Agusta Pty Ltd v Provident Capital Ltd

d (No 2) [2007] SASC 261 Noakes v J Harvy Holmes & Son (1979) 37 FLR 5 Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 Nolan v Nolan [2004] VSCA 109 Prior v Simeon (No 2) [2011] WASC 61 Re Blundell (1888) 40 Ch D 370 Re Fasey; Ex parte Trustees [1923] 2 Ch 1 Re Marquis of Anglesey [1903] 2 Ch 727 Re Morgan; Pillgrem v Pillgrem (1881) 18 Ch D 93 Regal Castings Ltd v Lightbody [2008] NZSC 87; [2009] 2 NZLR 433 Savage v Union Bank of Australia Ltd [1906] HCA 37; (1906) 3 CLR 1170 Stevens v Hince (1914) 110 LT 935 Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319 Worrall v Harford (1802) 8 Ves Jun 4; (1802) 32 ER 250 Zaravinos v Houvardas [2004] NSWCA 421; (2004) 32 Fam LR 490 Zen Ridgeway Pty Ltd v Adams [2009] QSC 117; [2009] 2 Qd R 298 Texts Cited: J Mowbray, L Tucker, N Le Poidevin and E J F Simpson (eds), Lewin on Trusts (18th ed, 2008) P W Young, C Croft and M L Smith, On Equity (2009) B H McPherson, "The Insolvent Trading Trust" in P D Finn (ed) Essays in Equity (1985) Category: Principal judgment Parties: Agusta Pty Ltd - First Appellant Riva Pty Ltd - Second Appellant Provident Capital Pty Ltd - First Respondent Representation: Mr J T Svehla - Appellants Ms B K Nolan - Respondent Leon M Ratner & Associates - Appellants Tiernan Lawyers - Respondent File Number(s): 2010/00241786 Decision under appeal Citation: Provident Capital Ltd v Agusta Pty Ltd [2011] NSWSC 258 Date of Decision: 2011-04-01 00:00:00 Before: Rein J File Number(s): 2010/00241786

1CAMPBELL JA: I agree with the orders proposed by Barrett JA and with his Honour's reasons. I also agree with the supplementary reasons of Sackville AJA. 2BARRETT JA: This is an appeal from a decision of a Judge of the Equity Division (Rein J) that an alienation of land in June 2010 by Agusta Pty Ltd ("Agusta") was made "with intent to defraud creditors" as referred to in s 37A of the Conveyancing Act 1919: see Provident Capital Ltd v Agusta Pty Ltd [2011] NSWSC 258 (1 April 2011). 3In the absence of the primary judge on leave, orders disposing of the proceedings were made on 27 April 2011 by another judge after hearing short argument on the form of relief appropriate to give effect to the substantive decision. 4The alienation in question was made by Agusta in favour of Riva NSW Pty Ltd ("Riva") in circumstances to be described presently. 5In this court, Agusta and Riva challenge the primary judge's core finding that the alienation was of the quality with which s 37A is concerned. The successful plaintiff below, Provident Capital Ltd ("Provident"), seeks to uphold that finding.

The facts 6There is no real dispute about the facts. On 10 January 1995, Gustavo Ferella and his son Angelo Ferella ("the Ferellas") became the trustees of a unit trust created by a deed of settlement bearing that date (the settlement was known by different names at different times, including the name "Cavallino Unit Trust"). Members of the Ferella family and the trustee of an associated superannuation fund became (and have remained) the beneficiaries. 7Acting as trustees of the January 1995 settlement, the Ferellas later purchased certain land at Kings Park which thereby became trust property. The title to the land is under the Real Property Act 1900. 8On 19 April 2005, Riva was purportedly appointed sole trustee of the January 1995 settlement in place of the Ferellas; and on 9 February 2006, Agusta was purportedly appointed sole trustee in place of Riva. 9Each company was a family company and had as its directors and shareholders close relatives of the Ferellas. In both a letter of 16 March 2010 to be mentioned presently and an affidavit of 29 March 2010, Angelo Ferella described himself as the "manager" of both companies and as authorised to act for them. 10In March 2006, Agusta, representing itself to be the trustee of the January 1995 settlement, entered into a written contract with Provident under which, subject to conditions, Provident was to make a loan to Agusta as trustee. It was a term of the contract that, whether or not the loan was ultimately made, Agusta would pay certain fees to Provident. Clause 5 provided that all property of Agusta from time to time would stand as security for payment of those fees. 11Agusta, although representing to Provident in the course of their dealings that it was the trustee of the January 1995 settlement, did not, at that time, have title to the Kings Park land. The Farellas were the registered proprietors. Agusta acquired title some two months later as a result of the Registrar-General's acting upon a request made by Agusta, ostensibly under s 12(4) of the Trustee Act 1925. Agusta requested the Registrar-General to give effect to what were said to be the appointment of Riva as trustee in place of the Ferellas on 19 April 2005 and the appointment of Agusta as trustee in place of Riva on 9 February 2006. The request was dated 1 May 2006 and the recording of Agusta as registered proprietor in place of the Ferellas occurred soon afterwards. 12The proposed loan by Provident to Agusta did not proceed. Provident maintained that Agusta was nevertheless indebted to it for the agreed fees and, on 21 June 2006, commenced proceedings against Agusta in the District Court to recover the fees. Provident in due course obtained a judgment against Agusta for $119,341 plus interest of $19,225.35 and an order that Agusta pay its costs. 13In Agusta Pty Ltd v Official Trustee in Bankruptcy [2008] NSWSC 685, Nicholas J held that Riva had been validly appointed the trustee of the 1995 settlement on 19 April 2005 but that the trust assets had never been vested in it. The parties to those proceedings were Agusta, the Official Trustee in Bankruptcy (as trustee of the bankrupt estate of each of the Ferellas) and the persons other than the Ferellas who were the holders of the units of the trust. 14On 12 June 2009, Provident obtained the issue by the District Court of a writ for the levy of property as referred to in Part 8 of the Civil Procedure Act 2005 (more conveniently referred to as a "writ of execution"). The writ was directed to Agusta. It appears that there may have been an earlier such writ but nothing turns on this. 15On or about 3 July 2009, Provident made application to the Registrar-General for the recording of the writ on the folio of the register relating to the Kings Park land. That recording was made on 9 July 2009. 16Following the recording by the Registrar-General, a notation as follows was placed on the title: "AF597049 NOTE: NO DEALINGS TO BE REGISTERED. REFER ALL INQUIRIES TO LEG 2. SEE LM220100868." 17On 22 February 2010, the Sheriff wrote to Agusta saying that its interest in the Kings Park land would be offered for sale by public auction unless the judgment debt was paid. Angelo Ferella wrote to the Sheriff on 16 March 2010 saying, among other things: "The subject property is owned pursuant to a Trust who is the true owner of the property, Agusta Pty Ltd does not own any real property or personal property." 18At a later point in the letter, Angelo Ferella said that "the True owner" of the property was Riva. 19The Kings Park land was not sold by the Sheriff and, on 12 June 2010, the writ of execution lapsed. Provident applied to the District Court for a new writ but no renewal was forthcoming. 20On 23 June 2010, Tiziana Ferella, the daughter of Gustavo Ferella and sister of Angelo Ferella, made application to the Registrar-General ostensibly under s 46C of the Real Property Act for the recording of Riva as registered proprietor of the Kings Park land in place of Agusta. The Registrar-General acted upon that application and Riva became the registered proprietor.

