Australian Securities and Investments Commission v Piggott Wood & Baker

The proposed method of distribution in general 20 Mr Hamilton's application came before the Court for hearing on 13 and 14 March 2019. 21 I am satisfied that well prior to his application being set down for hearing Mr Hamilton had given full and adequate notice to all interested persons who may have wished to be heard in respect of it. The Attorney-General for the State of Tasmania (Intervening) has advised she does not press any submissions. 22 I am satisfied as to Mr Hamilton's explanations regarding why he does not propose to make a distribution to the investors named in a table set out at [29] of his affidavit of 6 March 2018. None of those investors made claims and the sums involved are very small. As to the other sums that came into his hands as referred to in that paragraph, I am satisfied Mr Hamilton was justified in dealing with the sums of $3,000.00 invested by a former partner of Piggott Wood & Baker and $44,100.54 invested by the firm of Piggott Wood & Baker itself under the provisions of the Bankruptcy Act 1966 (Cth). There is also an amount of $20,045.55 invested by "PWB Superannuation Fund". Mr Hamilton deposes that he believes he has information as to who the beneficiaries of the PWB Superannuation Fund are, but if he is unable to identify them, he intends to make a pro-rata payment into the unclaimed monies fund administered by ASIC. I am satisfied that he will be justified in making such a pro-rata payment. 23 In earlier interlocutory proceedings, counsel for Mr Hamilton advised the Court that other investors or claimants with an interest had reserved their positions and might wish to be heard. However, by the time of the hearing the only person or entity still pressing an objection was the Solicitors' Trust. I am satisfied that no person other than the Solicitors' Trust wished to oppose, or to seek any modification to, Mr Hamilton's proposed distribution of the funds he holds. 24 ASIC wrote to my associate on 8 March 2019 advising that, while ASIC was the named Applicant in the proceeding, the issue in contention "is essentially a dispute between the liquidator and the Solicitors' Trust". ASIC advised that it was content to abide the outcome save as to any costs that might be sought against it and ASIC did not want to be heard at the hearing. In those circumstances ASIC was excused from attending the hearing. 25 The Court proceeds on the basis that a direction of the kind sought by Mr Hamilton, if made, will not determine the rights of other parties. Their rights will remain unaffected and it remains open to them to pursue such legal entitlements as they may wish to assert in other proceedings. Its legal effect is that Mr Hamilton will be protected from any personal liability if, after he has made full and fair disclosure, the Court directs that he is justified in implementing his proposed distribution. The Court, however, will not give such a direction unless it is satisfied that there is a reasonable and proper basis for its making: see Australian Securities and Investments Commission v Tasman Investment Management Ltd [2006] NSWSC 943; 202 FLR 343 at [30]. It is implicit that there may be contestable issues of fact or law yet such a direction nonetheless should be made: if it were otherwise, such a direction would be unnecessary. 26 The fact there is no contradictor to the distributions proposed by Mr Hamilton other than those that affect the interests of the Solicitors' Trust does not discharge the Court of its responsibility to be satisfied that they are justifiable. 27 The materials before me establish that Mr Hamilton prepared for this hearing on the basis that he and his legal advisors anticipated persons other than the Solicitors' Trust were likely to submit that his proposal inadequately took into account their rights to a share, or a larger share, of the funds available for distribution. 28 It is open to the Court to infer, and I do so, that such persons, having had the opportunity carefully to consider Mr Hamilton's proposal and their respective positions, have made an informed decision, notwithstanding any contentions they may have been entitled to advance, to accept that Mr Hamilton is justified in proceeding to make the distributions he has given them notice of. That cannot be dispositive, but is not irrelevant to the Court's task of deciding whether, subject to consideration of the Solicitors' Trust's contentions, there is a reasonable and proper basis for Mr Hamilton's proposed method of distributions. 29 For the moment, I will set aside what is in dispute between Mr Hamilton and the Solicitors' Trust to focus upon whether Mr Hamilton's proposed distribution is otherwise justified. In that regard, the Solicitors' Trust's original objections have significantly narrowed. They now affect only proposed directions 1 and 2. 30 The Court is satisfied that Mr Hamilton is correct to understand that he is not entitled simply to distribute all of the funds he has recovered in the liquidation rateably amongst all of the investors who suffered loss. Mr Hamilton submits, and I accept, that the business conducted by Piggott Wood & Baker was a mortgage investment scheme. That is, while the Piggott Wood & Baker contributory mortgage scheme had common elements, it was not a pooled fund. 31 The scheme as Piggott Wood & Baker had operated it had involved investments in specific contributory mortgages; each loan or series of loans and each investment had discrete legal rights attached to it. In this winding up Mr Hamilton has satisfied me that he is justified in proceeding on the basis that he should take into account each of the investors' respective underlying legal rights in determining their entitlements. 32 I observe that in Australian Securities and Investments Commission v Letten (No 7) [2010] FCA 1231; 190 FCR 59 (Letten (No 7)), Gordon J proceeded on the basis that in a winding up the Court's statutory and inherent powers do not generally permit the making of an order that departs from the proprietary rights of scheme participants (see at [263]). Given the commencing point is that Piggott Wood & Baker's contributory mortgage scheme was not a pooled scheme it is therefore inevitable that different investors or classes of investors may be entitled to receive different dividends. 33 I am satisfied that Mr Hamilton is correct to proceed on the basis that his recoveries, where they may be attributed, properly, to a specific loan or series of loans, he should so attribute them. 34 I am satisfied that Mr Hamilton has given full and fair disclosure both of his recoveries and his intended attributions of them. The evidence before me establishes that Mr Hamilton has kept detailed and full accounts of the source of all funds he has received. I am satisfied that Mr Hamilton has also adequately explained how and why he has formed the opinion that he is entitled, or not entitled, as the case may be, to attribute certain of the dividends he has received to a particular loan or series of loans. 