, but funds which are under their control, and deal with those funds in a manner which is beyond their powers, then as to that dealing they are treated as having committed a breach of trust." 157 Cases in which the first limb of Barnes v Addy has been applied to breach of fiduciary duty by a director include Rolled Steel Products Ltd v British Steel Corporation (1986) 1 Ch 246 (see at 298, 307, 309); Linter Group Ltd v Goldberg (see at 623-6); Farrow Finance Co Ltd (in liquidation) v Farrow Properties Ltd (in liquidation) (1997) 26 ACSR 544 (see at 589-90); Bank of Credit and Commerce International (Overseas) Ltd v Akindele (2001) Ch 437 (see especially at 448-50); and Robins v Incentive Dynamics Pty Ltd (in liquidation) (see at [60]-[64]). In each of these cases except Farrow Finance Co Ltd (in liquidation) v Farrow Properties Ltd (in liquidation) and Bank of Credit and Commerce International (Overseas) Ltd v Akindele there was express adoption of the explanation by Buckley LJ that a director is treated as if trustee of the funds of the company under his control. Bank of Credit and Commerce International (Overseas) Ltd v Akindele took for granted a director's position, and was primarily concerned with the knowledge required of the recipient. In Robins v Incentive Dynamics Pty Ltd (in liquidation) Mason P, with whom Stein JA agreed and I relevantly agreed, said at [64] that the passages cited from Belmont Finance Corporation v Williams Furniture Ltd (No 2) - " … show how the Barnes v Addy principle can be applied to money which is not trust money in the strict sense at the time of its misapplication by directors acting in breach of their duties." 158 O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 was not concerned with Barnes v Addy liability, but with a director's liability to the company for breach of fiduciary duty and particularly with causation of loss to the company. It was held that causation in the claim for equitable compensation should be determined as in the case of the trustee of a traditional trust. Spigelman CJ said at 273 that the authorities established that, with respect to equitably fraudulent misappropropriation or misapplication of property, the duties of a director were equivalent to those of a trustee, citing what had been said by Kay LJ in Re Lands Allotment Co at 638. His Honour referred to other cases in which a director had been placed in the same position as a trustee in relation to the property of the company. They included Re International Vending Machines Pty Ltd and Companies Act (1962) NSWR 1408 at 1420, Mulkana Corporation NL (in liquidation) v Bank of New South Wales (1983) 8 ACLR 278 at 279 and Belmont Finance Corporation v Williams Furniture Ltd (No 2). Priestley and Meagher JJA agreed with his Honour's reasons, each with some additional observations. 159 In the face of this line of authority, which is not exhaustive and to which regrettably Mr Baloglow did not draw attention, the submission in his supplementary written submissions should not be accepted. The line of authority should be followed until the High Court says otherwise. 160 The parties' submissions did not enter upon receipt of trust property, or whether there was a trustee fiduciary, because KE held the proceeds of sale of the laundry business on trust for AA. It is not necessary to do so. The Barnes v Addy claim: breach of fiduciary duty 161 Directors are in a fiduciary relationship to the company. They must act in good faith for the benefit of the company, and "a power conferred on them cannot be exercised in order to obtain some private advantage or for a purpose foreign to the power": Mills v Mills (1938) 60 CLR 150 at 195 per Dixon J. A person who occupies a fiduciary position "may not use that position to gain a profit or advantage for himself … without the informed consent of the person to whom he owes the duty": Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 67 per Gibbs CJ. 162 At least where the company is facing insolvency as well as considering the company's interests the directors must consider the interests of its creditors: Walker v Winborne (1976) 137 CLR 1; Kinsela v Russell Kinsela Pty Ltd (in liquidation) (1986) 4 NSWLR 722. In Grove v Flavel (1986) 43 SASR 410 the Court said at 421 that the interests of creditors must be considered where to the knowledge of the directors there is a real and not remote risk of insolvency, and of course the risk includes the effect of the dealing in question. (Grove v Flavel was disapproved in Spies v The Queen (2000) 201 CLR 603 at [95] so far as it suggested a direct duty owed to and enforceably by creditors, but not as to this matter.) It is sufficient for present purposes that, in accord with the reason for regard to the interests of creditors, the company need not be insolvent at the time and the directors must consider their interests if there is a real and not remote risk that they will be prejudiced by the dealing in question. 163 The judge did not include in his consideration of breach of fiduciary duty whether the assets of the laundry business were owned by KE or AA and whether KE held all or some of the purchase money on trust for AA. I have concluded that KE held the purchase money on trust for AA. There could be breach of Mr Kalls' fiduciary duty owed to KE in his dealing with the purchase money as money held by KE on trust for AA, or of his fiduciary duty owed to AA in his dealing with the purchase money as money held by KE on trust for AA. 164 I have set out the judge's reasons in his [36] for holding that Mr Kalls was in breach of his fiduciary duty owed to KE. The substance of Mr Baloglow's submissions was that the advance by KE to Mr Kalls to which the judge referred was to both Mr Kalls and Mr Kaliaropoulos; that even if it was to Mr Kalls alone it was not shown that Mr Kalls was unable to repay the money; and that as an advance to both Mr Kalls and Mr Kaliaropoulos Mr Kaliaropoulos was found to be able to repay the money. So, it was said, there was no breach of fiduciary duty, because the advance was to persons able to repay KE and KE and its creditors were not disadvantaged. 165 I should not be taken to see substance in that argument. Even if there was an advance to Mr Kalls and Mr Kaliaropoulos, KE and its creditors could be prejudiced because instead of cash in hand, representing its major if not sole asset, KE had a debt owed by persons whose preparedness to pay could be doubted. There was no record of the advance, or of when it was repayable or what interest (if any) it bore. Mr Kalls' dealings with Mr Baloglow suggested that he could only pay with great difficulty, if at all, and could have to be forced to do so. Mr Kaliaropoulos protested throughout that he was a victim of Mr Kalls' actions, and was unlikely to have paid willingly. 