The decision of the primary judge 21The primary judge said at paragraph [7] of his reasons that "Riva, on 23 June 2010, was able to lodge a transfer of the property from Agusta to itself". While this is not an entirely accurate description of what actually happened, there can be no dispute that it was the action by the Registrar-General in response to Tiziana Ferella's application of 23 June 2010 that caused Riva to become the registered proprietor in place of Agusta. Nor can there be any dispute that that result was achieved with the co-operation and concurrence of Agusta as registered proprietor (as well as the co-operation and concurrence of Riva) so as to amount, for the purposes of s 37A of the Conveyancing Act , to an "alienation" of the Kings Park land by Agusta. 22The primary judge held that this alienation of 23 June 2010 was made by Agusta "with intent to defraud creditors" in the sense elucidated by the High Court in Marcolongo v Chen [2011] HCA 3; (2011) 242 CLR 546. The High Court in that case held that the concept of "defrauding" creditors includes "delaying" or "hindering" creditors (French CJ, Gummow J, Crennan J and Bell J at [19], [32], [56] and [58]; Heydon J at [87]). 23In concluding that there was a relevant "delaying" or "hindering", the primary judge referred to a number of matters which, he found, constituted Agusta's intent:

1. After the lapsing of the writ on 12 June 2010, Provident "would in the normal course have been entitled to the issue of a fresh writ and it was the transfer out of Agusta's name which precluded a fresh writ from being issued" (reasons, paragraph [38]).
2. After Riva became the registered proprietor pursuant to the "transfer" by Agusta on 23 June 2010, "Provident could not obtain a writ on the Property (without this Court's intervention) and was thereby prejudiced because it could not execute the writ and obtain an order for the sale of the property to satisfy the Judgment Debt" (reasons, paragraph [45] (9)).
3. At the time of the "transfer" from Agusta to Riva on 23 June 2010, Agusta was well aware that Provident was seeking to enforce the judgment debt and "[t]here is no evidence that Agusta made any arrangement with Riva, as incoming trustee, for indemnification out of Trust assets of the Judgment Debt, or for payment of the Judgment Debt by Riva directly to Provident"; and "[I]t is obvious that Riva had no intention of accepting that the Judgment Debt owed by Agusta should be paid out of Trust assets or otherwise" (reasons, paragraph [40]).

Grounds of appeal 27Agusta and Riva say that the primary judge erred in finding that the alienation by Agusta to Riva was calculated to impede (and did impede) the obtaining of a new writ of execution by Provident. This, they contend, is because Provident had no cause of action against the legal and beneficial owner of the Kings Park land. In the course of oral submissions, Mr Svehla of counsel, who appeared for Agusta and Riva, refined this and submitted that execution was not available against the land because it was trust property. 28Agusta and Riva also say that the finding of intent to defraud within the meaning of s 37A was not open to the primary judge particularly where, first, Agusta was not the registered proprietor when it incurred the judgment debt and, second, the 2008 decision of Nicholas J gave Agusta and Riva an entirely legitimate reason to believe that Agusta was required to transfer the land to Riva as the proper trustee of the January 1995 settlement. It was accepted by the primary judge that Riva was the proper trustee at the time of the alienation on 23 June 2010 and there is no challenge to that finding. 29A separate ground of appeal going only to the particular form of the relief granted may be left to one side for the moment.

Issues on appeal 30The grounds on which Agusta and Riva thus challenge the finding of "intent to defraud" require attention to three central questions: (a) whether Provident could (or might) have obtained satisfaction of its judgment out of the Kings Park land through a new writ of execution had Agusta remained the registered proprietor of the land; (b) if not, whether some other process could (or might) have been employed by Provident to obtain satisfaction out of the land had Agusta remained the registered proprietor; and (c) whether any means of obtaining satisfaction by resort to the land was available to Provident after Riva became the registered proprietor in place of Agusta. 31A comparison of the enforcement mechanisms that Provident would have had at its disposal in the alternative situations - that is, with Agusta still registered as proprietor or with Riva having replaced Agusta as registered proprietor - will indicate the answers to the questions of "delaying" and "hindering" that arise upon the appeal. 32The relief sought by Provident in its amended notice of appeal dated 16 August 2011 is: "1 Appeal allowed. 2. Orders 3, 4, 6 & 7 made on 27 April 2011 by the Court below be set aside. 3 Judgment for the Appellant. 4. Order removal of the notation on the title to the Property: "AFS97049 NOTE: NO DEALINGS TO BE REGISTERED. REFER ALL INQUIRIES TO LEG 2. SEE LM 220100868." 5 The respondent pay the appellants' costs in the proceedings below and of the appeal."