35 Thus, to give an example, in respect of the three actions Mr Hamilton commenced in the Supreme Court of Tasmania against Mr Bassett and Wribass Pty Ltd (in liquidation) which were later the subject of orders that he was justified compromising in the terms he did, Mr Hamilton deposes in his affidavit of 6 March 2018 that: 47. As a result of the approval of the compromise, I received sums totalling $484,638.28 as follows: (a) $356,008.63 in respect of the liabilities of, inter alia, Timothy Raymond Bassett, in respect of loans 18, 25, 53 and 63 in the Loan Schedule; and (b) $128,629.65 in respect of the liabilities for Wribass Pty Ltd (in liquidation), in respect of loans 53 and 63 in the Loan Schedule. 48. Since April 2008 when The Solicitors' Trust was no longer responsible to pay for the costs of the Bassett/Wribass matter, I estimate that I have incurred $100,000.00 in legal fees and remuneration attributable to the Bassett/Wribass matter. Accordingly, after adding interest earnt on the sum received, I am in a position to distribute the sum of $371,295.33 in respect of the liabilities of Timothy Raymond Bassett and the sum of $134,144.01 in respect of the liabilities of Wribass Pty Ltd (in liquidation). 49. This will result in a full payment to the investors in respect of pre-appointment interest, and for loans 53 and 63 a full repayment to The Solicitors' Trust, and a partial payment to Investors towards post-appointment interest. (Emphasis omitted.) 36 I refer to those paragraphs not to suggest they fully disclose Mr Hamilton's reasoning but simply to illustrate the underlying approach he has taken in allocating certain recoveries to specific loans or series of loans. Mr Hamilton's solicitors have made detailed submissions in support of his judgements in those regards. It is unnecessary for the purposes of my decision to canvass that detail. It is sufficient to indicate that the Court is satisfied: (a) that Mr Hamilton's basic approach is both justified and consistent with principle; and (b) in no instance does it appear to the Court that Mr Hamilton's application of those principles was in error. I am satisfied that the distribution Mr Hamilton proposes is justified insofar as it allocates specific recoveries to a loan or series of loans. I am satisfied that Mr Hamilton has maintained proper and consistent accounts and has been able carefully and accurately to allocate his recoveries in so far as they are properly capable of attribution to each loan or series of loans to which they relate. The relatively well-ordered books of accounts that Piggott Wood & Baker had maintained (notwithstanding their scheme's ultimate default) assisted that to be possible. 37 In respect of dividends Mr Hamilton has received that he accepts cannot properly be attributed to a specific loan or series of loans, I am satisfied that the pari passu or rateable principle Mr Hamilton proposes for their distribution also is justified and consistent with principle. 38 The gravamen of the submissions advanced on Mr Hamilton's behalf (at [21] of the written submissions dated 20 April 2018) is that where funds in the hands of a liquidator have been mixed or are otherwise not attributable on the basis of an underlying legal entitlement there is no proper basis to apply a "first in first out" rule and that pro rata apportionment (the pari passu principle), prima facie applies. It is submitted that those propositions are supported by Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSW 1008; 59 NSWLR 361 and Re Global Finance Group Pty Ltd (in liq) [2002] WASC 63; 26 WAR 385. 39 I accept that submission. 40 In analogous circumstances, after discussing alternative methodologies potentially open to a liquidator, Gordon J applied the pari passu approach in Letten (No 7). 41 I am satisfied Mr Hamilton has established that he will be justified in applying the same principle to those funds he holds as are not properly capable of being attributed to a specific loan or series of loans. 42 I am satisfied that Mr Hamilton has maintained accounts showing his proposed distributions and that nothing in evidence in these proceedings provides a reason for the Court to conclude that Mr Hamilton's application of the pari passu principle in any instance is unsound. 43 My conclusions as stated above apply to the distributions proposed by Mr Hamilton that are not the subject of dispute between him and the Solicitors' Trust. 44 They also apply to Mr Hamilton's proposed distributions as are in dispute between him and the Solicitors' Trust subject to the resolution of the specific issues that are in contention.

The issues to be resolved 45 I therefore turn to what is in contest as between Mr Hamilton and the Solicitors' Trust. 46 It will be recalled that the Solicitors' Trust made payments to investors who had suffered a loss of their principal by reason the collapse of Piggott Wood & Baker's contributory mortgage scheme. 47 The rights and interests of the investors in the contributory mortgage scheme were assigned to the Solicitors' Trust by operation of s 113 of the LP Act to the extent that the Solicitors' Trust had made such payments to the investors. The Solicitors' Trust imposed a condition on acceptance of such payments that, in the event the investor might later receive any payment from the liquidator, the Solicitors' Trust would be entitled to treat that money as payment of capital unless the investor satisfied it that the payment should be characterised as income. 48 It is common ground that the Solicitors' Trust paid a total of $7,405,443.32 to investors in respect of their loss of principal. It is common ground that the Solicitors' Trust did not make any payments in respect of any loss of interest suffered by an investor. 49 It is against that background the specific issues in dispute arise. 50 The Solicitors' Trust initially pressed an objection to Mr Hamilton's proposed distribution of the dividend he received in respect of the compromise of what is referred to at [46]-[49] of Mr Hamilton's affidavit of 6 March 2016 as the "Bassett/Wribass Pty Ltd (in liquidation)" litigation. The Solicitors' Trust no longer presses that objection. Having regard to my general findings, the Court proceeds on the basis that Mr Hamilton is justified in making the distribution he proposes to make in respect of those recoveries.