166 However, I have not accepted that there was an advance to Mr Kalls and Mr Kaliaropoulos, or even to Mr Kalls. Mr Kalls simply took and used the money to satisfy his liability (and that of Mr Kaliaropoulos) to Mr Baloglow. If the purchase money was KE's money, Mr Kalls would be in breach of his fiduciary duty owed to KE, and would not escape that finding because (as Mr Baloglow's submissions came close to suggesting) he could have been liable in proceedings brought by KE to restore the money. KE and its creditors were entitled to have their money, not a cause of action against Mr Kalls. When, as I have held, the purchase money was held on trust for AA, Mr Kalls was in breach of his fiduciary duty owed to KE because he used in satisfaction of his personal obligation money for which KE was accountable to AA. Whether or not KE was insolvent, it could not otherwise pay $555,000 to AA. Mr Kalls' conduct in his own interests was contrary to the interests of KE in placing it in breach of trust, particularly when it was not in a position to remedy the breach. 167 Although again for rather different reasons from those of the judge, in my opinion he was correct in holding that Mr Kalls was in breach of his fiduciary duty owed to KE. 168 Turning to breach of fiduciary duty owed to AA, I respectfully have some difficulty with the judge's reasons for declining to find that Mr Kalls was in breach. I find unclear the step in his [63] from the "morass" as to the ownership and conduct of TQLS, to inability to conclude that breach of trust or of fiduciary duty was established. It may have been that the judge felt unable to conclude that the laundry business remained the business of AA, and so was not satisfied that AA had any claim to the proceeds of sale or that its interests or the interests of its creditors were detrimentally affected by the advance of the $555,000 to Mr Kalls or its payment to Mr Baloglow. If that were so, AA was out of the picture. But such a matter deserved full exposure in the judge's reasons. 169 My opinion that the proceeds of sale were held on trust by KE for AA means that AA was in the picture. As a director of AA Mr Kalls should have acted, at the least, so as to preserve its ability to get in the proceeds of sale of its laundry business. He did not need to be a lawyer and think in terms of trust money. The proceeds of sale were AA's money. But Mr Kalls put the money out of AA's reach, and did so by using it in satisfaction of his personal obligation, in his own interests and contrary to the interests of AA. Quite apart from regard to the interests of creditors, he was in breach of his fiduciary duty. 170 There was also disregard of the interests of creditors of TQLS, which Mr Kalls and Mr Baloglow regarded as the laundry business of AA. 171 AA had its own creditors. The Deputy Commissioner of Taxation had in October 1995 served a statutory demand for $56,102.75 for unpaid tax deductions for the period 1 September 1994 to 30 June 1995, and this amount was unpaid as at 19 December 1995. Further tax deductions had not been paid. AA had suffered judgment for $1,320 on 22 August 1994 on a claim by employees, on 28 September 1995 for goods supplied but not paid for (the evidence did not show the amount of the judgment), and on 7 December 1995 for delivery services not paid for (again, the evidence did not show the amount of the judgment). Treating KE as having carried on TQLS after September 1994, the liquidator gave evidence that he received in the winding-up of AA proofs of debt as at 19 December 1995 totalling $152,283.90. AA had no income other than money received from KE, and particularly with the sale of TQLS the receipt of money was unlikely. Indeed, the judge found that KE was insolvent. 172 Mr Baloglow contested that finding on appeal, although it was not within his notice of contention, but in my opinion the finding was correct. There were judgments against KE for unpaid goods ($7,739.63 and $14,474.86), unpaid services ($36,769.78), and unpaid equipment lease instalments ($23,879.60). Workers compensation insurance premiums were unpaid. The liquidator received proofs of debts as at 19 December 1995 totalling $764,511.36. He considered that KE was insolvent on a balance sheet basis as at 2 November 1995 and thereafter. After the sale of TQLS, KE had no income. 173 On a wider view, that because the laundry business was AA's business and KE was its financier, AA was liable to reimburse KE. Without the proceeds of sale it could not do so. 174 The sale of TQLS disposed of the only income-earning asset of AA and KE, and the absence of the $555,000 paid to Mr Baloglow prejudiced creditors because AA did not have that money to pay its own creditors or permit payment by KE of the creditors of the laundry business. There was at the least a real and not remote risk that the diversion of the proceeds of sale used to pay Mr Baloglow would prejudice creditors of AA, and of TQLS, which Mr Kalls regarded as AA's laundry business. Mr Kalls must have been aware of that risk if he gave any thought to the interests of creditors. 175 In my opinion, in this respect also Mr Kalls was in breach of his fiduciary duty. The Barnes v Addy claim: knowledge 176 The submissions on appeal did not take issue with the judge's reliance on Hancock Family Memorial Foundation Ltd v Porteous (Anderson J) for the knowledge required for liability under the first limb of Barnes v Addy. In Farah Constructions Pty Ltd v Say-Dee Pty Ltd the Court considered the knowledge necessary for knowing assistance within the second limb of Barnes v Addy. In concluding at [176]-[178] that categories (i), (ii), (iii) and (iv) of the five categories in Baden v Societe Generale Pour Favoriser le Developpement du Commerce et de L'Industrie en France SA sufficed but category (v) did not, the Court referred at [177] to sufficiency for the requirement of knowledge "in the first limb of Barnes v Addy". I respectfully take this to have been a slip. The Court's reasons for holding the first limb of Barnes v Addy inapplicable did not involve consideration of the categories of knowledge. 