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[2026] NSWSC 1143
Supreme Court of NSW
2026-09-22
Nixon J
Original judgment source is linked above.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: Andrew Sallway and Duncan Clubb as provisional liquidators of Crown North Pty Ltd, Skye Suites Infinity Pty Ltd & Crown Property Agency Pty Ltd v Sathio Investments Pty Ltd atf Sathio Investments Trust and others (No 2) [2026] NSWSC 1143
Hearing dates: 11 September 2026
Date of orders: 22 September 2026
Decision date: 22 September 2026
Jurisdiction: Equity - Corporations List
Before: Nixon J
Decision: (1) The Notice of Motion filed on 21 May 2026 be dismissed.
(2) If the parties wish to be heard about costs, they must notify the Associate to Nixon J by 5pm on 29 September 2026 and a date will be fixed for the hearing of oral argument about costs.
(3) If there is no notification in accordance with Order 2, there will be an order that:
a. the Applicants’ costs of the application, as agreed or assessed; and
b. the costs of CII Group Pty Ltd (in liq) of the application, as agreed or assessed;
be paid from the assets of the Fifth Defendant, Crown Group Holdings Pty Ltd (provisional liquidators appointed).
Catchwords: RECEIVERS – application to vary orders regarding distribution of proceeds of sale of assets – where receivership entities operated unincorporated joint venture for property development – where receivership entities borrowed moneys secured by mortgage over development properties – where related parties made payments into bank account from which interest and loan fees were paid – where receivers have formed view that payments gave rise to right by way of subrogation – where dispute has arisen regarding existence and extent of any such right – whether Court should amend orders to permit Receivers to pay any amounts they determine to be owing to related parties and secured by development properties prior to payment of surplus proceeds into Court
Legislation Cited: Law Reform (Miscellaneous Provisions) Act 1965 (NSW) s 3
Uniform Civil Procedure Rules 2005 (NSW) r 36.16
Cases Cited: Aged Care Services Pty Ltd v Kanning Services Pty Ltd (2013) 86 NSWLR 174; [2013] NSWCA 393
Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (1978) 141 CLR 335; [1978] HCA 45
Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221
Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44
Boscawen v Bajwa [1996] 1 WLR 328
Cheltenham & Gloucester plc v Appleyard [2004] EWCA Civ 291
Ghana Commercial Bank v Chandiram [1960] AC 732
Highland v Exception Holdings Pty Ltd (in liq) (2006) 60 ACSR 223; [2006] NSWCA 318
Mitchell v Crane [2009] NSWSC 489
Nguyen v Sage Consultant Group Pty Ltd; Dang v Nguyen [2021] NSWSC 753
Padovan v MGG Group Pty Ltd (in liq) [2011] NSWSC 1080
Paul v Speirway Ltd [1976] 1 Ch 220
State Bank of New South Wales v Geeport Developments Pty Ltd (1991) 5 BPR 11,947
Category: Procedural rulings
Parties: Andrew Sallway and Duncan Clubb as joint and several provisional liquidators of Crown
Group Holdings Pty Ltd (Provisional Liquidators Appointed) and Crown Group
Construction Pty Ltd (Provisional Liquidators Appointed) (Applicants)
Sathio Investments Pty Ltd atf Sathio Investments Trust (First Respondent)
Crown International Group Pty Ltd atf Crown International Group Unit Trust (Second Respondent)
Cheung Kwong Group Pty Ltd (Third Respondent)
CII Group Pty Ltd (in liquidation) (Fourth Respondent)
PNR International Pty Ltd (Fifth Respondent)
Crown Eastlakes Developments Pty Ltd (Sixth Respondent)
Stateland East Pty Ltd (Seventh Respondent)
Representation: Counsel:
N Bailey (Applicants)
E L Beechey (Fourth Respondent)
Solicitors:
Johnson Winter Slattery (Applicants)
Lander & Rogers (Fourth Respondent)
File Number(s): 2022/00352887
Publication restriction: Nil
Mr Andrew Sallway and Mr Duncan Clubb are the joint and several Receivers of the property of Stateland East Pty Ltd, Crown Eastlakes Pty Ltd and Stateland BKK Pty Ltd (together, the Receivership Entities).
The Receivers were appointed to the property of the Receivership Entities (the Eastlakes Property) pursuant to orders made by Ball J on 11 October 2023. At that time, his Honour made an order concerning the manner in which the proceeds of the Eastlakes Property were to be applied, which was subsequently varied by Peden J on 20 June 2025 (Proceeds Order).
Pursuant to the Proceeds Order, the proceeds of the Eastlakes Property are to be applied, first, in satisfaction of the Receivers’ remuneration and expenses; secondly, to pay any amounts owed to Commonwealth Bank of Australia (CBA) which were secured by the Eastlakes Property; thirdly, to pay any amounts which the Receivers determine to be owing to Mr Paul Sathio which are secured by the Eastlakes Property; and fourthly, the balance is to be paid into Court until further order.
Mr Sallway and Mr Clubb are also the joint and several Provisional Liquidators of Crown Group Holdings Pty Ltd (CGH) and its subsidiaries, including Crown W1 Pty Ltd, Crown Group Construction Pty Ltd, Crown Landmark Pty Ltd, Crown Group Properties Pty Ltd, Crown GS Retail Pty Ltd, and Skye Suites Arc Pty Ltd (together, the Crown Payers).
The Crown Payers and the Receivership Entities were members of the same group of companies, which is described as the “Crown Group”.
By Notice of Motion filed 20 May 2026, the Provisional Liquidators bring an application pursuant to r 36.16(3) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to vary the Proceeds Order so as to provide that the Receivers, after paying any amounts owing to CBA and Mr Sathio, are to pay “any amounts the Receivers determine are owed to [the Crown Payers]”, before paying the balance of the proceeds into Court.
The Provisional Liquidators sought this amendment on the basis that the Crown Payers had, both before and after the appointment of the Provisional Liquidators, made payments to the Receivership Entities for the purpose of enabling those entities to pay interest and fees to CBA, with the result that each of the Crown Payers is subrogated to the position of CBA as security holder (to the extent of the amount paid by each such entity).