The disputed distribution 51 The only live question is whether Mr Hamilton is justified in making the distributions he proposes in respect of the dividend he received after the compromise of what he and the Solicitors' Trust refer to either as the "Valuer Litigation" or the "Jones Litigation". For consistency, I will refer in my reasons to those proceedings as the Jones Litigation. 52 Mr Hamilton gives evidence in that regard in his affidavit of 6 March 2018 as follows: 36. I refer to the affidavit sworn by me on 20 September 2007 in these proceedings ("the R. L. Jones affidavit") in support of an application for approval of compromise of the actions 123 of 2005 and 930 of 2001 in the Supreme Court of Tasmania against the valuer of properties which secured loans numbered 21, 32, 35, 39, 40, 42, 51, and 53 in the Loan Schedule ("the valuer litigation") and I adopt the terminology referred to in that affidavit. Orders were made on 2 October 2007 that I was justified in settling the valuer litigation, and a copy of those orders, and the heads of agreement to which they refer, is annexed and marked "BKH-19A". 37. The deed of release ("the Valuer Deed") referred to in the R. L. Jones affidavit was executed and a copy of a counterpart of that deed is annexed and marked "BKH-20". I refer to the court documents and other documentation annexed to the R. L. Jones affidavit, and to the description of the "Krushka loans" and the "non-Krushka loans". 38. In relation to "loan 32" ("Rutherglen"), I also refer to the Orders made herein on 2 April 2003 and to [Australian Securities & Investment Commission v Piggott Wood & Baker] [2003] FCA 288. I note that the Orders for distribution made in relation to that loan were confined in respect of Investors whose money was placed in that loan at the time of sale of the relevant secured properties. 39. Pursuant to the Valuer Deed, I was entitled to receive or recover the sum of $1,200,000.00. I received $1,090,000.00 from the insurer. The company R. L. Jones and Associates Pty Ltd was wound up and I recovered net proceeds of $37,062.78 from that source. I determined that the defendant Robert Llewellyn Jones had no assets. He died on 1 January 2008. I made a commercial decision not to apply to bankrupt the deceased estate. 40. Since April 2008 when The Solicitors' Trust was no longer responsible to pay for the costs of the valuer liquidation, I estimate that I have incurred. $75,863.63 in legal fees and remuneration attributable to the R. L. Jones matter. Accordingly, after adding interest earnt on the sum received, I am in a position to distribute the sum of $1,459,672.83 representing the net proceeds of the valuer litigation. 41. Subject to the discussion in the next paragraph, I have not dealt with or appropriated any of those proceeds in any way. There is no documentation and there have been no discussions between myself or my legal representatives and the defendants' legal representatives in the valuer litigation as to whether any part of the proceeds was to represent capital or interest. 42. The Valuer Deed notionally imposes liability on the part of the defendants in one of the actions to the extent of $100,000.00, and liability on the part of Jones in the other action to the extent of $1,100,000.00. The R. L. Jones affidavit records that Jones was insured in respect of the Krushka loans but not in respect of the non­Krushka loans. The rationale arrived at the settlement conference referred to in the R. L. Jones affidavit was that the insurance policy provided cover of $1,100,000.00 and the defendants would "contribute" an additional $100,000.00. Such insurance was subject to an "excess" of $10,000.00. There was no specific intention otherwise stated at the settlement conference, however, that any particular sum was necessarily referable to any particular loan or set of loans, save to the extent that, as mentioned, the claims in respect of the Krushka loans were insured. (Emphasis omitted.) 53 The Jones Litigation had involved two actions in the Supreme Court of Tasmania against both a corporate body (RL Jones & Associates Pty Ltd) and an individual (Robert Llewellyn Jones) for their allegedly negligent excessive valuations of a large number of properties against which investors' funds had been secured. 54 On 2 October 2007, Heerey J directed that Mr Hamilton would be justified in compromising those actions in accordance with a heads of agreement then before him. The proceedings subsequently were settled, without admission of liability, by a deed of release dated 18 October 2007. 55 The relevant aspects of the Jones Litigation summarised at [H]-[L] in the deed of release Mr Hamilton annexes as BKH-20 were as follows: H Between August 1992 and January 1998 RLJA and/or Jones provided valuations (Valuations) to PWB of the following properties (Properties): (a) Property in Bridport, Tasmania (Bridport Hotel) referred to in paragraphs 7 to 30 of the Statement of Claim in the First Proceedings, Including but not necessarily limited to Volume 105514 Folio 1. (b) Property in Rutherglen, Tasmania referred to in paragraphs 31 to 75 of the Statement of Claim in the First Proceedings, including but not necessarily limited to Volume 111014 Folio 2, Flat 42 on Stratum Plan 111015; Volume 111015 Folios 2 to 4, 8 to 10, 12, 15 & 16, 18 to 24, 26 to 35 and 38 to 42; and/or Volume 20627 Folios 1, 2 & 3. (c) Property in Ansons Bay, Tasmania referred to in paragraphs 76 to 88 of the Statement of Claim in the First Proceedings, Including but not necessarily limited to Volume 11915 Folios 32 & 21; (d) Property in Bridport, Tasmania (Bridport Resort) referred to in paragraphs 89 to 218 of the Statement of Claim in the First Proceedings, Including but not necessarily limited to Volume 20445 Folio 1; and Volume 20258 Folio 2. (e) Property in Ravenswood, Tasmania (Sunny Hill) referred to in paragraphs 219 to 423 of the Statement of Claim in the First Proceedings, including but not necessarily limited to Volume 33347 Folio 1; and/or Volume 105592 Folio 6. (f) Property at Steeles Island, near Carlton Beach, Tasmania referred to in paragraphs 424 to 436 of the Statement of Claim in the First Proceedings, Including but not necessarily limited to Volume 114875 Folio 1. (g) Properties at Newnham, Tasmania referred to in paragraphs 437 to 508 of the Statement of Claim in the First Proceedings, including but not necessarily limited to Volume 4777 Folios 17 to 20 & 39; Volume 4434 Folio 85; Volume 56299 Folio 0; Volume 46207 Folios 1, 3 & 4; Volume 54561 Folio 21; Volume 56299 Folios 3, 40 to 42 & 45 to 47 and/or Volume 134534 Folios 1 & 2; (h) Properties at Lulworth, Tasmania referred to in paragraphs 509 to 532 of the Statement of Claim in the First Proceedings, including but not necessarily limited to Volume 3120 Folio 69 and Invermay, Tasmania being Volume 3908 Folios 60 & 69; and/or Volume 58705 Folios 1 & 2. I PWB lent money allegedly secured by mortgages over the Properties and allegedly in reliance upon the Valuations. J PWB, BK Hamilton and Hamilton allege that the Valuations were negligent and misleading and deceptive and allege that PWB and/or lnves1ors lost money due to the negligence and/or misleading and deceptive conduct. K On 5 December2005 and 13 April 2006 PW6 and/or BK Hamilton filed Statements of Claim against AWA and Jones, in relation to the alleged negligence and misleading and deceptive conduct, in Proceedings no. 123 of 2005 (First Proceedings) and 930 of 2001 (Second Proceedings) respectively, In the Supreme Court of Tasmania, Hobart Registry (Proceedings). L RLJA and Jones deny that they were negligent or engaged in misleading and deceptive conduct, as alleged or at all. 56 It is unnecessary to set out the specific terms of the confidential settlement later given effect to by deed of release. The sums received by Mr Hamilton pursuant to that deed are not in dispute. It is sufficient to observe that it is uncontentious that the deed of release did not apportion any part of what the defendants agreed to pay as between capital or interest. 57 Mr Hamilton's submissions dated 22 February 2019 summarise his characterisation of the funds he received as follows: 21. In the Jones particulars of damage, express claims were made for specified capital amounts for loans numbered 21, 32, 35, 39, 40, 42, 51 and 53. The total of those specified capital amounts was $6,107,945.60. The particulars-also claimed specified interest amounts for each one of those loans calculated and set out in tables 2 and 3 in the particulars. The total of those specified interest amounts outstanding was $5, 132,430.65 but, as noted in the liquidator's primary outline at para 59, this total is calculated under the principles in Hungerfords v Walker. 22. The Jones proceedings were finalised by the release which is annexure "BKH-20". In its operative provisions it provided that the Jones proceedings were resolved by a judgment which related to loans numbered 32, 35, 42, 51 and 53. Further, it provided that the defendants agreed to pay $1,100,000 related to loans numbered 21, 39 and 40. 23. The proceeds obtained by Mr Hamilton from the Jones proceedings were therefore clearly in respect of specified claims representing lost capital on all of the loans mentioned, and specified claims for interest on those capital sums.

