New South Wales Supreme Court CITATION : Green v Duncan [2009] NSWSC 1080 HEARING DATE(S) : 16 - 18 September 2009 JUDGMENT DATE : 9 October 2009 JURISDICTION : Equity JUDGMENT OF : Windeyer AJ DECISION : Judgment for plaintiff against first defendant for $37,534.90. Judgment for second and third defendants on the plaintiff's claim. CATCHWORDS : EQUITY - Trusts and trustees – Money received by company as fruits of litigation - Funds held as to 50% for plaintiff – Whether intention was plaintiff had interest in funds as distinct from or additional to claim in debt. - EQUITY - Tracing – Trust funds paid to superannuation fund in which first defendant had interest and to company controlled by third defendant – Whether funds could be identified, whether tracing claim maintainable unless recipient joined as defendant. - EQUITY - Barnes v Addy – Knowing receipt – Whether notice of trust - Whether denial of agreement terms found in another court relevant to knowledge. - EQUITY - Mixed Funds – Trust moneys mixed with moneys of company – Whether particular payment from account of company to first defendant identified as trust funds – Whether first defendant liable on basis of knowing receipt. - EQUITY - Barnes v Addy – Knowing assistance – Whether acts of company trustee in making payments out of trust fund acts of company through its director or acts of director – Whether actions amounted to fraudulent design. - TORTS – Conversion and deceit – Whether claimed acts those of director as opposed to acts of company through its director – Whether false representation made in deceit claim. - TRADE PRACTICES ACT – Whether false representation made. - EVIDENCE – Estoppel – Anshun Estoppel – Whether judgment in Chief Industrial Magistrate's Court prevented trust claim in Supreme Court – Whether reasonable not to bring debt and trust claims in Supreme Court. - EVIDENCE – Issue estoppel – Proceedings between plaintiff and company in Chief Industrial Magistrate's Court found in favour of plaintiff on basis of moneys owing on breach of contract – Whether one of two directors estopped by judgment as privy of company. - EVIDENCE – Estoppel – Merger in judgment – Whether the action against privy of company defendant before Chief Industrial Magistrate prevented by doctrine of merger as a result of judgment against company in another court. LEGISLATION CITED : Trade Practices Act 1974 (Cth) s 75B CATEGORY : Principal judgment Barnes v Addy (1874) LR 9 Ch App 244 Black v Smallwood (1966) 117 CLR 52 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 Henry v Hammond [1913] 2 KB 515 Johnson v Gore Wood & Co [2002] 2 AC 1 O'Brien v Dawson (1942) 65 CLR 18 CASES CITED : Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 Re Hallett's Estate (1880) 13 Ch D 696 Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2001) 77 ALR 231 Shears v Chisholm [1994] 2 VR 535 Shears v Chisholm [1994] 2 VR 535 Thomas and Agnes Carvel Foundation v Carvel [2008] Ch 395 Walker v Corboy (1990) 19 NSWLR 382 Neville James Green (P) PARTIES : James Alexander Duncan (D1) Nyrelle Joy Duncan (D2) Paul Duncan (D3) FILE NUMBER(S) : SC 5775/06 COUNSEL : D Brezniak (P) F Kunc SC (D1-3) SOLICITORS : Slater & Elias (P) Marque Lawyers (D1-3) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER AJ FRIDAY, 9 OCTOBER 2009 5775/06 NEVILLE JAMES GREEN v JAMES ALEXANDER DUNCAN & ORS JUDGMENT 1 HIS HONOUR: Outline 2 The plaintiff, Mr Neville Green, seeks to recover one half of a judgment sum of $246,028.88 awarded to and paid to a company, Diosta Pty Limited ("Diosta"), together with certain other moneys for interest and costs. Mr Green was, at most of the relevant time, a real estate salesman employed by Diosta. Diosta carried on business as a licensed real estate agent as Raine & Horne Special Projects under a franchise agreement with Raine & Horne Pty Limited pursuant to which a franchise fee of 6.5 per cent of commissions earned was payable. Mr James Duncan ("Mr Duncan") and his wife, Nyrelle Duncan the second defendant ("Mrs Duncan"), were directors of Diosta. The third defendant is their son, Paul, who either contracted to Diosta through his own company, or at one stage was employed by Diosta. Diosta is the trustee of the Duncan Family Trust, which was a trading trust, conducting the business of the real estate agency. 3 Diosta had entered into a contract with Monopoly Pty Limited ("Monopoly") which entitled Diosta to commission if Monopoly became purchaser of a property known as the Eastwood Hotel. In fact, another company became the purchaser, but it was a company associated with Monopoly. The purchase settled in December 2000. Mr Green was the salesman who had worked on this transaction. In discussions prior to settlement Mr Duncan said to him, "If there are no impediments to us getting commission we'll give you half of the net commission." 4 There was a dispute and Monopoly refused to pay the buyer's commission. Mr Green and Mr Duncan, for Diosta, then entered into an agreement, the terms of which are disputed, but which on any basis had terms that if Mr Green paid 50 per cent of the costs of the proceedings against Monopoly, he would be entitled to 50 per cent of the commission. Whether this was to be taken into account as commission under the terms of his employment contract, or as a separate figure subject to separate agreement, is a matter to be decided here, unless it has already been decided in the decision by which the parties are bound. 5 Proceedings were commenced by Diosta against Monopoly in the District Court which resulted in judgment in favour of Diosta in December 2003. An appeal to the Court of Appeal was dismissed in November 2004. The judgment sum was paid to the solicitors acting for Diosta in the action and paid by them to Diosta on 2 or 3 February 2005. Subsequently, sums received for costs were also paid to Diosta. All moneys were paid into the general account of Diosta. Mr Duncan claimed that Mr Green was not entitled to a share in the proceeds because although he had paid 50 per cent of the costs in accordance with bills which had sent to him directly by the solicitors, Mr Green had refused to comply with a request of Mr Duncan to pay $40,000 to those solicitors, which request was made about one month prior to the hearing date of the appeal. That figure of $40,000 was said by Mr Duncan to be one half of the costs estimated by the solicitors which would be payable by Diosta to Monopoly if the appeal succeeded. 