The application and supporting evidence were served on the creditors of the Receivership Entities. The only creditor who appeared at the hearing of the application was CII Group Pty Ltd (in liq). CII Group opposed the relief sought, contending that the evidence before the Court is insufficient to establish subrogation, and that the existing form of the Proceeds Order should remain in place, pending a proper determination of the rights of creditors of the Receivership Entities as against the rights of the Crown Payers.
One matter which should be noted at the outset is that the Provisional Liquidators did not ask the Court to make any determination that any of the Crown Payers is subrogated to the CBA security in any particular amount. Instead, they sought to vary the Proceeds Order such that it would be a matter for the Receivers to determine whether any amounts are owing to any of the Crown Payers which are secured by the Eastlakes Property.
In short, the Provisional Liquidators asked the Court to vary the manner (or “waterfall”) in which the proceeds of the Eastlakes Property are to be distributed, but not to determine the entitlement of any potential claimant within that waterfall.
Before dealing with the parties’ submissions concerning these matters, I briefly describe the factual background and summarise the relevant principles regarding subrogation.
The Receivership Entities operated as an unincorporated joint venture to develop retail and residential property in Eastlakes NSW (being the Eastlakes Property).
At the time of the Receivers’ appointment, the Eastlakes Property comprised:
16A-16D Evans Avenue, Eastlakes (Eastlakes North), consisting of a developed shopping centre (Eastlakes North Retail) with residential apartment towers of seven or eight floors (Eastlakes North Residential); and
19A Evans Avenue, Eastlakes (Eastlakes South), consisting of an incomplete development with a pre-existing shopping centre on the site.
On 18 December 2015, two of the Receivership Entities – Stateland East and Crown Eastlakes as “Borrowers” – entered into a facility agreement with CBA, pursuant to which CBA agreed to advance $56.3m for the purpose of, amongst other things, funding the costs incurred by Crown Eastlakes in acquiring an interest in the Eastlakes Property (the First CBA Loan).
Clause 4 of the First CBA Loan required the Borrowers to pay monthly interest on the daily outstanding balance of the loan and to pay a monthly non-refundable line fee calculated at a rate of 1.85% per annum.
To secure the Borrowers’ obligations under the First CBA Loan, CBA was granted, inter alia, mortgages over the Eastlakes Property dated 18 December 2015 and 11 January 2016.
In addition, guarantees were provided by various entities within the Crown Group (Guarantors), including by several of the Crown Payers: namely, CGH, Crown Landmark and Crown Group Construction. In particular, pursuant to cl 9.1 of the First CBA Loan, each of the Guarantors unconditionally and irrevocably guaranteed the due and punctual payment to CBA of the “Guaranteed Money”. The Guaranteed Money was defined to mean all “Secured Money”, which was, in broad terms, defined to mean all amounts owing to CBA under or in connection with the First CBA Loan.
Clause 9.6(a) of the First CBA Loan provided that each obligation of the Guarantors was a principal obligation imposed on the Guarantor as principal debtor and was not to be regarded as ancillary or collateral to any other right or obligation.
On 28 April 2020, the Receivership Entities entered into a second facility agreement with CBA (Second CBA Loan), whereby CBA agreed to advance $50m in respect of Eastlakes North and $49.3m in respect of Eastlakes South, in order to refinance the existing indebtedness of the Borrowers to CBA under the First CBA Loan.
Clause 4 of the Second CBA Loan required the Receivership Entities to pay interest on the daily outstanding balance of the Second CBA Loan on a quarterly basis, and to pay a monthly non-refundable line fee calculated at a rate of 2% per annum in respect of the moneys advanced for Eastlakes North and at a rate of 3% per annum in respect of the moneys advanced for Eastlakes South.
The Receivership Entities’ obligations to CBA under the Second CBA Loan were secured by, inter alia, mortgages over the Eastlakes Property dated 28 April 2020. In addition, guarantees were given by CGH and by the directors of the Crown Group, Mr Paul Sathio and Mr Iwan Sunito. Relevantly, CGH guaranteed the due and punctual payment to CBA of the “Guaranteed Money” (being all of the “Secured Money” owed by the Receivership Entities, which was defined in similar terms to the First CBA Loan). This definition extended to any legal costs and expenses incurred by CBA in connection with the enforcement of any security rights, including the sale of the Eastlakes Property.
On 8 June 2022, the Second CBA Loan was amended to incorporate, relevantly, a new cl 7.13(2) which required the Receivership Entities to:
open and maintain a bank account called the “Rental Proceeds Account” with CBA (cl 7.13(2)(a));
to ensure that all net rental income from the Eastlake Property was deposited into this account (cl 7.13(2)(b)); and
to ensure that a credit balance was maintained in this account at all times (cl 7.13(2)(c)).
Clause 7.13(2)(d) allowed the Receivership Entities to withdraw amounts from the Rental Proceeds Account (so long as the account maintained a credit balance), provided that no Event of Default (as defined by cl 8.1) or Review Event (as defined by cl 9.1) was subsisting at the relevant time.
Mr Sallway deposed that, based on his investigations since his appointment, CGH and other entities in the Crown Group which did not generate their own source of revenue relied on intercompany loans from revenue-generating entities within the Crown Group to fund their cash flow. He provided the following summary of this practice:
in order to fund the cash-flow needs of the Crown Group, funds would be taken from a Crown Group entity’s account which held sufficient funds to pay an expense, whether or not that entity was liable to pay the relevant expense; and
where one Crown Group entity paid an expense owed by another, the amount of that expense was recorded in the Crown Group’s books and records as an intercompany loan and a current liability.
Mr Sallway further deposed that this practice of intercompany loans was heavily relied on in order to manage the liquidity and working capital needs of entities within the Crown Group. While these intercompany loans were recorded as a current liability in the Crown Group entities’ books and records, they were not documented, there were no written terms stipulating that the loans were repayable in the near future, and there is no evidence that there was any process governing their repayment. Mr Sallway explained that there may have been a repayment recorded in the books of the Crown entity which loaned the funds in circumstances where that same entity, on a later occasion, required funds and therefore borrowed funds from an entity to which it had previously loaned funds.