177 The appellants submitted that the judge was in error in declining to find that Mr Baloglow had category (iv) knowledge of breach by Mr Kalls of his fiduciary duty owed to KE, and that it should be found that Mr Baloglow had either category (iii) or category (iv) knowledge of breach by Mr Kalls of his fiduciary duties owed to KE and AA. They contended that Mr Baloglow wilfully and recklessly failed to make the enquiries an honest and reasonable man would make in the circumstances into whether the payment to him of the proceeds of sale would be in breach of Mr Kalls' fiduciary duty, or had knowledge such as to indicate to an honest and reasonable man that the payment "would very likely" constitute a breach of Mr Kalls' fiduciary duty. 178 The judge's reasoning in declining to find category (iv) knowledge in relation to KE appears to have been that Mr Baloglow had no knowledge of anything that pointed to insolvency of KE, that it seemed to Mr Baloglow that KE had been carrying on the business of TQLS in the ordinary course, and that payment by a proprietary company of even a large sum on behalf of a director to meet a private obligation was not uncommon: so that there was nothing which should have appeared to Mr Baloglow as untoward. Perhaps again the judge felt unable to conclude that the laundry business remained the business of AA. The judge also referred to acceptance of Mr Baloglow as a truthful and generally reliable witness, but it is, with respect, not entirely clear how there came into the reasoning the evidence given by Mr Baloglow which the judge had set out. 179 Mr Baloglow asserted, and therefore knew, that TQLS was the laundry business of AA; he knew that (in the language I have earlier used) the proceeds of sale was AA's money. If it was paid to him, it was not paid to AA; and he knew that KE could not otherwise pay AA's money to AA. And he knew the money was paid to satisfy the liability of Mr Kalls and Mr Kaliaropoulos stemming from the February 1995 deed but most recently under the December 1995 deed, not a liability of KE or AA. If, as I have held, Mr Kalls was in breach of his fiduciary duty quite apart from regard to the interests of creditors, what he knew would to an honest and reasonable man make out breach of Mr Kalls' fiduciary duty owed to KE and AA. That suffices for Barnes v Addy liability. 180 Mr Baloglow also knew of a number of matters going to the likely detriment to creditors of the laundry business. In his view, TQLS was AA's laundry business. Creditors of the laundry business were AA's creditors, or if they were creditors of KE because KE had been carrying on the laundry business, knowledge of them was material to AA's liability to reimburse KE. Mr Baloglow's knowledge included that of Konstan, his solicitors in relation to payment of the $700,000; Mr Baloglow gave evidence that he left it to Konstan to negotiate how he was to receive payment. 181 It does not matter whether this knowledge adds to or independently suffices for Barnes v Addy liability, since I have already found liability. I should nonetheless deal with it. 182 Mr Baloglow knew of – · the winding-up of AA in May 1995, the setting aside of the winding-up and the subsequent statutory demand in October 1995; and · the judgments against KE for $7,739.63, $14,474.86 and $36,769.78 earlier mentioned (the proceedings had also been brought against Swanhill and Konstan had acted; in a letter dated 8 January 1996 to Mr Baloglow, Konstan said that they were calling on the indemnity in the December 1995 deed in respect of those proceedings). 183 In response to a demand for payment of the $700,000, Jordans wrote to Konstan on 3 May 1995 asking for time to pay. The letter included that "the company" had "experienced a severe drop-off in business, with a loss of approximately $90,000 in monthly takings". 184 At the end of July 1995 Mr Baloglow was shown a list of outstanding creditors of TQLS totalling $414,728.83. He telephoned Mr Kalls and asked how the creditors could be so high, and was told by Mr Kalls that the list was accurate and it was because some of the big customers were "dragging the chain" in paying TQLS, so he had been slow in paying creditors. Mr Kalls said that the big customers owed over $300,000. Mr Baloglow required full details. On 7 August 1995 Konstan also required the full details. They were not provided. 185 In a letter to Konstan dated 9 August 1995 Jordans said that Mr Kalls was attempting to re-finance the Blakehurst property, with the money to be used as to $425,000 "to pay out various trading debts of Total Quality Laundry Services". In a later letter of 10 August 1995 it was said that the trading debts included a re-finance of equipment leases "to the value of $310,000". 186 Mr Baloglow gave evidence that in late August 1995 he was told by Mr Kalls that the creditors were about $100,000, and (although his evidence was less than clear) that the rest of the earlier figure was the total liability under equipment leases. 187 Belief in this is difficult to accept, particularly when by now Mr Baloglow distrusted Mr Kalls. The Jordans letter described the $425,000 as trading debts. Re-financing equipment leases would ordinarily not need a capital sum equivalent to the total liability; if the capital sum was needed, the $310,000 was properly a current liability. The asserted downturn of $90,000 in monthly takings would have heightened a belief that in truth creditors had increased, because they could not be paid. 188 I have referred to Konstan's letter of 28 August 1995 in which there was complaint of sale of AA's laundry business in KE's name. It included - "Further, you have purported to execute Contracts knowing full well that there are alleged trading debts of Total Quality Laundry Services in the sum of $425,000.00 and that there is a likelihood that there may be a shortfall and a potential voidable preference if our client were to receive the proceeds of the sale . Our client considers it for example imprudent that he would not be advised of a pending sale of an entity in which he is a 50% shareholder and there is a likely risk to his investment, not to mention of course your client's position in relation to the litigation should there be a shortfall ." (emphasis added) 189 In September 1995 Konstan was told by Jordans that outstanding rent of $35,000, outstanding council rates of $10,500 and outstanding water rates of $12,000 would be paid out of the proceeds of sale of TQLS. In the letter of 19 December 1995 dealing with cheques to be provided by Konstan, Dowe stipulated for a cheque for $56,341.87 in favour of the lessors of TQLS's premises, describing it as representing outstanding rent, council rates and water rates. The letter said that the lessors "have indicated that they are not prepared to grant a transfer of the existing Lease unless the whole of the arrears are paid". 