6 When the litigation ended Mr Green was no longer employed by Diosta. His employment was terminated by Mr Duncan in September 2003. It seems this was because Mr Green took extended time off without approval but this does not matter. Green told Duncan in response to his enquiry that he still wanted to be part of the case and would "continue to pay as agreed". 7 Mr Green brought proceedings in the Chief Industrial Magistrate's Court against Diosta, Mr Duncan and his wife. Mr and Mrs Duncan were removed as defendants it seems on the application of Mr Duncan. Whether this was by consent or not is not established and does not really matter. It was necessary in those proceedings to determine the agreement between Diosta and Mr Green. This involved, among other things, determination whether failure to pay the $40,000 was a breach allowing Diosta to terminate the agreement; and whether in any event the claim to share in the commission was subject to what has been called a threshold test. This question arose because under the terms of his employment agreement, it is accepted, although the documents in evidence do not establish this, that Mr Green was employed on a salary plus commission basis and entitlement to commission, being 45 per cent of commissions earned on sales brought about by him, would only be triggered after Diosta had earned in one year $100,000 from such sales. 8 On 12 April 2006, judgment was given in the Chief Industrial Magistrate's Court in favour of Mr Green and Diosta was ordered to pay to him the sum of $160,054, which was 50 per cent of the judgment and the costs received, plus $14,408.68 interest, the total being $174,458. 9 On 27 June 2006, Diosta was placed into voluntary administration and shortly thereafter, as a result of a creditor's resolution, Diosta was wound up. 10 Before the proceedings before the Chief Industrial Magistrate were determined, but after it had received the judgment moneys, Diosta made payments to Mr Duncan totalling $22,000 and another amount of $90,000, to which I will return. It made another payment of $30,000 to Mr Duncan's superannuation fund. It also made payments totalling $29,700 to PA Duncan Consulting Pty Ltd, a company controlled by the third defendant. It is claimed in the Amended Statement of Claim that a payment was also made to the second defendant, but that was not proved. 11 The plaintiff did prove in the winding up of Diosta for his judgment sum. The evidence is not clear, but it seems he received no dividend in the winding up. It is the failure to obtain payment from Diosta which has brought about this action. Pleaded Claims A Trust claim 12 Mr Green claims that Diosta held one half of the proceeds of the Monopoly judgment upon trust for him; that Mr Duncan has caused Diosta to make payments to himself and his wife and son from moneys being part of the proceeds; so that insofar as Mr Duncan received payment, he knowingly received trust funds and insofar as he made payments to the other defendants, he knowingly participated in breach of trust. It is fair to say that this claim is not very clearly pleaded, but it is accepted that the claim involved the first limb of Barnes v Addy (1874) LR 9 Ch App 244 against each defendant and was intended to cover the second limb at least as against Mr Duncan. B Conversion claim 13 This is pleaded in the Further Amended Statement of Claim as follows: "35 The first defendant dishonestly took and retained the plaintiffs [sic] proportion of the proceeds of the judgment monies in the District Court of New South Wales proceedings and the Court of Appeal proceedings, all of the legal costs advanced by the plaintiff as set out in paragraph 14 and paragraph 18 of this claim, and all interest and all costs awarded against Monopoly in the District Court of New South Wales proceedings and the Court of Appeal proceedings. Particulars 35.1 The demands, and the terms of those demands, particularised in paragraph 17 of this claim. 35.2 The facts set out in paragraphs 22 to 29 of this statement of claim. 35.3 The failure of Diosta to pay to the plaintiff in accordance with the judgment of the Chief Industrial Magistrate. 35.4 Payments from Diosta to and on behalf of the first defendant on and after 4 th February 2005 of $6,000.00; $16,000.00; $90,000.00; $30,000.00; $10,000.00 further and other sums. 35.5 Payments from Diosta to and on behalf of the second defendant on and or after 4 th February 2005. 35.6 Payments from Diosta to and on behalf of the third defendant on and or after 4 th February 2005. 36 By reason of the receipt from Diosta, by each of the first, second and third defendants of all of the proceeds of the litigation against Monopoly each of the defendants has wrongfully converted to his and her own use such share of the judgment debt, costs contributed by the plaintiff and costs awarded against Monopoly to which the plaintiff is entitled." 14 This claim is almost meaningless but I will deal with it later. C Constructive trustee / constructive trust claim 15 While not clearly articulated, the constructive trustee claim is a Barnes v Addy claim similar to the trust claim. D Improper exercise of power 16 The claim is that the defendants "acted improperly, unreasonably and capriciously in causing to be distributed to themselves" moneys that were moneys of the plaintiff. It is not clear to me how this is a cause of action. It may be that it is said to be conversion. E False representation 17 This is a claim in deceit, the claimed false representation being made by Mr Duncan to Mr Green that if he contributed one half towards the costs, he would get one half of the moneys recovered. This is pleaded in par 41 of the Further Amended Statement of Claim. Counsel in submissions said that par 35 which I have already set out, is also relevant as it relates to damages. Par 41 is as follows: "41 The first defendant falsely represented to the plaintiff that if he paid half of Diosta's legal costs incurred in any proceedings against Monopoly he would receive half of any judgment monies obtained against Monopoly and half of any legal costs recovered from Monopoly in circumstances where the first defendant knew: Particulars 41.1 That despite the employment relationship between the first defendant represented that if the plaintiff did no contribute half of all legal costs incurred by Diosta in its proceedings against Monopoly he would not receive any commission payable by Monopoly under the purchasing agency agreement pleased in paragraph nine (9) above. 