Mr Hamilton's commencing position 58 Mr Hamilton does not dispute that the Solicitors' Trust made payments to the investors. Nor does he dispute that the Solicitors' Trust to that extent has a relevant legal interest in the funds he holds as the investors' assignee. 59 However, citing the rule in Falk v Haugh [1935] HCA 35; 53 CLR 163 (Falk), Mr Hamilton submits that with respect to the Jones Litigation, because the funds he received pursuant to the compromise he had entered into cannot be disaggregated as between principal and interest, the whole of those funds are to be applied in reduction of interest in priority to principal. 60 That is, he submits, because the Solicitors' Trust had made payments to investors exclusively in respect of principal. Having regard to the rule in Falk, Mr Hamilton submits the Solicitors' Trust is not entitled to receive any part of Jones Litigation recoveries unless and until all of the investors in the loans referred to above who have claims for interest have had those claims fully satisfied. 61 Shifting the lens of analysis from the abstract to the concrete, Mr Hamilton's proposal will result in the Solicitors' Trust not receiving any return. 62 The evidence given by Mr Hamilton during the hearing is that, in respect of the relevant loans, the Solicitors' Trust has lodged claims with him for $6,110,440.49 representing the amounts it had paid to investors. 63 Mr Hamilton's evidence is that the total of unpaid interest due to investors is $3,195,339.85. 64 Mr Hamilton's evidence is that the total he received in consequence of the compromise of the Jones Litigation was $1,485,381.52. 65 On the assumption the whole of that latter sum properly is allocated entirely to reduction of interest in priority to capital, it is self-evident that the Solicitors' Trust will not receive any part of that sum.

The Solicitors' Trust's commencing position 66 The primary position of the Solicitors' Trust in these proceedings, by contrast, is that the whole of the proceeds of Jones Litigation ought to be characterised as a return of capital. Therefore, the whole of the Jones Litigation proceeds should be paid to it. 67 The Solicitors' Trust's submissions filed on 24 May 2018 are as follows: 10. The Solicitors' Trust submits that: … (b) There is no doubt that the proceeds of the Jones litigation comprised an undissected lump sum produced from litigation in which damages were claimed from the defendants and their several insurers. There is similarly no doubt that the total of the damages claimed included unpaid interest and the principal lost as a result of the imprudent lending made by the respondent on the faith of the woefully negligent valuations. (c) In these circumstances the established position for tax purposes is that the undissected lump sum is wholly capital: McLaurin v FCT (1960-61) 104 CLR 381, Allsop v FCT (1964-5) 113 CLR 341 and FCT v CSR Limited (2000 ATC 47.10. The first two of these decisions are the Full High Court and the third one is the Full Federal Court. The position thereby established is settled beyond serious question. (d) The general principles enunciated by the Court in each case are that an undissected lump sum of the kind there in issue (and in issue presently at least in relation to the Jones litigation) is to be viewed as capital and that no part of it is to be viewed as income. The reasoning, shortly put, is that no part of the undissected lump sum can be identified as income according to the ordinary concepts and usages of mankind. It follows that the ratio of the decisions does not turn upon the language of the tax Acts that were there considered; the issue conclusively determined is whether or not any part of the relevant lump sum can be ascribed to income according to ordinary concepts. It was authoritatively held that it cannot. CSR is strongly analogous on the facts to the Jones litigation. (Emphasis in original.) 68 The Solicitors' Trust's written submissions conceded that it is "faintly arguable" that there might not be a direct analogy between the notions of income and capital and those of interest and principal, but contended that both are two sides of the same coin. 69 The Solicitors' Trust submitted that none of the authorities cited by Mr Hamilton directly supported the proposition for which he had contended. 70 It submitted that since the first case in which the principle later articulated in Falk had been enunciated, being Chase v Box (1702) 22 ER 1197 (Chase), it had been plainly established that the principle relied on by Mr Hamilton as expressed in Falk was a rule of equity. 71 The Solicitors' Trust therefore submitted in the alternative: 14. It is not possible presently to make any precise ascription of the proceeds available for distribution to any particular investor or to interest or capital. It follows that, if equity is to intervene, the general pari passu rule should apply. It is submitted that there is no basis at all for preferring the interests of the investors, to interest, over the interests of the Solicitors' Trust, to capital. The claimant parties are relevantly in the same position, as innocent claimants to funds inadequate in total to permit recovery in full.

The evidence 72 When Mr Hamilton's application came before the Court for hearing, Mr Walker appeared for the liquidator and Mr Murphy for the Solicitors' Trust. 73 In his evidence, Mr Hamilton gave notice of some minor non-controversial variations to certain amounts he had deposed to in his affidavits. Mr Murphy did not object. Mr Hamilton sought and obtained leave to file an amended application to reflect those adjustments. 74 It is not necessary to detail the evidence given by Mr Hamilton or that given by Mr Paul Kuzis on behalf of the Solicitors' Trust. I accept both gave honest and careful evidence. 75 Having regard to the evidence of Mr Hamilton and Mr Kuzis, I am satisfied that there are no differences of any substance as to the state of financial accounts as between the liquidator and the Solicitors' Trust. 76 Nor is there any dispute as to accounting methodology. I am satisfied that there are no disputed facts going to underlying entitlements requiring adjudication. Subject to minor and inconsequential skirmishing, each accepted the other's evidence. I am satisfied each of Mr Hamilton and the Solicitors' Trust readily could give effect to any distribution methodology ultimately held to be justified by the Court. 77 I turn therefore to the principles governing this application.

Legal principles 78 There was no dispute between Mr Walker and Mr Murphy as to the principles the Court should apply with respect to Mr Hamilton's application. Their shared position was that the Court is not charged with second-guessing a liquidator in the exercise of his powers. They each accepted the position stated by Giles J in Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-86 (Spedley) that the Court "generally will not interfere unless there can be seen to be some lack of good faith, some error of law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct". 79 I am satisfied that counsels' submissions correctly state the law. 80 However I also accept Mr Murphy's submission that that statement of principle is to be applied having regard to the reasoning of Gordon J in Letten No 7 that the Court's statutory and inherent powers do not generally permit orders (which would extend to approving a distribution) that depart from the proprietary rights of the scheme participants. I did not understand Mr Walker to contend otherwise. 81 I proceed on that basis.

