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Federal Court of Australia |
Last Updated: 27 January 1999
Peter Cox Investments Pty Ltd (In liq) v International Air Transport Assoc [1999] FCA 27
Travel Agents Act 1986 (SA) ss 4, 19, 20, 25, 26
Corporations Law ss 479, 511
Jacobs' Law of Trusts in Australia (6th Ed., 1997)
Underhill's Law of Trusts and Trustees (13th Ed, 1979)
"Equity and Commercial Relationships" (Ed. P D Finn 1987)
Stephens Travel Service International Pty Ltd (Receivers and Managers Appointed)
v Qantas Airways Ltd (1988) 13 NSWLR 331 applied
Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 discussed
Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (In liq) (1978)
[1978] HCA 45; 141 CLR 335 followed
Re Australian Elizabethan Theatre Trust: Lord v Commonwealth Bank of Australia (1991)
[1991] FCA 344; 30 FCR 491 followed
Walker v Corboy (1990) 19 NSWLR 382 cited
Re Miles; Ex parte National Australia Bank Ltd v Official Receiver in Bankruptcy (1988-89) 85 ALR 216 discussed
Stephens v R (1978) 21 ALR 680 cited
R v Hall (1973) QB 126 cited
Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1995) 130
ALR 415 cited
Emanuel (No 14) Pty Ltd (in liq): Macks v Blacklaw and Shadforth Pty Ltd (1997)
147 ALR 281 cited
Re Armstrong (1960) VR 202 cited
In the matter of Travel House of Australia Pty Ltd; Browne v The Deputy Commissioner of Taxation (Murray J, Supreme Court of Victoria, 1978, unreported) cited
PETER COX INVESTMENTS PTY LTD (in liquidation) v INTERNATIONAL AIR TRANSPORT ASSOCIATION and TRAVEL COMPENSATION FUND
NO. S 3017 of 1997
O'LOUGHLIN J
22 JANUARY 1999
ADELAIDE IN THE FEDERAL COURT OF AUSTRALIA BETWEEN: Applicant AND: First Respondent
TRAVEL COMPENSATION FUND
Second Respondent JUDGE:
SOUTH AUSTRALIA DISTRICT REGISTRY S 3017 OF 1997
PETER COX INVESTMENTS PTY LTD (in liquidation)
INTERNATIONAL AIR TRANSPORT ASSOCIATION
O'LOUGHLIN J DATE OF ORDER: 22 JANUARY 1999 WHERE MADE: ADELAIDE
THE COURT ORDERS:
On the Notice of Motion filed herein on 29 July 1998 by Peter Cox Investments Pty Ltd (In liquidation):
1. That Peter Ivan Macks the liquidator of Peter Cox Investments Pty Ltd (In liquidation) pay or cause to be paid to Qantas Airways Ltd the sum of $322,000 out of the moneys standing to the credit of account number 10106650 with the Commonwealth Bank, Rundle Mall, Adelaide and that the balance thereof, together with all accrued interest, be retained by the liquidator for the benefit of the unsecured creditors.
2. That further consideration of the consequential orders (if any) that should be made be adjourned to a date to be fixed.
3. That any party be at liberty to set the matter down for further argument upon giving seven days prior notice in writing to the other parties.
On the Notice of Motion filed herein on 7 August 1998 by The Travel Compensation Fund:
1. That the Notice of Motion be dismissed.
2. That further consideration of the consequential orders (if any) that should be made be adjourned to a date to be fixed.
3. That any party be at liberty to set the matter down for further argument upon giving seven days prior notice in writing to the other parties.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
|
IN THE FEDERAL COURT OF AUSTRALIA | |
| SOUTH AUSTRALIA DISTRICT REGISTRY | S 3017 OF 1997 |
|
BETWEEN: | PETER COX INVESTMENTS PTY LTD (in liquidation)
Applicant |
|
AND: | INTERNATIONAL AIR TRANSPORT ASSOCIATION
First Respondent
TRAVEL COMPENSATION FUND Second Respondent |
JUDGE:
O'LOUGHLIN J DATE: 22 JANUARY 1999 PLACE: ADELAIDE
1 Peter Ivan Macks ("the liquidator") was appointed liquidator of Peter Cox Investments Pty Ltd ("the Company") on 20 August 1996 by order of the Supreme Court of South Australia. He had earlier been appointed Provisional Liquidator on 17 July 1996.
2 The proceedings that are presently before the Court arise as a result of competing claims that have been made with respect to certain funds that have been set aside by the liquidator. The rival claimants are Qantas Airways Ltd ("Qantas") on behalf of the International Air Transport Association ("IATA") and the Travel Compensation Fund ("TCF"). Each claimant has presented its claim upon the premise that funds that are held by the liquidator are impressed with a trust in favour of the claimant.