41.2 by representing to the plaintiff that if he paid half of all Diosta's legal costs in any successful proceedings against Monopoly he would receive half of all judgment monies and any costs recovered from Monopoly. 41.3 that the corporation Diosta declined to and did not pay to the plaintiff that part of the proceeds of Judgment to which he was entitled by reason of his employment with the first defendant and Diosta and the oral agreement the terms of which are set out in paragraph ten (10) of this claim. 41.4 That the plaintiff was, or must have been, at the time he agreed with the first defendant as recited in paragraph 10 of this claim, under pressure to comply with the first defendant's request that he pay half of all legal costs incurred by Diosta in respect of its proceedings against Monopoly." F Unjust enrichment 18 This is not a cause of action and can be disregarded. G False, misleading and deceptive representations 19 This is an accessory claim under s 75B of the Trade Practices Act 1974 (Cth). No misleading or deceptive conduct by Diosta is pleaded to give rise to the accessory claim. I will return to this. Defences 20 There are separate defences for each defendant but in the important matters they are the same. The first defendant denies the agreement terms pleaded by the plaintiff and while his evidence makes this clear, the defence unfortunately did not set out terms of the agreement as claimed by Mr Duncan. Apart from this, there is really a general denial of the plaintiff's claim. 21 The matter of significance is that the defences raise an Anshun estoppel and merger defence: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. That may not be perfectly clear from the pleading as to merger, but Mr Kunc SC for the defendants made that quite clear during his argument. He accepted that the trust claim could not have been brought in the proceedings before the Chief Industrial Magistrate. His argument was that the debt claim and any trust claim could have and should have been brought in this Court. He said that the defendants were unfairly vexed by this not having been done. 22 I can deal with part of that claim now. I do not think it unreasonable to bring the action on the contract before the Chief Industrial Magistrate. It was a far more simple claim than any other claim. Mr Green should not have been expected to think that Diosta would have no funds to satisfy judgment. No doubt, had he or his advisors thought about it, he could have pursued the debt and trust claims in this Court, but I can find no basis to find it was unreasonable for him not to do so. In fact, I consider the course taken to be reasonable and sensible. There is no evidence to show Mr Green had reason to be concerned about the ability of Diosta to pay so that any claim brought in this court, whether for debt or trust or both, is likely to have been brought against Diosta alone. I will return to the merger argument. Reply 23 It is necessary to explain the course of the trial. At some stage during day one, Mr Brezniak objected to certain questions being asked during cross examination of Mr Green which went to the terms of the agreement alleged, saying that the judgment of the Chief Industrial Magistrate had found the agreement alleged by the plaintiff was in fact the agreement made and that Mr Duncan was therefore estopped from setting up a different agreement, or from denying that agreement. It is accepted that any agreement made by Mr Green and Diosta was made on behalf of Diosta through Mr Duncan, the other defendants playing no part in this. The question of estoppel was raised on objection to evidence. There was some further discussion, during which I stated my view that this was something which should have been pleaded, but I would proceed on the basis that a pleading would be brought forward the following day. The question then arose as to whether this was a matter to be determined as an objection to evidence or whether the matter could go forward with the question to be determined at the conclusion of the hearing. I am inclined to think that the question to be decided is a separate issue on the question of admissibility of evidence to prevent unnecessary evidence being adduced if it were not admissible. However, it was not necessary to decide this, as the parties agreed the objections could be noted and the matter dealt with in the final judgment. The trial proceeded in the meantime. That seemed to be the appropriate course, as the reply had not been filed, although it was filed at the commencement of the second day of the hearing. Counsel for the defendants argued that in any event the evidence was admissible on the question at least of knowledge of a trust and the claim for exemplary damages. I accept the latter but doubt the former. 24 Mr Green's version of the agreement was set out in pars 12 to 14 of his affidavit sworn 5 February 2007 as follows: "12 On about early February 2001 I had a conversation with the first defendant, my employer and Director of Diosta to the following effect:- First defendant: ' In regards the outstanding monies owed to us by Ross Visalki and the Monopoly Pty Limited do you think that the Barrister for your other case would be interested in working for us to run a case to recover monies? Why don't you ask him.' Me: ' I suppose that he would but I will approach him to see if he is interested. Who would we use as a solicitor? What about Freidman Reeves downstairs? ' First defendant: ' I don't think they would be very good for this, I feel this is too complicated for them and I suppose that we should use Ratner Chiu Solicitors, I get a lot of work from them and I think we should give some back to them.' 13 Subsequent to the conversation note in paragraph 12 above I met with George Thomas, Barrister, on the following Saturday at a coffee shop in Marrickville Road, Marrickville to discuss the possibility of him running the case for us. I briefed him with a run down of the case and showed him a copy of the invoice issued to Ross Visalli and the Monopoly Company Pty Ltd by Diosta Pty Ltd for commission claimed. The first defendant was not present at this meeting. 