Agusta's trustee status 33Before these questions and the submissions of the parties are addressed, it is necessary to say something about the trustee status of Agusta. 34The matter was approached on appeal on the footing that Agusta was a trustee both when it incurred the debt to Provident and when it later became the registered proprietor of the Kings Park land. A foreshadowed challenge to the primary judge's finding of trustee status was not pressed and the relief sought on appeal does not entail any disturbance of declarations 1 and 2 of 27 April 2011 by which the trustee status of Agusta was acknowledged. 35There was before the primary judge a question whether Agusta was ever validly appointed as trustee of the January 1995 settlement and, on the evidence before his Honour, it is by no means clear that the procedures for retirement and appointment set out in the trust instrument were followed. In addition, there had been a finding by Nicholas J in the 2008 proceedings (not disturbed on appeal: Agusta Pty Ltd v Official Trustee in Bankruptcy [2009] NSWCA 129) that, from 2005, Riva, not Agusta, was the trustee of the January 1995 settlement. But it was agreed before the primary judge (and accepted on appeal) that Nicholas J's finding was not binding on the primary judge (reasons, paragraph [16]). Apart from anything else, Provident was not a party to the earlier proceedings. 36It was also agreed that, if Agusta was not formally the trustee of the January 1995 settlement at material times, it was nevertheless acting as trustee and therefore occupied the position of trustee de son tort or constructive trustee. Consequently, its duties and liabilities, as well as its rights (including rights of indemnity), were the same as if it had been duly appointed. In light of the expressed capacity in which Agusta dealt with Provident and its subsequent taking of title to the Kings Park land on the basis stated in the request dated 1 May 2006, that position may readily be accepted (see the discussion by Ormiston JA in Nolan v Nolan [2004] VSCA 109 at [25] to [29]).

Some consequences of Agusta's trustee status 37By entering into the contract with Provident, Agusta became contractually bound to pay the agreed fees and thus indebted to Provident, so that Provident was entitled to maintain an action in debt against Agusta if payment was not duly made. But when it incurred the debt to Provident, Agusta was a trustee; and it acted as a trustee in incurring the debt to Provident. There is no suggestion that Agusta did not incur the debt in due exercise of trustee powers. It accordingly had a right to be indemnified out of the trust estate for the payment obligation so incurred. 38A trustee's right thus to be indemnified out of trust assets for all debts duly and properly incurred as trustee is a right exercisable prospectively by way of exoneration or retrospectively by way of reimbursement (see Re Blundell (1888) 40 Ch D 370 at 376-7). The right arises simply as an incident of the office of trustee ( Worrall v Harford (1802) 8 Ves Jun 4; (1802) 32 ER 250) and is recognised and confirmed by s 59(4) of the Trustee Act : "A trustee may reimburse himself or herself, or pay or discharge out of the trust property all expenses incurred in or about execution of the trustee's trusts or powers." 39Section 59 says nothing about the capacity of a provision of the trust instrument to displace the s 59(4) right. The s 59(3) specification allowing displacement refers only to s 59(1) and s 59(2). The reasoning in Moyes v J & L Developments Pty Ltd (No 2) [2007] SASC 261 therefore leads to the conclusion that any attempted displacement will be ineffective: see also JA Pty Ltd v Jonco Holdings Pty Ltd [2000] NSWSC 147; (2000) 33 ACSR 691. 40The Ferellas were predecessor trustees of the January 1995 settlement. From February 1995, the trust property held by them included the Kings Park land. When Agusta became trustee in succession to them (whether formally or as a trustee de son tort under a constructive trust), it came to occupy, in equity, the position in relation to the land that the Ferellas had originally occupied; and this was so even though Agusta did not become the registered proprietor of the land until a later time. Agusta's right to be indemnified out of trust property for the Provident debt, along with other debts properly incurred as trustee, subsisted in relation to the Kings Park land. 41The right of a trustee to be indemnified out of trust property is often described as a charge or lien: see, for example, Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319; Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360. In Chief Commissioner of Stamp Duties v Buckle [1998] HCA 4; (1998) 192 CLR 226, the High Court preferred to regard it as a proprietary right constituting a beneficial interest enjoying priority over the beneficial interests of the beneficiaries. It is anomalous to refer to a person having a charge or lien over property of which the person is the owner. And as was emphasised by the High Court subsequently in CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53; (2005) 224 CLR 98, the "trust fund" enjoyed by the beneficiaries cannot be identified or quantified until the trustee's superior beneficial interest has been quantified and satisfied. The trustee's right is inseparable from and co-extensive with the trustee's obligations, both those already discharged but not yet reimbursed and those incurred but not yet discharged. 42As the primary judge recognised at paragraphs [26] and [42] of his reasons, Agusta therefore had, at material times, a proprietary right to the Kings Park land constituting a beneficial interest in that land commensurate with the debts it had incurred, including the Provident debt - an interest, moreover, that enjoyed priority over the interests of the trust beneficiaries.

The effect of transfer to a new trustee 43It is necessary next to consider the consequences, as regards the trustee's preferred beneficial interest, of a transfer of trust property by the trustee to a new trustee. 44After such a transfer, the original trustee's preferred beneficial interest continues to subsist in the trust property in the new trustee's hands. This was recognised by Thomas JA, Shepherdson J and Jones J in Belar Pty Ltd v Mahaffey [1999] QCA 2; [2000] 1 Qd R 477 at [19] - [20]: "A trustee's right to an indemnity against trust assets in respect of expenses properly incurred by the trustee in the conduct of the business of the trust is well recognised. In conducting the business of the trust, the trustee becomes personally liable for debts incurred. "However, he is entitled to be indemnified against those liabilities from the trust assets held by him and for the purpose of enforcing the indemnity the trustee possesses a charge or right of lien over those assets." [ Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360, 367] . That is a reference to trust assets in the trustee's possession. When there is a change of trustee with the trust assets being vested in the new trustee, the former trustee no longer has direct access to such assets, and should make the necessary claim for indemnity against the trustee who represents the trust. The trustee's right of indemnity out of the trust assets is in the nature of a charge or lien in favour of the trustee and as such takes preference or priority over claims by the cestuis que trust. But of course when the assets have passed out of a trustee's possession the necessary claim for a trustee's indemnity should be made against the new trustee. An unco-operative new trustee who declined to exercise the powers to recover trust property in the hands of the beneficiaries could be made a defendant, and orders could be made which would in effect permit the former trustee to exercise such powers by subrogation." 45This passage was approved by Spigelman CJ in Gatsios Holdings Pty Ltd v Nick Kritharas Holdings Pty Ltd [2002] NSWCA 29; (2002) ATPR 41-864 at [2]. The question whether an outgoing trustee may decline to transfer trust property to the new trustee until its preferred beneficial interest has been satisfied (recently regarded by Corboy J in Prior v Simeon (No 2) [2011] WASC 61 as unsettled) does not arise in this case.