THE COMPANY
3 Prior to its liquidation the company had carried on business as a travel agent; it had three separate businesses and traded under three separate business names - "Travel House", "Connections" and "Omnitours". "Connections" was a retail agency and "Omnitours" was a wholesale travel business, but neither of these businesses play a part in the issues that are presently under consideration. These proceedings are concerned with the business that the company conducted as "Travel House"; as to that business, the company was licensed to carry on business as a travel agent pursuant to the provisions of the Travel Agents Act 1986 (S.A.) ("the Act")
4 At the date of the liquidator's appointment, the company had cash on hand and at the bank totalling $504,774.65. Shortly after his appointment, and as a result of learning of the competing claims of IATA and the TCF, the liquidator, with the agreement of representatives of those bodies, set aside the sum of $434,077.01 ("the fund") and deposited it in an interest bearing account pending the determination of the rights of the rival claimants. That account is account number 10106650 with the Commonwealth Bank, Rundle Mall, Adelaide.
5 According to the liquidator, one of the reasons for the failure of the company was an extensive series of admitted fraudulent transactions that had been effected by a director of the company over a period of some years. Creditors, including IATA and the TCF, at the date of the liquidator's affidavit, 8 July 1997, amount to $1,282,881.43.
THE APPLICATION TO THE COURT
6 The parties have tried, without success, to settle the matter commercially. They have investigated the possibility of having a tracing exercise conducted with respect to the operation of the company's trading account but it seems to be that such an exercise would be too expensive. The liquidator was of the opinion that it could cost up to $50,000. The liquidator has therefore filed an application in this Court seeking directions pursuant to subss 479(3) and 511(1) of the Corporations Law. Sub-section 479(3) provides that:
"The liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up."Sub-section 511(1) is as follows:
"The liquidator, or any contributor or creditor, may apply to the Court:IATA
(a) to determine any question arising on the winding up of a company; or
(b) ..."
7 IATA is a body of airlines (sometimes called "carriers"); it is primarily responsible for the rules and regulations that govern the carriers and those who have been appointed agents to conduct business on behalf of the carriers. It is also responsible for managing the Bank Settlement Plan; that plan is a clearing house process by which agents settle moneys that are due to various carriers as a consequence of sales that have been made by agents. On or about 1 November 1994, IATA and the company entered into a written agreement entitled "Passenger Sales Agency Agreement" ("the PSA Agreement"). Under that agreement the members of IATA appointed the company to be an agent for each member and authorised it to sell air transportation on the airline services that each member offered. Of particular relevance to this case, the terms of the agreement authorised the company to issue tickets in the name of a member in favour of a client and to collect from the client payment for such tickets. It is the practice of IATA that the national carrier represent it in any dispute that arises in a particular country. As Qantas is Australia's national carrier, it has represented IATA's interests in this litigation.
8 Clause 7 of the PSA Agreement provides for the remittance of moneys that are due by an agent to IATA. Sub-clause 7.1 is in the following terms:
"7.1 on the issue by the Agent of a Traffic Document on behalf of the Carrier, or on the issue by the Agent of its own Transportation Order drawn on the Carrier, the Agent, irrespective of whether it collects a corresponding amount, shall be responsible for payment to the Carrier of the amount payable for the transportation or other service to which the Traffic Document or Transportation Order relates..."9 Sub-clause 7.2 is also relevant to these proceedings, it states:
"7.2 except as otherwise provided in sub paragraph 8.2 of this paragraph, [which provides for refunds when appropriate] the Agent shall collect the amount payable for the transportation or other service sold by it or (sic) behalf of the Carrier. All monies collected by the Agent for transportation and ancillary services sold under this Agreement, including applicable commissions which the Agent is entitled to claim thereunder, shall be the property of the Carrier and shall be held by the Agent in trust for the Carrier or on behalf of the Carrier until satisfactorily accounted for to the Carrier and settlement made. ...Unless otherwise instructed by the Carrier the Agent shall be entitled to deduct from remittances the applicable commission to which it is entitled hereunder."10 Between November 1994 and 17 July 1996, the date of the appointment of the provisional liquidator, the company, in the operation of its business as a licensed travel agent, issued airline tickets to clients for and on behalf of carriers who were members of IATA; in that same period the company also received moneys from clients in respect of the sale and purchase of such airline tickets. The moneys that were so received by the company were not placed in a special purpose account or a trust account; they were banked, along with other moneys that the company had received for a variety of purposes from a variety of sources in the company's general bank account.
11 IATA received payments from the company for tickets issued by the company on behalf of IATA carriers until late May 1996. However, payments then stopped and nothing was received from the company in respect of tickets that were thereafter issued by the company to the date of the appointment of the provisional liquidator. Until the company stopped making payments, it had followed the procedures required in the Bank Settlement Plan: payments were made fortnightly and were accompanied by a report from the company that detailed the tickets that had been sold on behalf of IATA carriers during the preceding fortnight. Payments were made in favour of IATA by direct debit for the amount owing for the issued tickets net of commission. The amount that is said to be owing to IATA (on behalf of various carriers) as at the date of liquidation is $557,560.88. The liquidator says that the company received an amount of $323,292.27 from clients for airline tickets in the period 1 July to 17 July 1996. However, the composition of this figure is not set out and no details have been given of the moneys that the company received in the month of June.
