Background
CG Holdings Overseas Limited invested in the 17MRH Unit Trust, whose trustee was Finhill Pty Ltd. At Finhill’s direction, CG Holdings paid $1 million into an account operated by Confidis for units in the Hillcrest development. Finhill then issued a certificate recording one million units as fully paid, although it named CG Holdings’ director, Vincent Chesney, personally as the registered holder.
A Confidis representative later misappropriated $500,000. Finhill knew of the loss but did not disclose it to CG Holdings, and purported to cancel 500,000 units without its knowledge. CG Holdings subsequently invested a further $770,000, of which $370,000 was applied to a further 370,000 Hillcrest units, and sought a declaration that it held 1,370,000 fully paid units.
The Court’s Holding
Treston J declared that CG Holdings was the holder of 1,370,000 fully paid units in the 17MRH Unit Trust and ordered Finhill to pay its costs on the standard basis.
The Court found that Confidis acted as Finhill’s agent when it received the initial $1 million payment. Finhill had directed the payment arrangement, and payment to Confidis therefore constituted payment in a form acceptable to the trustee under the trust deed. The later misappropriation did not permit Finhill to treat the units as unpaid or unilaterally cancel 500,000 of them.
Key Takeaways
- A trustee that directs an investor to pay funds to a third-party recipient may be bound by that recipient’s receipt as its agent.
- Misappropriation by the trustee’s agent did not undo the investor’s payment for, or entitlement to, units already issued as fully paid.
- The Court rejected Finhill’s evidence that the investor had independently chosen the Confidis arrangement and found the trustee’s director unreliable.
Why It Matters
The decision underscores the risk for trustees and project promoters that use third-party accounts to receive investor money. Where the recipient acts as the trustee’s agent, the trustee cannot shift the consequences of the agent’s misconduct to the investor.
It also illustrates the significance of unit certificates, trust registers and the trustee’s own financial records when determining whether consideration for trust units has been paid.