Agusta Pty Ltd v Official Trustee in Bankruptcy as Trustee of Estates of Gustavo Ferella and Angelo Ferella

CATCHWORDS: BANKRUPTCY - Trustees - Powers, duties, rights and liabilities - indemnity, lien and reimbursement - When trustee's right of indemnity arises - Whether trustee had lien over trust fund in respect of actual or contingent debts, claims and liabilities as well as costs and expenses incurred as trustee - Whether trustee in bankruptcy possessed right of indemnity for liabilities arising after date of sequestration orders - Whether any right of indemnity arising after date of sequestration orders was after-acquired property under the Bankruptcy Act 1966- Whether trust fund owner entitled to interest at rate prescribed by s 20J(4) of Bankruptcy Act 1966 and/or s 100 of Civil Procedure Act 2005 - Identity of trustee - Costs - Whether to award on trustee basis

LEGISLATION CITED: Bankruptcy Act 1966 (Cth) Civil Procedure Act 2005

Agusta Pty Ltd & Ors as trustees for the Cavallino Unit Trust v The Official Trustee in Bankruptcy [2008] NSWSC 685 Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 53 Hewett v Court [1983] HCA 7; (1983) 149 CLR 639 CASES CITED: JA Pty Ltd v Jonco Holdings Pty Ltd [2000] NSWSC 147; (2000) 33 ACSR 691 Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344 Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236; (2005) 31 WAR 162 Xebec Pty Ltd (in liq) v Enthe Pty Ltd (1987) 18 ATR 893

Agusta Pty Limited Riva (NSW) Pty Limited PARTIES: Angelo Ferella Gustavo Ferella Official Trustee in Bankruptcy as Trustee of The Estates of Gustavo Ferella and Angelo Ferella

COUNSEL: 1,2 & 3A: D Ash R: D Pritchard SC / S Golledge

SOLICITORS: 1, 2 & 3A: Colin Biggers & Paisley, Sydney R: Sally Nash & Co, Sydney

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT MEDIUM NEUTRAL CITATION: Agusta Pty Ltd & Ors as trustees for the Cavallino Unit Trust v The Official Trustee in Bankrputcy as trustee of the bankrupt estates of Gustavo Ferella and Angelo Ferella [2008] NSWSC 685

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40326/08 SC 4820/06

BEAZLEY JA TOBIAS JA MACFARLAN JA

Wednesday 3 June 2009 AGUSTA PTY LTD & ORS v OFFICIAL TRUSTEE IN BANKRUPTCY AS TRUSTEE OF THE ESTATES OF GUSTAVO FERELLA AND ANGELO FERELLA Judgment 1 BEAZLEY JA: I agree with Tobias JA. 2 TOBIAS JA: The proceedings before the primary judge, Nicholas J, concerned issues arising out of the administration of the Cavallino Unit Trust (the Trust) as a consequence of the bankruptcy of the original trustees, Mr Gustavo Ferella and Mr Angelo Ferella (the Ferellas) and the sale of part of the trust property being real estate at Point Piper (the Property). The Official Trustee in Bankruptcy (the OT) is the trustee of the bankrupt estates of the Ferellas and, as from June 2006, held the sum of $1,788,532 being the net proceeds of the sale of the Property by its mortgagee (the Fund). 3 Pursuant to s 20B(2) of the Bankruptcy Act 1966 (Cth) (the Act), the OT paid the Fund into the Common Fund established pursuant to s 20B(1). 4 Although the OT at first did not admit that the Fund was an asset of the Trust, it did not oppose the appellants' case that it was and it was so held by the primary judge at [2] of his reasons.