THE TCF
12 The Travel Compensation Fund is a fund that has been established under a Trust Deed that has been approved by the South Australian Minister as required by s 19 of the Act. Every licensed travel agent must be a contributor to the compensation scheme that has been established by the Deed: see s 20 of the Act. Section 26 of the Act provides that the trustees named in the Deed may sue and be sued under the name "The Travel Compensation Fund". Sub-section 25(1) of the Act is also relevant to these proceedings; it is as follows:
"25.(1) On payment to a claimant out of the compensation fund, the trustees are, to the extent of the payment, subrogated to the rights of the claimant arising from the circumstances to which the claim relates."13 A primary purpose of the Trust is to compensate persons who have suffered financial loss by reason of a failure by a licensed travel agent to account in respect of travel arrangements: see par 3.1(b) of the Deed. The TCF has received 358 claims from persons who were clients of the company. Those claimants have maintained that they did not receive the ticketing or services for which they had made payments to the company; their claims totalled $538,879. The TCF accepted the majority of the claims and has paid out, to date, $534,005 to claimants.
THE COMPOSITION OF THE FUND
14 The absence of a tracing exercise means, at this stage, that there is no evidence available to establish the composition of the fund. It could comprise money from, at least, three sources:
* Money paid in by clients for airline tickets in those cases where they have received the airline tickets;
* Money paid in by clients for airline tickets in those cases where they have NOT received the airline tickets;
* Money paid in by clients for services other than airline tickets.
15 In the first of these cases, I do not understand the liquidator or the TCF to be disputing IATA's right to claim that such moneys are held by the company on trust for IATA. In the second and third cases, I do not understand IATA to be making any claims; the argument is limited to the liquidator and the TCF with the liquidator asserting, in each case, that the moneys form part of the general assets of the company whilst the TCF argues that it should be treated as the beneficial owner of them.
PROPOSED SETTLEMENT
16 The liquidator has formed the view that the TCF should only be treated as an unsecured creditor in the winding up of the company; he argues that the TCF has not established that it is the beneficial owner of any moneys that are presently held in any of the company's or the liquidator's accounts; he also submits that the TCF has failed to establish the existence of any trust in its favour. On the other hand, and subject to any directions to the contrary that the Court may give, the liquidator is prepared to acknowledge the existence of a trust in favour of IATA by virtue of the provisions of sub-clause 7.2 of the PSA Agreement. To this end, the liquidator and IATA have negotiated a tentative settlement of this matter upon terms that the liquidator would pay to Qantas (for the benefit of the members of IATA) out of the interest bearing account into which he deposited the sum of $434,077.01, an amount of $322,000. That amount would be received by Qantas and IATA in full and final satisfaction of all claims that they or either of them or any member of IATA now has or may hereafter have in respect of the matters that are the subject of this litigation. The balance then remaining, together with all accrued interest, would be retained by the liquidator for the benefit of the unsecured creditors. On 29 July 1998, the liquidator filed a Notice of Motion seeking orders that would authorise him settling the claims of IATA in the terms that have been summarised above.
17 The TCF, which was made aware of the proposed settlement between the liquidator and IATA, disputes the liquidator's right to settle the matter on those terms. It has therefore moved the Court on motion seeking various orders, including an order:
"2. That there be a determination by the Court upon the following questions:18 In the event of the Court answering those questions in the affirmative then the TCF seeks further orders for accounts and inquiries.
2.1 When a client of the business known as Travel House paid money to it for ticketing was that money impressed with a trust in favour of the client if the purpose of the payment fails?
2.2 If so, is TCF by section 25 of the Travel Agents Act 1986 or otherwise at law entitled to the benefit of the trust in respect of that money to the extent that TCF has, consequent upon the client making a claim upon it, paid money to that client?
2.3 If so, is that part of the fund being moneys paid in by clients who made a claim which was met by TCF, money held in trust to that extent for TCF?"
THE CASE FOR TCF
19 The parties presented their respective submissions upon the basis of an agreed statement of facts and the provisions of the PSA Agreement. In summarising the background to these proceedings, I have extrapolated relevant details from that statement, augmenting them occasionally from other sources with some minor details for the sake of the narration.
20 The primary contention that was advanced on behalf of the TCF was that "a purpose trust" came into existence in favour of a client when that client paid moneys to the company for a nominated or identified purpose such as tickets for airline, railway or motor-bus carriage or for hotel, motel or apartment accommodation. It was submitted that the trust came into existence at the moment in time when the client's money was paid over to the company and, in the case of a payment for an airline ticket, before any trust was created in favour of IATA; it was further submitted that the trust in respect of that money continued to exist until the time when the client received the appropriate ticket. This particular argument concluded with the submission that the TCF is then subrogated to each clients' right as a consequence of its having made compensatory payments to those clients. In support of this argument, Mr Strawbridge, counsel for the TCF, relied on certain provisions of the Trust Deed. In particular he referred to the following provisions as affording support for the concept of a "purpose trust":
* first he referred to sub-clauses 15.1 and 2.2.