190 Mr Baloglow said in his evidence that he would "assume" that there were unpaid creditors of TQLS as at December 1995. He did not agree that he was aware that there were creditors who would not be able to be paid after the payment of the $555,000 to him, saying that there was $300,000 in debtors and he did not know the amount of the creditors. He did not accept that he was getting all the proceeds of sale apart from the payment to the lessors. He said that he did not know how much of the purchase money of $700,000 went to pay other creditors "but the creditors I wasn't concerned about". (I do not think this meant disdain for the creditors, but rather that he did not think they were at risk.) 191 It is difficult to accept that Mr Baloglow thought that some of the purchase money would go to pay other creditors. The cheque endorsed to Konstan's trust account was the whole of the net proceeds of sale apart from the cheques to Commonwealth Development Bank and St George. The cheques provided by Konstan on settlement were in favour of DT, of the lessor of TQLS's premises and in a small amount Dowe. No creditors other than the lessor and St George were being paid out of the proceeds of sale. 192 The appellants relied also on Mr Baloglow's understanding in August 1995 that KE had a bank loan of $1,400,000 secured by mortgages over Hapana's property at Marrickville and Mr and Mrs Kalls' property at Blakehurst, and that the bank was "looking to take possession of the Marrickville property". A letter dated 14 August 1995 from Mr Kaliaropoulos' solicitors to Jordans stated that the bank was owed approximately $1,800,000 and had issued notices under s 57(2)(b) of the Conveyancing Act 1919, as to which the appellants said that it should be inferred that KE was in default and, since the Marrickville and Blakehurst properties remained unsold as at 19 December 1995, must have remained in default. Later letters to Konstan asserted that the Marrickville property had been sold. Konstan questioned the bona fides of the sale. The evidence left all this obscure; but it did indicate that Mr Kalls was under considerable financial pressure. His defaults in paying the $700,000 already made that plain. 193 As I have said, the judge set out evidence given by Mr Baloglow which appears to have influenced his conclusion. 194 Mr Baloglow said at one point that he was paid "by reason of a direction given to Kalls Enterprises Pty Ltd by Con Kalls, Denise Kalls and Peter Kaliaropoulos". At another point he said that it "came around" that he received the money out of the proceeds of sale of TQLS "but I received the funds from Con and Peter and they in turn had received it from the, from the sale of the business". He said that he "had no intention of taking any money from a company, I was only taking it from the individuals". This evidence is of no value. It is plain from the correspondence that Mr Baloglow was intent on Mr Kalls causing payment to him of all the available proceeds of sale of TQLS. Even if at the time he regarded the payment as via Mr Kalls and Mr Kaliaropoulos and not taking money from AA or KE, that would not negate knowledge of breach of fiduciary duty; but I would not be prepared to accept that Mr Baloglow so viewed the payment at the time. 195 Mr Baloglow said in an affidavit - "3. I believed that my debtors had made or would make arrangements with Kalls Enterprises Pty Ltd to repay the company the amount paid to me in December 1995 and that those persons were able to repay those funds. 4. In particular, I believed that my debtors had substantial equity in the Marrickville and Blakehurst properties (well in excess of $555,000). I also believed from what Peter Kaliaropoulos had told me in late 1995, that Peter Kaliaropoulos was earning an annual salary of approximately $600,000. 5. I did not believe in December 1995, that either Kalls Enterprises Pty Ltd or AA Australian Commercial Laundries Pty Ltd was insolvent. My only information about solvency (as set forth in paragraph 51 of my affidavit sworn 27 May 2004) suggested the contrary in the case of AA Australian Commercial Laundries Pty Ltd." 196 In cross-examination it became clear that the belief in para 3 of the affidavit was without knowledge of an arrangement. This was not knowledge, but absence of knowledge. The information about solvency to which Mr Baloglow referred in para 5 of the affidavit was the occasion in July 1995 when he asked Mr Kalls about creditors. It is not easy to see how his conversation with Mr Kalls suggested to the contrary of insolvency, but in any event that occasion was not Mr Baloglow's only information about solvency. 197 Mr Baloglow may not have had clear knowledge of insolvency of TQLS, which to him equated to AA. Knowledge of insolvency was not necessary for knowledge of breach of fiduciary duty. It was sufficient, if with his knowledge, Mr Baloglow wilfully and recklessly failed to make the enquiries an honest and reasonable man would make about a real and not remote risk that creditors would be prejudiced by payment to him of the $555,000, or that an honest and reasonable man would have thought that there was that risk. 198 In my opinion, at least the latter has been made out. Mr Baloglow had been told that income was severely down, and that there was difficulty in paying creditors. Through Konstan, he saw the "likelihood" that the trading debts said to be of the order of $420,000 would not be fully paid if he received the proceeds of sale, and that the trading debts at the time were in truth of that order, despite what Mr Kalls said to him in late August 1995, had to be part of the honest and reasonable man's assessment of the risk. Mr Baloglow knew that the lessors remained unpaid until 19 December 1995 – they had to be paid at settlement so that the lease could be assigned to DT – and for the reasons I have given can not have thought that creditors would be paid out of the proceeds of sale. At best, the interests of creditors were dependent on unknown arrangements; but in the correspondence to which I have referred Mr Baloglow's concentration on payment out of the proceeds of sale of TQLS was not accompanied by interest in how, consistently with his director's duties, Mr Kalls could or would cause payment. 