The nature of the proceedings 5 By summons filed on 13 September 2006, amended on 19 December 2006 and further amended on 28 February 2008, the appellants sought various declarations and orders including, relevantly, a declaration that the Fund was held by the OT on trust for the Cavallino Unit Trust and an order that the OT pay the Fund, in effect without deduction, to the trustee of the Trust. 6 At trial there was an issue as to the current identity of that trustee. The original trustees of the Trust were the Ferellas but deeds were entered into which purported to appoint the second appellant, Riva (NSW) Pty Ltd (Riva), as trustee in place of the Ferellas and, later, the first appellant, Agusta Pty Ltd (Agusta), as trustee in place of Riva. 7 The appellants collectively asserted before the primary judge that the trustee was Agusta whereas the OT asserted that the trustees remained the Ferellas. The primary judge held that Riva had been the trustee of the trust from 19 April 2005. As will appear, there is now no challenge to that finding. 8 On 6 February 2007 the OT filed a cross-claim in which it sought first, a declaration that it was entitled to be indemnified from the Fund in respect of a series of proofs of debt which had been lodged by creditors of the Trust in the bankrupt estate of each of the Ferellas and which were identified in the schedules to the cross-claim (the schedules). The second declaration claimed that the OT be indemnified from the Fund in respect of its proper remuneration calculated in accordance with the provisions of the Act together with all expenses incurred by it "as Trustee". 9 The third declaration claimed that the rights of indemnity referred to in the first and second declarations were secured by a charge over the Fund. The fourth declaration claimed that the OT was not required to pay any part of the Fund to any of the appellants until the debts and claims referred to in the first declaration, together with the costs, expenses and remuneration referred to in the second declaration including the OT's costs of the proceedings, had been paid in full. 10 Before the primary judge the appellants accepted that the OT was entitled to a lien over the Fund in respect of the following claims by creditors of the Trust as set out in the schedules: (i) The costs of Ervin and Keiko Otvosi (the Otvosis) in Supreme Court Proceedings No. 2583/03 in the sum of $74,656.

(ii) The costs of Woollahra Municipal Council in the sum of $22,564.16.

(iii) The costs of AMT Engineers Pty Ltd in the sum of $140,397.78.

(iv) The costs of Peter Klimt, solicitor, in the sum of $15,501.96.

(v) The sum of $11,530.64 being the amount of a judgment in favour of JEC Air Conditioning Services Pty Ltd. 11 The OT did not press two other claims referred to in the schedules. However the balance of the claims was in dispute and related to liabilities of the Trust that were unpaid. The OT proposed to pay those liabilities and sought to recoup them from the Fund. 12 The disputed claims related to: (i) the amount of $3,990 being the legal costs of the Otvosis incurred in opposing the Ferellas' applications for a stay of the sequestration orders made against them;

(ii) the amount of $2,651.25 being the costs incurred by the Otvosis in opposing applications by the Ferellas for annulment of their bankruptcies;

(iii) the amount of $2,354.60 being the costs incurred by the Otvosis as petitioning creditors in the Ferellas' bankruptcies;

(iv) the amount of $50,000 representing bills not yet assessed and issued by Sachs Gerace Lawyers with respect to work performed for the Ferellas as trustees of the Trust;

(v) the amount of $114,258.61 said to represent a contingent liability in respect of the unassessed legal costs of the Otvosis incurred by them on the hearing of a cross-claim by the Otvosis against the Ferellas seeking an injunction restraining the development of the Property (the cross-claim costs). As the primary judge noted (at [48]), on 1 November 2005 Hamilton J had indicated his readiness to make a costs order in favour of the Otvosis in respect of that cross-claim but considered that he was precluded from doing so by reason of the Ferellas' bankruptcy which occurred when sequestration orders were made on 14 October 2005. No formal costs order was therefore made but the bill of costs had been prepared for assessment in the amount referred to;

(vi) a contingent claim estimated to be $1,025,000 said to be potentially owing to the Deputy Commissioner of Taxation for capital gains tax following the sale of the Property (the CGT claim).

