Adsett v Berlouis

The Liquidator's reasons for proposing the abridged procedure 21 Assuming that the claims of investor creditors may be paid from the assets of the BDT - a matter to which I return below - the liquidator advanced the proposed abridged claim procedure for the following reasons: (a) Following long and detailed investigations and analysis (which included obtaining expert reports and pursuing claims against TVM's directors, auditors and accountants), the liquidator is of the view that the original PDS, the 2004 supplementary PDS, the 2005 supplementary PDS and the financial reports of the BDT for the financial years ending 30 June 2005 to 30 June 2008 were misleading or deceptive. (b) The costs of dealing with the claims of investors in accordance with the usual procedure for obtaining and dealing with proofs of debt (and subsequent appeals) would absorb all, or nearly all, of the funds he has remaining for distribution, making it likely that investor creditors are unlikely to receive any meaningful return. By contrast, on the liquidator's calculations, adopting the proposed abridged claim procedure will result in substantial savings as the costs are expected to be less than $300,000. Depending on an issue I will come to - regarding whether the group of investors able to take advantage of the abridged procedure is to include those who invested between 30 June 2005 and 29 March 2006 (or only those who invested from 30 March 2006) - the liquidator has calculated that investor creditors would receive between 45 and 51 cents in the dollar. While the contradictor pointed to some aspects of the cost estimates in relation to the usual proof procedures that may be overly generous, he nevertheless supported the adoption of the abridged process having regard to the substantial savings associated with that process and the fact that, without an abridged process, it is unlikely that investor creditors will receive any significant return. (c) Having regard to the characteristics of the investor cohort already noted, and having regard to the quality of information received by the liquidator to date from investors, he anticipates that there will be significant practical impediments to obtaining sufficient evidence of individual reliance from the investors. 22 The liquidator has identified that there are 358 investors who had subscribed for units in the BDT and continued to hold units at the Appointment Date. The liquidator has calculated that of the 358: (a) there are 109 investors who subscribed for units in the BDT and suffered loss between 30 March 2006 (the Proposed Relevant Date) and the Appointment Date, of which 37 have lodged formal proofs of debt; (b) there are 231 investors who subscribed for units in the BDT before 30 March 2006 (or who otherwise have not lost any money by reason of their investment, because they received more in dividends and redemptions than they invested); and (c) there are a further 18 investors who the liquidator does not consider to be creditors of TVM because they have either granted TVM a release from claims, or have been deregistered, since the commencement of the liquidation (referred to in the orders as the Non-Creditor Investors). 23 The liquidator proposes to apply the abridged process in respect of investors who invested after the Relevant Date. As is detailed below, the contradictor considers that, instead of 30 March 2006, the abridged process should be applied to those who invested after 30 June 2005 (the Alternate Relevant Date). If that were to occur, there would be an additional 19 investors who would be "Affected Investors" according to the liquidator's categorisation of investors. 24 Following some engagement with the contradictor, and having regard to the contradictor's submissions, the liquidator modified his proposal to an "opt in" model, and modified by allowing additional time for various steps to be taken. 25 The final form of the proposed abridged process (and related relief sought), has the following features: (a) "Affected Investors" are investors who acquired units between either the Proposed Relevant Date or the Alternate Relevant Date (ie 30 June 2005 or 30 March 2006), and the Appointment Date (which was 17 December 2009) (the Relevant Period) (other than those who acquired units by reinvested dividends) and who paid more for those units than they received in cash for dividends or unit redemptions. Other investors, who may have claims, are "Non-Affected Investors". (b) All Affected Investors would be issued a notice which would invite them to participate in the abridged claim procedure. (c) Affected Investors who elected to participate in the abridged claim procedure would be admitted as creditors in a sum calculated as 80% of the sum that is the amount paid for units during the Relevant Period less the amount of any dividends and redemptions paid to the investor in the Relevant Period. The effect of this formula is to discount the claims of investors by 20%. There is no science to this figure; the liquidator has proposed it as an appropriate "quid pro quo" for being relieved of the burdens that would otherwise be associated with proving their claims by the usual formal proof of debt process. (d) Affected Investors who do not elect to participate in the abridged process are still free to submit a proof of debt in the usual way. (e) Non-Affected Investors will not be invited to participate in the abridged process, but can pursue their claims by submitting a proof of debt in the usual way. (f) An order would be made that reg 5.6.48(4) of the Regulations would apply to Affected Investors who do nothing (ie do not lodge a proof of debt, or elect to claim pursuant to the abridged claim process within 60 days from distribution of the notices). (g) The liquidator would take no further action where an investor has neither lodged a proof of debt, nor elected to participate in the abridged procedure, within 60 days of the distribution of the notices.

Section 90-15(1) of the IPS and approval of abridged procedures for establishing claims 26 Section 600K gives effect to the IPS. Section 90-15(1) of the IPS provides that the Court may make such orders as it thinks fit in relation to the external administration of a company. Section 90-15(3) provides that, without limiting subsection (1), the orders that may be made include an order determining any question arising in the external administration of a company. Consistent with its partial predecessor provisions and, as is evident from the authorities referred to below, the Court's power under s 90-15 encompasses the making of judicial directions. 27 When the Court gives a judicial direction of the kind sought, it is not determining the rights of those concerned. Rather, whether or not the direction should be given depends on whether there is a reasonable basis for the liquidator's proposal, sufficient to persuade the Court that it is proper to exonerate him from liability for implementing the proposal or, conversely, whether there is a good reason why the liquidator should not proceed as proposed: Australian Securities and Investments Commission v Tasman Investment Management Ltd (2006) 59 ACSR 113, 121; [2006] NSWSC 943 at [32] (Austin J). 28 This aspect of the making of a judicial direction was referred to, along with the principles governing the exercise of the power under s 90-15 of the IPS, by Stewart J in Krejci, in the matter of Union Standard International Group Pty Ltd (Administrators Appointed) (No 2) [2020] FCA 1111 at [7]-[11] as follows (emphasis added): 7 A court is empowered by s 90-15(1) of the Insolvency Practice Schedule to "make such orders as it thinks fit in relation to the external administration of a company". The power conferred by s 90-15(1) is "very broad": Kelly (in the matter of Halifax Investment Services Pty Ltd (in liq) (No 8) [2020] FCA 533; 144 ACSR 292 at [51] (Gleeson J). It includes a power to make orders determining any question arising in the external administration of a company: s 90-5(3)(a). An administrator of a company may apply for such an order: s 90-20(1)(d), read with s 9 of the Act (paragraph (d) of the definition of "officer"). 