14 A day or two following this discussion with George Thomas I had a conversation with the first defendant to the following effect:- Me: ' I met George on Saturday and he will take on the case for us, he seems to think we have a strong chance of winning. First thing he wants to do is issue another Statement of Claim. ' First defendant: ' Well if we decided to take Visalli to Court, I want you to pay for half of the Court costs as I don't believe that if I was to pay for all the costs and take all the risk of losing my money that you should be entitled to any of the rewards should we win and be awarded the commission we think is owed. ' Me: ' Why should I pay for any of the costs? I'm not the boss. ' First defendant: ' If you don't want to that's too bad, I am not going to put all of my money into a case and give you half of the profits if I win. Why would I do that? You either take the deal at 50/50 split or you get nothing. I cannot afford to pay for everything.' Me: ' Alright, I will pay 50% of the Court costs as long as it is agreed that in return that I will receive 50% of any monies received should we win the case, including 50% of all costs if awarded. " First defendant: ' Yes. I agree. ' Me: ' We should draw up some sort of Agreement between us as to this decision. ' First defendant: ' Your letter of Employment will cover you as to monies owed if we win but we can draw up something to cover both of us at a later date. When I receive an invoice from any of the legal team I will give you a copy and you can pay them direct. '" Mr Duncan's version was set out in pars 12 to 14 of his affidavit sworn 7 July 2008 as follows: "12 After exchange of contracts for, but prior to completion of, the sale of the Eastwood Hotel, I had a discussion with Mr Green in words in or to the following effect: Me: ' Do you think the Eastwood Hotel will settle in the next few weeks?' Mr Green: ' No problems for settlement. All is okay. I've spoken to Ross Visalli. There's nothing to worry about. He told me we'd get the commission .' Me: ' If there are no impediments to us getting the commission we'll give you half of the net commission.' The discussion above was in my capacity as a director of Diosta. By 'net commission' I meant the gross commission payable by Monopoly less a franchise fee of 6.5% payable to Raine & Horne. The 'half commission' I referred to above was only a 5% increase in the commission payable to Mr Green because pursuant to his employment contract he was normally entitled to 45% commission (if his financial thresholds were met). I considered the increase from 45% to 50% to be a small reward for securing a good fee. I did not consider the increase from 45% to 50% to be an agreement outside the normal employment arrangements. I considered the increase to be an insignificant increase, and I assumed it was insignificant to Mr Green as well. For that reason I did not document the increase [sic] commission agreement. I never suggested, nor did I agree, that the increase in commission payable to Mr Green was outside his employment agreement with Diosta. For that reason, I considered Mr Green was required to meet his financial thresholds before being entitled to commission payments. No record of the conversation has ever been produced by Mr Green and Mr Green did not produce a written record of the conversation in the subsequent proceedings in the Industrial Magistrate's Court referred to below. 13 Following completion of Modern's purchase of the Hotel on or about 1 December 2000 Monopoly refused to pay Diosta's commission. The offer referred to in paragraph 12 above was made to Mr Green on the basis of there being 'no impediment' to Diosta receiving its commission on settlement of the sale of the Hotel. If I had known Diosta would have to sue Monopoly to recover its commission, I would not have made the offer referred to in paragraph 12 above to Mr Green. 14 In early 2001 I had a discussion with Mr Green to the following effect: Me: ' Ross Visalli is not going to pay our commission. We may have to go to litigation. If we go, are you prepared to contribute towards the costs?' Mr Green: ' Yes. How much?' Me: ' If you want to receive 50% of the commission, are you prepared to pay 50% of the costs?' Mr Green: ' When do I have to pay?' Me: ' When I consider that we have to make any payment towards these proceedings.' Mr Green: ' I agree.'" The solicitors did send invoices direct to Mr Green and he paid them direct. On one occasion he paid pursuant to a request by letter from the solicitors. Until the demand for $40,000 was made no payment came from Mr Duncan. Mr Green made payments of over $47,000. Consideration of estoppel 25 In the proceedings before the Chief Industrial Magistrate, apart from the question of jurisdiction, the issue to be determined was the terms of the agreement relating to Monopoly between Mr Green and Diosta. In simple terms, Mr Green said that the agreement was that if he funded 50 per cent of the costs of the litigation, he would be entitled to 50 per cent of the proceeds of the claim against Monopoly and that he was to pay 50 per cent of legal invoices rendered to him. Mr Duncan, on the other hand, said that the agreement was that Mr Green would pay such payments as he, Mr Duncan, required him to make. There had, however, been the earlier conversation I have referred to when Mr Duncan had said to Mr Green in discussions about the Eastwood Hotel and the commission due, "If there are no impediments to us getting the commission, we'll give you half of the net commission." 26 The learned Magistrate found (1) that the agreement was that Mr Green would meet one half of the costs incurred by Diosta on issue of invoices from the solicitors, (2) that there was no arrangement to pay when required by Mr Duncan, and (3) that the arrangement as to sharing was a special arrangement concerning the particular transaction and was, therefore, not subject to any threshold provision. He found that Mr Green had performed his part of the agreement in that he had made payments on request or invoice from the solicitors. Diosta would be estopped from asserting to the contrary. 