The decision of the primary judge 13 The primary judge upheld all the disputed claims and made a declaration that the OT had a lien over the assets of the Trust in respect of each of those claims as well as a sum representing the OT's reasonable estimate of its costs and expenses of administering the Trust to the date of the order and for its costs of the proceedings before his Honour which were to be paid on a trustee basis: Agusta Pty Ltd & Ors as trustees for the Cavallino Unit Trust v The Official Trustee in Bankruptcy [2008] NSWSC 685. 14 The appellants' appeal to this Court is confined to the following sub-paragraphs of Order 5 made by his Honour on 24 July 2008 whereby he declared that the OT had a lien over the Fund in respect of the following debts, claims and liabilities: "(f) The amount of $2,354.60 due to Mr and Mrs Otvosi, being the costs incurred by them as petitioning creditors in the bankruptcies of the Messrs Ferella. (g) The amount of $3,990.00 due to Mr and Mrs Otvosi, being the costs incurred by them in opposing the Messrs Ferella's applications for stays of their sequestration orders. (h) The amount of $2,651.25 due to Mr and Mrs Otvosi, being the costs incurred by them in opposing applications by the Messrs Ferella for annulments of their bankruptcies. (i) The amount of $114,258.61 representing a contingent liability in respect of the unassessed legal costs of Mr and Mrs Otvosi incurred by them in the hearing of a cross-claim in proceedings number 2583 of 2003 in this Court. … (k) Any amount of interest payable pursuant to the Civil Procedure Act or otherwise, on each of the sums referred to in sub-paragraphs (a)-(j); (l) A contingent liability for capital gains tax which may have arisen as a result of the sale of the property; (m) A sum representing the defendant's reasonable estimate of its costs and expenses of administering the trust property to date, such estimate to be made in accordance with paragraph 67 of the Court's reasons published on 8 July 2008; (n) The defendant's costs of these proceedings on the trustee basis."

Items (g), (h) and (i) are hereafter referred to collectively as the bankruptcy litigation costs. 15 At [35] of his judgment his Honour set out the relevant principles relating to the right of trustees to be indemnified out of the trust fund against liabilities incurred by them in the performance of their duties as such. The principles so stated were not in issue and were recently re-stated by Brereton J in Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344 at [14]-[22]; see also JA Pty Ltd v Jonco Holdings Pty Ltd [2000] NSWSC 147; (2000) 33 ACSR 691 at [50] per Santow J; J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia, 7th Ed (2006) LexisNexis Butterworths at [2102], [2104] and [2105]. 16 Two of the principles recorded by the primary judge were the following: "(vi) As it is an equitable lien, it is a right against property which arises to secure the discharge of an actual or potential indebtedness. It is a form of equitable charge over the subject property in that it does not depend upon possession and, where the lien is over a fund, may be enforced by an order for payment thereout ( Hewett v Court [1983] HCA 7; (1983) 149 CLR 639, p 663). (vii) A trustee has a lien over the trust fund for all his liabilities as a trustee, including his proper costs and expenses, which extends to an indemnity against future, and outstanding contingent, liabilities ( X v A [2000] 1 All ER 490; Kennett v Charlton [2007] NSWSC 190)." 17 Although the appellants accepted that the cross-claim costs were incurred in litigation concerning the Property and thus arose in the course of the Trust's affairs and accepted the amount, the claim was opposed on the basis that the liability was neither actual nor contingent and that a trustee's equitable lien could in any event extend only to actual debts. His Honour disposed of this submission in the following terms (at [49]): "In my opinion the evidence established that, because no order for costs has been made, liability in respect of them is within the category of potential or contingent liability which supports a lien over the fund ( Hewett; Kennett ). Accordingly, the defendant is entitled to have the fund remain available to it to protect its right of indemnity until the liability has been ascertained or discharged ( Jennings No 2; Hayman ). The authorities make plain that a trustee's lien extends to contingent liabilities." 18 I interpose to note that there is ample authority for the proposition that a trustee's right of indemnity arises when a relevant trust-related liability is incurred: Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236; (2005) 31 WAR 162 at [30]; Lemery Holdings at [19] where Brereton J cited Southern Wine and Xebec Pty Ltd (in liq) v Enthe Pty Ltd (1987) 18 ATR 893. However, in Xebec Derrington J, citing from the joint judgment of Stephen, Mason, Aickin and Wilson JJ in Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 at 369, noted that it was not in dispute that a trustee is entitled to indemnity in respect of any liability "which it might incur" in the performance of its duties and that it has a corresponding charge over the trust properties to support that indemnity. 19 In Octavo at 367, their Honours stated that the trustee possessed a charge or right of lien over the assets of the trust "for the purpose of enforcing [his] indemnity". This would seem to indicate that a trustee's equitable lien arises at the same time as his right of indemnity arises which is when he incurs a trust-related liability. 20 However, that does not answer the question agitated by the appellants in their written submissions on the appeal that the lien does not arise to protect what is only a potential or contingent trust-related liability of the trustee. Thus the OT made the following submission at paragraph 29 of its written submissions: "That an equitable charge can arise in advance of the debt or liability for which it operates as security actually crystallizing into a definite amount is well established by the authority. Further, in the context of the equitable charge held by a trustee over the trust estate, the decisions in X v A [2000] 1 All ER 490 at 493h, 494a, Kennett v Charlton [2007] NSWSC 190 at [16], Savage v Union Bank of Australasia (1906) 3 CLR 1170 at 1196-1197 and Jennings v Mather [1902] 1 KB 1 at 9 all provide support for the proposition that the right of indemnity, and its supporting charge or lien, can arise even though the liability is not certain and even if, as in X v A and Kennett v Charlton , it is by no means certain that any actual liability will ever arise." 21 The authorities cited by the OT in support of its submission generally confirm its correctness. Further, in Hewett v Court [1983] HCA 7; (1983) 149 CLR 639 at 663 (cited by the primary judge at [49]), Deane J, speaking of equitable liens generally, stated: "An equitable lien is a right against property which arises automatically by implication of equity to secure the charge of an actual or potential indebtedness."