Sub-clause 15.1 of the Trust Deed is in the following terms:
"15.1 Subject to this Deed, the Trustees shall pay compensation out of the Fund to a beneficiary -"Beneficiary" is defined in the Trust Deed as meaning "a person on trust for whom, pursuant to clause 2.2, the fund is held". Sub-clause 2.2 then provides as follows:-
(a) who is a client; and
(b) who has suffered or may suffer pecuniary loss arising directly from a failure to account for money or other valuable consideration by a participant -
where -
(c) the failure to account arises from an act or omission by the participant or an employee or agent of the participant; and
(d) the client is not protected against the loss by a policy of insurance."
"2.2 The Trustees shall hold the Fund on trust for -"Client" and "Participant" are also defined in the Trust Deed. Their respective definitions are as follows:
(a) the Crown in right of the States; and
(b) every person who entrusts money or other valuable consideration to another person, who carries on business as a travel agent (or an employee or agent of the other person) in connection with travel arrangements or travel-related arrangements or both in a State if either:
(i) that other person; or
(ii) any third or subsequent person who carries on business as a travel agent in a State and who, in turn, receives directly or indirectly through an employee or agent of the third or subsequent person all or part of that money or consideration, other than as a principal,
fails to account for the relevant money or consideration, whether due to an act or to an omission of that person (or of an employee or agent of that person)."
"'Client' means a person who enters into travel arrangements or travel related arrangements directly or indirectly with a participant but does not include a person who is not resident in Australia and its Territories to the extent that the arrangements relate to the provision of services outside Australia and its Territories.
'Participant' means a person -
(a) who is -
(i) for the time being, in the Trustees' determination eligible to be a contributor to the Fund; and
(ii) licensed or deemed to be licensed under an Act; or
(b) who is a participant by virtue of Part 10."
* secondly, he referred to sub-clause 3.1; it identifies the purposes of the Trust, one of which is:
"(b) to establish and provide for the operation of a fund (in terms of and within the limits prescribed by this Deed) to compensate persons who have suffered or may suffer a pecuniary loss by reason of a failure to account in respect of travel arrangements or travel-related arrangements by a person who carries on, or carried on, business as a travel agent and to make emergency payments for the benefit of persons who may suffer such a pecuniary loss; ..."* finally, there is clause 6 of the Deed; it empowers the trustees to determine "whenever and as often as they consider appropriate the amount, method of calculation and manner of collection of all contributions..." by licensed travel agents.
21 Mr Strawbridge relied upon the expression "failure to account" twice appearing in sub-clause 15.1 and "fails to account" and "entrusts" appearing in sub-clause 2.2. These words, when read in conjunction with the purposes and objectives of the Trust Deed must, so he submitted, point to the existence of some form of trust arrangement; the requirement to account, he continued, would not exist in a normal debtor-creditor relationship: but it is consistent with the concept that some form of trust has been created. Furthermore, Mr Strawbridge submitted that the company, as a licensed travel agent, must be taken to have known of the terms of the Trust Deed because it was, by definition, a "participant".
22 Mr Strawbridge submitted that the only reason for a client to go to a travel agent would be to acquire the services that a travel agent provides. Those services are identified in s 4 of the Act in that the section states that:
"a person carries on business as a travel agent if the person in the course of a business23 Thus, said Mr Strawbridge, when a client pays over money to a travel agent for an airline ticket, or for accommodation or for some other form of service, the client does so in the expectation of receiving that ticket or a voucher for that accommodation: the client's sole purpose in paying over the money is to acquire those rights; there is no other purpose. In like manner it was submitted that the agent's sole purpose in receiving the money must be for the provision of the requested service.
(a) sells or arranges to sell rights to travel; or
(b) sells or arranges to sell rights to travel and accommodation;
(c) carries out an activity set out in the regulations."
24 In my opinion this argument is defeated on two planes. First, par (d) of sub-clause 15.1 is inconsistent with the proposition. If indeed a trust has been established in the circumstances as postulated by Mr Strawbridge, why should the client's beneficial interest in that trust be defeated because he or she is protected against loss by a policy of insurance? That provision, in my opinion, positively supports the notion of an exclusive debtor-creditor relationship. The second answer is tied in with the first. The whole concept of the Travel Compensation Fund - its existence and the reason for its existence - is a strong indicator that the relationship between the travel agent and the client is that of debtor-creditor. If a trust relationship existed it would afford a greater measure of safety, and reduce the need for a compensatory fund.
25 Mr Strawbridge made no attempt to challenge or distinguish the decision of the New South Wales Court of Appeal in Stephens Travel Service International Pty Ltd (Receivers and Managers Appointed) v Qantas Airways Ltd (1988) 13 NSWLR 331. The issues in that case were similar, but not identical, to those in the present proceedings. Qantas, as a member of IATA was a party to a travel agency contract, the terms of which provided, among other things, that airline tickets and transportation orders owned by Qantas could be sold and issued by Stephens Travel Service International Pty Ltd ("Stephens Travel"). The relevant clause (like cl 7 in the PSA Agreement) specifically provided that "all moneys collected by the agent for transportation and ancillary services sold under the agreement ... shall be the property of the carrier and shall be held by the agent in trust for the carrier or on behalf of the carrier until satisfactorily accounted for to the carrier and settlement made ...". Stephens Travel paid moneys received by it for airline tickets and transportation orders into its ordinary trading account with its bank. That account was in overdraft. Each fortnight it drew on that account for payment to Qantas. Ultimately, the bank refused pay one such cheque; it closed Stephens Travel's account, appointed receivers and used what moneys were in other accounts in reduction of the overdraft. Qantas successfully recovered all moneys that had been received but not accounted for by Stephens Travel and by the receivers for airline tickets and transportation orders. The leading judgment of the Court was delivered by Hope JA (with whom Kirby P and Priestly JA agreed). His Honour held that having regard to the terms of the travel agency contract, the moneys that were received by Stephens Travel for Qantas tickets (in respect of which or to the extent to which Qantas had not been paid) were to be held on trust by Stephens Travel for Qantas.