199 Mr Baloglow knew that Mr Kalls was discharging his personal obligation (and that of Mr Kaliaropoulos) by payment to him of AA's money, and an honest and reasonable man with his knowledge would have seen a real and not remote risk that creditors of TQLS would be prejudiced. On this basis also, there was Barnes v Addy liability. The Barnes v Addy claim: relief 200 It follows that in my opinion the Barnes v Addy claim succeeds. I understand it to have been common ground that the relief should be by equitable compensation of $555,000. Compound interest was sought in the amended statement of claim. In the notice of appeal the order sought was relevantly for payment of $555,000, without mention of interest. There should be interest, and I would expect the parties to be able to agree upon its calculation. 201 The order should be in favour of AA, since on the basis on which I have held that the Barnes v Addy claim succeeds the money paid to Mr Baloglow by KE was held by KE on trust for AA. The cross-claim 202 The cross-appeal in relation to the cross-claim against Mr Kaliaropoulos does not arise. As I have said, it was brought protectively in the event that the claim under Pt 5.7B of the Law was upheld in the appeal. Mr Baloglow's argument was to the effect that, the plaintiffs having asked that orders under paras (a) or (c) of s 588FF(1) be made, he could consequentially ask for an order under paras (h), (i) or (j) having the effect that he could enforce the judgment against Mr Kaliaropoulos. Mr Kaliaropoulos contested that s 588FF(1) could be relied on in that way, and raised other matters in opposition to the cross-appeal. It is not necessary to go into them. The cross-appeal should be dismissed with costs. The appeal against the Bullock order 203 With success of the Barnes v Addy claim, the order that the plaintiffs pay Mr Baloglow's costs should be set aside and in lieu thereof it should be ordered that Mr Baloglow pay the plaintiffs' costs. Any basis for a Bullock order falls away, and the Bullock order must consequentially be set aside. It is unnecessary to consider its fate if the substantive appeal had been dismissed. 204 The relief sought on appeal included that order 5 made by the judge be set aside and that Mr Kaliaropoulos be ordered to repay to the appellants $5,000 paid to him pursuant to order 5. Order 5 was an order that $5,000 paid into court by the plaintiffs under an earlier order be paid to Mr Kaliaropoulos "on account of the costs ordered in order 4 above", order 4 being the order that Mr Baloglow pay Mr Kaliaropoulos' costs of the cross-claim. On the basis that it was thereby made part of the costs payable by the plaintiffs to Mr Baloglow, the appellants submitted that the $5,000 should "meet the same fate" as the Bullock order, and that Mr Kaliaropoulos should repay it if the Bullock order was set aside. 205 The earlier order was made on 7 March 2006. Evidence had concluded in early November 2005, there had been submissions for some days, and the hearing was adjourned with directions for the plaintiffs' written submissions in reply. There was delay in the provision of the written submissions, and when they were received there was complaint that the written submissions (which were some 150 pages in length) were not in reply. On Mr Kaliaropoulos' application, the judge ordered - " … that on or before 14 March, 2006 IMF (Australia) Limited [the plaintiffs' litigation funder] pay into Court or as agreed between the Solicitors, $5,000, to abide any order as to costs of the Cross Defendant to the Second Cross Claim arising out of delay or the form of the Plaintiffs' written submissions in reply." 206 Neither a transcript of the occasion nor any judgment disclosing the reasons for making the order were before us. It appears to have been in the nature of an order that security be provided against the making of a special order in relation to costs incurred by Mr Kaliaropoulos by reason of the delay and the extent of the written submissions. 207 Since under the Bullock order the plaintiffs ended up paying Mr Kaliaropoulos' costs, it was not necessary for the judge to consider a special costs order. Order 5 made by the judge must also be set aside, because its terms link it with the Bullock order. Ordinarily that would mean an order for repayment of $5,000. But there is the question; if the judge had not made the Bullock order, would he or should he have made a special costs order? If so, and if $5,000 is the appropriate amount, there should not be an order for repayment. 208 No submissions were made as to this. This Court is not in a position to decide whether a special costs order would or should have been made. If the judge was moved to make the order of 7 March 2006, however, he must have thought that a special costs order in that amount was a real possibility. I propose, therefore, that this Court not make an order for repayment of the $5,000 but reserve liberty to the appellants to apply for such an order. Orders 209 I propose the orders - 1. Appeal allowed. 2. Set aside orders 1, 3 and 5 in the form of orders dated 5 July 2006 recording orders made by the trial judge and in lieu thereof order – 2.1 that there be judgment for the second plaintiff against the first defendant for $555,000 plus interest as calculated by the second plaintiff and the first defendant and notified to the Registrar, or in the event of disagreement upon calculation as determined by the Court upon written submissions filed in accordance with order 3 below; and 2.2 that the first defendant pay the plaintiffs' costs. 3. Direct that the second appellant and the first respondent calculate the interest and notify the Registrar of the calculated amount within 14 days, and that in the event of disagreement upon calculation the second appellant file written submissions stating the interest for which it contends and the reasons therefor within a further 14 days and the first respondent file responsive written submissions within a further 14 days. 4. Order that the first respondent pay the appellants' costs of the appeal and have a certificate under the Suitors Fund Act if otherwise qualified. 5. Order that the appellants pay the second respondent's costs of the appeal relating to repayment of the $5,000 paid pursuant to order 5 made by the trial judge. 6. Cross-appeal dismissed. 