It should be noted that Hewett did not relate to a trustee's lien but to the general principles applicable to the genus of equitable liens of which it might be said that the lien of a trustee to protect or secure his right of indemnity is a species. 22 However, it is unnecessary to form a concluded view on the appellant's submission and the OT's response to it given the course which the appeal ultimately took. 23 Turning to the CGT claim, the appellants denied that there was a lien in respect of any future CGT liability on the ground that it was not the subject of an existing claim by the Deputy Commissioner of Taxation, was incapable of precise calculation and was so remote that it should not be categorised as either possible or potential. In short, as his Honour noted at [57], it was submitted that the OT had failed to prove that it constituted a potential liability in respect of which a right of indemnity protected by an equitable lien arose. 24 The primary judge dealt with this submission in the following terms. First he noted (at [62]) that the courts have recognised the entitlement of a trustee to hold a lien or an equitable charge over trust assets until questions of liability and quantum have been decided. Second, he stated (at [63]) that the law afforded protection to a trustee against a future contingent claim by way of lien or equitable charge over the trust assets pending determination and discharge of any actual liability. A contingent claim, his Honour observed, was one which is uncertain and may or may not happen. Third, his Honour found (at [64]) that on the evidence there was a real possibility that a claim for capital gains tax would be made for which "the [OT] may become liable". It followed in his Honour's opinion that the OT was entitled to a lien over all of the Fund in respect of this contingent liability until it had been ascertained and discharged or proved not to exist. 25 With respect to the OT's claim to a lien over the Fund in relation to its remuneration for costs and expenses in relation to Trust affairs, the primary judge noted (at [67]) that he had been "left with the understanding that it was common ground that the approach to be taken was to be consistent with that explained in Re Application of Sutherland [2004] NSWSC 798 by Campbell J, and that the parties will frame the terms of the appropriate order to be made. In the circumstances, there is no requirement for a ruling on this issue."