The efficacy of a writ of execution affecting trust property 46I turn now to the general question of the availability and efficacy of a writ of execution in respect of trust property. 47If a writ of execution is issued so as to affect trust property, equity will generally intervene to prevent sale of the property pursuant to the writ; or, if sale has already occurred, to prevent application of the proceeds towards satisfaction of the judgment debt. I say "generally" because the position may be different where the judgment debt is the only debt owed by the trustee and other debts are not in contemplation. In a case of that kind, the concern of equity that is the basis of the general rule may not arise. 48Speaking of a simple common law judgment for debt, McPherson J said, in General Credits Ltd v Tawilla Pty Ltd [1984] 1 Qd R 388 (at 389): "It is well settled that such a judgment cannot be enforced by execution levied upon trust assets even though the judgment against the trustee is founded on a debt incurred by him in the capacity of trustee: see Jennings v Mather [[1902] 1 KB 1, affirming [1901] 2 QB 108]; Savage v Union Bank of Australia Ltd [(1906) 3 CLR 1170 at 1186]; Octavo Investments Pty Ltd v Knight [(1979) 144 CLR 360 at 367]." 49The words "even though the judgment against the trustee is founded on a debt incurred by him in the capacity of trustee" should be emphasised. 50As Wilson J later noted in Zen Ridgeway Pty Ltd v Adams [2009] QSC 117; [2009] 2 Qd R 298 at [11], McPherson J himself explained the rationale in his essay "The Insolvent Trading Trust" (in P D Finn (ed) Essays in Equity (1985) at 150) in this way: "The reason is that fi fa does not extend to equitable assets unless the whole beneficial interest is in the judgment debtor [ Stevens v Hince (1914) 110 LT 935]. In the case of trust assets, that will be the case only where the balance on a final account is in favour of the trustee, so that nothing at all is due to the beneficiaries . . . . Generally that will not be known to the creditors until the account is taken." 51In Jennings v Mather [1901] 1 QB 108 (affirmed [1902] 1 KB 1), there was competition for possession of property between the trustee in bankruptcy of one Mather and a creditor of Mather who, having been awarded judgment against him for goods sold and delivered, obtained a writ of execution under which certain property was seized. Mather was a trustee under a deed of assignment for the benefit of creditors executed by a trading firm. As trustee, he carried on the business. The creditor's debt arose in the course of the conduct of the business by Mather; and the goods taken in execution were business assets. Mather later became bankrupt. The seized goods had, by consent, been sold and the proceeds had been paid into court. The Divisional Court held (and the Court of Appeal confirmed) that the trustee in bankruptcy was entitled to prevail against the execution creditor. Kennedy J said (at 113-4) with the concurrence of Lawrance J: "It seems to me clear that, on the undisputed facts in the present case, the goods in question come within these decisions, and, so far as common law is concerned, they became as they came in assets of the assignor - that is to say, assets of the trust estate ... If that is so, something follows in equity which, it seems to me, the county court judge has overlooked. While there can be no right of a creditor created in the course of the trading to treat as goods of the trustee goods which form part of the trust estate, still it is equally clear that the trustee has a right and interest in those goods, because he has a right to an indemnity in the nature of a lien over those goods. It necessarily follows, as it seems to me, that the trustee has a right to prevent any person from carrying away those goods, and to say to everybody, including the cestuis que trust, 'I am entitled to an indemnity out of those goods, and have therefore, a pecuniary interest in them.' Of course, when the accounts come to be made up, if it should appear that nothing is due to the trustee on the trading, there is nothing in respect of which he needs to be indemnified, and his lien over the goods is gone; but until the accounts are made up he is entitled to a lien over all the assets of the estate. A lien (putting aside the question of bankruptcy, with which I will deal directly) has always been held to be sufficient title as against the world to hold the goods until that lien is satisfied or is proved not to exist. We are bound, as it seems to me, to enforce the equitable rights of a trustee who, properly and in accordance with his trust, is carrying on a business for the benefit of the trust estate ." 52One of "these decisions" referred to by Kennedy J was Re Morgan; Pillgrem v Pillgrem (1881) 18 Ch D 93 of which he said: "In that case a testator's trading business had been carried on by his executor in accordance with the testator's directions, and a creditor created in the course of that trading sought to enforce rights against property which had originally been the property of the testator, and had passed to the executor in the course of his carrying on the testator's business. Fry J (as he then was) in his judgment says: 'The argument in support of the summons has almost gone the length of suggesting that trust property in the hands of a trustee may be seized by his execution creditor. In my judgment nothing is plainer than this, that the property which can be taken under an execution is only that property to which the execution debtor is beneficially entitled, and that no property of which he is only a trustee can be taken.' 53The first passage I have quoted from the judgment of Kennedy J was expressly approved by both Griffith CJ and Barton J in Savage v Union Bank of Australia Ltd [1906] HCA 37; (1906) 3 CLR 1170, while in Octavo Investments Pty Ltd v Knight (above) at 367, Stephen J, Mason J, Aickin J and Wilson J cited both Savage v Union Bank of Australia Ltd and Re Morgan; Pillgrem v Pillgrem for the simple proposition that trust assets "may not be taken in execution". 54The case of Stevens v Hince (1914) 110 LT 935 to which McPherson J referred in his 1985 essay concerned a marriage settlement of which Mr Robinson and Mrs Robinson were the beneficiaries. A creditor who had obtained judgment against Mr Robinson upon a promissory note purported to levy execution upon goods that were assets of the settlement. Bailhache J approved a "general proposition" that "a judgment creditor cannot under a writ of fieri facias seize goods which are at the equitable disposition only of the judgment debtor", noting that "in this case the legal estate, if I may use the words 'legal estate' in reference to chattels, was in the trustees". The judge went on to observe that the "general proposition" does not apply where "the whole of the equitable and beneficial interest in the chattels" is vested in the judgment debtor - a position he found to exist according to the terms of the particular settlement before him. 55These cases show that, as a matter of general principle, a creditor obtaining judgment against a trustee who, in the normal way, is entitled to be indemnified out of trust property for debts including the judgment debt may be restrained from enforcing the judgment by levy of execution against trust property. The trustee's preferred beneficial interest in the trust property which comes from the right of indemnity out of that property in respect of all debts incurred would be destroyed if creditors were able to levy execution against the trust property. In Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550 at [49], the unavailability of trust property to answer a writ of execution was said to be explicable on that basis. 56The same reasoning is evident in the Court of Appeal judgments in Jennings v Mather [1902] 1 KB 1. Collins MR said (at 5) that seizure of the goods in execution could not displace the trustee's equitable right with regard to the trust estate by way of indemnity against the personal liabilities incurred by him in fulfilling his trust. Stirling LJ said (at 7) that the judgment creditor "should not be allowed to sweep away part of the trust fund which the claimant [ie, the trustee in bankruptcy of the trustee] is entitled to have retained intact for the protection of the bankrupt's estate against the personal liabilities incurred by the bankrupt in the administration of his trust". And Mathew LJ, in a passage quoted with apparent approval by both Griffith CJ and O'Connor J in Savage v Union Bank of Australia Ltd (at 1196 ), said (at 8): "The position originally taken up by the execution creditor left out of sight altogether the right of Mather as a trustee to indemnity out of the trust property, and to hold the goods seized as part of such property until his rights in respect of them are ascertained. That right appears to me clearly to exist, and to form a part of Mather's estate which passed to the claimant as his trustee in bankruptcy." 57When execution against trust property is in contemplation, the preoccupation of equity is thus with preservation of the beneficial interest of the trustee referable to all debts the trustee has incurred and for which the trustee is entitled to be indemnified out of the trust assets. Because of the existence of that equitable interest in trust assets and the fact that seizure and sale of trust property under a writ of execution will destroy it, equity will not countenance such seizure and sale.