Shortly after the Provisional Liquidators’ appointment, Mr Sallway received an email from a former Crown Group employee, stating that “Stateland East & Stateland BKK currently [have] no funds available, historically Crown has paid any interest outflows as required” (emphasis added).
Mr Sallway deposed that, following receipt of this email, his staff reviewed the Crown Group’s books and records to identify payments which had been made by any Crown Group entity in connection with either the First or Second CBA Loan prior to the appointment of the Provisional Liquidators (Pre-Appointment Payments).
Based on those investigations, Mr Sallway has formed the view that, from 1 January 2019 to 2 August 2023:
each of CGH, Crown W1, Crown Group Construction, Crown Landmark and Crown Group Properties made payments to the Rental Proceeds Account; and
CBA thereafter debited the Rental Proceeds Account for interest and fees payable in respect of the First and Second CBA Loans.
Mr Sallway divided these payments to the Rental Proceeds Account into a number of categories, namely:
payments made by CGH (which was, at all relevant times, a Guarantor in respect of the First CBA Loan and Second CBA Loan);
payments made by each of Crown Group Construction and Crown Landmark (at a time when each was a Guarantor in respect of the First CBA Loan); and
payments made by each of Crown Group Construction, Crown W1 and Crown Group Properties (at a time when each was not a Guarantor in respect of the Second CBA Loan).
Mr Sallway has formed the view that the payments to the Rental Proceeds Account referred to in paragraphs [29(1)] and [29(2)] above were made by the relevant entities (each of which was a Guarantor at the time) in order to ensure that the interest and fees payable to CBA were punctually paid by the Receivership Entities. Further, he has formed the view that the payments to the Rental Proceeds Account referred to in paragraph [29(3)] above were made by the relevant entities (none of which was a Guarantor at the time of payment) for the purpose of discharging CGH’s obligations as Guarantor, and were required to be paid back to the relevant entity from any proceeds realised from the Eastlakes Property.
As discussed below, these conclusions were disputed by CII Group.
Mr Sallway has formed the view that the total amount of Pre-Appointment Payments which these entities transferred to the Rental Proceeds Account, and which were then applied to pay interest or fees owed to CBA, was as follows:
CGH transferred $1,315,000;
Crown W1 transferred $770,000;
Crown Group Construction transferred $1,540,000;
Crown Landmark transferred $300,000; and
Crown Group Properties transferred $180,000.
Accordingly, Mr Sallway has formed the view that the total amount of Pre-Appointment Payments which were made for the purpose of paying interest and fees owed to CBA, and which he considers to be subrogated to CBA’s security, is $4,105,000.
Mr Sallway and Mr Clubb were appointed as the Provisional Liquidators on 15 August 2023 and as the Receivers on 11 October 2023.
Following his appointment as a Provisional Liquidator of CGH, Mr Sallway formed the view that, in circumstances where CGH was a Guarantor in respect of the Second CBA Loan, it was in CGH’s best interests to pay, consistent with historical arrangements, the moneys needed to service the Second CBA Loan. Accordingly, on 30 August 2023, he caused CGH to transfer $730,000 to the Rental Proceeds Account in order to ensure that there were sufficient funds in that account to pay the interest and fees in respect of the Second CBA Loan which were due on 1 and 2 September 2023.
Following this first payment, Mr Sallway took steps to ensure that the Rental Proceeds Account always had a sufficient credit balance to enable the payment of interest and fees in respect of the Second CBA Loan as and when due. Mr Sallway did so by one of three different means:
causing CGH to transfer funds directly from its bank account to the Rental Proceeds Account; or
causing CGH to transfer moneys to bank accounts which Mr Sallway as Receiver caused to be opened in the name of Crown Eastlakes or Stateland BKK (Receivership Accounts), with those funds then being transferred either to the Rental Proceeds Account or to CBA’s lawyers, Gadens; or
(where CGH lacked sufficient cash) causing Crown Group Properties, Crown GS Retail or Skye Suites Arc to transfer funds to one of the Receivership Accounts, with those funds then being transferred either to the Rental Proceeds Account or to Gadens.
(together, the Post-Appointment Payments)
Mr Sallway explained that he used the first of these means of payment (namely, a transfer by CGH directly to the Rental Proceeds Account) in order to ensure interest and fees payable were met as a matter of urgency in the first month after his appointment. Following this, he used either the second or third means of payment (namely, a transfer via the Receivership Accounts) “to ensure that the records showed the flow of funds to the Receivership Entities and then to CBA to service the Second CBA Loan”.
When each of the Post-Appointment Payments was made, Mr Sallway was aware that:
the Receivership Entities had obligations to CBA under the Second CBA Loan;
CGH had obligations to CBA as Guarantor under the Second CBA Loan; and
those obligations required CGH to ensure due and punctual payment to CBA of amounts that the Receivership Entities were liable to pay to CBA, and to ensure that a credit balance was maintained in the Rental Proceeds Account at all times so that the Receivership Entities could make their required payments under the Second CBA Loan.
Mr Sallway gave the following evidence regarding his intention at the time of causing each of the Post-Appointment Payments to be made:
“At all relevant times when the Post-Appointment Payments were made by Crown Group Properties, Crown GS Retail or Skye Suites Arc, notwithstanding that those payments were advanced directly to the Receivership Accounts (and not via CGH) to service the Second CBA Loan, it was always my intention that as subsidiaries of CGH, those entities were advancing funds on behalf of CGH to enable it to fulfill its obligations as guarantor under the Facility Agreement and Amended Facility Agreement. I also understood that any amounts advanced to discharge or pay down the secured indebtedness of the Receivership Entities owed to CBA may be able to be satisfied from any surplus from the sale of the Eastlakes Property, including on the basis of subrogation.”