7. Order that the cross-appellant pay the cross-respondent's costs of the cross-appeal. 8. Reserve liberty to the appellants to apply for an order for repayment of the $5,000 referred to in order 5 made by the trial judge and variation of order 5 above, any such application to be made by notice of motion filed within 14 days accompanied by written submissions with responsive written submissions within a further 14 days; the Court's determination to be made upon the written submissions. 210 IPP JA: I agree with the reasons of Giles JA in relation to the Barnes v Addy claim and agree with the orders proposed by his Honour. As regards the claim based on Pt 5.7B of the Corporations Law, I agree with the reasons of Basten JA and I also agree with his Honour that the orders proposed by Giles JA are dispositive of that part of the appeal, as well. I would add the following additional comments. 211 Section 588FF speaks of "a transaction of the company". A composite transaction (that is, a series of transactions, or events, or acts, or a combination of such matters) can comprise a transaction for the purposes of Pt 5.7B. 212 As Giles JA observes, the question whether a transaction is a transaction of a company depends on the nature and extent of involvement of the company in the transaction. A transaction may be "of" more than one company or party. The mere fact that a company is a party to a contract or contracts that form part of the transaction does not necessarily make the transaction "of" that company. Whether a company is so bound up in the transaction that it is a transaction "of" the company is a question of judgment dependent on fact and degree. 213 As Giles JA observes, the Transaction (being the transaction relied on by the appellants) comprised a succession of events directed to the satisfaction of the liability of Mr Kalls and others to pay a substantial sum of money to Mr Baloglow. The underlying purpose of the Transaction was to enable the TQLS business to be used to pay a substantial sum of money to Mr Baloglow. Each event comprising the Transaction had a common element, namely, the achievement of that purpose. This common purpose connects the events sufficiently to make them one transaction (comprising the Transaction). 214 The funds used to pay Mr Baloglow were derived from the sale of TQLS. I agree with Giles JA that AA owned the TQLS business and its assets. The parties involved, including AA (through Mr Kalls) agreed (for obscure "practical circumstances") that KE (and not AA) would sell TQLS to DT. What is not obscure is that TQLS was so sold to enable Mr Kalls to use the proceeds to pay Mr Baloglow. 215 Mr Kalls directed KE and AA to sell TQLS to DT so that his interest in satisfying his liability to Mr Baloglow could be achieved. Furthermore, Mr Kalls directed that payment of the proceeds of the sale of TQLS be made in a manner that would achieve that end. The control Mr Kalls exercised to achieve his purpose influenced the outcome of each of the events said to comprise the Transaction. This, in my view, is another factor that connects the events sufficiently to make them one transaction. 216 The Second 1995 Sale Agreement of 2 November 1995 and the December 1995 Deed were elements of the Transaction. KE was a party to both the Agreement and the Deed. AA was a party only to the December 1995 deed. Nevertheless, it must be assumed that KE would not have entered into the Second 1995 Sale Agreement without the knowledge and agreement of AA (both companies, in effect, being under the control of Mr Kalls). 217 KE's conduct in binding itself contractually to the Second 1995 Sale Agreement and the December 1995 Deed, and AA's conduct in agreeing to KE so binding itself to the Second 1995 Sale Agreement, and in binding itself contractually to the December 1995 Deed, were essential parts of the Transaction. The same may be said as to the manner in which the proceeds of the sale were disposed of. KE and AA must be taken to have agreed to that disposition (which led, directly, to the payment to Mr Baloglow). 218 The conduct of KE and AA were essential parts of the Transaction because, without it, the Transaction could not have achieved its object; that is to say, without the agreement as described of KE and AA, and their participation, Mr Kalls would not have been able to pay Mr Baloglow. 219 I accept that, apart from becoming indemnifiers under the December 1995 deed, the involvement of KE and AA, in reality, was to act as the source of Mr Kalls' money to pay his obligations. The provision of the funds, however, was an element of great importance in the Transaction. KE and AA, by providing the funds, were involved to a material degree in the Transaction. 220 The fact that Mr Kalls, in directing KE and AA to act as that source, was motivated solely by his own interests of satisfying the liability to Mr Baloglow does not reduce the involvement of KE and AA in the Transaction. It was not contended that the Second 1995 Sale Agreement and the December 1995 Deed were simulated agreements. The involvement of KE and AA (direct or indirect) in them was crucial to their effect. 221 In the light of the relevant facts, I agree with Giles JA (at [145]) that it would be wrong to attribute to Mr Kalls, as the relevant directing mind of KE and AA, an intention that there should be a legally recognisable loan transaction. As his Honour observes, such an intention is at odds with Mr Kalls' general conduct of the company's affairs and there is nothing to support the inference that he had such an intention. I agree with his Honour (at [146]) that: "[T]he correct conclusion is that there was no intention that the money be advanced by KE to Mr Kalls, let alone to Mr Kalls and Mr Kaliaropoulos. There was no more than use by Mr Kalls of the purchase money from the sale of TQLS for payment to Mr Baloglow". 222 This finding, insofar as it bears on the question whether the Transaction was a transaction of KE or AA, is nothing more than a finding that these two companies were, or allowed themselves, to be used by Mr Kalls as the source of money to pay his obligations. In so doing they performed a function that had great significance to the purpose of the Transaction. 