The Real Property Act 58In the present case, the particular body of trust property against which execution would be sought includes land under the Real Property Act . It is therefore necessary to consider the operation of that Act in relation to writs of execution and, in particular, to see whether the statutory provisions might override the protection that equity would afford to the trustee's preferred beneficial interest. 59Section 3 of the Real Property Act defines "writ" as a writ for the levy of property within the meaning of Part 8 of the Civil Procedure Act . The Real Property Act contains provisions with respect to such "writs" to the following effect:

1. A writ, whether or not recorded in the register, does not create any interest in land: s 105(1).
2. The Registrar-General may, subject to conditions, record a writ in the folio of the register relating to affected land (s 105(2)).
3. One such condition is that, if it appears to the Registrar-General that the land is held in a fiduciary capacity, the Registrar-General may refuse to record the writ unless it is proved to the Registrar-General's satisfaction that the writ was issued pursuant to a judgment against the registered proprietor in that fiduciary capacity (s 105(3)).
4. Where, during the "protected period" in relation to a writ which has been recorded by the Registrar-General, a dealing affecting the relevant land is lodged for registration, the Registrar-General is not to register the dealing unless the writ is referred to in it as if a prior encumbrance (s 105A(2)), but this does not apply to a transfer giving effect to a sale under the writ (s 105A(1)(a)).
5. Where a recorded writ is not executed by sale of the land within the "protected period", a dealing with the land lodged before the writ is so executed may be registered notwithstanding the recording of the writ (s 105A(6)).
6. Where a recorded writ is executed by sale after the "protected period" expires, and a transfer pursuant to the sale is lodged, the Registrar-General must register the transfer under s 105B(1) if certain conditions are satisfied, including that no dealing disposing of an estate or interest in the land and expressed to be for valuable consideration is awaiting registration (s 105A(7)(a)).
7. A transfer pursuant to a sale under a writ is registered when it is recorded in the register, even in the absence of the certificate of title (s 105B(1)).

Subrogation of creditors 70Before a trustee actually pays debts that have given it a preferred beneficial interest in the trust assets, the interest enures for the benefit of the unpaid creditors. As stated in Octavo Investments Pty Ltd v Knight (above) at 371, creditors themselves "may have resort to the assets of the trust to the extent of the liabilities incurred by the trustee". 71The basis on which equity thus protects the unpaid creditors lies in the right to be subrogated to the debtor-trustee's own right to resort to the trust property. It is pertinent to quote, in that connection, the following passage at para 21-38 of Lewin on Trusts (18 th ed, 2008, J Mowbray, L Tucker, N Le Poidevin and E J F Simpson (eds) ): "Although unsecured creditors and other claimants do not have a direct claim against the trust property in respect of unsecured liabilities incurred by trustees in the administration of the trust, and cannot levy execution upon trust property they may by subrogation have a right to stand in the place of the trustee and enforce their liabilities against the trust property to the extent that the trust will be so entitled." 72The "right" of subrogation might perhaps be better viewed as a "remedy" of subrogation (P W Young, C Croft and M L Smith, On Equity (2009) at 868). That characterisation seems appropriate in a case such as the present where equity would allow creditors with an unsatisfied money judgment at law to bring proceedings in which the creditors, for their own benefit, asserted in respect of the trust property in the trustee's hands, the beneficial interest enjoyed by the trustee by virtue of the right of indemnity. 73In Boscawen v Bajwa [1996] 1 WLR 328 at 335, in a passage approved by the High Court in Bofinger v Kingsway Group Ltd [2009] HCA 44 at [94], Millett LJ described the foundation of subrogation as an equity that arises from the conduct of the parties on well-settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff. In the situation under discussion, it is unconscionable for the trustee to retain for itself the preferred beneficial interest in trust assets when it is the unsatisfied debts of the trustee to the creditors that gives rise to that interest of the trustee. The trustee therefore cannot deny the right of the creditors to the benefit of preferred beneficial interest. 74The trustee will be compelled to deal with the preferred beneficial interest for the benefit of the unpaid creditors and, in order to give a particular creditor the fruits of that beneficial interest, equity will appoint a receiver, thereby facilitating a sale of trust property and ensuring that the proceeds, having been brought under the control of the court, are, to the appropriate extent, put into the hands of the creditors entitled by subrogation rather than the hands of the trustee: see, for example, Levasseur v Mason & Barry [1891] 2 QB 73; Re Potts [1893] 1 QB 648, Re Marquis of Anglesey [1903] 2 Ch 727 at 731. The creditor thereby obtains equitable execution of the judgment.