Mr Sallway has determined that the following Crown Group entities transferred funds to either the Rental Proceeds Account or one of the Receivership Accounts, which were then applied to pay interest and fees payable by the Receivership Entities under the Second CBA Loan:
CGH transferred $3,810,894.80;
Crown GS Retail transferred $623,352.13;
Crown Group Properties transferred $697,382.39; and
Skye Suites Arc transferred $900,000.00.
Accordingly, Mr Sallway has formed the view that the total amount of Post-Appointment Payments which were made for the purpose of paying interest and fees owed to CBA, and which he considers to be subrogated to CBA’s security, is **$**6,031,629.32.
On 2 October 2024, the Receivers sold Eastlakes North Retail for $19,500,000. From the settlement proceeds, the Receivers paid an amount of around $16.9m to CBA’s lawyers, Gadens.
On 14 May 2025, the Receivers sold Eastlakes South for $75,000,000. From the settlement proceeds, the Receivers paid an amount of $71,224,142.52 to Gadens, which discharged the Second CBA Loan in full.
As at the date of the Receivers’ appointment, there were 87 unsold apartments at Eastlakes North Residential. As at August 2026, approximately 13% of the total value of the Eastlakes Property (or around $22,715,000) remained to be sold.
The Receivers presently hold surplus sale proceeds in the amount of $48,350,076.59.
All known third party unsecured creditors of the Receivership Entities have been paid in full.
Mr Sallway has identified that the remaining unsecured creditors of the Receivership Entities are related entities of CGH, by virtue of common directors and/or shareholders, including:
CII Group (of which Mr Sunito is a director);
Sathio Investments Pty Ltd as trustee of Sathio Investments Trust (of which Mr Sathio is a director);
Crown International Group Pty Ltd as trustee of Crown International Group Unit Trust (of which Mr Sathio and Mr Sunito are directors);
PNR International Pty Ltd (of which Mr Sathio is a director); and
Cheung Kwong Group Pty Ltd (of which Mr Pui Hung Leung, Mr Anthony Sun and Mr See Shing Ko are directors).
Mr Sallway has also identified that a further related party, Crown Cornerstone Investments Pty Ltd, is a potential creditor of the Receivership Entities.
Mr Sallway explained that there is currently some uncertainty regarding the intercompany loan balances which form the basis for determining the amounts owed by the Receivership Entities to each of these related creditors, including CII Group. In particular, the reconciliation of loans between the Receivership Entities and the related creditors is ongoing and has not yet been completed.
Further, the Receivers have not yet determined the methodology for the allocation of assets and debts as between Receivership Entities (which will consequently affect the dividend payable to each related creditor, including CII Group). Mr Sallway deposed that he is contemplating a winding-up of each Receivership Entity by means of a court-ordered liquidation, but is also considering whether to seek orders for the pooling of the assets and debts of the Receivership Entities.
Subrogation is an equitable remedy, which does not operate at large, but instead arises from the conduct of the parties on settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff: Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 at [94] per curiam (Gummow, Hayne, Heydon, Kiefel and Bell JJ), citing the observations of Millet LJ (with whom Waite and Stuart-Smith LJJ) in Boscawen v Bajwa [1996] 1 WLR 328 at 335.
One well-recognised area of subrogation is where there has been payment out by a third party of a prior security: Aged Care Services Pty Ltd v Kanning Services Pty Ltd (2013) 86 NSWLR 174; [2013] NSWCA 393 at [51] per Gleeson JA (with whom Meagher and Leeming JJA agreed).
Where a third party has paid off a mortgage, he or she is presumed, unless the contrary appears, to intend that the mortgage “shall be kept alive for his own benefit”: Aged Care Services at [52], quoting Ghana Commercial Bank v Chandiram [1960] AC 732 at 745. The expression “kept alive” means that the legal relations between the third party and the debtor are regulated as if the benefit of the security had been assigned to the third party: Aged Care Services at [53], citing Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221 at 236 per Lord Hoffmann.
In Aged Care Services at [54], Gleeson JA quoted with approval the following observations by Kearney J in Cochrane v Cochrane (1985) 3 NSWLR 403 at 405:
“This principle is based on equity’s concern to prevent one party obtaining an advantage at the expense of another which in the circumstances of the case is unconscionable. Hence, there is a common thread running through the relevant cases to the effect that the conscience of the mortgagor should be affected so as to cause the mortgage to be kept alive. This is illustrated in the text book examples first, of a third party not being entitled to a right by way of subrogation where he simply lends the money on an unsecured basis to the mortgagor who then uses such funds to pay off the mortgage; and secondly, of a third party being so entitled where he advances the money to pay out the mortgage on the understanding that security would be provided for such advance upon the mortgage being paid out.”
The mere loan of money without any indication as to how it is to be used, followed by a use of that money to pay off a secured debt, does not result in subrogation: State Bank of New South Wales v Geeport Developments Pty Ltd (1991) 5 BPR 11,947 at 11,951 (Cohen J).
The Court must look at all the circumstances in which the money was advanced. If those circumstances indicate an intention merely that there should be an unsecured loan, with no proposal that the moneys lent be used to discharge the mortgage, then principles of subrogation will not apply: Geeport at 11,952, referring to Paul v Speirway Ltd [1976] 1 Ch 220 (Oliver J).
However, in the absence of such an intention being established, the payment of an amount due under a mortgage by a third party – whether such payment is made directly to the mortgagee or to the debtor to pay out the mortgagee – will produce a right of subrogation where it can be presumed to have been the intention of the mortgagor and the paying party: Geeport at 11,952.
Where only a portion of the mortgage debt is paid, there will be subrogation of a proportionate part of the security (that is, only to the extent to which the payer’s money has in fact discharged the debt): Geeport at 11,953; Padovan v MGG Group Pty Ltd (in liq) [2011] NSWSC 1080 at [30] (Black J). However, no right of subrogation can be exercised by any party who pays only a portion of the mortgage debt until the whole of the debt has been repaid: Nguyen v Sage Consultant Group Pty Ltd; Dang v Nguyen [2021] NSWSC 753 at [266] (Robb J).