8 The court's power under s 90-15(1) includes a power to give directions about a matter arising in connection with the performance or exercise of an administrator's functions or powers: Reidy, in the matter of eChoice Ltd (Administrators Appointed) [2017] FCA 1582 at [26]-[27] (Yates J). In this respect, s 90-15(1) confers a power to give directions that was previously conferred by ss 447D(1) and 479(3) of the Act concerning administrators and liquidators, respectively: see Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth [2019] HCA 20; 93 ALJR 807 at [166] (Gordon J); Reidy at [27] (Yates J); and Kelly (liquidator), in the matter of Australian Institute of Professional Education Pty Ltd (in liq) [2018] FCA 780 at [30] (Gleeson J). The principles governing directions to administrators and those governing directions to liquidators are relevantly analogous: Re Ansett Australia Ltd (No 3) [2002] FCA 90; 115 FCR 409 at [43] (Goldberg J). 9 The function of a judicial direction of this kind is not to determine rights and liabilities arising out of a particular transaction, but to confer a level of protection on the administrator. An administrator who acts in accordance with a judicial direction, having made full and fair disclosure to the court of the material facts, has "protection against claims that they have acted unreasonably or inappropriately or in breach of their duty in making the decision or undertaking the conduct" proposed: Ansett at [44]. 10 A court may give a direction on an issue of "substance or procedure" or "of power, propriety or reasonableness": Ansett at [65]. Although a court will not give a direction on a decision that is purely commercial, a direction may be provided where there is a "particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought": Ansett at [65]. As Black J observed in In the matter of RCR Tomlinson Ltd (administrators appointed) [2018] NSWSC 1859, a decision may have a "commercial character" but nonetheless be amenable to judicial direction. His Honour said (at [14]) of the application before him (which sought a direction as to whether a company should borrow loan funds): The Court has been prepared to give directions of this kind, where the decision is a complex one, and where it has to be made, as here, under circumstances of time pressure, in respect of a very large corporate group, and by balancing different interests. The Court's preparedness to grant such a direction in those circumstances reflects the intrinsic unfairness of leaving a voluntary administrator to be at risk of liability, in respect of a complex decision of that kind, where any decision that is made, including making no decision, will have inevitable risks for some or all of the affected constituencies. 11 Because the effect of a direction under s 90-15 is to exonerate the liquidator or administrator if full disclosure is made, it will usually necessitate consideration by the court of the liquidator's or administrator's reasons and decision making process: see Re ONE.TEL Ltd [2014] NSWSC 457; 99 ACSR 247 at [36] per Brereton J (referring to former s 511 of the Act). 29 The principles applying to the exercise of the power conferred by s 90-15 were recently summarised as follows by Banks-Smith J in Woodhouse (Liquidator), in the matter of Forex Capital Trading Pty Ltd (in liq) [2022] FCA 600 (Re Forex) at [51]-[54]: 51 The terms of [s 90-15(1)] are broader than its two partial predecessor provisions, being s 479(3) and s 511(1)(a) of the Corporations Act. Despite this, courts have nonetheless been guided by the matters relevant to the exercise of the predecessor provisions: Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed) [2017] FCA 486 at [41] (Gleeson J); Reidy, in the matter of eChoice Limited (Administrators Appointed) [2017] FCA 1582 at [27] (Yates J); In the matter of University Co-operative Bookshop Ltd (admins apptd) (No 2) [2020] NSWSC 97 at [13]-[14] (Gleeson J); and In the matter of Equiticorp Australia Ltd (in liq) [2020] NSWSC 143 at [43] (Gleeson J). 52 These notions include that the power should be exercised where it is just and beneficial to do so: Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) [2017] FCA 444 at [64] (Gleeson J). 53 Whilst a court generally refrains from making directions relating to a liquidator's or administrator's business or commercial decisions, it may give directions relating to issues such as a legal issue of substance or procedure, or an issue of power, propriety or reasonableness: In the matter of Ansett Australia Limited and Korda [2002] FCA 90; (2002) 115 FCR 409 at [44]-[46] (Goldberg J). 54 In In the matter of Polat Enterprises Pty Ltd (in liq) [2020] VSC 485 (Hetyey AsJ) the Court observed that s 90-15 is 'broad in its scope and contemplates not only the exercise of judicial discretion but also the determination of substantive rights' (at [31]): see also Joiner (Liquidator), in the matter of CuDeco Limited (Receivers and Managers Appointed) (in liq) [2020] FCA 1661 at [93]-[97] (Banks-Smith J); and Jahani, in the matter of Ralan Group Pty Ltd (in liquidation) [2022] FCA 107 at [158] (Farrell J). 30 The plaintiffs also drew attention to authority to the effect that it is not an appropriate use of the power to make directions for the court to approve or reject a particular proof of debt, it being the duty of the liquidator to adjudicate on proofs of debt in respect of which creditors have rights of appeal: Re Magic Aust Pty Ltd (in liq) (1992) 7 ACSR 742 at 745 (McLelland J); Re Glowbind Pty Ltd (in liq) (2003) 48 ACSR 456; [2003] NSWSC 1190 (Burchett AJ); Selim v McGrath (2003) 177 FLR 85; [2003] NSWSC 927 at [140]-[141] (Barrett J); Re Horne (as joint and several liquidator of Australian Property Custodian Holdings Ltd (in liq)) (2021) 150 ACSR 565; [2021] VSC 51 (Re Horne) at [31] (Sloss J); In the matter of Broens Pty Limited (in liq) [2018] NSWSC 1747 at [52] (Gleeson J); White, in the matter of Mossgreen Pty Ltd (Administrators Appointed) (No 7) [2019] FCA 113 at [7] (Perram J); Re Bell Group Ltd (in liq) [2020] WASC 259 (Re Bell Group) at [47] (Hill J). 31 That is not, however, to preclude the possibility of directions being given that bear on the proof of debt process. As the plaintiffs submitted, Black J observed in Re Plutus Payroll Australia Pty Ltd (in liq) [2019] NSWSC 1171 at [5], that directions may nonetheless be given concerning issues arising in the determination of proofs of debt. Further, Hill J has observed that s 90-15 may be used to provide advice that a liquidator is justified in accepting a proof of debt: Re Bell Group at [47] citing Barnden (Liquidator), in the matter of Masonry Works Pty Limited (in liquidation) [2020] FCA 575 at [22] (Gleeson J) and In the Matter of Daily Planet Pty Ltd (in Liq) [2019] VSC 265 (Sifris J). 32 It appears, from the searches of counsel, that similar proposals have been approved by this Court in two previous cases: Re Forex, and ION Limited, in the matter of ION Limited (Subject to Deed of Company Arrangement) [2010] FCA 1119 (Re ION), a decision of Dodds-Streeton J. It is, as those cases illustrate, an appropriate exercise of the power conferred by s 90-15 to approve an abridged process where that abridged process involves considerable savings and avoids the exhaustion of the funds remaining in the winding up. In both of those cases, detailed investigations had been undertaken into the affairs of the company in relation to claims, following which the liquidators (in Re Forex) and the deed administrators (in Re ION) had concluded that there were valid claims against the company and proposed to admit the claims of the relevant group with the discount reflecting the "quid pro quo" by which the value of claims was to be discounted as the price of saving the relevant claimants the need to collate detailed evidence and formally prove their individual claims.