The parties depart from their written submissions on the appeal 26 It was submitted by the appellants, and not denied by the OT, that his Honour was inadvertently mistaken as to the position of the parties with respect to the claim of the OT referred to in the preceding paragraph which remained a live issue before him. However, it was accepted that given that the primary judge Honour had not considered the issue and that its resolution depended on the evidence, it was appropriate that his Honour's Declaration 5(m) should be set aside and the issue remitted to the primary judge for determination. I would agree that this approach is inevitable. 27 In its written submissions on the appeal, the OT stated (at [15]) that it had resisted the claim made by the appellants for orders requiring it to hand over the Fund on the basis that it was entitled to retain possession of it as security for the right of indemnity to which the Ferellas were entitled in respect of actual or contingent debts, liabilities or claims incurred by them as trustees of the Trust. That right of indemnity had passed to the OT, being property of the bankrupt Ferellas, pursuant to s 58(1) of the Act: see Lemery Holdings at [20] and cases there cited; Jacobs op cit at [2114]. 28 In their written submissions on the appeal, the appellants submitted that no right of indemnity existed at the time of the trial before the primary judge as no then existing liability for any of the bankruptcy litigation costs, the cross-claim costs or the CGT claim had been incurred by the Ferellas as at the date of the sequestration orders of their estates. As the OT could not lay claim to a right of indemnity which did not exist as at the date of those orders and as each of the claims referred to only arose after the date of those orders, it followed that they were not claims which were provable in the Ferellas' bankruptcy. Nor were they claims in respect of which a right of indemnity in the Ferellas had arisen prior to the date of sequestration and it was only undischarged rights of indemnity which existed at that date (assuming the Ferellas were trustees of the Trust at that time) which passed as property of the Ferellas in their bankrupt estates. 29 With respect to the cross-claim costs the appellants specifically relied upon the recent decision of the High Court in Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 53 where it was held by Gleeson CJ, Gummow, Hayne and Crennan JJ at [67] that an untaxed order for costs made after bankruptcy is not a debt provable in the bankruptcy within the meaning of s 82 of the Act. To be provable, the costs order need be made before a sequestration order is made even though the order is taxed subsequently. 30 However, care needs to be taken when considering Foots in the context of a trustee's right of indemnity. Foots was concerned only with whether a post-sequestration order for costs reflected an obligation of the bankrupt which was incurred before the date of the bankruptcy for the purpose of s 82 of the Act. The present case is concerned with whether the Ferellas as trustees of the Trust were entitled to a right of indemnity with respect to a potential liability to pay the Otvosis' costs of litigation which was determined adversely to the Ferellas before bankruptcy but in respect of which no order for costs had been made against them in favour of the Otvosis as the successful party in the litigation. This was not an issue with which the High Court in Foots was required to engage. 31 Although at one stage the OT sought to argue that the rights of indemnity with respect to those claims, which it accepted arose post the sequestration orders, constituted after-acquired property within the meaning of s 58(6) of the Act, that submission was ultimately and properly abandoned. 32 According to the OT in its written submissions, the argument that the appellants now sought to advance before this Court was not advanced before the primary judge. Rather, the argument at trial with respect to the bankruptcy litigation costs was that they were not incurred "in the course of administering the Trust" and hence no right of indemnity against the Fund could be claimed; and with respect to the cross-claim costs, the sole issue was how such costs were to be quantified given that no costs order had been made and, therefore, no costs assessment certificate had been issued. This submission was eventually subsumed into the question of whether the claim for those costs was one in respect of which right of indemnity or lien existed which in turn depended upon whether it could or could not be described as a contingent debt at the date of the sequestration orders. 33 As to the CGT claim, the appellants' submission before the primary judge was that the claim for indemnity should be denied because at the date of the trial there had been no assessment of such a liability issued by the Deputy Commissioner of Taxation and the possibility of any assessment being issued in the future was unlikely or speculative so that no right of indemnity could be found to exist. 34 At the commencement of the hearing of the appeal, senior counsel for the OT was called upon to explain the legal basis upon which it could be asserted that the OT had a right of indemnity with respect to the bankruptcy litigation costs, the cross-claim costs or the CGT claim given that each only arose after the date of the sequestration orders. Senior counsel was also asked whether he submitted that the OT would be personally liable for any of those costs or taxes so as to justify his claim to a right of indemnity with respect thereto and an equitable lien over the Fund to protect that right. 35 Quite properly and fairly, senior counsel for the OT conceded first, that the OT had no personal liability with respect to post-sequestration order costs or liabilities incurred in the administration, or arising out of the affairs, of the Trust; second, that no right of indemnity with respect to those costs or liabilities could arise until they became an actual or potential liability of the Trust; and third, that any such right of indemnity, arising after the date of the sequestration orders, was not after-acquired property within the meaning of the Act as a consequence whereof any such right, whenever it arose, would never vest in the OT as part of the bankrupt estates of the Ferellas. 36 In the foregoing circumstances it was properly conceded on behalf of the OT that his Honour's Declarations 5(i) and (l) should be set aside. 37 With respect to Declarations 5(f), (g) and (h), being the bankruptcy litigation costs incurred by the Otvosis, it was accepted that those costs had already been paid from the Fund and that it would therefore be inappropriate and futile for the appellants to press their appeal with respect to those items. 38 That left Declarations 5(k), (m) and (n). I have already referred to the fact that the parties agreed that, Declaration 5(m) should be set aside and the matter remitted to the primary judge for determination. 