Gusdote v North Queensland Land Development [2011] FCA 202

This case concerned a joint venture to develop land. Each shareholder owned a third, a third, a third. One joint venturer then sold the land to a company he owned without the knowledge of the other two joint venturers, and with no monies being transferred to the other two.

The court in the earlier proceedings held the transferring joint venturer in breach of his fiduciary duty in transferring the land and declared that the company held the land on constructive trust for all three. The administrators of the land holding company refused to re-convey the land to the company owned by all three, leading to these new proceedings.

The court examined the constructive trust case law and set out three categories of obligations resulting from a constructive trust:

  1. an obligation to account for a profit
  2. an obligation to hand over specific property
  3. an obligation to effect restitution for a loss.

The second category is where a transferee holds legal title on constructive trust for the transferor because the transfer is liable to be set aside in equity, where for example the director of the transferor breached a fiduciary duty and the transferee knowingly participated in that breach. The proper order sought should be an order for rescission, setting the transfer aside as if the transfer had never taken place. Until then, the transferee’s rights are unaffected. So the pleadings and orders sought in the earlier proceedings and these proceeding were deficient. The court granted leave to re-plead and an order for rescission.

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