In Highland v Exception Holdings Pty Ltd (in liq) (2006) 60 ACSR 223; [2006] NSWCA 318 at [106], Santow JA (with whom Giles and Hodgson JJA agreed on the issue of subrogation) cited with approval a number of the propositions in relation to subrogation which were stated by Neuberger LJ in Cheltenham & Gloucester plc v Appleyard [2004] EWCA Civ 291 at [32]-[44]. For present purposes, it is sufficient to refer to the following propositions (on which CII Group relied):
“[38] Seventhly, a lender cannot claim subrogation if he obtains all the security which he bargained for, as in Burston Finance (applying Capital Finance Co Limited v Stokes [1969] 1 Ch 261) or where he has specifically bargained on the basis that he would receive no security as in Paul v Speirway Limited (in liquidation) [1976] 1 WLR 220.
...
[41] Tenthly, subrogation cannot be invoked so as to put the lender in a better position than that in which would have been if he had obtained all the rights for which he bargained: see Banque Financiere at 235D and 236G-273B per Lord Hoffmann. This point was also made by Lindley MR in Wrexham at 447.”
Another circumstance where subrogation will arise is where a surety pays the secured debt. As was explained by Gibbs ACJ in Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (1978) 141 CLR 335 at 348; [1978] HCA 45, a “surety who has paid the debt due to the creditor is entitled to stand in the creditor’s shoes”. In this situation, the notion of the ultimate liability of the principal provides a foundation for the application of subrogation in aid of the surety: Bofinger at [8]. Thus, where a claim to the benefit of securities is made by a surety, the equity for subrogation is derived from the obligation of the principal debtor to indemnify the surety: ibid.
In Mitchell v Crane [2009] NSWSC 489, the two guarantor companies had made payments into the borrowers’ home loan account with the National Australia Bank. A submission was made that the guarantors could not have the benefit of the principle of subrogation because they had not made these payments “in the character of guarantors or under the form or with the intention of conforming with guarantee obligations, but had done so by way of a loan to the [borrowers], accounted for as such in their books” (at [35]).
Bryson AJ rejected this submission. His Honour said that the entries in the books of account of the guarantor companies recording the obligation by the borrowers to them as a loan did not determine what the rights of the guarantor companies were, and was not a complete statement of the basis of accountability (at [35]). His Honour observed as follows (at [36]):
“In my view what matters is not the detail of the contractual arrangements between the surety and the principal debtor about how the debt is to be repaid. What matters is whether there was in fact an obligation of the surety to make the payment to the principal creditor. What is in issue is the right of the principal creditor to receive the payment under the guarantee, whether or not the surety intended to make the payment in that character. It would still be a payment under the guarantee if he had forgotten all about the guarantee and did it out of charity; he would still be a guarantor and would still be discharging his obligations as guarantor.”
(a) to have assigned to that person, or to a trustee for that person, every judgment, specialty or other security held by the creditor in respect of that debt or duty, whether or not that judgment, specialty or other security is taken at law to have been satisfied by the payment of the debt or the performance of the duty, and
(b) to stand in the place of the creditor and to use all the remedies, and, if necessary, and on a proper indemnity, to use the name of the creditor in any proceedings to obtain from the principal debtor or any co-surety, co-contractor or co-debtor (as the case requires) indemnity for the advances made and loss sustained by the person who paid the debt or performed the duty.
None of the Pre-Appointment Payments involved a transfer being made by a Crown Payer directly to CBA.
Instead, each involved a transfer being made by a Crown Payer into the Rental Proceeds Account, from which interest and fees were paid by the Receivership Entities to CBA.
There is no evidence from any person who was an officer or employee of the Crown Payers at the relevant time regarding the purpose for which the Pre-Appointment Payments were made. In those circumstances, it is necessary to consider whether the purpose for which each payment was made may be inferred from the books and records of the relevant entities.
As noted at paragraph [24] above:
the Crown Group had a practice whereby funds would be transferred between entities within the Group as and when needed; and
the books of the relevant Crown Group entities record the Pre-Appointment Payments as loans owing to the Crown Payers.
The Provisional Liquidators acknowledged that a person who simply lends money on an unsecured basis to a mortgagor, who then uses such funds to pay off the mortgage, is not entitled to a right by way of subrogation (referring to Cochrane at 405).
However, the Provisional Liquidators submitted that the following matters support a presumption that the Pre-Appointment Payments were made for the purpose of servicing the First CBA Loan and the Second CBA Loan, which were known to be secured by mortgages over the Eastlakes Property:
the Crown Payers and the Receivership Entities had common directors, and therefore the Crown Payers are taken to have known both of the existence of the mortgages in favour of CBA as well as the requirement for payments to be made to CBA;
the Pre-Appointment Payments were made into the Rental Proceeds Account – from which interest and fees were paid to CBA – at times proximate to debits being made to service the First CBA Loan and the Second CBA Loan; and
some of the Crown Payers were Guarantors under the First CBA Loan or Second CBA Loan and therefore were under an express obligation to pay to CBA the amounts which the Receivership Entities were obliged to pay pursuant to those Loans.
For example, in oral address, the Provisional Liquidators referred to the bank statements for the Rental Proceeds Account which showed that, on 29 March 2019, an amount of $300,000 was transferred into that account by Crown Landmark, with the narrative “topup”. At this time, Crown Landmark was a Guarantor in respect of the First CBA Loan. On the same date, two payments were made from the Rental Proceeds Account with the narrative “Commonwealth Bank Loan Rypmt”, totalling $254,510.99. These payments match the “Debit Interest” and “Rollover Fee” which were charged to the Receivership Entities’ loan account on the same date. On this basis, the Provisional Liquidators have identified the payment of $300,000 by Crown Landmark as an example of a Pre-Appointment Payment (in this case by a Guarantor) being made for the purpose of servicing the First CBA Loan.
The Provisional Liquidators further submitted that, in circumstances where the Crown Payers made the Pre-Appointment Payments to the Receivership Entities for the purpose of servicing the CBA Loans, which were secured by mortgages over the Eastlakes Property, it is presumed that the intention of the Crown Payers and the Receivership Entities was that principles of subrogation would apply (referring to Geeport at 11,952), and this presumption has not been rebutted.