39 As to Declaration 5(k), the appellants' submission was that the Trust was entitled to interest on the Fund or at least to some portion of it for the time that it had been in the possession of the OT, at the rate payable under s 100 of the Civil Procedure Act 2005. The appellants accepted, and there was no dispute, that the Fund was entitled to interest in accordance with the provisions of s 20J(4) of the Act which relevantly provided: "(4) Where it is established that: (a) moneys held by the Official Trustee as the trustee of the estate of a bankrupt or of a deceased debtor do not form part of the estate; or (b) … interest on those moneys is payable to the person to whom those moneys are payable, out of the Common Fund, at the rate prescribed by the regulations for the purposes of this section and in respect of the period during which those moneys are held by the Official Trustee." 40 The appellants did not seek an order for interest under s 100 in addition to the interest to which the Trust was entitled under s 20J(4) but sought the difference between the rate applicable to an order for interest under s 100 and that applicable under s 20J(4), the latter being lower than the former. 41 However, the appellants ultimately conceded that they were, at least prima facie, disentitled from claiming interest under the Civil Procedure Act as a consequence of s 100(3)(b) which provided as follows: "(3) This section: (a) … (b) does not authorise the giving of interest on a debt in respect of any period for which interest is payable as a right, whether by virtue of an agreement or otherwise …" 42 It was accepted that the words "or otherwise" were sufficient to include interest payable pursuant to s 20J(4) of the Act which was "payable as of right". 43 Nevertheless, the appellants advanced an argument which, as I understand it, was that the Trust had lost the right to interest under s 20J(4) of the Act upon the filing by the OT of its cross-claim claiming an equitable lien over the whole of the Fund. The difficulty with this argument, which was ultimately acknowledged by the appellants, was that under s 20J(4) the interest payable thereunder is payable in respect of the period during which the Fund is held by the OT. As the Fund was still held by the OT, the Trust had a right to the payment of interest thereon pursuant to the section until such time as the Fund was transferred out of the OT's Common Fund to the trustee of the Trust. 44 With due deference to the ingenuity of counsel for the appellants, and noting the appellants' desire that it not lose the interest payable under s 20J(4) of the Act, the argument advanced in an attempt to avoid the effect of s 100(3)(b) was so convoluted as to require its rejection. 45 The penultimate matter for determination related to the question of the costs of the proceedings before the primary judge. The appellants accepted that they might not be entitled to the full costs of the proceedings at trial due to their denial up until a point prior to the commencement of the hearing that the OT was entitled to an equitable lien to protect the rights of indemnity of the Ferellas as trustees of the Trust which had vested in it upon the making of the sequestration orders. On the other hand, the appellants submitted that the OT's conduct of the litigation was not without criticism, which would have bearing upon the appropriate order for costs of the hearing at first instance to date. To be thrown into the mix is the fact that the OT conceded that it had not been entitled to Declarations 5(i) and (l) - argument about which, so it was submitted, had taken up a deal of the hearing time. 46 Ultimately, the parties acknowledged that the appropriate course for this Court to take with respect to the costs of the trial to date was to remit them for determination by the primary judge who was seized of the detail of the manner in which the litigation had been conducted both before him and leading up to the trial. In these circumstances, both parties submitted that the appropriate order for this Court to make was to set aside the order for costs made by his Honour and to remit the question of the costs of the trial to be determined by him after he had determined the outstanding issue relating to the claim of the OT referred to in Declaration 5(m). 47 However, there is one aspect of the costs order that needs to be resolved by this Court and that is his Honour's finding that, to the extent to which the OT was entitled to an order for costs, it should be on a trustee basis. In his judgment on costs on 24 July 2008 his Honour dealt with this issue in the following terms: "6. The next matter about which there is opposition is that raised by the defendant's claim in par 5(n) of its document in the following terms: 'The defendant's costs of these proceedings on the trustee basis.' 7. The order is based upon r 42.25, Uniform Civil Procedure Rules, which provides, relevantly, that a person who is or has been a party to any proceedings in the capacity of trustee, is entitled to be paid his or her costs in the proceedings in so far as they are not paid by any other person out of the fund held by the trustee. That entitlement is subject to r 42.25(2), which gives the Court the discretion not to order such costs if, the trustee has acted unreasonably or has in substance acted for his or her own benefit rather than for the benefit of the fund. In my opinion it is for the plaintiffs to demonstrate that the trustee's conduct in relation to these proceedings and incurring costs in them, was unreasonable, or directed towards its benefit rather than for the benefit of the fund. There is no evidence of any ground upon which the proviso could be established. The trustee demonstrated that it was entitled to defend the plaintiffs' claim and to establish the lien claimed for the purpose of enabling the payment out of the trust's liabilities. That seems to me, plainly enough, to be conduct which can properly be described as conduct in the course of the trustee's duties in respect of the funds. As I have indicated, there was simply no basis which established conduct disentitling. Accordingly, it is appropriate that a declaration in the terms of par 5(n) should be made." 48 With respect to his Honour's discussion, in my opinion the OT was not a party to the proceedings before him in the capacity of a trustee of the Trust: rather, it was there in the capacity as a lien holder, a status which is different from that of a trustee and which does not attract the provision of r 42.25 of the Uniform Civil Procedure Rules. In my opinion, therefore, if the primary judge ultimately makes a costs order in favour of the OT, and I am not suggesting that he should or should not, then the costs awarded should be on the ordinary basis and not on a trustee basis. 49 Finally, the OT filed a cross-appeal seeking the setting aside of Order 4 made by the primary judge which declared that Riva became the trustee of the Trust on 19 April 2005 (which was prior to the making of the sequestration orders on 14 October 2005) albeit that the trust property had not vested in it and. I would therefore infer, remained vested in the Ferellas. The notice of cross-appeal alleged that his Honour was in error in so finding and ought to have found that the Ferellas had never been validly replaced as trustees of the Trust. 50 However, when asked whether the OT was proposing to prosecute its cross-appeal, senior counsel for the OT informed the Court that his client was no longer pressing the cross-appeal and that it should be dismissed. Although the OT did not concede that the cross-appeal should be dismissed with costs, such an order should be made.