223 Accordingly, I would hold that the Transaction was a transaction of KE and AA. 224 Through Mr Kalls, KE knew that TQLS was owned by AA and AA agreed to KE selling TQLS. In these circumstances, KE is to be taken as having received and held the proceeds of the sale of TQLS in trust for AA. 225 The conclusions that no party intended that the proceeds of the sale of TQLS be advanced by KE to Mr Kalls, let alone to Mr Kalls and Mr Kaliaropoulos, and that Mr Kalls simply took the money and used it for his own purposes without regard to the corporate structures and legalities involved, is not inconsistent with the finding that KE, in selling TQLS, is to be regarded as a trustee for AA, and as holding the proceeds of the sale in trust for AA. In my opinion, the facts require such findings to be made. 226 The proceeds of sale of TQLS belonged to AA. As Giles JA observes (at [169]), Mr Kalls put the money out of AA's reach by using it in satisfaction of his personal obligations, in his own interests, and contrary to the interests of AA. The Transaction led to the disposal of the only income-earning asset of AA and the termination of the only means by which KE was earning income. Neither KE nor AA received any consideration for agreeing to participate in the Transaction. Any claim by KE or AA for some kind of reimbursement from Mr Kalls for their losses was problematic as at the time (and thereafter) he was in a parlous financial state. The Transaction was self-evidently uncommercial. 227 I record my specific agreement with Basten JA that Mr Baloglow's defences fail by reason of the factual findings made by Giles JA that result in Mr Baloglow's liability to pay equitable compensation. 228 I also record my specific agreement with the comments made by Basten JA in [241] and [242]. 229 It was submitted on Mr Baloglow's behalf that, should the appeal succeed, he should have a declaration that he was entitled to enforce the judgment against Mr Kaliaropolous. Such a declaration would require this court to set aside the entire December 1995 Deed. I would not uphold such a claim for the reasons Basten JA sets out in [245] and [246]. 230 BASTEN JA: I agree with the orders proposed by Giles JA and with his Honour's reasons, except in relation to his rejection of the claim based on Part 5.7B of the Corporations Law, as in force at the relevant date. In my view that claim should also succeed. However, because it does not affect the orders based on the claim of receipt of company property in breach of the fiduciary duty owed by Mr Kalls as a director of AA and of KE, having control of that property, with knowledge of the breach of duty, my reasons can be shortly stated. I will adopt the abbreviations used by Giles JA. 231 The first step in determining the application of Part 5.7B is to identify a "transaction of a company". The transaction must be one which, had the company acted reasonably, it would not have undertaken: s 588FB(1). 232 In its narrowest sense, the relevant transaction was not the sale of the business, TQLS, but the disposal of the proceeds of the sale in settlement of a personal debt of a director (jointly owed with another) in favour of (if viewed from the perspective of KE) a third party, or (if viewed from the perspective of AA) a 50% shareholder. 233 Neither KE nor AA obtained any benefit from that transaction; rather the owner of the business (which was, as Giles JA explains, AA) suffered a serious loss. The individuals, Messrs Kalls, Kaliaropoulos and Baloglow, obtained benefits. The transaction was clearly "uncommercial": see s 588FB. 234 The next question is whether it was an "insolvent transaction" under s 588FC. For the reasons explained by Giles JA at [171]-[174], KE was insolvent when the transaction was entered into and AA, if not then insolvent, became insolvent by the transaction because it had debts and thereby disposed of the proceeds of the sale of its principal asset and source of income: s 588FC. 235 The commencement of winding up of each of KE and, relevantly, AA, rendered the transaction a "voidable transaction", because entered into or given effect during the two year relation-back periods: s 588FE(1) and (3). 236 Giles JA suggests that what is lacking in this case is the element connecting "the Transaction" to KE and/or AA, so it can be said to be a transaction "of" that company: at [102] above. I agree that being a transaction "of" a particular company can be said to involve something more than the concept of a company being "party to" a transaction. It involves a different perspective. A sale may involve three companies, a vendor, a purchaser and a financier. Each is "party to" the transaction, but in order to characterise the transaction for the purposes of Part 5.7B, one needs to identify "of" which company it is a transaction, so as to assess benefits for, detriments to, insolvency of and winding up of, that company. 237 I also agree that it is critical to identify the Transaction with precision: that is at least in part because it is necessary to answer the tests posed by ss 588FB, 588FC and 588FE, but also to tailor appropriate relief under s 588FF. The Transaction in this case, as pleaded, involved a number of elements: Amended Statement of Claim, par 98. Particular elements pleaded, summarised by Giles JA at [71] above, included the sale of the TQLS business to DT. Yet there was no attempt to show that the sale itself satisfied criteria specified in Part 5.7B, nor was relief sought in relation to it. Rather the focus of the claim, at least in this Court, was the elements identified by the trial judge as (c) and (f), as set out at [83] above, without reliance upon the general background events of the period specified. The sale of the business was an essential step in the plan to obtain funds to settle an obligation of Messrs Kalls and Kaliaropoulos to Mr Baloglow, but it was not correct to see it as part of the Transaction, in relation to which relief was sought in the Court. 238 As I understand it, Giles JA also approaches the case on that basis, at [106]-[107] above. But because that approach leads him to conclude that this was a transaction in which the companies played an incidental role, it was not to be seen as a transaction "of" either company. Although his Honour said "a payment by the company to a third party for the benefit of the director … will be a transaction of the company", this, he said, is not so in this case, because the Transaction as pleaded "involved much more": at [109]. The additional elements must be understood as including the detailed arrangements between Messrs Kalls and Baloglow, and the incidental role of the companies, as the passive source of funds. 