Re Horne and the circumstances of this case 33 The plaintiffs also, properly, drew attention to a further decision in which Sloss J of the Supreme Court of Victoria rejected an abridged process: Re Horne. 34 Re Horne concerned an application by the liquidators of Australian Property Custodian Holdings Limited (APCHL) for directions under ss 90-15 and 90-20 of the IPS in relation to the liquidation of APCHL. APCHL was the responsible entity of the Prime Retirement and Aged Care Property Trust (the Prime Trust), a listed registered managed investment scheme engaged in the business of owning and operating retirement villages. 35 Relevantly, the directions sought in Re Horne related to a proposal whereby the liquidators would: (a) treat the claims by certain "Eligible Unitholders" in the Prime Trust - for misleading and deceptive conduct under s 1041H of the Act arising in relation to certain PDSs issued by the Prime Trust - as unsecured claims in the liquidation of APCHL; (b) value each such claim on the basis that each unit was worth $1 (or such other amount determined by the Court); (c) call for and adjudicate on a "global proof of debt" in respect of the "Eligible Unitholder" claims, to be lodged by an action group formed to advocate on behalf of unitholders in the Prime Trust; and (d) assess any claims made by "Excluded Unitholders" (being nine investors whom the liquidators considered ineligible to pursue claims against APCHL either by reason of being a former director or having some link or association with the former directors of APCHL) as nil. 36 Relevantly, the claims by unitholders followed determinations (the FOS Determinations) issued by the Financial Ombudsman Service in three separate proceedings brought by unitholders that: (a) disclosures made and financial products issued by APCHL were in breach of s 1041H of the Act; (b) the unitholders in question relied on the financial products to subscribe for units in the Prime Trust; and (c) the unitholders had accordingly suffered loss and damage. 37 On the basis of the FOS Determinations, the liquidators formed the view that all or almost all unitholders in the Prime Trust had claims against APCHL under s 1041H of the Act. It was submitted that, owing to "pragmatic considerations", the Court could, from the FOS Determinations, "infer reliance" by unitholders on the relevant financial products. 38 In essence, as in this case, the liquidators sought approval of a process in respect of investor claims, which departed from the traditional proof of debt process (and its attendant costs and expenses), in order to increase the distribution available to investor creditors. In the result, Sloss J declined to make the directions sought. 39 The matters of concern which led to Sloss J declining to approve the proposal included the following: there had been an insufficient articulation of precisely what the "global proof of debt proposal" involved and how the process was to be administered and conducted; and that it was not appropriate for the court to "infer reliance" in the absence of individual statements from unitholders: Re Horne at [28], [108] and [161]-[162]. 40 Although the contradictor observed that approval of the proposed abridged process "might" be regarded as a departure from Re Horne, he did not submit that approval would constitute such a departure. The matter of departing from Re Horne having been raised, the liquidator detailed, in his written reply submissions, the basis upon which he submitted that the principal concerns held by Sloss J in Re Horne do not arise on the facts of this case. 41 On that matter, he submitted as follows (footnotes omitted): 4. ... In [Re Horne], the liquidators accepted that individual reliance was necessary to establish loss. Indeed, they said it was 'foundational' to the claims of investors. In addition, the liquidators suggested that reliance could be inferred on the part of 6,000 to 9,000 investors from three Financial Ombudsman Service determinations. That equated to a sample size of 0.05% to 0.033%. Unlike here, the liquidators did not present an alternative case theory to the Court. 5. Here, the Liquidator's position, supported by evidence, is that a large group of investors - the Affected Investors - can establish loss without proving that they individually relied on misleading financial statements and disclosure documents. That is because, acting properly, TVM ought to have closed down the entire scheme before the Affected Investors invested. There would in that event have been no BDT for those investors to invest into. 6. The Liquidator's alternative case theory, supported by evidence, is that at least some investors relied on the misleading representations in the BDT financial statements, and that had the true position been revealed, those investors would either not have invested or would have redeemed their units, causing a run on the BDT and - due its insufficient cash reserves - the collapse of the BDT. 7. Both case theories involve, at least to some extent, indirect causation of loss or damage. On the liquidator's primary position, all Affected Investors suffered loss by investing in a scheme that would not have been in existence had TVM's directors, accountants and/or auditors not prepared - and then relied on - TVM's misleading financial statements. On the liquidator's alternative case, at least some investors were misled by those financial statements, and if they had not been, the scheme would have collapsed. 8. This indirect approach to causation of loss or damages is supported by cases adopting a market-based non-reliance approach to causation. In Caason Investments Pty Ltd v Cao [(2015) 236 FCR 322 at [93]], Edelman J explained market-based causation as follows: A market based causation case is not a special sub-category of causation. It is, simply put, an example of indirect causation. One circumstance of market based causation, albeit inadequately pleaded before the primary judge, involves an alleged disclosure of misleading information to the market in a disclosure statement. That misleading information causes the listed price of securities being inflated which, in turn, causes an alleged loss because the investor purchases the securities at a higher price than he or she would otherwise have paid. 9. As Brereton J said in Re HIH Insurance Ltd (in liq) [(2016) 335 ALR 320; [2016] NSWSC 482 at [42]]: As a matter of principle, if causation - "by conduct of" - can otherwise be established, it cannot matter that reliance is not established. Thus the statutory case [sic] of action does not, per se, including [sic] reliance as a necessary material fact (although that is not to say that it will not be one, as a matter of fact, in the context of many, if not, most individual cases). 10. In Re HIH Insurance Ltd (liq), Brereton J was satisfied that the plaintiffs in that case were inevitably exposed to loss because the market itself had been misled: If the contravening conduct deceived the market to produce a market price which reflected a misapprehension of HIIH's [sic] financial position (which is a factual question to be resolved in conjunction with the quantification of damages), then it had the effect of setting the market at a higher level - and the price the plaintiffs paid greater - than would otherwise have been the case. In such circumstances, plaintiffs who decided - entirely oblivious to the contravening conduct - to acquire shares in HIH, were inevitably exposed to loss. 11. Unlike Re Horne, there is ample evidence here supporting the two ways in which the Liquidator says Affected Investors could establish indirect causation, including: (a) evidence from the liquidator identifying the misleading representations, and in the case of financial statements, the materiality of TVM's misstatements (by reference to the Westworth report); (b) survey evidence that 93 o[f] 107 (or 86% of investors responding) had relied on the misleading representations whereas the liquidator in Re Horne elected not to seek statements from investors; (c) evidence of the characteristics of the investor group, and their close geographical proximity to one another and TVM in the Mornington Peninsula region; and (d) evidence of the meagre cash reserves of TVM, from which it can be said that TVM would not have survived a run on the fund. 42 I accept that, for the reasons given by the plaintiffs, this is a very different case from Re Horne. In particular, the liquidator set out clearly and precisely the manner in which the proposed abridged procedure would operate, including as to the calculation of claims in accordance with a precise formula. Further, the admission by the liquidator of the Affected Investors' claims as creditors does not require proof of individual reliance by each putative creditor (cf Re Horne in which it was proposed to make inferences about reliance, which was an accepted feature going to proof of the underlying claims at issue in that case). Rather, the view taken by the liquidator of the claims of Affected Investors does not require proof of individual reliance on the various PDSs and financial reports that the liquidator considers were misleading or deceptive. 43 Further, the process proposed by the liquidator does not involve the lodgement of a "global proof" which was another matter of concern to Sloss J in Re Horne, given that such a "global proof" involved the conflation of several and joint rights. A final point of distinction is that the abridged process proposed by the liquidator does not result in the exclusion of any investor or class of investor, as Non-Affected Investors are still entitled to lodge proofs of debt for any claim. Likewise, any Affected Investor who does not wish to participate in the abridged process remains free to lodge a proof of debt to be adjudicated upon by the liquidator.

Use of the assets of the BDT to pay admitted claims of creditors 44 TVM holds cash in its own right of only $11,677. The liquidator seeks an order that he is justified and acting properly in meeting claims from the assets of the BDT. The order sought is in the following terms: Pursuant to section 90-15 of the IPS, the Liquidator is justified and acting properly in paying the claims of: (a) the Affected Investors admitted in accordance with Order 2; (b) the Rice & Reynolds Investors admitted in accordance with the Deed of Settlement; and (c) any other Investor admitted by the Liquidator in the liquidation of TVM, from the BDT Property in accordance with the provisions of the Act.