26 As I understand the argument for the TCF, the trust that would arise in favour of IATA would only arise if and when the travel agent issued a ticket to a client; and at that point of time, the client would then receive satisfaction for what he or she had paid for. That client would not therefore have a need to make a claim on the compensation fund and therefore, the present claims of the TCF do not refer to such clients. On the other hand, there would be no trust in favour of IATA or any of its members if no ticket had been issued. Thus, the argument allowed, in my opinion, for the existence of two mutually exclusive trusts. The first trust would arise in favour of the client in respect of money paid over by the client to the travel agent; that trust would arise as soon as the client paid over the money and would continue to exist until such time as the required ticket issued in favour of the client. At that point of time, the travel agent would cease to hold the money in trust for the client but would immediately assume a trust in favour of IATA until the relevant payment was made to it. It is not a case of two trusts coexisting as submitted by Mr Strawbridge - rather, if his argument is accepted, it would be a case of mutually exclusive trusts with the second arising immediately upon the satisfaction of the first.
THE QUISTCLOSE TRUST
27 To reject the suggestion that the relationship between the company and a client would be merely a debtor/creditor relationship, Mr Strawbridge relied on the decision of the House of Lords in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567. In that case Quistclose lent a company, Rolls Razor Ltd, a sum of money ("the loan") for the express purpose of enabling Rolls Razor to pay a dividend that had earlier been declared in favour of its shareholders. Rolls Razor acquainted its banker, the appellant, with the purpose of the loan and, by arrangement, a special account was used to receive the loan. Then the unexpected occurred; Rolls Razor went into liquidation and the bank applied the money in the special account in partial satisfaction of the moneys owing to it on Rolls Razor's overdraft account. Lord Wilberforce, with whom the other Law Lords agreed said:
"It is not difficult to establish precisely upon what terms the money was advanced by the respondents to Rolls Razor Ltd. There is no doubt that the loan was made specifically in order to enable Rolls Razor Ltd. to pay the dividend. There is equally, in my opinion, no doubt that the loan was made only so as to enable Rolls Razor Ltd. to pay the dividend and for no other purpose. This follows quite clearly from the terms of the letter of Rolls Razor Ltd. to the bank of July 15, 1964, which letter, before transmission to the bank, was sent to the respondents under open cover in order that the cheque might be (as it was) enclosed in it. The mutual intention of the respondents and of Rolls Razor Ltd., and the essence of the bargain, was that the sum advanced should not become part of the assets of Rolls Razor Ltd., but should be used exclusively for payment of a particular class of its creditors, namely, those entitled to the dividend. A necessary consequence from this, by process simply of interpretation, must be that if, for any reason, the dividend could not be paid, the money was to be returned to the respondents:" (pp 579-580)28 The decision in Quistclose, which was followed in Stephens Travel v Qantas, also made it clear that a mutual debtor/creditor relationship did not exclude, in appropriate circumstances, the creation of a trust in favour of the creditor. Lord Wilberforce addressed that issue in this manner:
"The second, and main, argument for the appellant was of a more sophisticated character. The transaction, it was said, between the respondents and Rolls Razor Ltd., was one of loan, giving rise to a legal action of debt. This necessarily excluded the implication of any trust, enforceable in equity, in the respondent's favour: a transaction may attract one action or the other, it could not admit of both.29 Relying on the principles enunciated by Lord Wilberforce, the TCF has argued that the sole intention of a client in paying money to a travel agent for an airline ticket was for the agent, in turn, to apply that money only for the purpose for which it was paid: e.g. for the purpose of acquiring an airline ticket. That therefore represents, so it was claimed, the creation of a trust of which the client was the beneficiary; if the purpose of the trust fails, the money belongs to the client and is to be refunded to the client - or, on the principle of subrogation, to the TCF. Mr Strawbridge further submitted that it could never have been the intention of the client, nor of the company, that the client's money would become part of the general assets of the company. And, he added, it is necessary for the purpose of IATA's trust that this be so: otherwise, if the money, when paid by the client to the company, becomes part of the general assets of the company, there would be no trust in favour of IATA.
My Lords, I must say that I find this argument unattractive. Let us see what it involves. It means that the law does not permit an arrangement to be made by which one person agrees to advance money to another, on terms that the money is to be used exclusively to pay debts of the latter, and if, and so far as not so used, rather than becoming a general asset of the latter available to his creditors at large, is to be returned to the lender. The lender is obliged, in such a case, because he is a lender, to accept, whatever the mutual wishes of lender and borrower may be, that the money he was willing to make available for one purpose only shall be freely available for others of the borrower's creditors for whom he has not the slightest desire to provide.