239 With respect that conclusion ignores the critical role of the companies in the Transaction. The Transaction involved disposition of the proceeds of sale of AA's business. It occurred by agreement between AA's director and 50% shareholder (Mr Kalls) and Mr Baloglow, a director of its other shareholder (Swan Holdings). A disposition of company funds by agreement between the directors and shareholders of the company, whether or not in breach of the fiduciary duties of one or both, remains a transaction "of" the company. The fact, if it be such, that the company was not expressly made a party to the agreement between those who controlled it (although the companies were each party to the deed of 19 December 1995) may mean that the agreement itself was not a transaction of the company, although I would prefer to leave that question open; but assuming the company was not party to the agreement, the disposition itself was a transaction of the company (relevantly, AA). The surrounding circumstances to which reference must be made to determine whether the transaction was "uncommercial", "insolvent" and "voidable" need not form elements of the transaction. 240 In my view the pleader cast his or her net too widely: the relevant transaction, on a narrow view, was one by which KE paid to Mr Baloglow moneys it held on trust for AA. On a wider view, the transaction involved not merely the payment, but also the deed of 19 December 1995, pursuant to clause 1 of which the payment was to be made. Adopting either approach, the transaction was a transaction "of" both KE and AA, because it should be inferred that it occurred with the knowledge and consent, and indeed at the direction of, the directors and shareholders of both companies, each of whom was conscious that, and expressly intended, that the payment be made from the proceeds of sale of the asset of the relevant company. 241 That conclusion would raise questions as to possible relief under s 588FF and hence possible defences under s 588FG. So far as the defences under s 588FG are concerned, no specific pleading was raised by Mr Baloglow either in his defence or cross-claim identifying the facts on which he relied. In a notice of contention filed in this Court he asserted that he was "a bona fide purchaser for value without notice" under s 588FG(2). That language does not, however, reflect each of the elements of that provision. It is true that he must have become a party to the transaction in good faith and have provided valuable consideration or have changed his position in reliance on the transaction: s 588FG(2)(a) and (c). However, (b) also required that: "(i) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and (ii) a reasonable person in the person's circumstances would have had no such grounds for so suspecting." That basis for resisting relief must fail in the light of the factual findings set out by Giles JA at [197]-[199] above. 242 So far as relief is concerned, on either view of the transaction, it is appropriate to order that Mr Baloglow repay the amount received by him to the company beneficially entitled to the money, namely AA. That relief is available under s 588FA(1)(a) and is in identical terms to that which is provided as relief under the separate cause of action relied upon by Giles JA. 243 The fact that such relief may be available under the Corporations Law was relied upon by Mr Baloglow, by way of cross-claim against Mr Kaliaropoulos, to claim further consequential relief which would entitle Mr Baloglow to reinstate his entitlement to judgment against Mr Kaliaropoulos. That relief was sought in this Court by way of cross-appeal. 244 The terms by which relief was sought in the cross-appeal were apparently opportunistic, and based on the assumption that only Mr Kaliaropoulos had assets which would satisfy all, or at least a significant proportion, of the judgment debt payable by Mr Baloglow in these proceedings. 245 In order for such relief to be granted under s 588FF, the appropriate step would require an order in effect avoiding so much of the deed of 19 December 1995 as released Mr Kaliaropoulos from liability to Mr Baloglow. However, to undo part only of the agreement pursuant to which the moneys were paid (which Mr Baloglow must now repay), may itself create unfairness. The agreement included not only Mr Baloglow and Mr Kaliaropoulos and the two companies, but also Mr Kalls and his wife, Mrs Denise Kalls. If the deed were to be undone in part, it should be undone in full, so as to restore any rights of contribution or indemnity Mr Kaliaropoulos might have against other parties. However, for that to happen, both Mr Kalls and his wife would need to be party to the proceedings, which they were not, either in this Court or in the Court below. 246 Further, if the obligations arising under the deed of 19 December 1995 were discharged by the payment made to Mr Baloglow, it would follow that the judgment debt, to satisfaction of which the deed was directed, must also have been satisfied. That was not a judgment against Mr Kaliaropoulos alone, but it is that debt which is sought, in effect, to be reinstated, but against only one of several parties. 247 These considerations militate against an order of the kind sought on the cross-appeal. That conclusion, however, does not disentitle the companies under the control of the liquidator, to the order sought against Mr Baloglow. That order should, as proposed by Giles JA, accordingly be made. Other relief should not be granted in favour of Mr Baloglow. 248 Finally, as Giles JA notes, there was some confusion as to the appropriate order in relation to payment of interest on the amount claimed on behalf of the companies. If agreement cannot be reached between the parties as to the appropriate amount of interest within 14 days of delivery of judgment, each party should have a further 14 days to file written submissions setting out the amount of interest claimed and the basis upon which it is calculated. Addendum: On 29 June 2007 the High Court issued an amendment to the reasons in Farah Constructions Pty Ltd v Say-Dee Pty Ltd published on 24 May 2007, correcting "the first limb of Barnes v Addy in para 177 to "the second limb of Barnes v Addy". Paragraph 176 of these reasons was written without knowledge of the amendment. Its second sentence should be amended accordingly, and the third and fourth sentences should be deleted. ********** 28/08/2007 - Addendum added - Paragraph(s) At end of judgment 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.