27 Those were the facts found. The question is whether the defendant can challenge those findings in this action, or should be allowed to give the evidence contrary to such findings. Mr Kunc has argued that the principal question before the Magistrate was whether any agreement reached was a contract relating to the plaintiff's employment. That went, as I have said, to jurisdiction. But once that was determined, the question was the terms of the agreement. That issue was clear and determined in favour of Mr Green. It is also said that the claim for costs made in the Chief Industrial Magistrate's Court proceedings differs from that made in the present action. So it did, but the issue of entitlement to costs was clearly determined by the Magistrate. Thus, subject to the question of parties, I would find an estoppel as to the terms of the agreement the same terms being alleged by the plaintiff here and denied by Mr Duncan. Privy in Interest 28 For an issue estoppel to arise, the decision must be one between the same parties or their privies. The evidence of the plaintiff as to involvement of the defendants so far as the first defendant was concerned, was that he attended the office daily, managed the business, hired and fired staff, signed contracts and cheques and managed and controlled all of Diosta's financial records. Mr Duncan did not really challenge this and I accept it. He did say in answer to a question about Diosta and the family trust, "I always understood Diosta as being separate from my wife and myself". However, he did seem to have little understanding of the trust, leaving all of that to his accountant. 29 The plaintiff's evidence as to the second defendant was that Mrs Duncan attended the office every two months or so, talked to staff members and talked about business affairs. Mrs Duncan denied this last allegation. Her evidence was that she took no part in the company, but just signed whatever her husband asked her to sign, as she was fully occupied as a Seniors Minister of a Roman Catholic church, which I take to mean a lay person concerned with pastoral care of elderly members of the parish. I accept her evidence. Whatever she was, she was not a privy of Diosta. 30 The third defendant was not a privy. He did not manage Diosta, he was not a director of Diosta, he was not a beneficiary in the trust. He took part in staff meetings and worked as a consultant to Diosta through his own company and later as an employee. He was no more privy than his mother. 31 I turn to the question of whether Mr Duncan was a privy. The law on estoppel has given rise to a vast body of caselaw in recent years. However, there can be no doubt that the persons bound by estoppels are the parties to the litigation and their privies in estate or interest. Thus, the question here is whether Mr Duncan was a privy in interest of Diosta. 32 The decision of the House of Lords in Johnson v Gore Wood & Co [2002] 2 AC 1 bears on this. Mr Johnson conducted his business affairs through companies, one of which was W Limited, in which he held all but two shares, and of which he was managing director. While the passage in the judgment of Lord Bingham of Cornhill, at 32, was not an essential part of the reasoning in the case, nevertheless, I set out the relevant passage: "Two subsidiary arguments were advanced by Mr ter Haar in the courts below and rejected by each. The first was that the rule in Henderson v Henderson did not apply to Mr Johnson since he had not been the plaintiff in the first action against GW. In my judgment this argument was rightly rejected. A formulaic approach to application of the rule would be mistaken. WWH was the corporate embodiment of Mr Johnson. He made decisions and gave instructions on its behalf. If he had wished to include his personal claim in the company's action, or to issue proceedings in tandem with those of the company, he had power to do so. The correct approach is that formulated by Sir Robert Megarry VC in Gleeson v J Whippell & Co Ltd [1977] 3 All ER 54 at 60, [1977] 1 WLR 510 at 515 where he said: 'Second, it seems to me that the substratum of the doctrine is that a man ought not to be allowed to litigate a second time what has already been decided between himself and the other party to the litigation. This is in the interest both of the successful party and of the public. But I cannot see that this provides any basis for a successful defendant to say that the successful defence is a bar to the plaintiff suing some third party, or for that third party to say that the successful defence prevents the plaintiff from suing him, unless there is a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase "privity of interest".' On the present facts that test was clearly satisfied." This decision was followed in Thomas and Agnes Carvel Foundation v Carvel [2008] Ch 395 at 406 and Gleeson v J Whippell & Co Ltd was referred to with apparent approval in Shears v Chisholm [1994] 2 VR 535 at 546. 33 In the present case, while decision as to how the family trust affairs were documented might have been made by the accountants, all decisions concerning the operation of Diosta in its estate agency business, which was its only business, were made by Mr Duncan. It was he who controlled the business of the company, he who gave instruction to employees, he who decided on commission terms, he who directed staff meetings, he who instructed the lawyers in the Monopoly litigation. It was he who gave evidence for Diosta in the Monopoly litigation in the District Court proceedings. Apart from Mr Green who did leg work for the lawyers and who gave evidence in the District Court, no one else did any of this. I find that Mr Duncan was the mind of Diosta and the privy of Diosta, so to the extent that Diosta would be estopped from giving evidence contrary to the judgment on the issues before the Chief Industrial Magistrate, Mr Duncan is also so estopped. The other defendants were not privies and are not estopped. But as neither of them took any part in the making of the agreement as to Monopoly funding and sharing of commission, that does not matter. While the estoppel claim raised by reply, is raised in relation to pars 7, 8, 9, 12, 13, 14, 17, 18, 20, 25, 29 and 30 of the defence, I am of the view that the only paragraphs of the defence to which the response can properly apply are par 12, which denies the pleaded allegation of the terms of the litigation funding agreement, par 13, which denies the agreement was an oral agreement, which it clearly was, and par 25, which is a denial of the plaintiff's pleaded claim as to entitlement to one half of the judgment share as at 3 February 2005, although I accept this must be subject to the franchise fee on the commission not the judgment. Merger 