Where the judgment creditor is the sole creditor 75Special considerations will arise if the judgment creditor seeking satisfaction through a writ of execution is the only creditor of the trustee. The trustee's preferred beneficial interest will then arise solely from and be co-extensive with the debt owed to the single creditor. If execution against trust property in such a case extinguishes the trustee's preferred beneficial interest, the requirements of equity will not be offended, since the absence of other debts means that there is no other basis for the existence of that interest. The fact that any surplus in the Sheriff's hands after satisfaction of the judgment debt will pass to the trustee and become part of the trust assets means that there is not in any other way interference with beneficial interests in trust property.

Applying the principles to this case 76The primary judge correctly proceeded on the basis that Agusta was a trustee and that, in respect of the judgment debt owed to Provident, Agusta had a right of indemnity out of trust assets that gave rise to a preferred beneficial interest in those assets. The primary judge also proceeded on the uncontradicted basis that, by the time of the 23 June 2010 alienation, Riva had become trustee in succession to Agusta. 77The primary judge had before him no basis on which it might have been found that Provident was the sole creditor of Agusta. Nor was there any suggestion that it was. 78The writ of execution issued on 12 June 2009 (and recorded on the title to the Kings Park land on 9 July 2009) expired on 12 June 2010. By that time, the "protected period" for the purposes of the Real Property Act had already come to an end. It ended on 9 January 2010, being six months after the recording on the title. At the time of the alienation by Agusta to Riva on 23 June 2010, therefore, there was no extant writ and no subsisting "protected period". There was accordingly no obstacle under the Real Property Act or otherwise to Agusta's acting to protect its preferred beneficial interest by injunction directed at preventing renewed resort by Provident to the remedy of execution at law. Nor was there any obstacle to the lodging of a caveat on the title to the Kings Park land to achieve like protection. 79It was therefore incorrect to proceed on the footing that the obtaining of satisfaction by means of execution at law against Agusta's property generally (and the Kings Park land in particular) was something that Provident had at its disposal before the alienation by Agusta to Riva but no longer had at its disposal after the alienation. The alienation did not, in reality, eliminate a method of obtaining satisfaction that would have been available to Provident had Agusta remained the registered proprietor. It is true that the particular method of recovery through execution against the Kings Park land was not available to Provident after Riva replaced Agusta as registered proprietor. The point is that that method would not have been available to Provident, over opposition by Agusta, even if Agusta had remained the registered proprietor. 80Provident and other trust creditors were entitled by subrogation to the benefit of Agusta's preferred beneficial interest. Equitable execution by way of the appointment of a receiver and sale of trust assets held by Agusta would have been available for the benefit of trust creditors. After the trust assets had passed into the hands of Riva as successor trustee, Agusta's preferred beneficial interest (and the rights accruing to Agusta's creditors by subrogation) continued to subsist in those assets and the same remedy could have been obtained in relation to trust property in Riva's hands. 81It is true that, before the alienation, the proceedings in which the remedy was sought would not have had Riva as a party, whereas Riva would have been a necessary party to proceedings brought after the alienation (as would Agusta, as the person having the preferred beneficial interest the benefit of which was sought for creditors). But the addition of one party would not have changed the substance of the claim or made the proceedings more difficult or the desired outcome less certain of being achieved. 82The ability of a creditor to bring proceedings against Riva in this way (with Agusta also as a party) would not have depended on any arrangement made by Agusta with Riva. The absence of such an arrangement at the time of the alienation did not make satisfaction out of trust assets generally (and the Kings Park land in particular) more difficult after they had passed into Riva's hands. 83In summary, the alienation by Agusta to Riva did not alter the steps that Provident could effectively have taken to enforce against the Kings Park land the money judgment it had obtained against Agusta. Both before and after the alienation, execution at law was not open to trust creditors but they were entitled to assert Agusta's preferred beneficial interest and thereby to obtain equitable execution through the sale of trust property by a receiver appointed by the court. The fact that Agusta's preferred beneficial interest and the creditors' rights of subrogation in relation to it subsisted in the trust assets after they became vested in the new trustee meant that it was not incumbent upon Agusta to obtain from Riva any particular undertaking to protect those creditors. The trust assets, when received by the new trustee, continued to have imposed upon them the entitlements derived by creditors from the former trustee's preferred beneficial interest and this was so whether or not any such undertaking was sought from or given by the new trustee. 84It remains to consider the final matter regarded by the primary judge as a source of hindrance or delay, that is, the risk that Riva could sell the land to an arm's length purchaser and distribute the net sale proceeds to trust beneficiaries without first satisfying Provident's judgment debt. Such action by Riva (assuming that some present entitlement of unit holders as beneficiaries would have required or justified distribution to them) would have entailed impermissible disregard of the beneficial interest in trust assets to which trust creditors were entitled by subrogation from Agusta, being an interest that took priority over the interests of beneficiaries and continued to subsist in trust property following the transfer to Riva as new trustee. Equity would have given full effect to that preferred beneficial interest. It has been and remains open to Provident to take steps to protect its interest in the trust property. Provident has always had the means available to prevent the risk identified by it coming about.