I should be surprised if an argument of this kind - so conceptualist in character - had ever been accepted. In truth it has plainly been rejected by the eminent judges who from 1819 onwards have permitted arrangements of this type to be enforced, and have approved them as being for the benefit of creditors and all concerned. There is surely no difficulty in recognising the co-existence in one transaction of legal and equitable rights and remedies: when the money is advanced, the lender acquires an equitable right to see that it is applied for the primary designated purpose (see In re Rogers, 8 Morr. 243 where both Lindley L.J. and Kay L.J. recognised this): when the purpose has been carried out (i.e., the debt paid) the lender has his remedy against the borrower in debt: if the primary purpose cannot be carried out, the question arises if a secondary purpose (i.e., repayment to the lender) has been agreed, expressly or by implication: if it has, the remedies of equity may be invoked to give effect to it, if it has not (and the money is intended to fall within the general fund of the debtor's assets) then there is the apropriate remedy for recovery of a loan. I can appreciate no reason why the flexible interplay of law and equity cannot let in these practical arrangements, and other variations if desired: it would be to the discredit of both systems if they could not. In the present case the intention to create a secondary trust for the benefit of the lender, to arise if the primary trust, to pay the dividend, could not be carried out, is clear and I can find no reason why the law should not give effect to it." (pp 581-582)
30 Gibbs ACJ considered that the decision in Quistclose was authority for a proposition in these terms:
"That case is authority for the proposition that where money is advanced by A to B, with the mutual intention that it should not become part of the assets of B, but should be used exclusively for a specific purpose, there will be implied (at least in the absence of an indication of a contrary intention) a stipulation that if the purpose fails the money will be repaid, and the arrangement will give rise to a relationship of a fiduciary character, or trust."Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (In liq) [1978] HCA 45; (1978) 141 CLR 335 at 353.
31 Mr Keen, counsel for the liquidator, submitted that these remarks were obiter and that I should not follow them. I decline that invitation. I think that Mr Keen went too far when he submitted that the concept of a "purpose" trust or "the Quistclose trust" has not been accepted under Australian law.
32 The decision in Quistclose was analysed in depth by Gummow J in Re Australian Elizabethan Theatre Trust: Lord v Commonwealth Bank of Australia [1991] FCA 344; (1991) 30 FCR 491. Pursuant to the Income Tax Assessment Act 1936 (Cth), specified gifts to the Australian Elizabethan Theatre Trust ("the Trust") were allowable deductions for income tax purposes. By agreement with the Commissioner of Taxation, the Trust also received tax deductible donations that were unconditional but incorporated a request that "preference" in their allocation be given to arts bodies associated with the Trust. Before the appointment of a provisional liquidator of the Trust, money received from donors stipulating a preference for appropriation to associated bodies had been deposited to the Trust's overdrawn account with the respondent bank, but no appropriation had been made. The question for determination was whether the money so received by the Trust was held by it upon trust for the associated bodies.
33 In concluding that no trust existed, Gummow J had regard to the factual matrix that surrounded the payments that had been made to the Trust. Those facts, which militated against a finding that a trust existed, were:
* The donations were expressed by the donors as being given "unconditionally";
* The donations were not received on terms that they be earmarked by the Trust and, for example, kept separate from its other funds by being placed in a separate bank account.
* Gifts that had been received by the Trust, but not "processed" and "allocated" were included in its annual accounts (with other moneys) as "donations" received in advance.
34 His Honour sought to minimise the effect of the decision in Quistclose, saying that it would be an error to treat the references to "purpose" as "characterising an express trust which did not have to satisfy the ordinary requirements for any private (as distinct from public) trust". His Honour said:
"There was, on Lord Wilberforce's analysis of the facts, a trust fund held by a trustee on certain terms for a class of ascertained beneficiaries, with a limitation (whether as an express or resulting trust) back to the settlor in specified circumstances. The expression `purpose' was apt to describe the end sought to be achieved by the settlor, Quistclose, and accepted by the trustee, Rolls Razor. This was formulated in the terms stipulating the conditions upon which the shareholders might take a beneficial interest in the fund. The use of the expression `purpose' should not be read as heralding a new era for the non-charitable purpose trust. This is a concept which has not struck deep roots in this country: see, for example, Tidex v Trustees Executors & Agency Co Ltd [1971] 2 NSWLR 453 at 465-4666." (p502)35 Gummow J emphasised that the question as to the existence of any express trust will always have to be answered by reference to intention and the relevant intention is to be inferred from the language employed by the parties in question. (pp 502-503, 504-505)
36 The importance of the parties' state of mind or intention is emphasised in Jacobs' Law of Trusts in Australia (6th Ed., 1997) p 13.
"The answer to the question whether a debt or trust was created in any particular case depends upon the intention of the parties. If the parties intended that the one receiving the money should hold that money for the benefit of the other or for the benefit of a third party, then it will be a trust because there is actual trust property. If the payee was entitled to use the money as his own, being under an obligation merely to repay the same amount of money at a future time, then he is merely a debtor."37 The relevant intention is to be inferred from the language employed by the parties; for that purpose the Court is entitled to look into the nature of the transaction and the circumstances of the relevant parties and their relationship: see Walker v Corboy (1990) 19 NSWLR 382; Re Australian Elizabethan Theatre Trust at 503.