34 It is now possible to deal with the defence of merger by judgment. It was argued by counsel for the defendants that at least Mr Duncan is entitled to rely on cause of action or merger estoppel as a privy of Diosta. This argument is founded on the judgment of Brennan J in Anshun which was grounded on merger rather than what might be called the Henderson v Henderson principle relied upon in the joint judgment of Gibbes CJ, Mason and Aickin JJ. The following passage appears in the judgment of Brennan J commencing at p 61: "When the same facts support rights to different remedies against the same defendant, the plaintiff cannot recover a judgment giving a remedy in respect of more than one right ( United Australia Ltd v Barclays Bank Ltd [1941] AC 1; Mahesan v Malaysia Housing Society [1979] AC 374. He may pursue his remedies concurrently in the same action, but he is put to his election before judgment as to which remedy he shall have. And when judgment is entered, all of the rights which he might have claimed in that litigation are merged in the judgment. Lord Atkin in United Australia Ltd v Barclays Bank Ltd [1941] AC at p 30 defined the effect of a judgment upon alternative remedies: 'Up to that stage the plaintiff may pursue both remedies together, or pursuing one may amend and pursue the other: but he can take judgment only for the one, and his cause of action on both will then be merged in the one.' The party entitled to relief cannot improve his position by bringing separate actions. Though he may elect between inconsistent remedies pursued in the one action, or between the actions to be pursued in order to recover a judgment giving the remedy he chooses, the merger in the judgment first recovered of a right to another remedy takes effect by operation of law. When those rights (or causes of action) are extinguished, no further litigation may be pursued to recover a second judgment upon them." 35 It is argued from this that as Mr Green could not now have claimed against Diosta as a trustee – (which I accept) – then because Mr Duncan is a privy of Diosta this in some way prevents any recipient liability claim against him. I do not consider that conclusion follows. First privity is generally relevant to issue estoppel; second, the merger doctrine requires identity of parties; and third, the fact that Mr Duncan is bound by the decision in the Chief Industrial Magistrate's Court and the facts there found does not preclude a case against him on a different cause of action. The Agreement 36 If I were incorrect in my finding that Mr Duncan is found by the decision on the contract claim and thus assuming evidence of Mr Duncan as to the terms of the agreement is admissible, I would come to the same conclusion, namely that the agreement was in terms put forward by the plaintiff. I would do this because: (a) The funding agreement involved Mr Green making himself liable for the payment of considerable funds, although the full extent could not have been realised. It is quite unlikely that he would have done this had the threshold applied. It was put by Mr Kunc that Mr Green would not have been concerned about this, because he would have expected to reach the threshold in any event without taking this particular transaction into account. That is not shown to be so and it is by no means clear to what year the commission earned on this transaction would have been attributed. In addition, the proceeds of the litigation are not limited to the actual commission figure. (b) All invoices for costs and disbursements were in fact sent to Mr Green by the solicitors. They did not come through Mr Duncan and he did not ask for payment of them. (c) It is highly unlikely Mr Green would have agreed to pay on demands made by Mr Duncan at his discretion. (d) The liability for the costs of Monopoly in the event of failure was not something which would normally be regarded as the costs of bringing the action. It is not suggested it was even discussed prior to the demand. (e) Until the terms of the demand, equal payments had been made. Diosta did not pay $40,000 and Mr Duncan never intended that it would. (f) The threshold hurdle was never discussed in relation to the agreement. (g) Mr Green continued to share the litigation funding after he left Diosta in September 2003 in accordance with the arrangements which he said were made. 37 In the long run, the decision depends upon whose evidence is accepted. Some inroads were made on Mr Green's credit involving disputed diary notes. I do not accept Mr Green's evidence about these notes. Some of the evidence of Mr Duncan I do not accept, one part being that he wanted the $40,000 in advance because he did not know if he would be able to find Mr Green if the appeal succeeded. There was no ring of truth about that evidence. I accept the evidence of Mr Green as to the agreement made. 38 I should say that even if the agreement were in the terms set out by Mr Duncan, it was never terminated. There was notice requiring payment by a particular time and payment was not made then. There was then a further letter which changed the time. Mr Green responded to that letter, albeit out of time. No notice of termination was given. Mr Duncan said in evidence that he regarded the refusal of Mr Green to pay to be a repudiation. If he did, he gave no notice of acceptance. None of this really matters in view of the decision to which I have come. Trust Claims 39 In par 33 of the Further Amended Statement of Claim, it is pleaded that Diosta held the proceeds of the Monopoly litigation as to one half on trust for the plaintiff. The whole of the case of the plaintiff in this Court depends upon that being found. 40 The Monopoly judgment moneys and interest were received by the solicitors for Diosta and paid to Diosta on 3 February 2005. Mr Duncan knew of this, although he told Mr Green otherwise. The moneys were paid into the general account of Diosta, not into its trust account. Something was made by Mr Kunc about this, but I think it shows no more than the simple fact that for whatever reason, Mr Duncan had decided that Mr Green was to get nothing from the proceeds of the litigation. 