The indemnity from the assets of the BDT 45 Clause 15.1 of the BDT's Constitution provides that TVM, as the responsible entity, is indemnified out of the "Trust Fund" for all expenses, losses and liabilities but goes on to provide that the indemnity is not available "where the indemnity is not permitted under the Operating Standards, the Law and only where such expense, loss or liability has been incurred in the proper performance of the duties of the Responsible Entity". 46 The liquidator has sought the order referred to given that the nature of the claims he considers that investors have against TVM are such that it may subsequently be contended that the "proper purposes" carve-out in the indemnity applies, or that s 601GA(2) of the Act applies such that recourse cannot be had to the BDT's assets to pay claims pursuant to the terms of the Constitution alone. 47 Section 601GA(2) provides as follows: (2) If the responsible entity is to have any rights to be paid fees out of scheme property, or to be indemnified out of scheme property for liabilities or expenses incurred in relation to the performance of its duties, those rights: (a) must be specified in the scheme's constitution; and (b) must be available only in relation to the proper performance of those duties; and any other agreement or arrangement has no effect to the extent that it purports to confer such a right. 48 If the liquidator is unable to have recourse to the assets of the BDT to meet the claims of investor creditors and the Rice & Reynolds Investors, the effect will be that unsecured creditors of TVM (whose claims do not arise from its trustee capacity, or which do not arise from the apprehended misleading or deceptive conduct), will be paid 100 cents in the dollar, and unitholders who are investor creditors would be expected to receive about 13 cents in the dollar. 49 While, as set out above, the non-investor creditors of TVM are limited, the Affected Investors and any Non-Affected Investors who submit a proof of debt that is accepted, stand to recover substantially more if recourse can be had to the assets of the BDT to pay their claims. That disparity arises because, if recourse cannot be had to the BDT's assets, the surplus after payment of TVM's non-trust creditors will be distributed pari passu between unitholders. This means that unitholders who have suffered no loss will receive the same amount as investors who invested after the Relevant Date (or who can submit a proof of debt that is accepted) and who did suffer loss. The liquidator considers, and I accept, that this would be unfair as non-investor creditors would recover more than investor creditors, and earlier investors would benefit over later investors (given earlier investors received distributions from funds contributed by later investors). 50 Of course, if recourse may be had to the BDT's assets to pay the claims of investor creditors (as well as non-investor creditors), their claims will all rank equally, and the distributions paid to non-investor creditors will be reduced. However, as all creditors and investors were given notice of this application (including access to Court documents), and none ultimately sought to appear and oppose it, I do not regard the lesser recoveries of a limited number of non-investor creditors to be a consideration that stands in the way of granting the relief sought by the plaintiffs. 51 The grant of a direction in the terms sought will not determine the substantive legal position, but will operate to protect the liquidator in acting in accordance with the direction. The liquidator has encountered an issue in respect of which the legal position is complex and uncertain. It is precisely in such circumstances of complexity and uncertainty that a liquidator may seek judicial directions before proceeding. That issue is whether the indemnity is unavailable to TVM as trustee given the bases on which its liability to investor creditors arose. 52 In Nolan v Collie (2003) 7 VR 287; [2003] VSCA 39 (Nolan) Ormiston JA (with whom Batt and Vincent JJA agreed) emphasised (at [53]) that "[t]he negative test is the relevant test, that is to allow indemnification for what has not been shown to have been improperly incurred". In Nolan, Ormiston JA also observed that "[o]ne must not forget, moreover, that in Re Beddoe [[1893] 1 Ch 547], seen as one of the leading authorities, Lindley LJ explained that in cases of doubt the trust estate should bear the trustee's costs": Nolan at [46], referring to Re Beddoe at 558. In other words, unless the indemnity is shown not to be available, it should be regarded as being available. This was recently confirmed by the Full Court in QB4 Capital Pty Ltd v Guardian Securities Ltd (2023) 411 ALR 496; [2023] FCAFC 72 (QB4) when their Honours endorsed the primary judge's adoption of what the Full Court described (at [60]) as the "well-established principle that trustees should not be deprived of their right of reimbursement unless they have clearly been shown to have acted improperly, with the onus resting on those who seek to deny the right" (citing Nolan at [50]). 53 In light of those matters, and given the compelling reasons advanced by the liquidator for having recourse to the trust assets to meet the claims of investor creditors, in my view I should only decline to grant a direction in the terms sought if it is tolerably clear that the indemnity is unavailable to TVM. In my view, I should not decline to grant the direction sought only because, as the authorities stand, an argument could be mounted that the indemnity is unavailable, or because the position is attended by some uncertainty. In this case, as noted above, notice of the liquidator's application was given to all creditors and unitholders of TVM, including the investors who would stand to gain if recourse to trust assets is not permitted. None has come forward to contend that the indemnity is not available. Further, and as referred to below, the contradictor also supported the direction sought. 54 In this case (unlike the position in most of the relevant authorities), there has been no trial in which TVM's conduct has been closely examined and findings made about qualitative aspects of that conduct. Here, consideration about whether the indemnity is unavailable must necessarily be conducted by reference to the liquidator's personal assessment of TVM's conduct. While the liquidator has conducted an extensive investigation, his views remain just that: views formed through an investigation, and not curial findings made following a contested trial. 55 In his supplementary submissions, the liquidator described the conundrum he faced as follows: "The difficulty for the Liquidator is that, although TVM's conduct can be described as honest, it was not reasonable (for then, impairments would have been disclosed)." As noted above, the causes of action identified by the liquidators against TVM are actions for misleading or deceptive conduct arising from representations made in TVM's financial reports and disclosure documents and the failure of those documents to recognise impairments to the commercial loan book. In the course of his investigations, the liquidator obtained expert advice which identified failures by TVM's auditors and accountants. The liquidator also expressed the view that the directors of TVM did not act reasonably to the extent that they failed to take action in relation to a provision for bad or doubtful debts after concerns were raised by TVM's auditors in mid-March 2006 and by its accountants in December 2006 and in mid-April 2007. 56 It has long been accepted that a trustee's right of indemnity in equity is not unlimited. Most commonly, the limitation has been expressed on the basis that expenses incurred will only be indemnified when they have been "properly" incurred. The historical basis for this qualification has been traced by some scholars back as far as Amand v Bradbourne (1682) 2 Chan Cas 138; 22 ER 884: see M Scott Donald, "The 'proper' approach to a trustee's right to indemnity out of trust assets" (2014) 8 J Eq 283 at 285. The imposition of this limit is equity's attempt to balance the interests of trustees (and the cognate interest of beneficiaries in persons being willing to accept appointment as trustee) with the risks posed to beneficiaries by trust assets being depleted by trustees with over-broad indemnities. 57 As may be seen, the concept of the "proper" performance by the trustee of its duties has been picked up by the terms of the indemnity provided for by cl 15.1 of the BDT's Constitution, and by s 601GA(2) of the Act. 58 But what does it mean to describe the exercise of powers by a trustee as "proper" or, conversely, "improper"? That language has been criticised on the basis that it expresses a conclusion, rather than articulating a yardstick by which conduct can be measured: eg Gatsios Holdings Pty Ltd v Mick Kritharas Holdings Pty Ltd (2002) ATPR 41-481; [2002] NSWCA 29 (Gatsios) at [8] (Spigelman CJ). Be that as it may, there are numerous cases making it clear that certain breaches by a trustee of its duties will be regarded as sufficiently serious as to deprive a trustee of recourse to the indemnity, while other situations will call for closer consideration of the particular actions of the trustee and the particular duty whose performance exposed the trustee to the cost, expense or liability in question. 