The parties' oral submissions 82 I have summarised the respective written submissions as initially advanced on behalf of Mr Hamilton and the Solicitors' Trust at [57]-[71] above. I need not restate them. 83 In oral submissions, while not abandoning the submission that the Jones Litigation recoveries should be attributed wholly to principal, Mr Murphy did not seek to speak to that submission and gave priority to the Solicitors' Trust's alternative argument that if equity were to intervene, the pari passu rule should apply. Assuming the Solicitors' Trust's principal submission were to be rejected, Mr Murphy submitted, Mr Hamilton would not be justified in distributing the funds he had recovered by the Jones Litigation other than rateably as between principal and interest. The relevant shares were identifiable in proportion to (a) the unrecovered amounts paid by the Solicitors' Trust to investors; and (b) interest as had accrued to those investors as at the commencement of the winding up. 84 Mr Murphy submitted that Falk was distinguishable because: As a rule of equity, the principle applied in Faulk was engaged only in respect of a undisaggregated debt as owed by a debtor to a creditor; The Jones Litigation had involved not only claims for loss of principal and interest but also claims based on Hungerfords v Walker [1998] HCA 8; 171 CLR 152 (Hungerfords), such that the rule in Falk had no relevant application; The position of a liquidator who owed duties as a trustee to a wider body of claimants was not analogous to that required in any simple distribution as between a debtor and creditor; and The Court should not make a direction that Mr Hamilton would be justified in making the distribution of the recoveries of the Jones Litigation as he had proposed. 85 On behalf of Mr Hamilton, Mr Walker submitted that: a Hungerfords claim was a claim for use of money forgone which would otherwise have been available to a plaintiff. It was not a claim for return of principle. The inclusion of a Hungerfords claim in the Jones Litigation did not result in the Falk principle being inapplicable with respect to the distribution of the funds recovered by the Jones Litigation. the Solicitors' Trust's sole legal interest in the funds Mr Hamilton had available for distribution was as assignee of the investors' entitlement to principal. The Solicitors' Trust could not assert a legal right superior to that the investors were entitled to assert with respect to their right to a return of interest owing to them; and the Court should make a direction that Mr Hamilton was justified in making the distribution as he had proposed. 86 On the afternoon of the first day of the hearing of Mr Hamilton's application, Mr Murphy pithily summarised the position as it then stood between the parties as follows: If you accept the Solicitors' Trust's primary application, the investors get nothing. If you would accept the liquidator's proposal, the Solicitors' Trust gets nothing. If we go for a pari passu approach, then each party will get something. 87 The directions as then sought by Mr Hamilton did not contemplate that third possibility. Given that until the hearing had commenced the Solicitors' Trust had described its alternative proposition as only "faintly arguable" that is entirely unsurprising. 88 But, having heard the submissions advanced by Mr Murphy, which had clearly elevated the third possibility to a more central focus, on the second day of the hearing Mr Hamilton sought leave to file an amended application. His being permitted to do so, Mr Walker submitted, assuming the Court was not satisfied that the distribution Mr Hamilton had originally proposed was justified, but was satisfied that a rateable distribution would be, would enable the Court to make a direction that Mr Hamilton was justified in making a distribution in the latter manner.

Leave to file an amended application 89 There being no opposition to that course, I granted leave for Mr Hamilton to file such an amended application. As finally advanced, Mr Hamilton's application is as follows: A. DETAILS OF APPLICATION This application is made under section 601EE of the Corporations Act 2001. On the facts stated in the supporting affidavit, the applicant, Barry Kenneth Hamilton as Liquidator of the Piggott Wood & Baker Run-out Mortgage Business applies for the following directions: 1. The Court directs that the liquidator is justified in dealing with the proceeds of the litigation against R. L. Jones and R. L. Jones & Associates Pty Ltd in Supreme Court of Tasmania Action numbers 123 of 2005 and 930 of 2001 respectively ("the valuer proceeds"), in the following manner: (a) the liquidator may treat the valuer proceeds as representing interest owed to the Investors as recorded in the liquidator's records of Investor funds in respect of loans 21, 32, 35, 39, 40, 42, 51 and 53 set out in schedule "A" of the orders made on 13 December 2001; (b) the valuer proceeds may be first applied and paid to the Investors in those loans in satisfaction of interest which accrued prior to the appointment of the liquidator as recorded in the liquidator's records of Investor funds; (c) the liquidator may apportion and distribute the valuer proceeds to the Investors in those loans pro rata in accordance with the total of interest on those loans as recorded in the liquidator's records of Investor funds. 2. In distributing the valuer proceeds the liquidator is justified in disregarding: (a) any losses claimed in the valuer proceeds litigation other than those claimed on behalf of the Investors; (b) any losses claimed in the valuer proceeds litigation on behalf of "PWB", and "C. P. R. Hill"; (c) any assertion by The Solicitors' Trust to an entitlement to such proceeds. 2A. If the Orders sought in paragraphs 1 and 2 are not made, in the alternative, the following Orders are sought: (a) The Court directs that the liquidator is justified in dealing with the proceeds of the litigation against R. L. Jones and R. L. Jones & Associates Pty Ltd in Supreme Court of Tasmania Action numbers 123 of 2005 and 930 of 2001 respectively ("the valuer proceeds"), in the following manner: (i) the liquidator may treat the valuer proceeds as representing interest owed to the Investors as recorded in the liquidator's records of Investor funds in respect of loans 21, 32, 35, 39, 40, 42, 51 and 53 set out in schedule "A" of the orders made on 13 December 2001 and as representing capital; (ii) the valuer proceeds may be applied rateably, or pari passu between interest owing to Investors in those loans as at 13 December 2001 and capital paid by The Solicitors' Trust to Investors which was owing to the Investors as at 13 December 2001; (iii) the liquidator may apportion and distribute the interest amount to the Investors in those loans pro rata in accordance with the total of interest on those loans as recorded in the liquidator's records of Investor funds. (b) In distributing the valuer proceeds the liquidator is justified in disregarding: (i) any losses claimed in the valuer proceeds litigation other than those claimed on behalf of the Investors; (ii) any losses claimed in the valuer proceeds litigation on behalf of "PWB", and "C. P.R. Hill". 