Decision 85For these reasons, it is not possible to accept the primary judge's conclusion that the alienation by Agusta to Riva delayed or hindered Provident's recovery of the judgment debt owed by Agusta. This was not a case where, as in, for example, Re Fasey; Ex parte Trustees [1923] 2 Ch 1 (a case referred to in Macolongo v Chen at [56]), an indirect route to satisfaction out of the transferred property remained but entailed greater difficulty of access (in that case, the need to obtain winding up of the transferee company and thereby to cause property to pass back to the alienor in his capacity as its shareholder). In this case, the route to satisfaction before and after was essentially the same, so that the alienation did not create any barrier or impediment. 86I do not lose sight of the fact that the central preoccupation of s 37A is with the "intent" with which the alienation is undertaken. In Marcolongo v Chen at [32], French CJ, Gummow J, Crennan J and Bell J approved what was said on that subject by Blanchard J and Wilson J in Regal Castings Ltd v Lightbody [2008] NZSC 87; [2009] 2 NZLR 433 at 456-457 to the effect that it is not necessary to show that the alienor wanted creditors to suffer a loss, or that it was his purpose to cause loss; but that it is necessary to show the existence of an intention to hinder, delay or defeat creditors and that the debtor has in that sense accordingly acted dishonestly. The two members of the New Zealand Supreme Court also said that if the alienor knew that his conduct would inevitably cause loss to creditors then it was right to hold that he intended to defraud creditors and it should be immaterial that this was not his purpose. 87In the present case, there was no direct evidence of the actual intent of Agusta (or of anyone having the capacity to make decisions within or for Agusta), although it may be accepted that Agusta's action was taken in circumstances where it believed that Riva was the trustee of the 1995 settlement and entitled accordingly to have the trust property vested in it. But, as Brennan J and McHugh J pointed out in Cannane v J Cannane Pty Ltd [1998] HCA 26; (1998) 192 CLR 557 at [12], intent to defraud may be inferred from the making of a disposition which, to adopt the words of Lord Hatherley LC in Freeman v Pope (1870) 5 Ch App 538 at 541 "subtracts from the property which is the proper fund for the payment of [the] debts, an amount without which the debts cannot be paid". The "proper fund", their Honours said, may consist of assets out of which future creditors as well as present creditors would be entitled to be paid a dividend in respect of what is owing to them, so that a subtraction of assets which, but for the impugned disposition, would be available to meet the claims of present and future creditors is material from which an inference of intent to defraud those creditors might be drawn. 88In Marcolongo v Chen , it was said (at [25]), by reference to Freeman v Pope , as footnoted to a passage in the first edition of Halsbury's Laws of England: "The point sought to be made ... may be expressed by saying that it would be the duty of the judge to direct a jury that they might infer an intention by the settlor to defeat or delay creditors, even in the absence of direct evidence of that intention, where this outcome was the necessary consequence of a voluntary settlement. In this way, it was easier to infer a dishonest intention if the conveyance were voluntary than if it were made for consideration. Evidence that the conveyance was voluntary does not replace the requirement of proof of intent by a distinct category where constructive fraud, with notions of constructive knowledge or notice as understood in equity, would suffice for the application of s 37 A. Rather, the evidence is that species which has sufficient weight to entitle the fact finder to decide an issue (here the necessary intent) in favour of the moving party, although the fact finder is not obliged to do so and other evidence given may be decisive to the contrary." 89Because, for the reasons stated, the subtraction of the Kings Park land from the assets of Agusta and its addition to the assets of Riva did not make it unavailable to meet the claims of Agusta's trust creditors, that subtraction cannot ground any inference of intent to defraud creditors. 90The appeal should be allowed and orders 3, 4, 6 and 7 made on 27 April 2011 should be set aside. 91It is necessary to add in relation to order 3 of 27 April 2011 (made by Gzell J after hearing further short argument) that that order would have been set aside even if Agusta had been unsuccessful in its primary contention that the alienation was not caught by s 37A. Order 3 gave Provident a charge over the trust property independently of the interest it had by reason of the trustee's right to be indemnified out of trust assets for all debts. The object of s 37A is not to give a particular creditor a security interest in the property concerned. Rather, it is to see that the estate of the alienor available to meet the claims of creditors generally is restored to the state in which it would have existed but for the alienation. As Sheller JA observed (with the concurrence of Handley JA and Ipp JA) in Zaravinos v Houvardas [2004] NSWCA 421; (2004) 32 Fam LR 490 at [63], it is creditors as a whole who are prejudiced by an alienation to which the section applies. 92Where a particular alienation is of the quality with which s 37A is concerned, the court should do no more than ensure that the property is put back within the disposition of the alienor. In Noakes v J Harvy Holmes & Son (1979) 37 FLR 5, Brennan J (with whom Deane and Fisher JJ agreed) said of legislation equivalent to s 37A (at 11): "The court will make such orders consequential upon the avoidance of a transfer of property as are necessary to give effect to the superior title of the creditors claiming the benefit of the statute against the party whose title was acquired under the impeached transfer. The statute enures for the benefit of unsecured creditors generally; and not only existing but subsequent creditors are let in to participate rateably in the property which becomes available (May, Fraudulent Conveyances , 3rd ed., p.39). Thus in a successful suit to declare a transfer void under the statute, the transfer is declared to be void as against all the creditors ( Adames v Hallett (1868) LR 6 Eq 468, at p 473; and see Seton, Judgments and Orders , 6th ed., p 2345). Indeed a creditor's claim is properly to be made on behalf of himself and the other creditors ( Reese River Silver Mining Co v Atwell (1869) LR 7 Eq 347). It may be made by a trustee in bankruptcy who represents the general body of creditors, as in Brady v Stapleton (1952) 88 CLR 322 and Ex parte Butters (1880) 14 Ch D 265. Th e statute is not for the benefit solely of the unsecured creditor who sues, and he cannot obtain an order which secures the available property to him alone, or indeed, to him in priority to other creditors." 93The final sentence of this passage is of particular relevance here. In addition, the fact that clause 5 of Agusta's contract with Provident may have given Provident a charge over Agusta's assets could not have supported order 3 since an attempt by Provident to amend its summons to claim specific relief on that basis was unsuccessful. The appropriate relief would have been confined to that necessary to restore the property to Agusta.