Conclusion 51 Apart from the issues arising with respect to the declarations made by his Honour in paragraph 5(k) and (n) of his orders, it is apparent that the case conducted by the OT at trial differed significantly from the manner in which it approached the issues raised by the appellant on the appeal. Furthermore, the issues raised by the parties at trial for his Honour's determination differed from those raised by the appellant and the Court on the appeal and which, having been raised, were ultimately conceded by the OT. As the parties' respective cases were conducted differently at trial, it follows that the allowance of the appeal is not due to any relevant error on the part of the primary judge. 52 Accordingly, and in light of the foregoing, I would propose the following orders: (a) Appeal allowed;

(b) Set aside the declarations made by Nicholas J on 24 July 2008 in paragraphs 5(i), (k), (l), (m) and (n) of his Honour's orders;

(c) Remit the issue referred to in the declaration made in paragraph 5(m) of his Honour's orders to the primary judge for determination;

(d) Remit the question of the costs of the proceedings at first instance to the primary judge for his re-determination in light of these reasons and any other relevant matters;

(e) That so much of the amount referred to in Order 3 made by Nicholas J on 24 July 2008 as is currently held by the respondent in its Common Fund, less an amount to be agreed between the parties as being the subject matter of the order for remittal referred to in paragraph (c) above, together with interest calculated in accordance with s 20J(4) of the Bankruptcy Act 1966 (Cth) be paid out to Riva (NSW) Pty Limited within 28 days of the date of this order to be held by it as trustee of the Cavallino Unit Trust;

(f) That the amount of the Trust Fund to be held by the respondent for the purpose of and subject to the order for remittal referred to in paragraph (c) above be disbursed in accordance with the order of Nicholas J upon his determination of the matter so remitted to him;

(h) The respondent to pay the appellants' costs of the appeal and the cross-appeal. 53 MACFARLAN JA: I agree with Tobias JA. **********

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