CII Group disputed that the evidence was sufficient to establish that the Pre-Appointment Payments were made for the asserted purpose. CII Group submitted that “there’s a wealth of evidence of money flowing in both directions by way of indiscriminate unsecured loans with no expectation of any security attaching to them”.
To illustrate this submission, CII Group referred to a payment of $190,000 into the Rental Proceeds Account which was made by Crown W1 on 11 August 2021. The Receivers have identified this as a Pre-Appointment Payment which was made by Crown W1 for the purpose of discharging CGH’s obligations as Guarantor under the Second CBA Loan on the basis that, around three weeks after this payment was made, an amount of $125,613.70 was debited from the Rental Proceeds Account for the “Facility Line Fee” under the Second CBA Loan.
However, CII Group pointed out that:
the narrative for the deposit of $190,000 by Crown W1 is “Refund Top Up” and this deposit was made shortly after a withdrawal in the same amount which was described as a “Top Up” to CGH’s account, suggesting that Crown W1’s payment was not a payment for the purpose of servicing the Second CBA Loan, but was instead a repayment of an amount previously advanced by the Receivership Entities to CGH; and
CGH’s ledger recording its intercompany loan balance with Stateland BKK (being one of the Receivership Entities) indicates that throughout the period from 1 July 2020 to 30 June 2021 – that is, for the whole of the financial year prior to the making of the $190,000 payment referred to above – CGH was a net borrower from Stateland BKK, not a net lender, with the intercompany loan balance increasing from around $4.38m to $6.01m during this period.
CII Group submitted that when one looks at the books and records of the Crown Payers and the Receivership Entities, it is apparent that there was “a practice of money moving around frequently amongst this group by way of unsecured inter‑company loans, which readily displaces a supposed intention that this one payment of [$]190,000 was somehow specially earmarked … for payment to CBA”.
More generally, CII Group submitted that, having regard to the matters set out above, any payments made by or on behalf of CGH to the Rental Proceeds Account around this time appeared to be a repayment of moneys advanced by the Receivership Entities to CGH, rather than a payment by CGH to the Receivership Entities for the purposes of servicing the CBA Loans.
As noted above, the Court is not being asked on this application to determine that any of the Crown Payers is entitled to a right by way of subrogation in any particular amount. In order to determine any such issue, it would be necessary to examine the books and records relating to each such payment, the intercompany loan balances at the relevant time, and any other matters which might be relevant to inferring the purpose for which each such payment was made.
Instead, the Court is being asked to vary the Proceeds Orders so that the Receivers are empowered (and required) to pay any amounts which the Receivers determine to be owing to a Crown Payer and secured by the Eastlakes Property. If this form of order were made, it would be a matter for the Receivers to determine what amount (if any) is owing to each Crown Payer and whether (and to what extent) such amount is secured by the Eastlakes Property, due to that entity having a right by way of subrogation.
Accordingly, the issue for determination is whether such an order should be made in circumstances where, as outlined above, there is a live dispute regarding the circumstances in which, and purposes for which, each Pre-Appointment Payment was made and therefore regarding the application of the principles of subrogation.
Before considering that issue, I will outline the parties’ contentions regarding the Post-Appointment Payments.
There is a significant difference between the evidence relating to the Post-Appointment Payments and the evidence relating to the Pre-Appointment Payments.
Mr Sallway has given unchallenged evidence that:
he was the person who caused each of the Post-Appointment Payments to be made;
when causing CGH to make Post-Appointment Payments, he did so for the purpose of ensuring that the Receivership Entities had the funds necessary to pay interest and fees in respect of the Second CBA Loan, and in the knowledge that CGH had obligations to CBA, as Guarantor in respect of the Second CBA Loan, to ensure the due and punctual payment of all moneys to CBA;
when causing other Crown Payers to make Post-Appointment Payments, it was his intention that those entities, as subsidiaries of CGH, were advancing funds on behalf of CGH in order to enable CGH to fulfill its obligations as Guarantor in respect of the Second CBA Loan; and
Mr Sallway made the Post-Appointment Payments in the understanding that any amounts advanced to discharge or pay down the secured debt which the Receivership Entities owed to CBA may be able to be satisfied from any surplus from the sale of the Eastlakes Property, including on the basis of subrogation.
The Provisional Liquidators submitted that, in those circumstances, the Post-Appointment Payments were made for the purpose of servicing the CBA Loan, and with the intention that the Crown Payers would have a right by way of subrogation to a proportionate part of the security held by CBA.
CII Group disputed that the evidence was sufficient to establish that the principles of subrogation applied.
CII Group submitted that the Court will not determine the application of the principles of subrogation based on subjective statements of intention made well after the payments in question, but instead will have primary regard to the contemporaneous records. In the present case, the payments were recorded in the loan ledgers maintained by the Receivers, and the Receivers did not, at the time, take any steps to ensure that the amounts paid were secured, such as:
entering into any written agreement recording that this was the basis on which funds were advanced to the Receivership Entities; or
making an application for directions before the funds were advanced; or
ensuring that payments were made by CGH, as Guarantor, directly to CBA (rather than payments being made by entities on behalf of CGH into the Receivership Accounts, from which they were transferred into the Rental Proceeds Account, from which payments were made to CBA).
CII Group submitted that the payments made by CGH to the Receivership Entities, for the purpose of those entities making payments to CBA, did not fall within the terms of s 3(1)(b) of the LRMPA, as that provision only applies where the surety itself pays the secured debt.
CII Group further submitted that the other Crown Payers which made the Post-Appointment Payments – namely, Crown GS Retail, Crown Group Properties and Skye Suites Arc – were “in a weaker position still”. CII Group contended that, in circumstances where (on the basis of Mr Sallway’s own evidence) those entities made payments “on behalf of CGH”, in order to enable CGH to fulfil its obligations as Guarantor, any claim by those entities lies against CGH (as the party to whom those entities advanced funds), not against the Receivership Entities.