41 The question is whether the agreement in terms established by Mr Green did more than create a debt due by Diosta to him when the litigation was successfully concluded: was it the intention of the parties that the proceeds of the litigation be held by Diosta as to 50 per cent on trust for Mr Green: Walker v Corboy (1990) 19 NSWLR 382 at 386. There is no doubt there was a debt. The decision of the Chief Industrial Magistrate's Court determined that. The question is whether Mr Green had a beneficial interest in the fund represented by the judgment moneys, interest and costs received from Monopoly, so that Diosta was required to keep the fund separate, or to hold Mr Green's share in a separate account and not mix it into the general funds of Diosta: Henry v Hammond [1913] 2 KB 515 at 521. 42 It is a difficult question, but I consider the language used by the parties sufficient to conclude that the intention was that the plaintiff had a 50 per cent interest in the fund, so that on receipt by Diosta of the fund, that proportion was held by Diosta in trust for the plaintiff. I do take into account the last part of the conversation, namely, "Your letter of employment would cover you as to moneys owed if we win", but that does not take away from the agreement already reached. The obvious intention of the parties when Mr Green agreed to fund 50 per cent of litigation funds was that he would be entitled to 50 per cent of the fruits of the litigation and that interest would be held for him. Mr Green accepted that the franchise fee was payable on so much of the judgment sum as represented commission but I do not think this weakens his case. Distributions of the Proceeds and Tracing Claim 43 $246,028.46 was paid into the general account of Diosta on 3 February 2005. On any basis, one half of that amount belonged to Diosta but subject to any franchise fee payable. That, however, did not mean there was an entitlement to pay the whole of the fund into the general account and mix it with other money. On the following day, separate payments of $6,000 and $16,000 were made to Mr Duncan, the purpose stated in the account ledger in Exhibit 9 being to repay loans which had been made by Mr Duncan to Diosta and which loans also appear in the accounts. On 9 February 2005, $90,000 was paid by Diosta to Mr Duncan and he invested this on deposit with the Commonwealth Bank of Australia "pending settlement with Green". While that amount could be taken to have been paid out of the share to which Mr Green was entitled from the settlement moneys which had been paid to Diosta, the other payments in accordance with ordinary principles would have been taken to have been paid by Diosta out of the funds which were its own: Re Hallett's Estate (1880) 13 Ch D 696. The wording "pending settlement with Green" does not sit well with the evidence of Mr Duncan that he considered the agreement was ended when Mr Green refused to pay the $40,000. 44 The amount placed on deposit with the Commonwealth Bank was repaid with interest on 9 February 2006 and paid into the Diosta general account. Before that was done, the Diosta account had only about $5,000 in it. It would follow that if those funds can be identified as the share of Mr Green, then as no other deposits of any significance were received until 20 April 2006, nearly all the payments between those dates must have been payments out of trust funds. $10,120 was paid in on 20 April 2006 for commission on a sale. Those moneys were those of Diosta. Tracing Claim 45 There were some payments made to Mr Duncan, but where those payments ended up, the evidence does not establish, so that no tracing claim could apply. There is a tracing claim made in respect of $30,000 which was paid on 24 June 2005 to the "Duncan Super Fund". Mr Duncan said that fund was still in existence. The only evidence relating to the trust is in Exhibit D, which comprises the financial and reports for the period 1 July 2004 to 30 June 2005. Those accounts show that Diosta was the trustee of that fund at the relevant time. For tracing to be successful, the trustee of the superannuation fund would have to be joined. If it is still trustee Diosta cannot be joined without leave and there is no evidence as to any other trustee. That claim for tracing must fail. For the same reason claims to trace payments made to PA Duncan Consulting Pty Ltd must fail as it is not a defendant. More important is the fact there is no evidence the moneys paid remain in any account of that company or of Mr Paul Duncan. Barnes v Addy 46 I have found that a trust existed. But to make Mr Duncan liable under the first limb of Barnes v Addy, he must have received and become chargeable with trust funds. To become chargeable, he must have had notice of the trust: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [112]. On the inadequate material in Exhibit 9, it is not possible to hold that any payment made by Diosta to Mr Duncan after receipt of Monopoly moneys was of trust money as opposed to funds of Diosta in the account, at least until the Commonwealth Bank Deposit moneys were paid back into the account in February 2006. No submissions were made that there should be some order for a detailed accounting in accordance with the principles established in Re Hallett's Estate. The moneys which were paid to the Duncan Super Fund were not paid to Mr Duncan. 47 I find that the moneys received from the Commonwealth Bank on repayment of the deposit were trust moneys held by Diosta for Mr Green, or to which he was beneficially entitled. Withdrawals of $10,000 and $20,000 from the account on 9 February 2006 and 10 April 2006 respectively were then withdrawals of trust funds. Smaller amounts of $2,129.00, $2,825.66 and $2,580.24 were also paid to Mr Duncan as expenses and for the same reason would be trust funds held for Mr Green. While I have found the terms of the agreement against Mr Duncan, I also allowed evidence of his version of events to be admitted on the question of intention and knowledge. However, in the case of knowledge it is knowledge of the facts which bring the trust into existence not knowledge of the legal conclusion which results from those facts which matters and in any event I do not accept Mr Duncan's evidence of intention. I find that Mr Duncan had knowledge. He is chargeable with the sums of $10,000 and $20,000 and the smaller sums totalling $7,534.90. The three figures amount to $37,534.90. 