3. The Court directs that the liquidator is justified in dealing with the proceeds of the litigation against Timothy Raymond Bassett in Supreme Court of Tasmania Action numbers 43 of 1999, 336 of 2001 and 157 of 2002 and against Wribass Pty Ltd (in liquidation) in Supreme Court of Tasmania Action number 43 of 1999 in the following manner: (a) the liquidator may treat the proceeds from the litigation against Timothy Raymond Bassett as representing interest and capital owed to the Investors as recorded in the liquidator's records of Investor funds in respect of loans 18, 25, 53 and 63 set out in schedule "A" to the orders made on 13 December 2001; (b) the proceeds from the litigation against Timothy Raymond Bassett may be first applied and paid to Investors in those loans in satisfaction of interest which accrued prior to the appointment of the liquidator in the said proofs of debt, which amounts may be apportioned and distributed pro rata in accordance with the total of interest as recorded for those 4 loans in the liquidator's records of Investor funds; (c) the liquidator may then apply and pay to The Solicitors' Trust any balance in respect of payments made by The Solicitors' Trust to Investors in those loans pursuant to default orders made in the Supreme Court of Tasmania, but only to the extent that those payments relate to and concern the liabilities of Timothy Raymond Bassett, which may be apportioned and distributed pro rata in accordance with the total principal for those loans recorded in the liquidator's records of Investor funds; (d) the liquidator may treat the proceeds of the litigation against Wribass Pty Ltd (in liquidation) as representing interest and capital owed to Investors in loans 53 and 63 as recorded for those 2 loans in the liquidator's records of Investor funds; (e) the proceeds from the litigation against Wribass Pty Ltd (in liquidation) may be first applied and paid to Investors in those loans in satisfaction of interest which accrued prior to the appointment of the liquidator in the said proofs of debt, which amounts may be apportioned and distributed pro rata in accordance with the total of interest as recorded for those 2 loans in the liquidator's records of Investor funds; (f) the liquidator may then apply and pay to The Solicitors' Trust any balance in respect of payments made by The Solicitors' Trust to Investors in those loans pursuant to default orders made in the Supreme Court of Tasmania (but only to the extent that The Solicitors' Trust has not received payment under order 3 (c)), which may be apportioned and distributed pro rata in accordance with the total principal for those loans recorded in the liquidator's records of Investor funds; (g) the liquidator may then apply and pay any balance to Investors in loans 53 and 63 towards interest which accrued after the appointment of the liquidator as recorded in the liquidator's records of Investor funds, which amounts may be apportioned and distributed pro rata in accordance with the total of such interest for those loans recorded in the liquidator's records of Investor funds; (h) in distributing such proceeds, the liquidator is justified in disregarding: (i) any loss claimed in the said litigation on behalf of "PWB" and "C. P.R. Hill"; (ii) any assertion by The Solicitors' Trust to an entitlement to any proceeds, other than as set out in order 3(c) and 3(f). 4. The Court directs that the liquidator is justified in dealing with the proceeds of the litigation against the Respondent in Supreme Court of Tasmania Action No. 404 of 2003, and the dividends received from the Bankruptcy Trustee of the bankrupt partners of the Respondent, in the following manner: (a) the liquidator is entitled to withhold the sum of $100,000.00 to finalise the liquidation and satisfy the costs referred to in order 10 below; (b) the liquidator may apply and pay: (i) the trustee for Trust No. 1 (formerly the WJ & NM Turner Family Trust) $220.35 in respect of Loan 54; (ii) the trustee for Trust No. 2 (formerly the JT Turner Family Trust) $2,178.36 in respect of Loan 54; iii) the trustee for Trust No. 1 (formerly the WJ & NM Turner Family Trust) $15,583.19. (c) the liquidator may treat the balance proceeds as representing interest owed to the Investors as recorded in the liquidator's records of Investor funds in respect of the loans which were the subject of that litigation; (d) the balance proceeds may be first applied and paid to the Investors in those loans in satisfaction of interest which accrued on those loans prior to the appointment of the liquidator as recorded in the liquidator's records of Investor funds; (e) the balance proceeds may then be applied and paid to the Investors in those loans in satisfaction of interest which accrued on those loans after the appointment of the liquidator as recorded in the liquidator's records of Investor funds; (f) the liquidator may apportion and distribute the balance proceeds pro rata in accordance with the total such interest on those loans as recorded in the liquidator's records of Investor funds. 5. In distributing those proceeds, the liquidator is justified in disregarding: (a) any loss claimed in the said litigation on behalf of "PWB" and "C. P. R. Hill"; (b) any assertion by The Solicitors' Trust to an entitlement to those proceeds. 6. The Court directs that the liquidator is justified in dealing with any other amounts held in respect of any loans as follows: (a) that the liquidator may treat the amount as representing interest owed to Investors in respect of that loan as recorded in the liquidator's records of Investor funds; (b) that the amount may be first applied and paid to the Investors in that loan in satisfaction of interest which accrued prior to the appointment of the liquidation as recorded in the liquidator's records of Investor funds and then be applied and paid to the Investors in those loans in satisfaction of interest which accrued after the appointment of the liquidator as recorded in the liquidator's records of Investor funds; (c) the liquidator may apportion and distribute the amount pro rata in accordance with the total of interest recorded in the liquidator's records of Investor funds; (d) that the liquidator may disregard any assertion by The Solicitors' Trust to an entitlement to any part of the amount. 7. The Court directs that any future sums received by the liquidator in respect of the Piggott Wood & Baker Run-out Mortgage Business, and any sums which remain after payment pursuant to other orders, be applied: (a) Firstly in the same manner and to the loans described in order 4(c) and (d), until all Investors in those loans receive full satisfaction of interest accrued prior to the appointment of the liquidator; and (b) Secondly, in the same manner as described in order 4(e). 8. "Investors" in these orders means a person who has contributed monies to a loan through the Piggott Wood & Baker Run-out Mortgage Business and includes the W J & N M Turner Family Trust and The J T Turner Family Trust respectively. 9. The liquidator be relieved of any obligation to report further to investors following the last payment in time made to them pursuant to these orders. 10. The liquidator's cost of and incidental to this application be paid out of the assets of the Piggott Wood & Baker Run-out Mortgage Business. 90 There are no precise dollar amounts provided for in proposed directions 2A(a)(ii) and (iii). Mr Walker explained that that was because Mr Hamilton had not yet undertaken calculations with respect to certain costs he had not brought into account at the time when he had no expectation that the Solicitors' Trust might be entitled to a share of any distribution. Both Mr Walker and Mr Murphy submitted that the final dollar amounts were likely to be quickly agreed as between Mr Hamilton and the Solicitors' Trust should such a direction be made, but as a matter of prudence, liberty to apply ought to be reserved in case that expectation was not met. The Court indicated that were it disposed to make such a direction it would reserve liberty to apply accordingly. 91 Because the changed emphasis by the Solicitors' Trust had emerged only during the course of the hearing, I gave leave to both Mr Murphy and Mr Walker to file supplementary short written submissions. I directed that they be responsive, in particular to Mr Walker's proposition which had underpinned the second of the propositions he advanced as referred to at [85] above. That is, "where a debt is assigned, the nature of that debt doesn't change". It is "simply the right to take action to recover the debt that is assigned". Thus, he had submitted, the Solicitors' Trust could not plead a hypothetical case that it had a legal right to a return of principal superior to that the investors were entitled to assert with respect to their right to a return of interest owing to them. It had no legal right capable of pleading independent of those of the investors. 92 I therefore set out the short further written submissions filed by Mr Browne for Mr Hamilton and Mr Murphy on behalf of the Solicitors' Trust.