59 In Nolan, Ormiston JA explained the different approaches having regard to the nature of the duty in question as follows (at [51]-[53]) (emphasis added, internal citations omitted): [51] The answer to what now seems to be a degree of confusion as to the nature of costs, expenses and liabilities for which a trustee can seek indemnification may well lie in the simple proposition of Lindley LJ in Re Beddoe to the effect that the words "properly incurred" are equivalent to the words "not improperly incurred", a proposition so abundantly obvious that it tends to obscure some of the complications which have been overlooked from time to time. In my opinion the use of the negative is intended to show that what is "proper" and "improper" must be answered by reference to the circumstances and in particular by reference to the duty with which a trustee was obliged to comply or the power which a trustee is intending to exercise. The content of trustees' duties vary considerably, as do the obligations taken on when a power is exercised. A significant number of trustees' duties requires strict compliance so that failure to comply with that duty will necessarily lead to the conclusion that a particular cost, expense or liability has not been properly incurred. On the other hand, the more day to day functions of a trustee in the management of a trust require only that the trustee "exercise the same care as an ordinary, prudent person of business would exercise in the conduct of that business were it his or her own": per Gummow J in Breen v Williams … [52] On the other hand, expenses and liabilities may be incurred where a trustee is engaged in activities which extend beyond mere management. The trustee may then be held to account far more strictly, in all senses. Conventionally a contrast is drawn with the performance of what have been called proscriptive and prescriptive duties such as the duty to keep and render accounts, the duty not to allow a conflict between duty and interest and the duty not to obtain an unauthorised benefit from the trust. Again it seems to have been accepted that a higher standard is demanded, subject to any statutory provisions, when making investments on behalf of the trust: see, eg, Re Whiteley [(1886) 33 Ch D 347 at 355 (Lindley J)]. For present purposes one may mention only one further strict duty recently described in the High Court as the duty "to adhere to the terms of his trust in all things great and small, important, and seemingly unimportant": see Youyang Pty Ltd v Minter Ellison Morris Fletcher [(2003) 212 CLR 484 at [33]]. The fact that such breaches can now be excused under s 67 of the Trustee Act 1958 was there noted by the High Court as indicating merely the strictness of the obligation and the need for legislation to relieve trustees who breached it. It would follow that expenses or liabilities incurred as a result of a breach of that duty [the duty to adhere to the terms of the trust] must ordinarily be characterised as improperly incurred, without regard to the reasonableness of the trustee's acts. It is obvious that there would be other breaches of these stricter duties which would lead to expenses and liabilities which were incapable of indemnification because each could be said to have been improperly incurred. [53] A test, therefore, based on whether a cost, expense or liability has been "properly incurred" takes on some meaning, even if the answer depends on an analysis of the act which gives rise to the particular cost, expense or liability and the duty whose performance or breach may have led to that consequence. Naturally the vast majority of costs and expenses will not arise out of any breach of trust but will be merely incurred in the ordinary day to day management of it, but some will arise out of breaches of trust many of which will lead to a denial of indemnification because the relevant breach of duty will be characterised as having been improperly incurred. There will remain, nevertheless, some breaches of duty giving rise to expenses and liabilities about which that cannot be said automatically, so that one must examine those particular breaches individually in the context of the stated duty or power. 60 As Ormiston JA explained in Nolan, the conventional reference to costs and expenses being "properly incurred" was converted by Bowen LJ in Re Beddoe in stating (at 562) that "the word 'properly' means reasonably as well as honestly incurred". In Re Beddoe, Bowen LJ went on to say (at 562) that: While I agree that trustees ought not to be visited with personal loss on account of mere errors in judgment which fall short of negligence or unreasonableness, it is on the other hand essential to recollect that mere bona fides is not the test, and that it is no answer in the mouth of a trustee who has embarked in idle litigation to say that he honestly believed what his solicitor told him, if his solicitor has been wrong-headed and perverse. 61 Re Raybould [1900] 1 Ch 199 was decided not long after Re Beddoe. In the course of finding that the trustee was entitled to be indemnified in respect of his liability to a third party following damage to neighbouring buildings and machinery due to coal working, it was found that the working had been reasonable and not improper having regard to the advice obtained. In the course of confirming the availability of the indemnity, Byrne J referred (at 201) to Benett v Wyndham (1862) 4 DF&J 259; 45 ER 1183 as showing that (emphasis added): if a trustee in the course of the ordinary management of his testator's estate, either by himself or his agent, does some act whereby some third person is injured, and that third person recovers damages against the trustee in an action for tort, the trustee, if he has acted with due diligence and reasonably, is entitled to be indemnified out of his testator's estate. 62 In Nolan, Ormiston JA doubted that (as Bowen LJ appeared to suggest in Re Beddoe), "reasonableness" is a qualifying criterion attaching to the availability of a trustee's indemnity. His Honour explained that a test of "unreasonableness" "goes beyond what equity would demand", as follows (at [53]): The negative test is the relevant test, that is to allow indemnification for what has not been shown to have been improperly incurred. Thus it may be shown that a particular act is either outside the relevant power, done in bad faith, or exercised with an absence of the care and diligence that a person of ordinary prudence should exercise. I believe that, if carefully read, the judgment of Brooking J in RWG Management [Ltd v Commissioner for Corporate Affairs [1985] VR 385] merely expresses the possibility that impropriety may be established in a variety of different ways according to the nature of the duty or power exercised by a trustee. It would follow that the test of "reasonableness" is primarily concerned with the standard of ordinary diligence and care required in the management of trust affairs which might be expected of a trustee as objectively but not over zealously enforced. That is why Bowen LJ insisted that in matters of management and the like "mere errors of judgment" should not deny the right to indemnification but, with the greatest of respect, his insistence on a test of unreasonableness goes beyond what equity would demand. So far as costs and expenses are concerned, at least those which are the subject of taxation as "indemnity costs", no question of reasonableness applies in the first instance as to the nature of the costs and expenses which the trustee may claim (at least in ordinary cases), but the test of reasonableness is imposed on the quantum of the amount claimed by a trustee which the Taxing Master should properly allow. Otherwise I reiterate what I have said above in [51]. 63 Benett v Wyndham, to which Byrne J referred in Re Raybould, was another case in which a trustee was entitled to be indemnified in respect of liability to a third party. There, the third party was injured when a bailiff employed by the trustee ordered woodcutters to fell trees and a bough fell on a passer-by. The reported reasons of Bruce LJ (with whom Turner LJ agreed) record that the trustee appears to have "meant well, to have acted with due diligence, and to have employed a proper agent" to do an act within the due discharge of his duty. That was enough to warrant a conclusion that, as between trustee and the estate, the burden of the liability was to be borne by the estate. It may be noted that there was no discussion of "reasonableness" as a distinct qualifying criterion. 64 Nolan, and other authorities, were considered by Gordon J (then a judge of this Court) in Australian Securities and Investments Commission v Letten (No 17) (2011) 87 ACSR 155; [2011] FCA 1420 (Letten 17). As her Honour drew out in analysing the authorities, while breaches of some duties will almost invariably result in the indemnity not being available - the duty to keep and render accounts, the duty not to allow a position of conflict between duty and interest, the duty not to obtain an unauthorised benefit, and the duty to adhere to and carry out the terms of the trust - when the duty that has been breached concerns the day-to-day management of the trust, trustees are held to less exacting standards (at least insofar as the loss of the indemnity is concerned). Her Honour summarised the position as follows (at [18]): At a practical level, a breach of certain "core" duties will as a matter of course result in a loss of the right of indemnity. For all other breaches, the answer will depend on the terms of the trust deed and whether that breach was in bad faith, outside the relevant power and exercised with an absence of care and diligence that a person o[f] ordinary prudence should exercise. 65 Pausing there, the matters identified by the liquidator as giving rise to liability to the investors do not involve the breach of core duties of the kind that have been identified as generally resulting in the loss of the trustee's indemnity. The liquidator submitted that "TVM engaged in the contravening conduct in good faith and honestly (in the sense that there was no culpability or deception), although it acted unreasonably". After referring to some aspects of the factual narrative, the liquidator submitted that TVM's conduct was "negligent, rather than dishonest or in bad faith" and noted the following matters in support of that contention: (a) First, there is no evidence that TVM knew of the impairments prior to receiving the letters from Waters Dace and Price Gibson. That is consistent with the view expressed in the limited scope report that the board did not regularly review non-performing loans or consider the need for provisions. (b) Secondly, the evidence is consistent with the view that, after receiving the letters from Waters Dace and Price Gibson, the board disagreed with their assessment and honestly believed (albeit, incorrectly), that TVM's loan book was not impaired. (c) Thirdly, throughout the Relevant Period, TVM's board reaffirmed its view that representations made in the financial reports and in its PDS remained accurate, and the making of these representations was supported by the unqualified audit opinions that it received from Price Gibson throughout the period. 66 The contraventions identified by the liquidator involve misleading or deceptive conduct under statute, relating to TVM's failure to impair the value of the commercial loan book. The liquidator has, as I have set out, not identified matters that lead him to consider that the trustee acted in bad faith or knowingly (cf the position in Letten 17 where Gordon J referred to the trustees knowingly permitting investor funds to be used for non-trust purposes). Nor do the matters in issue raise the "clear accounts" rule, which was the principal basis upon which the indemnity was unavailable on the facts in Letten 17. 