Given that the Court is not being asked to make a finding that any of the Crown Payers has a right by way of subrogation in any particular amount, it is unnecessary to resolve these disputes regarding the Post-Appointment Payments. Any resolution of these issues, as with those concerning the Pre-Appointment Payments, would require a close examination of the facts and circumstances relating to each of those payments.
For present purposes, the issue that arises is whether, in circumstances where there is a live dispute regarding whether there is any right of subrogation in respect of the Post-Appointment Payments, the Proceeds Order should be varied so as to allow the Receivers to pay any amounts to the Crown Payers which the Receivers determine to be owing to the Crown Payers and secured by the Eastlakes Property.
The Provisional Liquidators’ application to amend the Proceeds Order invokes r 36.16(3) of the UCPR, which provides the Court with a broad power to set aside or vary orders.
The Provisional Liquidators submitted that, unlike the situation in Bofinger (where multiple properties and subsequent mortgagees were involved), there are no other secured creditors whose debts would otherwise stand in front of the Crown Payers or who might be affected by the relief sought. The “waterfall” of priorities under the proposed amended Proceeds Order, after payment of the Receivers’ remuneration and expenses, is:
first, any amount owing to CBA (whose debt has already been paid in full);
secondly, any amount owing to Mr Sathio which is secured by the Eastlakes Property (with Mr Sathio’s priority position being unaffected by the proposed amendment);
thirdly, any amount owing to the Crown Payers which is secured by the Eastlakes Property; and
fourthly, payment into Court pending allocation as between the unsecured related party creditors of the Receivership Entities.
I accept that it is, as a general matter, an uncontroversial proposition that secured creditors should be paid before unsecured creditors. The proposed amendment to the Proceeds Order would simply acknowledge that this was the case. On this basis, it was said that it would not prejudice the other secured creditors (who were to be paid before any secured debts owing to the Crown Payers) or the unsecured creditors.
The Provisional Liquidators’ contention was, in essence, that the need for this application has arisen because the existing form of Proceeds Order does not simply say that secured debts are to be paid before any surplus is paid into Court, but instead names particular secured creditors who are to be paid, and the Receivers have, through their investigations, identified that there are other secured creditors. The Provisional Liquidators submitted that, in order to be satisfied that there was a basis to amend the Proceeds Order, the Court did not need to be satisfied that any particular payment by any particular Crown Payer gave rise to a right by way of subrogation. Instead, the Court only needed to “be satisfied that the receivers, through their investigations, have formed the view that there are such secured payments, and that that’s the basis for seeking the variation of the orders”.
The difficulty with this proposition is that there is, as outlined above, a live dispute as to:
whether any amount owing to the Crown Payers is secured by the Eastlakes Property, by way of subrogation, or whether any amount owing to those entities was an unsecured loan; and
the quantum of any such amount owing to the Crown Payers.
The Provisional Liquidators could have sought a declaration as to those matters. The Receivers could have sought directions as to whether they would be justified in making payments in any particular amounts to the Crown Payers on the basis that such amounts were secured by the Eastlakes Property. No such step has been taken.
Instead, what is proposed by the Provisional Liquidators is that the “waterfall” set out in the Proceeds Order be amended; that the Receivers make a determination as to the amounts owing to Mr Sathio and the Crown Payers which are secured by the Eastlakes Property; that the Receivers pay such amounts to those creditors and pay the remaining balance into Court; and that any challenge by an unsecured creditor to the payments to Mr Sathio or the Crown Payers could be made at that time. Counsel for the Provisional Liquidators submitted that: “All that needs to be done today is to expand the powers of the receivers, so that in the ordinary course, they can pay out what they have identified as secured amounts, and put the [balance of the] money into Court”.
In contrast, CII Group maintains that, in circumstances where there is a live dispute as to whether any of the Crown Payers is a secured creditor (and, if so, the amount of any such secured debt), the appropriate course is for the Receivers – after paying any secured amount owing to Mr Sathio (which is an aspect of the existing Proceeds Order which no party seeks to vary) – to pay the remaining funds into Court pending a determination as to the amounts owing to the Crown Payers and the amounts owing to the related party creditors (including CII Group), and a determination as to whether any amounts owing to the Crown Payers are secured by the Eastlakes Property.
It should be noted that, either on the approach for which the Provisional Liquidators advocated or on the approach for which CII Group advocated, any determination of the dispute about the existence and amount of any secured debt owing to each of the Crown Payers is to be deferred until another time. That is a function of the Court not being asked by the Provisional Liquidators to determine any such issue for the purposes of this application, and consequently not being given the benefit of submissions on each of the relevant payments by the Crown Payers or being taken through the books and records relevant to each of those payments.
The issue for determination therefore comes down to whether the determination of any such dispute should occur after the Receivers pay any amounts which they determine to be owing to the Crown Payers and secured by the Eastlakes Property, or before any such payments are made (and after payment of the surplus proceeds into Court).
The Provisional Liquidators, in arguing for the former course, contended that it would not cause any prejudice to the unsecured creditors (including CII Group), for two reasons.
First, the Provisional Liquidators submitted that, “[w]hilst at first blush it might appear that permitting reimbursement of the Pre-Appointment and Post-Appointment Payments would disadvantage the Creditors [of the Receivership Entities] by diminishing the available funds”, this was not in fact the case because the Receivership Entities were obliged to pay interest and fees to CBA pursuant to the CBA Loans and therefore:
if the Receivership Entities had made such payments from their own funds (rather than from funds provided by the Crown Payers), “the same quantum diminution as is now proposed to occur would have occurred then”; and
if the Crown Payers had not provided the funds necessary to make these payments, and the Receivership Entities had defaulted under the CBA Loans, CBA would have recovered any amounts owing from a sale of the Eastlakes Property, plus the costs of enforcement, such that the amount “payable to CBA from the sale proceeds would have been higher than the amount ultimately received by CBA in satisfaction of its security”.
The Provisional Liquidators submitted that, having regard to those matters, “the Creditors [of the Receivership Entities] have actually benefitted from the timely payment by the Crown Payers”.