Mr Hamilton's further submissions 93 Mr Browne's submissions were as follows: 1. The Solicitors' Trust appears in this court only as the assignee of certain rights from the investors in the PWB Mortgage Fund. It does not, and cannot, appear in any other capacity. 2. The assignment was a limited one. It was a statutory assignment under s113 of the Legal Profession Act 1993. It was limited to "when an amount is paid out of a Court fund to [a] person [here an investor] and only to the extent of that amount". 3. It was not, therefore, an assignment of the debt owed to the investor by a borrower. That is because the right to interest remains with the investor, and the right to capital which has not been paid out of the Court fund also remains with the investor. Both of these necessarily flow from the debt itself, so that must remain with the investor. Were it otherwise, and the debt in full had been assigned, the investor retains nothing upon which to claim interest, and could not claim any capital which may not have been paid out by the Court fund. 4. What has been assigned is a chose in action comprising the right to sue for payment of part of the capital of the debt, being the amount of that capital which was in fact paid out of the Court fund. A right to sue for a sum of money is a chose in action, and it is a proprietary right. When such an assignment is made, what is transferred is that exact chose in action, and not an equivalent. 5. The result is that The Solicitors' Trust is the only person with the right to take action for payment of the assigned part of the capital. The title of the assignee (The Solicitors' Trust) to that part of the capital is derived from the assignor (the investor). Notwithstanding the assignor's title to the right to repayment of that part of the capital is extinguished and replaced by The Solicitors' Trust's right to repayment, the obligation of the obligor (the borrower) is not extinguished. The obligation owed by the obligor to the assignor remains the same as it was. The obligor owes the investor the capital. 6. When considered in this context, the group of debtors to which any rateable distribution may be made is the same; it is the existing investors. The Solicitors Trust does not stand in as a "new" debtor. It does not have a "new" debt. It simply has the right to repayment of part of the "old" debt owed to the existing investors. 7. Therefore, the issue of rateable distribution is properly considered as between the existing investors only, and that is what the liquidator has consistently advanced. It is not as between the existing investors as one group and The Solicitors' Trust as another group. There is no authority cited that a rateable distribution can be made between one group of persons to whom debts are owed, and another person or group. Rateable distribution means as between the members of one group of persons with a similar entitlement in proportion to the amounts owed to them. 8. The issue of whether a payment of money to that group of investors should be appropriated as to interest or as to capital is a different consideration altogether, and falls to be determined by application of the principles and presumptions of the common law. (Citations omitted.)

The Solicitors' Trust's submissions 94 Mr Murphy's submissions were as follows: 1. By virtue of section 113 of the Legal Profession Act 1993 (the Act) the Solicitors' Trust (the Trust) is the legal assignee of the rights and interests of each of the Investors as to capital to the extent of the amount paid out of the Court Fund to them, in aggregate $6,110,440.49. 2. The effect of this statutory assignment is that the Trust has the same right to the repayment of capital out of the "valuer proceeds" that the Investors would otherwise have had. 3. Alternatively, by virtue of the Trust's payments into the Court Fund pursuant to section 114 of the Act, the proprietary rights of the Investors to capital has vested in the Trust in equity. 4. Whether in law or in equity, the Trustee therefore stands in the shoes of the Investors and is entitled to all equitable remedies applicable to their entitlements to the capital assigned to it. 5. These entitlements are proprietary rights of the Trust just as they would otherwise have been proprietary rights of the Investors. 6. Since: a) the valuer proceeds, although undissected, reflect the Applicant Liquidator's claims for capital and interest; and b) both the Trust (as to capital) and the Investors (as to interest) have proprietary rights to the valuer proceeds, consistently with the decision of the Court in Letten, the Applicant Liquidator should distribute the valuer proceeds to the Trust and to the Investors on a rateable basis. 7. Alternatively, it is just and equitable for the purposes of section 601EE of the Corporations Act 2001 for the valuer proceeds to be distributed to the Trust and to the Investors on a rateable basis. 8. For these reasons, the Court should make the direction sought in paragraph 2A of the Liquidator's Application as amended on 14 March 2019 and not make the direction sought in paragraph 2 of the amended Application.