67 In QB4, the Full Court said (at [90], emphasis added): [90] There is a great number of cases concerning the meaning and application of the question whether expenses have been "properly incurred". As we have noted above, the starting point is often taken to be the decision in Re Beddoe [1893] 1 Ch 547. It is sufficient for present purposes to refer to the judgment of the Full Court in Adsett v Berlouis [1992] FCA 368; (1992) 37 FCR 201, in which it was said, adopting the language of Bowen LJ in Re Beddoe, that the word "properly" means reasonably as well as honestly incurred (at 212). As the Full Court said (at 212), if the expense is one prudently and reasonably incurred in the discharge of the trustee's proper duties, there is a right under the general law to be indemnified out of the trust estate. If the expense is not so incurred or is unreasonable or unnecessary, there is no right under the general law to indemnity because the expense is "not properly incurred". No argument was put to us in the appeal that the Full Court's reasoning should not be followed. The respondents referred briefly in their written submissions to the NSW Court of Appeal's reasoning in Gatsios Holdings Pty Ltd v Nick Kritharas Holdings Pty Ltd [2002] NSWCA 29; (2002) ATPR 41-481, which involves a major departure from the orthodoxy adopted in Adsett v Berlouis, and we adhere to that orthodoxy, both because it has the authority of the Full Court, and also because the criticisms by Ormiston JA of Gatsios are well made: see [Nolan at [44]-[57]]. 68 In QB4, the Full Court referred to the orthodoxy as set out in the earlier Full Court decision in Adsett v Berlouis [1992] FCA 368; (1992) 37 FCR 201 (Adsett). Adsett involved an appeal against orders of Pincus J that prevented a trustee in bankruptcy from having recourse to the assets of the bankrupt estate in relation to the costs (including an adverse costs order) in respect of contempt proceedings that the trustee had initiated unreasonably and orders that the trustee bear his own costs in relation to certain other applications. 69 The Full Court's decision in QB4 endorsed Nolan and did not suggest that Gatsios was, on the facts, wrongly decided (as distinct from endorsing the criticisms made in Nolan of the reasoning in Gatsios). Gatsios concerned the former trustee of a trust operating a business, which was found to have made false and misleading statements in contravention of s 52 of the Trade Practices Act 1974 (Cth) (the trustee was removed from office prior to the award of damages against it). The former trustee sought, and obtained, a declaration that it was entitled to be indemnified from trust assets for its liability to pay damages. In the course of confirming the availability of the indemnity, members of the New South Wales Court of Appeal made some observations in their reasons that have subsequently attracted criticism. 70 In particular, in Nolan, Ormiston JA (with whom Batt and Vincent JJA agreed) drew attention to a passage in the reasons of Spigelman CJ in which his Honour concluded that no "test" could be framed for when a trustee is entitled to receive indemnity by asking whether the conduct was "proper" or "reasonable", on the basis that those expressions generally record conclusions reached on other grounds: Nolan at [44], referring to Gatsios at [8]. Attention was also drawn by Ormiston JA to passages in the reasons of Meagher JA in which his Honour considered that it was difficult to formulate limits on the indemnity beyond saying that fraudulent conduct would be disqualifying, and that a proposition that the activity must be "reasonable" and "proper" did not exist in Australian law, being meaningless, or, in the case of the latter, it being meaningless to apply some hypothetical standard of propriety in ordinary commercial life, absent fraud and crime: Nolan at [44], referring to Gatsios at [47]. Justice of Appeal Ormiston observed that it was not clear why the majority of the New South Wales Court of Appeal had sanctioned "so significant a departure from accepted principle as to leave the trustee's right largely unconstrained", and preferred "to confine what was said in that case to liabilities in tort incurred by trustees and the circumstances in which they should be so indemnified": Nolan at [45] and [50] (Batt and Vincent JJA agreeing). 71 What underlies the various formulations found in the cases is the need to focus on the duty in question, and to assess the nature and gravity of the trustee's conduct in context. This emerges most clearly from Nolan. In Nolan, the liability to a third party arose from the trustee's failure to realise, when mortgaging a trust property that had been sold but not yet transferred to a buyer, that the document being executed was an "all moneys" mortgage. Had the trustee acted with due diligence and care, it should have restricted the mortgage to the liability for which the buyer had accepted responsibility. However, the Court of Appeal upheld the trustee's right of indemnity. While acknowledging (at [54]) that it could be said that the trustee acted "negligently", and did not carry out the transaction with the level of care and diligence a person of ordinary prudence would exercise, Ormiston JA was of the view that: such an analysis cannot here determine whether a trustee can fairly seek indemnification from the assets of a trust in circumstances where something has happened to go wrong. 72 Such a lack of diligence, and negligence, was not sufficient to disentitle the trustee to access the indemnity. That was because, as Ormiston JA (with whom other members of the Court agreed) determined, it had not been shown that the trustee's conduct was "improper", and the conduct was "not sufficiently heinous" to justify withholding the indemnity: Nolan at [55] and [57]; see also CB Darvall & Darvall v Moloney (2006) 236 ALR 796; [2006] QSC 345 at [47] (Wilson J). 73 In my view, it is appropriate to make the direction sought regarding recourse to the assets of the BDT. In considering whether to make the direction sought, I am mindful that the Court is not tasked with determining whether, in fact, TVM acted unreasonably, or in a way that may attract other adjectives found in the authorities concerning when trustees will not be indemnified from trust assets. Rather, the question I have to consider is whether the liquidator has a reasonable basis for proceeding, as he proposes to, such that he should be exonerated. 74 I have no hesitation in concluding that the liquidator has amply justified his view that the results of proceeding without recourse to the BDT's assets to meet the claims of Affected Investors would be most unfair. I also accept, again without hesitation, that this is not a case where the question of recourse to trust assets to meet the claims against a trustee arises in circumstances that merely involve shifting a burden from trust assets to a trustee. In many cases, where a trustee has no recourse to trust assets, the trustee will be required to bear the costs personally, and the issue is one of burden shifting. But here, the trustee is insolvent and is in liquidation. If the liquidator of TVM has no access to the trust assets in respect of the claims of Affected Investors, those claims will go unmet, and the assets of the BDT will be distributed to unitholders in a way that the liquidator regards as inequitable. 75 Those matters constitute compelling reasons why the direction sought should be given if there is no obvious flaw in the liquidator's rationale for proceeding on the basis that the indemnity is available. 76 As the authorities emphasise, it is only where it has been shown that the indemnity is not available that a trustee should be deprived of it, and in cases of doubt, the trustee should not be deprived of recourse to the indemnity. Here, it is not clearly the case that the indemnity is not available. Therefore, the liquidator would be acting reasonably in having recourse to the assets of the BDT. 77 I say it is not clearly the case that the indemnity is not available, recognising that the authorities would not preclude an argument that TVM was deprived of the indemnity by having acted unreasonably. However, in my assessment, the state of the authorities is not such that the liquidator's characterisation of certain aspects of TVM's conduct as unreasonable necessarily renders the indemnity unavailable, such that I should decline to give the direction sought. In my view, upon careful consideration of the authorities, references to reasonableness in cases discussing the availability of a trustee's indemnity do not suggest that, at least in cases of indemnification for statutory or tortious liability to others, the indemnity will only be available if the conduct giving rise to the liability can be characterised as "reasonable" in all respects; a more qualitative analysis is required. 78 For completeness, I should note that the contradictor submitted that the liquidator would be justified in proceeding on the basis that the conduct of TVM was not such as to disentitle it from being indemnified from the BDT assets. Accordingly, the contradictor submitted that the Court should make the direction sought. In arriving at this conclusion, the contradictor's submissions noted that it was not contended that TVM had acted beyond power or in bad faith and "[a]t worst, the Impugned Conduct might be susceptible to being thought to display a want of the care and diligence that would be expected of a person of ordinary prudence". The same was said of the facts in Nolan. 79 All told, and notwithstanding the liquidator's view, expressed in his affidavit evidence, that the directors of TVM had acted unreasonably in failing to respond to warnings issued by the company's auditors and accountants, and the characterisation (in submissions) of TVM's conduct as unreasonable, this is not a case in which it has been clearly shown that the trustee acted improperly, so as to be deprived of the indemnity. Accordingly, the liquidator would be justified in proceeding on the basis that the indemnity remains available and that recourse may be had to the assets of the BDT in the manner proposed.