Disposition 94Agusta and Riva are, in my opinion, entitled to orders closely approximating to the whole of the relief sought in the amended notice of appeal dated 16 August 2011 as set out above. However, as some orders made in the court below remain on foot, it is not appropriate to order that there be judgment for the appellant. Further, order 4 contains a typographical error in its identification of the notation on the title to the Kings Park land and should be corrected; in addition, that order should be framed in a way that makes it clear that it is directed to Provident. Thus, the orders I propose are: (1) Appeal allowed. (2) Orders 3, 4, 6 and 7 made on 27 April 2011 by the Court below be set aside. (3) Order that the respondent take such steps as are within its power to bring about removal of the following notation from folio identifier 29/263860: "AF597049 NOTE: NO DEALINGS TO BE REGISTERED. REFER ALL INQUIRIES TO LEG2. SEE LM220100868" (4) Order that the respondent pay the appellants' costs in the proceedings below and of the appeal. 95SACKVILLE AJA : I have had the privilege of reading Barrett JA's judgment. I agree with his Honour's analysis and the orders he proposes. However, I wish to add some brief observations of my own. 96In Octavo Investments Pty Ltd v Knight [1979] HCA 61; 144 CLR 360, the corporate trustee of a trading trust, Coastline, made payments from trust assets to an associated company. The payments were made at a time when the trust had incurred substantial losses. Less than six months after the payments had been made, winding up proceedings were commenced against Coastline. A winding up order was subsequently made. 97The liquidators of Coastline sought to have the payments to the related company declared void against them as preferences. The critical question for the High Court was whether Coastline's right to an indemnity against that part of the trust assets comprised in the payments could be described as " property divisible amongst the creditors of " Coastline, within the meaning of s 116 of the Bankruptcy Act 1966 (Cth) (" Bankruptcy Act "). 98The joint judgment of four members of the Court explained (at 367-368) Coastline's position as follows: "We do not understand the general principles concerning the bankruptcy of a trading trustee to be in dispute. It is common ground that a trustee who in discharge of his trust enters into business transactions is personally liable for any debts that are incurred in the course of those transactions: Vacuum Oil Co Pty Ltd v Wiltshire [(1945) 72 CLR 319]. However, he is entitled to be indemnified against those liabilities from the trust assets held by him and for the purpose of enforcing the indemnity the trustee possesses a charge or right of lien over those assets: Vacuum Oil Co Pty Ltd v Wiltshire . The charge is not capable of differential application to certain only of such assets. It applies to the whole range of trust assets in the trustee's possession except for those assets, if any, which under the terms of the trust deed the trustee is not authorized to use for the purposes of carrying on the business: Dowse v Gorton [(1891) AC 190]. In such a case there are then two classes of persons having a beneficial interest in the trust assets: first, the cestuis que trust, those for whose benefit the business was being carried on; and secondly, the trustee in respect of his right to be indemnified out of the trust assets against personal liabilities incurred in the performance of the trust. The latter interest will be preferred to the former, so that the cestuis que trust are not entitled to call for a distribution of trust assets which are subject to a charge in favour of the trustee until the charge has been satisfied: Vacuum Oil Co. Pty Ltd v Wiltshire . The creditors of the trustee have limited rights with respect to the trust assets. The assets may not be taken in execution [ Savage v. Union Bank of Australia Ltd [(1906) HCA 37; 3 CLR 1170, at 1186]; In re Morgan; Pillgrem v. Pillgrem [(1881) 18 Ch D 93] but in the event of the trustee's bankruptcy the creditors will be subrogated to the beneficial interest enjoyed by the trustee: Vacuum Oil Co. Pty. Ltd. v. Wiltshire; Ex parte Garland [(1804) 10 Ves Jun 110, at 120; 32 ER 786, at 789]. These principles lead naturally to the conclusion that the beneficial interests which, by subrogation, the creditors whose claims arise from the carrying on of the business have in the assets held by a bankrupt trustee form part of the property of the bankrupt divisible amongst his creditors: Savage v. Union Bank of Australia [(1906) 3 CLR, at 1188]; Jennings v. Mather [[1901] 1 QB 108, at 116; Governors of St Thomas's Hospital v. Richardson [1910] 1 KB 271]. The definitions of both 'property' and 'property of the bankrupt' in s. 5 of the Bankruptcy Act are apt to include such a beneficial interest." 99The definitions in s 5 of the Bankruptcy Act to which their Honours referred were as follows: "'Property' means real or personal property of every description ... 'The property of the bankrupt' ... means the property divisible amongst the creditors of the bankrupt and includes any rights and powers in relation to that property that would have been exercisable by the bankrupt if he had not become a bankrupt." 100The joint judgment in Octavo Investments v Knight went on to make some additional observations concerning the rights of creditors of the trustee. Their Honours said this (at 369-371): " Property which is an asset of a trading estate carried on by a trustee is properly described as trust property ... However ... that does not mean that the cestuis que trust are necessarily entitled to call for the delivery of the property. If the trustee has incurred liabilities in the performance of the trust then he is entitled to be indemnified against those liabilities out of the trust property and for that purpose he is entitled to retain possession of the property as against the beneficiaries. The trustee's interest in the trust property amounts to a proprietary interest, and is sufficient to render the bald description of the property as 'trust property' inadequate. It is no longer property held solely in the interests of the beneficiaries of the trust and the trustee's interest in that property will pass to the trustee in bankruptcy for the benefit of the creditors of the trust trading operation should the trustee becoming bankrupt. The fact that the trust property itself cannot be taken in execution by the creditors of the trustee is not to the point. Those creditors are nevertheless subrogated to the rights of the trustee in relation to that property and in the event of the trustee become bankrupt, it is those rights which are to be realized in their favour. ... We take the view that the passing to the trustee in bankruptcy of the trustee's beneficial interest in the trust estate, even if that is all that passes, is sufficient to attract the operation of s 122 of the Bankruptcy Act [the section providing that certain payments are preferences and void against a trustee in bankruptcy]. Once it is recognised that a trustee may enjoy a right of indemnity over trust property in respect of liabilities incurred by him in the administration of the trust, it follows that the creditors of a trust business may have resort to the assets of the trust to the extent of the liabilities incurred by the trustee ." (Emphasis added.) 101When these principles are applied to the circumstances of the present case, the following seems to me to be the position:

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 March 2012