However, as CII Group pointed out, these submissions assume matters which are in dispute, and which the Provisional Liquidators have not asked the Court to determine on this application, namely, that each of the relevant payments represents moneys advanced to the Receivership Entities by the Crown Payers for the purpose of servicing the CBA Loans.
Secondly, the Provisional Liquidators submitted that, while their proposal would involve the payment of any amounts which the Receivers determine to be owing to Crown Payers and secured by the Eastlakes Property, prior to any challenge being heard and determined as to whether such amounts are in fact owing and secured, this would not prejudice the unsecured creditors of the Receivership Entities because all of the Crown Payers are members of the Crown Group, and the “Crown Group is solvent, and the entities are controlled by an officer of the Court [namely, the Provisional Liquidators]”. The Provisional Liquidators referred to Mr Sallway’s affidavit of 2 September 2025, in which he expressed the view that “the Crown Group is solvent” and that “the net asset position of the Crown Group is in the range of approximately $66 million to $90 million once all taxes, employees, secured creditors and trade creditors have been paid”.
However, as CII Group submitted, in advance of the completion of the reconciliation of loans between CGH and its shareholders and/or other entities related to or controlled by Mr Sathio and Mr Sunito, it was not known whether any particular Crown Payer (which would receive funds under the proposed amended Proceeds Order) was solvent or insolvent, or the extent of the debts owing by any particular Crown Payer.
Similarly, in advance of the reconciliation being completed, it is not known whether any (and if so, which) of the Receivership Entities is insolvent. Mr Sallway stated in his affidavit filed 21 May 2026 that two of the three Receivership Entities “may be insolvent on a balance sheet basis”. That is significant because CII Group claims to be a creditor of one of the Receivership Entities – namely, Stateland East – and if this entity is insolvent, any money paid to the Crown Payers from the joint fund realised from the sale of the Eastlakes Property would diminish the amount available to the unsecured creditors of this entity.
Mr Sallway referred, in his August 2026 affidavit, to correspondence with the related party creditors of the Receivership Entities in which the Receivers raised a proposal involving the winding-up of the Receivership Entities via a court-ordered liquidation and a pooling of the assets and debts of the Receivership Entities, which would “extinguish the round-robin of intercompany loans between the Receivership Entities and permit the related creditors to rank pari passu in any distribution from the pooled assets”.
Having regard to those matters, I accept CII Group’s submission that the appropriate course is to maintain the existing form of the Proceeds Order – which allows the Receivers to make payments which are not disputed, with the balance then being paid into Court – and to determine the dispute about whether any amounts owing to the Crown Payers are secured by the Eastlakes Property (and if so, the amount of such payments), following the completion of the reconciliation of intercompany loans and in the context of any application for pooling orders in respect of the Receivership Entities.
This will ensure that no unsecured creditor of any of the Receivership Entities is prejudiced by a payment being made by a particular Receivership Entity (which may be insolvent) to a particular Crown Payer (which may be insolvent), prior to any determination of whether or not the Crown Payer has a secured debt in a particular amount. Further, it may be the case that, following the completion of the reconciliation or by reason of a pooling application, it becomes apparent that all related party creditors of the Receivership Entities will be paid in full, removing the need for the determination of any dispute regarding priority as between those creditors (and therefore removing the need for costs to be expended in determining any such dispute). Alternatively, the related party creditors will be in a better position to consider whether to contest any issue of subrogation in circumstances where it is known whether, and to what extent, the determination of this issue will affect their own position.
It was not suggested by the Provisional Liquidators that there was any pressing need for payments to be made to the Crown Payers prior to the determination of any dispute about the existence and extent of any right of subrogation. If any such need were to arise, or if for any reason it was thought desirable to accelerate the determination of this dispute, this could be done at any time by, for example, the Provisional Liquidators seeking a declaration that the Crown Payers had a right by way of subrogation in a particular amount, or by the Receivers seeking directions that they would be justified in paying a particular amount to each of the Crown Payers by reason that such amounts were owing by the Receivership Entities and secured by the Eastlakes Property.
For those reasons, I reject the Provisional Liquidators’ application for the amendment of the Proceeds Order.
This application was brought in a context where the Receivers have reasonably formed the view, as a result of their investigations into extensive intercompany transactions, that the Crown Payers have a right by way of subrogation and that the Crown Payers should therefore be afforded similar priority to other secured creditors. Against that background, there was a sound basis for making the application, and it was proper for the Provisional Liquidators to do so. While the evidence on the application was extensive, the materials regarding the issue of subrogation will likely be relevant to, and help refine, any subsequent dispute regarding this issue. Having regard to those matters, it is my preliminary view that, despite rejecting the application, the Court should order that the Provisional Liquidators’ costs of and incidental to the application be paid from the assets of CGH.
It is also my preliminary view that, because CII Group was successful in opposing the application, it should be entitled to its costs, with those costs also being paid from the assets of CGH.
In its written submissions, CII Group sought an opportunity to be heard on costs following the delivery of judgment. Accordingly, I will make orders which will allow the parties to indicate whether they wish to take up any such opportunity, failing which costs orders will be made to the effect outlined above.
For the reasons given above, I make the following orders:
The Notice of Motion filed on 21 May 2026 be dismissed.
If the parties wish to be heard about costs, they must notify the Associate to Nixon J by 5pm on 29 September 2026 and a date will be fixed for the hearing of oral argument about costs.
If there is no notification in accordance with Order 2, there will be an order that:
(a) the Applicants’ costs of the application, as agreed or assessed; and (b) the costs of CII Group Pty Ltd (in liq) of the application, as agreed or assessed;
be paid from the assets of the Fifth Defendant, Crown Group Holdings Pty Ltd (provisional liquidators appointed).
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Andrew Sallway and Duncan Clubb as provisional liquidators of Crown North Pty Ltd, Skye Suites Infinity Pty Ltd & Crown Property Agency Pty Ltd
Sathio Investments Pty Ltd atf Sathio Investments Trust and others (No 2)
(2013) 86 NSWLR 174
(1978) 141 CLR 335
(2009) 239 CLR 269
(1985) 3 NSWLR 403