Alternative argument - benefit to the trust estate 80 By his supplementary submissions, the liquidator advanced an alternative basis upon which TVM may be indemnified for claims admitted under the abridged process: that BDT was benefitted by the impugned conduct of TVM. A trustee may be indemnified on this basis even if it cannot establish that a liability was properly incurred: Nolan at [58] (Ormiston JA); see also Kordamentha Pty Ltd v LM Investment Management Ltd [2016] QSC 183 at [20] (Applegarth J) and Harrison v Nandicorp Pty Ltd [2021] FCA 1603 at [27] (Perram J). On the liquidator's assessment of the facts, TVM did not act in bad faith so as to disentitle it to indemnification on this basis. On the circumstances of this case, the liquidator's submission is that the impugned conduct of TVM resulted in the asset pool of the BDT being augmented by amounts that correspond - dollar for dollar - with the assumed liability of TVM to those investors. In other words, TVM's conduct procured further cash increasing the asset pool of the BDT. 81 The contradictor has, however, submitted that the benefit to the BDT is "illusory" as the benefit obtained by the receipt of funds has been matched by an equivalent liability. The contradictor further noted that no allowance has been made for the costs already incurred, and costs that will, in future, be incurred, in the liquidator identifying, quantifying and addressing claims by investors referable to the impugned conduct. The contradictor finally submitted that the outcome would be incongruous, and not supported by clear authority, the latter point being made on the basis that the authorities cited by the liquidator regarding the "benefit principle" do not entail an application of that principle to conduct of a trustee akin to that in the present case. 82 In responsive submissions, the liquidator refuted the contradictor's submission, noting (amongst other matters) that if the contradictor's submission were correct, the same "netting off" would have occurred in Nolan, but the indemnity was held to be available in that case. 83 Given that I have concluded that the direction sought ought to be made on the primary ground advanced - viz, that recourse to trust assets is not precluded on the basis that the indemnity is unavailable - it is not necessary to address the alternative argument advanced.

Relevant Date 84 As noted above, a point of debate emerged between the liquidator and the contradictor concerning whether the Relevant Period should commence with the liquidator's original Proposed Relevant Date (30 March 2006), or the Alternate Relevant Date proposed by the contradictor (30 June 2005). The date that is selected determines whether those who invested between 1 July 2005 and 29 March 2006 will be "Affected Investors" and thus able to participate in the abridged process. It is worth recalling, at the outset, that even if the later date is selected, this group of investors will still be able to lodge proofs of debt in the ordinary way. 85 Following the contradictor suggesting the Relevant Period should commence with the earlier date, the liquidator submitted that either date could be selected, but that his theories concerning causation were stronger in the case of the later date (30 March 2006). 86 The causation theories advanced by the liquidator are a useful starting point. Those theories were summarised as follows by the liquidator in his supplementary submissions: First, that from the Relevant Date, there would have been no scheme for investors to invest in. That is because TVM ought to have closed down the entire scheme before the Affected Investors invested. This theory of causation: (a) does not rely on, or require, a finding that investors individually relied on TVM's misleading conduct; and (b) instead relies on letters received from its accountants and auditors from 15 March 2006 identifying impairments and misstatements. This theory focuses on how TVM ought to have acted upon the true position being revealed. The letters are relevant to establishing causation - as from the point of receipt of the letters, the directors ought to have had knowledge of TVM's misleading conduct, and acting properly, ought to have closed down the scheme. Secondly, from the Relevant Date, there would have been no scheme for Investors to invest in. That is instead because some investors relied on the misleading representations, and had the true position been revealed, those investors would either not have invested or would have redeemed their units, causing a run on the BDT and - due to its insufficient cash reserves - the collapse of the BDT. The second theory focuses on how investors ought to have acted, absent the misleading or deceptive conduct. There is evidence before the Court of reliance by some investors, and the Liquidators [sic] submits that - absent that reliance - the scheme would have collapsed. In that sense, the theory involves indirect causation as the reliance of some investors caused loss to all investors from the Relevant Date. Thirdly, that there is a reasonable basis to believe that all Affected Investors could establish causation on an individual basis. That is because, from the Relevant Date, there was a reasonable expectation that TVM would prepare true and fair accounting reports, and had this occurred, no reasonable investor would have invested in TVM. This was the approach rejected in Re Horne, but the Liquidator submits there are features in the evidence that distinguish that case. 87 The liquidator submitted, however, that the Alternate Relevant Date could not be supported by reference to the first causation theory as the directors had, at 30 June 2005, not yet been informed by TVM's accountants and auditors of the extent of impairments to the loan book, making it unclear how the misleading or deceptive conduct would have come to the directors' attention such that they would (or should) have closed down the scheme. 88 The liquidator contended that there was a "borderline" case that would support the Alternate Relevant Date on the second causation theory. The misleading representations relevant to this earlier date were contained in the 2003 PDS, the 2004 supplementary PDS, the 2005 supplementary PDS and the financial report for the year ending 30 June 2005. By analogy to a continuous disclosure case, the liquidator posits that it would be open to proceed on the basis that TVM ought to have issued an updated PDS or corrective disclosure on or about 30 June 2005. The liquidator raised, however, an issue that TVM was not aware of the extent of misstatements at the relevant time. 89 The liquidator raised, as a simpler proposition, that TVM engaged in misleading or deceptive conduct by publishing its financial report for the year ended 30 June 2005 (which failed to give a true and fair view, or comply with accounting standards). The liquidator queried whether there would be a sufficient basis to conclude that some investors relied on the financial reports for the year ended 30 June 2005 at or around that point in time. While the liquidators received individual statements indicating that just over half of investor respondents said they did rely on the financial statements in deciding to invest, the liquidator does not have specific information to that effect concerning those who invested in the interval between the Proposed Relevant Date and the Alternate Relevant Date. 90 Against those matters, the liquidator submitted that the third theory provided the best fit for the Alternate Relevant Date. On that theory, there was misleading conduct by silence because TVM failed to reveal the true financial position of the BDT. The true position, that would have been revealed on this basis, is that 59.6% of the loan book was impaired. Had the true position been revealed, the liquidator infers that investors would not have invested funds in units in the BDT and would have withdrawn their investments. From that position, the liquidator infers that there would have been a run on withdrawals that would have led to the collapse of the scheme. 91 In his supplementary submissions, the contradictor has stated that the third theory of causation is the most coherent theory and, if adopted, the Alternate Relevant Date is the most appropriate commencement date. The contradictor noted that this theory does not depend on the actual knowledge of TVM's directors or how they "ought" to have acted. On the contrary, the third theory deploys the most relevant counterfactual (namely that TVM published information regarding the BDT that was accurate and not misleading) and posits that, on that counterfactual, self-interested investors would have redeemed their units or refrained from investing. 92 Both the liquidator and the contradictor pointed to the evidence concerning the unitholders largely being geographically concentrated in the Mornington Peninsula area, heightening the prospect of communication between the unitholder community. The liquidator's evidence also supports a conclusion that TVM did not maintain sufficient liquid assets to withstand a run on redemptions, particularly coupled with new investments drying up. 93 Having regard to these matters, I consider the third theory of causation advanced by the liquidator to provide the most reasonable basis upon which to proceed. The evidence and submissions put forward by the liquidator, and supported in this regard by the contradictor, establish a well-considered causation rationale by which the liquidator may infer that, had TVM not engaged in misleading or deceptive conduct and had the true position been revealed, Affected Investors (including those who acquired units after 30 June 2005) would not have invested either because they would not have done so in the face of such high levels of impairment of the loan book having been revealed, or because the scheme would have collapsed due to investors withdrawing their units and a lack of fresh investments coming in. Importantly, this causation theory would not assume (and therefore relieve investors of the need to prove) individual reliance on the positively misleading or deceptive statements made in documents issued by TVM. 94 Accordingly, in my view the Relevant Date should be 30 June 2005.