38 In Re Miles; Ex parte National Australia Bank Ltd v Official Receiver in Bankruptcy (1988-89) 85 ALR 216 Pincus J took a more restrictive view of the decision in Quistclose. He was of the opinion that it would not be right to apply the Quistclose principle "beyond the field defined by the House of Lords" (p 221). He described it as being the "actual payment of money by the party claiming to be the beneficiary of a resulting trust, for the purpose of discharge of debts by the payee, that purpose having failed."
39 With respect, this seems to me to be an unnecessarily restrictive approach. I favour the view that Quistclose merely stands as authority for the proposition that an apparent debtor-creditor relationship can incorporate a trust relationship when such a trust relationship accords with the mutual intentions of the parties. This, I think, is a reflection of the views of Gummow J in Re Australian Elizabethan Theatre Trust.
40 Stephens v R (1978) 21 ALR 680 is an earlier example of a case where moneys that were paid over to a builder were held to be impressed with a trust. The appellant, Stephens, had been convicted on five counts of fraudulent conversion in the following circumstances; as a builder, he entered into contracts with clients to build houses for them. Each contract required the client to pay a "deposit"; the client had thirty days within which to obtain finance for the building and if finance was not obtained within that time Stephens was required to refund the deposit, less any amount spent by him in applying for or obtaining consent to build the house. In each of the five cases the deposit was taken and used by Stephens for purposes unconnected with the contracts. Finance was not obtained but no money was repaid. On an application for special leave to appeal to the High Court, it was held by the majority that the moneys that had been paid by way of a deposit could not be regarded merely as payments in advance or on account, to be used by Stephens as he saw fit. The payments had been made on terms that they were to be returned (less any amount that had been expended on the customer's behalf in obtaining building consent). In other words, the deposits had been ear-marked by their respective contracts for a particular purpose. Leave to appeal was refused.
41 However, a different result had occurred in the United Kingdom in R v Hall (1973) QB 126. In that case, a travel agent, Hall was convicted of the theft of moneys. He had received the moneys, in the course of his business as a travel agent, as the costs of airline travel to the United States. However, no tickets were issued and no money was refunded. The defendant successfully argued on appeal that the moneys had become his property, that he had applied them in the conduct of his firm's business and that he was not therefore guilty of theft. The Court held that although the clients had an expectation that the travel agent would provide the airline tickets, there was no evidence that any arrangement had been struck whereby the defendant was to retain and deal with their moneys in a particular way. Barwick CJ in his dissenting judgment in Stephens v R had referred to the decision in Hall's case with approval. Gibbs J also referred to it at p 696 saying:
"... in the two earlier cases it was held that there was nothing more than a payment on account, whereas in the later case it was held that the money was entrusted to the accused for the particular purpose of buying the materials. In every case the decision must depend on its own facts. Similarly, where a deposit is paid to an agent, it will be right to hold that it was entrusted to him within the section if it was paid to him to hold and refund if a particular event did not occur (see R v Brownrigg [1933] NZLR 1248 at 1254; R v Pilkington (1958) 42 Cr App R 233 at 236) but it will depend on all the circumstances whether the agent was under that obligation which must exist before he can be said to have been entrusted with the money (cf R v Hall [1973] 1 QB 126; [1972] 2 All ER 1009, a case under s 5(3) of the Theft Act 1968 (UK)."42 A reading of the decision in Hall's case does not suggest that there was any agreement or arrangement that could have constituted the necessary "entrusting". Edmund Davies LJ who delivered the judgment of the Court of Appeal said at pp 130-131:
"But in our judgment, what was not here established was that these clients expected them `to retain and deal with that property or its proceeds in a particular way,' and that an `obligation' to do this was undertaken by the defendant."THE CASE AGAINST TCF
43 The case for the liquidator and the case for IATA were separately presented by Mr Keen and Mr Rice. In many respects their arguments proceeded in tandem and it will, therefore, be convenient to deal with them together. The first and the fundamental proposition that they advanced was, as I have already indicated, that the decision in Quistclose has not been followed in Australia. Mr Keen cited Re Australian Elizabethan Theatre Trust (see above) Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1995) 130 ALR 415 at 425 and Emanuel (No 14) Pty Ltd (in liq): Macks v Blacklaw and Shadforth Pty Ltd (1997) 147 ALR 281 at 290 in support of that proposition.