48 Mrs Duncan never received any money, so there can be no Barnes v Addy claim against her. Mr Paul Duncan did receive some money. It is possible that he may have received trust funds, as he received a number of payments after the Commonwealth Bank moneys were placed back into the account, but there is no evidence at all that he had notice of the trust and he was not asked anything about this. In so far as moneys were paid to his company it is not a defendant so no claim of knowing receipt arises. Barnes v Addy – Knowing Assistance 49 The only pleaded claim as to knowing assistance appears to be in par 37 of the Further Amended Statement of Claim and is against the first defendant only. That paragraph is as follows: "37 The first defendant caused to be paid, from the bank account of Diosta, other than to the plaintiff amounts of money from the from the [sic] proceeds of the litigation against Monopoly to which the plaintiff was and is entitled, and thereby assisted, counselled and procured the breach by Diosta of the trust upon which it held those amounts of money and its trust and fiduciary duty to the plaintiff." 50 I do not understand how this claim can be made as against the first defendant as distinct from Diosta. What Mr Duncan did so far as these payments were concerned, he did in his capacity as a director of Diosta and his actions were those of the company: Black v Smallwood (1966) 117 CLR 52 at 61. Signing a cheque on the company account is not knowing assistance by a director. In any event, whatever may be said of the payments made by Diosta it could not be said that Mr Duncan assisted with knowledge "in a dishonest and fraudulent design" on the part of Diosta in making payments of what appear for the most part to be ordinary business expenses of Diosta. Conversion 51 I have set out the pleaded claims. If there were any claim in conversion it could I think be only against Diosta. The payment of money from the Diosta account was the act of the company not the act of Mr Duncan: O'Brien v Dawson (1942) 65 CLR 18. In addition assuming moneys in a bank account can be goods the subject of a conversion claim this cannot be relevant to a mixed fund. The conversion claim fails. Deceit 52 I have set out the pleaded claim. There are two problems with this claim. The first is that any false representation was that of Diosta not of Mr Duncan. The second is it is not established that the statement of Mr Duncan that the plaintiff would receive one half of the commission if he put up one half of the costs was false when it was made. It was not put to Mr Duncan that he intended the plaintiff to act upon this representation when there was no intention of honouring the obligation under it. What was put was that later on Mr Duncan decided to deprive Mr Green of his entitlement. 53 I should add that in spite of the argument of Mr Brezniak, I would conclude that if there were torts they were those of Diosta not Mr Duncan. While the law on this aspect is difficult, and O'Brien v Dawson (at 32) may not cover the whole of the field, there is a difference between direct torts such as trespass to land and direct conversion of goods and the conduct in respect of which complaint is made here. That does not mean that the general principle does not apply. There is a detailed discussion in Root Quality Pty Ltd v Root Control Technologies Pty Ltd (2001) 77 ALR 231. It is not necessary to decide this but my view is that for a director to be personally liable for torts of a company of which he is a director those acts must be such as to take them outside any ordinary conduct which could reasonably be attributed to the company. Trade Practices Act Claim 54 While this s 75B claim under the Trade Practices Act 1974 (Cth) is alleged against all defendants, no conduct is alleged or proved against either the second or third defendants which could relate to this claim. I turn to the claim against the first defendant. 55 It was not argued by the defendants that if representations were made then they were not made in trade or commerce. However, there is no doubt the plaintiff's claim was based on s 75B of the Act yet no misleading or deceptive conduct of Diosta was pleaded. That would be essential to such a claim although of course it is not necessary to join the company as a defendant to get relief under s 75B. 56 There was considerable discussion of the pleading problems during submissions. In the long run Mr Brezniak said at T173 that the representation of Diosta relied upon was that alleged against Mr Duncan in par 41 of the Further Amended Statement of Claim, namely the false representation which I have discussed. This was articulated as the claim although par 41 had been deleted from the particulars for the Trade Practices Act claim in par 43.1. While this is almost incomprehensible I think it desirable to try to deal with it without placing too many procedural difficulties in the path of the plaintiff. Thus I proceed on the basis that it is alleged that in representing to the plaintiff that if he contributed 50 per cent of the costs of the Monopoly litigation he would be entitled to 50 per cent of the fruits of the litigation Diosta engaged in conduct which was false and misleading and the first defendant aided, abetted, counselled and/or procured that contravention by Diosta. This was of course a representation as to future conduct. But as I have previously pointed out, there is no evidence that at the time the representation was made it was thought to be false or misleading or that there was no intention to honouring it. Subsequent action or conduct was not representational conduct. It was never claimed except in final submissions, that the action of Diosta in continuing to accept payment on account of costs amounted to some representation by silence upon which Mr Green relied in continuing to make payments. The Trade Practices claim fails. Conclusion 57 The plaintiff is entitled to judgment against the first defendant for $37,534.90 together with interest on the separate sums from the date of receipt. The claims against the second and third defendants fail and should be dismissed. The parties should agree on the interest. Costs 58 As the second and third defendants succeed they should have their costs. The plaintiff has succeeded in part against the first defendant. I will have to hear submissions on costs but as the same solicitors acted for all three defendants it is desirable there be some overall result avoiding complicated assessments. ********** 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. 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