Opt out vs opt in 95 The liquidator's initial proposal was for an "opt out" procedure whereby Affected Investors would have their claims dealt with pursuant to the abridged process unless they opted out of the abridged procedure. The contradictor, in his submissions, raised a number of matters which he considered made an "opt in" procedure preferable. In particular, as the liquidator has already found that he does not have effective contact details for a number of investors, there is a high probability that distribution cheques issued to non-contactable investors would go unpresented, and would subsequently need to be paid over to ASIC as unclaimed moneys or would need to be the subject of a second round of distributions. There are 15 Affected Investors (with a total claim value of $635,419.07) who have had no contact with the liquidator and correspondence sent to them has been returned to sender. A further 38 Affected Investors (with a total claim value of $1,127,768.47) have had no contact with the liquidator, but correspondence sent to them has not been returned to sender. 96 In light of the diminution of the funds available to Affected Investors either through funds going to ASIC as unclaimed moneys, or being reduced by costs associated with another round of distributions, the contradictor instead proposed an "opt in" model. The contradictor observed that such a model was consistent with both Re ION and Re Forex, both of which were "opt in" procedures. 97 The contradictor's suggestion recommended itself to the liquidator, who finally proposed an "opt in" model. In my view, the change to an "opt in" model is appropriate for the reasons identified by the contradictor. It is also somewhat simpler, as a single notice can be sent to all Affected Investors (whereas previously a separate notice was to be sent to the sub-group of Affected Investors who had already registered a claim with the liquidator).

Investors who subscribed by reinvesting 98 Unitholders in the BDT had the choice between receiving cash distributions of dividends (net profits) and having such sums reinvested, resulting in the issue of additional units. 99 The term "Affected Investors" is defined in a way that excludes investors who paid for units by "Reinvested Dividends". That term is defined as follows: Reinvested Dividends means any purported profits of the BDT that an Investor: (a) was entitled to be paid by TVM; and (b) reinvested in the BDT to purchase additional units in the BDT. 100 Accordingly, investors who acquired additional units in the BDT in lieu of cash distributions in the Relevant Period will not be able to take advantage of the abridged claim procedure in respect of any loss they assert relating to the acquisition of units by that means. 101 The liquidator's rationale for excluding this group was not explained in his initial affidavit, but was explained in a later affidavit, following enquiries that were made by the contradictor. 102 In the liquidator's view, the claims of this group would, and should, be individually adjudicated by the usual proof of debt process. The principal aspects of the liquidator's evidence on this issue was as follows: 36. First, because the claim of Affected Investors is based on a hypothesis that the BDT would have collapsed on or around 30 March 2006, and the Reinvested Dividends were recorded after this date. My view is that: (a) TVM should have stopped accepting subscriptions in the BDT from new investors from 30 March 2006, and should have appointed external administrators at that time; (b) if TVM and the BDT had collapsed on or around 30 March 2006, then from that time there would have been no scheme to invest in, no distribution of income by TVM, and no opportunity for an Affected Investor's dividends to be paid or reinvested in the BDT; and (c) any Reinvested Dividends arising after 30 March 2006: (i) were not investments of 'fresh cash' of an investor in respect of which they have suffered loss due to the misleading conduct of TVM; (ii) would not have been received by the investor had BDT collapsed on or around 30 March 2006; and (iii) do not give rise to a benefit to be accounted for by the Affected Investor, nor loss to be accounted for by TVM. 37. Secondly, because claims in respect of Reinvested Dividends would, in my view, need to be adjudicated on an individual rather than global or uniform basis. My proposed methodology for dealing with claims of Affected Investors is set out in the May Affidavit. I propose to admit the claim of an Affected Investor in the absence of proof of causation or reliance on the misleading or deceptive conduct, and I propose to admit their claim for investments after 30 March 2006 because I consider that, from 30 March 2006, there should have been no scheme for investors to invest in (or because reliance on misleading conduct may be inferred). 38. An Affected Investor could conceivably assert a claim against TVM in respect of Reinvested Dividends (but I hold doubts as to merits of such a claim, as addressed below). Such a claim may be asserted on the following hypothesis: (a) the Affected Investor had an opportunity to elect to receive their dividends in cash or as Reinvested Dividends (see May Affidavit at [172] to [173]); (b) the Affected Investor elected to receive Reinvested Dividends because they were induced by the misleading financial reports or disclosure documents of TVM; and (c) but for TVM's misleading conduct, the Affected Investor would have decided to receive their dividends in cash, and their loss is then the cash dividend that they elected to forgo. 39. In my view, a claim framed in this manner could not be dealt with on a global basis in the absence of causation. I would instead need to satisfy myself, based on evidence and in respect of each Affected Investor, that they: (a) received misleading financial reports, disclosure documents or other representations; and (b) were not aware that the matters stated in those misleading financial reports, disclosure documents or other representations were false; (c) were induced by misleading conduct to decide not to receive cash in lieu of a Reinvested Dividend; and (d) made that decision, induced by misleading conduct, prior to receiving each Reinvested Dividend (that is, prior to each quarterly distribution of income by TVM in which the Affected Investor received a Reinvested Dividend). 40. Any claim of that nature would need to [be] adjudicated individually, given that it is peculiar to the individual investor and based on reliance by that individual investor. I do not have sufficient evidence, in respect of each individual Affected Investor, to form a view as to whether they relied on misleading conduct, whether in relation to their subscription for units or in relation to Reinvested Dividends. I refer to the difficulties in obtaining proof of reliance at paragraph [239] of the May Affidavit. 41. Thirdly, a significant amount of work would be required to quantify loss of investors referable to Reinvested Dividends (for limited utility, as addressed below). I would need to reconstruct the accounts of the BDT over the Relevant Period in order to identify the 'true' Net Income as defined by the Constitution (see the May Affidavit at [35(h)(i) and (j)] and applicable accounting standards … 43. The task of reconstructing the 'true' Net Income of the BDT would be time-consuming and laborious. It would involve, amongst other things, recalling archived records, reconstructing accounts from journal entries and account adjustments, critiquing the reasons for adjustments recorded in the accounts, and reviewing individual account statements. I estimate that it would require at least one to two months to complete the task. It would also be a costly exercise, but I am not able to give a reliable estimate of the costs unless I were to further scope the nature of the exercise, and the extent of the review necessary to complete it. 44. Fourthly, I consider that the exercise lacks utility as my preliminary view is that Affected Investors did not (or at least, I doubt that they) suffered loss through the receipt of Reinvested Dividends. 103 The contradictor closely considered the position of this sub-group of investors. While the contradictor was not persuaded by all aspects of the features said by the liquidator to require individual adjudication, he did not submit that this group should be included in the definition of Affected Investor. In substance, that was because the contradictor accepted the merit of the liquidator's view that it is less clear that this group suffered quantifiable loss or damage. The contradictor also submitted that the exclusion of this group was justified on the basis that determining the actual loss suffered would require quantification of the amounts properly payable as Reinvested Dividends, which would require the "true" Net Income of the BDT to be determined. That would be a time-consuming and expensive task. In addition, the contradictor drew attention to the liquidator's evidence that TVM did not appear to have had sufficient cash to pay declared dividends, such that it cannot be supposed this group suffered loss by reinvesting their dividends rather than taking a cash payment. Finally, the contradictor noted that this group of investors may still make individual claims by lodging a proof of debt. 104 In my view, it is appropriate, for the reasons given by the liquidator and the contradictor, that the proposed abridged process not be extended to investors insofar as they acquired units in the Relevant Period by dividend reinvestment. Had the scheme been closed down or collapsed at the time the liquidator considers it would have in his causation analysis, this group of investors would not have received any dividends to reinvest. While the liquidator's evidence (which I have set out above) referred to his original Proposed Relevant Date, the logic holds notwithstanding my decision to accept the Alternate Relevant Date. It is clear that any claims investors who acquired units by reinvesting dividends may advance in the face of the difficulty identified by the liquidator cannot be subject to the same streamlined approach as the claims of the Affected Investors. In addition, there are significant complexities associated with assessing the "true" income available for distribution by way of dividends to unitholders, such that the claims of this group of claimants is not suitable to be addressed through the abridged procedure.

CONCLUSION 105 Orders will be made in substantially the form sought by the liquidator. I certify that the preceding one hundred and five (105) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Button.