44 But none of these authorities can be regarded as a decision not to follow the decision of the House of Lords. Gummow J in Re Elizabethan Theatre Trust was careful to contain the effect the decision and he did not see it as creating some "new legal institution" (p 503). He saw it only as an example of the particular operation of principle upon the facts as found. In fact, at p 499 of his judgment, Gummow J noted the various cases in Australasia in which Quistclose had been considered and applied. In Walsh Bay v Federal Commissioner of Taxation Beaumont and Sackville JJ (with whom Jenkinson J agreed) in their joint judgment at p 425 discussed with implicit approval the Quistclose decision whilst, at the same time, adopting the observations of Gummow J in Re Australian Elizabethan Theatre Trust. In Re Emanuel the Full Court merely noted that an argument had been advanced that a so-called Quistclose trust had been established; it rejected the argument on the ground that it lacked an evidentiary base. The Court did not otherwise make any comment about the decision in Quistclose. In my opinion, the decision of the House of Lords in Quistclose has been followed in Australia and I should follow it; the contentious area is the extent to which that decision may operate. As to that, I propose to stay within the parameters that are to be found in the remarks of Gummow J in Re Australian Elizabethan Theatre Trust.
45 Mr Rice, counsel for IATA, submitted that IATA's trust was not limited to the moneys that had been deposited with the company in consideration for airline tickets that had been issued by the company to the clients; he submitted that the trust extended to the whole fund of moneys that was in the hands of the agent from time to time. This cannot possibly be right; it is contrary to the express terms of sub-clause 7.2 of the PSA Agreement (which I have earlier quoted) and it is contrary to the remarks of Hope JA in Stephens Travel v Qantas (see above) at pp 337, 340 and 358.
46 The strength of the case against the TCF lies in the fact that there is no evidence that would support a finding that it was the mutual intention of clients and the company that the company would hold their money in trust and refund it to them in the event of the company being unable to obtain the ticket (or other service) that a client had sought.
47 It seems to me that the facts in this case are no different from those given in the example in Underhill's Law of Trusts and Trustees (13th Ed, 1979) p 7:
"A customer may send money to a company for goods under a contract for the company to supply him with the goods. If the goods are not supplied (e.g. because of the liquidation of the company) the customer will merely be a general unsecured creditor of the company for the amount of the money he sent unless a trust has been created. He may create a trust of his money until he receives title to the goods by using appropriate words when he sends the money, or the company may similarly create a trust on or before receiving his money. In such a way he may retain the beneficial ownership of his money until supplied with the goods."48 This passage was quoted by Priestly JA writing extra judicially in "Equity and Commercial Relationships" (Ed. P D Finn 1987).
CONCLUSION
49 I have come to the conclusion that the TCF has failed to establish the existence of a trust in respect of the moneys that were paid by clients to the travel agent and in respect of which the clients did not receive some or all of the services to which they were entitled. I have come to that decision because of a combination of factors. They are as follows:
* The relationship between each client and the company was a routine commercial transaction epitomising the business that the company conducted. The Courts are reluctant to introduce trusts into such commercial transactions: Walker v Corboy (see above) at 390 per Clarke JA and at 398 per Meagher JA.
* No discreet evidence was advanced that pointed to a mutual intention of the parties that supported the existence of a trust. The only evidence from which a trust might be inferred was the provision in sub-clause 15.2 of the Trust Deed and, in my opinion, that was not sufficient for the reasons that I have earlier set out.
* There was no evidence before the Court of any directions having been given by clients to the company as to how and in what manner the moneys were to be held or applied.
* The company received moneys from its clients and deposited them in its general bank account. There was no obligation - statutory or contractual - requiring it to separately account for those moneys.
* The onus of proof lies on those who assert that a trust was created: Re Armstrong (1960) VR 202; In the matter of Travel House of Australia Pty Ltd; Browne v The Deputy Commissioner of Taxation (Murray J, Supreme Court of Victoria, 1978, unreported). In the present case the evidence of an intention to create a trust is absent.
50 In view of the decision I have reached it would seem to me to be appropriate to order that the Notice of Motion that was filed by TCF on 7 August 1998 be dismissed. There will be an order accordingly. No separate argument was advanced by the parties with respect to the settlement that has tentatively been struck between the liquidator and IATA. However, my examination of the issues in this matter satisfies me that it should be approved. There is no doubt that there is a trust in favour of IATA that was established by clause 7.2 of the PSA Agreement and there is no doubt that the amount of the compromised payment is substantially less than what is owing to IATA; the interests of the unsecured creditors have been adequately protected. There will therefore be an order that the liquidator pay or cause to be paid to Qantas the sum of $322,000 out of the moneys standing to the credit in account number 10106650 with the Commonwealth Bank, Rundle Mall, Adelaide and that the balance thereof, together with all accrued interest, be retained by the liquidator for the benefit of the unsecured creditors.
51 I will hear the parties on questions of costs and any further orders that should be made. For that purpose I grant leave to any party to relist the matter for further argument on seven days notice.
|
I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable
Justice O'Loughlin. |
Associate:
Dated: 22 January 1999
|
Counsel for the Liquidator: | Mr J Keen |
| Solicitors for the Liquidator: | Messrs Lynch & Meyer |
| Counsel for the The International Air Transport Association: | Mr M Rice and Mr M Selley |
| Solicitors for The International Air Transport Association: | Messrs Piper Alderman |
| Counsel for The Travel Compensation Fund: | Mr N L Strawbridge |
| Solicitors for The Travel Compensation Fund: | Messrs Minter Ellison |
| Date of Hearing: | 28 August 1998 |
| Date of Judgment: | 22 January 1999 |
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