Consideration 95 The Court is unpersuaded by the submissions originally advanced on behalf of the Solicitors' Trust that the correct legal analysis is that the entirety of the Jones Litigation recoveries constitute "capital" such that those funds are to be distributed first to the Solicitors' Trust in reimbursement of the principal it repaid to investors in the loans in issue in the Jones Litigation. 96 It is uncontentious that the proceeds of the Jones Litigation comprised an undissected lump sum. 97 The Court accepts, as submitted on behalf of the Solicitors' Trust, that the total of damages claimed in the two proceedings which were ultimately compromised "included unpaid interest and the principal lost as a result of the imprudent lending made by [Piggott Wood & Baker] on the faith of the woefully negligent valuations". As noted above, the total also included a separate claim for Hungerfords damages. 98 For the purpose of this discussion, the Court accepts that cases such as Commissioner of Taxation v CSR Limited [2000] FCA 1513; 104 FCR 44 (CSR) stand for the proposition that in such circumstances, the established position for tax purposes is that an undissected lump sum (at least where some part is clearly attributable to a recovery on taxpayer's capital account) is to be treated for tax purposes as wholly capital where no specific part of the lump sum can be identified as income according to the ordinary concepts and usages. 99 That acceptance is simply for the purposes of allowing further analysis. Without considering whether the present circumstances might be capable of being distinguished on the basis of what Hill J stated in Northumberland Development Co Pty Ltd v Commissioner of Taxation (Cth) [1994] FCA 784; 126 ALR 97 also cited by the Solicitors' Trust in which his Honour appears to exclude that principle where there might be a multiplicity of claims brought in relation to proceedings. 100 The Solicitors' Trust submits there is no difference between "income" and "capital" as those terms are understood for tax purposes and "interest" and "principal" in the recoveries achieved by Mr Hamilton in the Jones Litigation: they are but two sides of the same coin. 101 However that argument is unpersuasive. The analogy relied on breaks down when analysed. 102 Australian jurisprudence relating to taxation is a product of complex statute law. It is sui generis. In general, a receipt in the hands of a taxpayer is to be assessed by the Commissioner as either on account of capital or income. That requires a binary choice. In that context, the fact that it may have been held by a Full Court of this Court in CSR that the taxpayer's receipt of an amount of $100 million was incapable of disaggregation and should be taken as having been received as capital does not answer any question relevant to the proceeding. 103 The questions relevant to these proceedings are quite different. They concern the correct characterisation of the funds that came into Mr Hamilton's hands as liquidator of the Run-out Mortgage Business conducted by the law firm Piggott Wood & Baker compromised of the Jones Litigation and whether Mr Hamilton is justified in distributing those funds as he has proposed. 104 That question cannot be answered by an analogy as to how Mr Hamilton might be taxed on the assumption he was the beneficiary of that recovery. He was not. As liquidator, he received the Jones Litigation funds not as a beneficiary but as a trustee. He was bound, subject to his entitlement to remuneration and to pay accounts properly incurred in his recoveries, to apply those funds by way of distribution to those entitled in appropriate shares. 105 The Solicitors' Trust's original submission concedes that there is "no doubt that the total of damages claimed included unpaid interest...". Notwithstanding, the Solicitors' Trust asks the Court to proceed on the basis that any legal rights of the investors with respect to interest can be disregarded. 106 In Letten (No 7) Gordon J observed that it was settled law the Court's statutory and inherent powers as apply to a liquidation of an unregistered mortgage scheme do not generally permit orders that depart from the proprietary rights of the scheme participants. I do not accept that an exception is to be made in this instance. 107 I am satisfied for that reason that an argument by analogy to principles of income and capital in tax law must be rejected. 108 I therefore turn to the remaining issues. 109 I reject Mr Browne's submission on Mr Hamilton's behalf that the Solicitors' Trust has no proprietary right distinct from that it holds in common with the investors. 110 The parties were agreed that s 113 of the LP Act as in force at the time the Solicitors' Trust made payments to the investors (following the 1 October 2002 orders of the Supreme Court of Tasmania that Piggott Wood & Baker was in default) was as follows:: 113. Vesting in Trust of rights If a default order has been made in respect of a firm or legal practitioner corporation, the rights and interests of any person arising from any loss incurred in respect of which the default order was made are assigned to the Trust when an amount is paid out of a Court fund to that person and only to the extent of that amount. 111 As was held by Blow CJ in Garrisons Pty Ltd v The Solicitors' Trust [2004] TASSC 87 (Garrisons) at [13], the purpose of s 113 of the LP Act is to facilitate the maintenance and replenishment of the fund: 13 … The evident purpose of the relevant provisions of the Act, before and after the 2001 amendments, has been to provide compensation to innocent persons (including solicitors' investor clients) who have suffered losses as a result of improprieties on the part of legal practitioners: Dobson v The Solicitors' Trust [2001] TASSC 99 at pars14, 46. To promote that objective, provision is made in s113 for the rights of compensation recipients to vest in the trust. That provision is obviously intended to facilitate the maintenance or replenishment of the Solicitors' Guarantee Fund. Prior to an amendment in 2002, s113 was differently worded, but I think that the same legislative purpose was still evident. 112 The Chief Justice's reasoning in Garrisons is fundamentally inconsistent with the submissions advanced by Mr Browne at [5] of the further submissions of the liquidator. Garrisons concerned an application by an applicant seeking review of decisions of the Solicitors' Trust declining to accept certain claims it had made on the Court Fund. His Honour set out the context of the application as follows: 1 … Clients of the applicant encountered difficulties in relation to the payment of interest and the recovery of capital invested by them in the mortgage schemes of the two firms. Investors and regulatory bodies threatened action against the applicant. As a result, the applicant entered into agreements with a large number of its investor clients whereby it agreed to pay them the capital sums that they had invested, together with interest at the rate of 6 per cent per annum from the date to which their interest had been paid, in consideration of those clients assigning to the applicant all their rights in relation to their investments. Dozens of deeds of assignment were executed in favour of the applicant accordingly. As the assignee pursuant to those deeds, the applicant lodged four claims with the Trust in purported pursuance of the Act, s114, seeking payments from the court funds. It thereby sought reimbursement of all the capital sums it had paid to the assignors, plus interest. The Trust rejected those four claims. This application seeks the review of the decisions rejecting the claims…. 113 His Honour then reasoned: 6 A bare right to litigate is not assignable, and any purported assignment thereof constitutes maintenance: Clegg v Bromley [1912] 3 KB 474. Mr Porter QC submitted on behalf of the applicant that the assignors' rights to compensation under the Act were incidental to their interests in the mortgaged real estate and in the mortgage debts, which they were entitled to assign, and were therefore themselves assignable. He relied on Trendtex Trading Corporation v Credit Suisse [1982] AC 679 and First City Corporation v Downsview Nominees Ltd [1989] 3 NZLR 710 as authority for the proposition that an exception to the rule preventing the assignment of a bare right to litigate exists when the right of action is annexed to a right of property. He submitted that a far more liberal approach to the question of what was acceptable, as distinct from invalid as maintenance, was evidenced by decisions such as Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1996) 72 FCR 261, Beatty v Brashs Pty Ltd [1998] 2 VR 201, and Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499. 7 However there can be no scope for the operation of the principles discussed in those cases when the statute giving rise to the right to make a claim is worded in such a way as not to permit those principles to operate. That was held to be the situation in National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd [1995] FCA 1628; (1995) 132 ALR 514. In that case a large number of investors had claims for damages against the first respondent (Citibank) and a number of its agents. Three of the applicants, members of the National Mutual group of companies, took assignments of the investors' causes of action against Citibank and its agents. The causes of action included statutory causes of action under the Trade Practices Act 1974 (Cth) and the Securities Industry Code (Vic). The Trade Practices Act permitted damages to be recovered by a "person who suffers loss or damage by conduct of another person" that contravened that Act: s82(1). Under the Securities Industry Code, s68F, damages were recoverable if a client "suffers loss or damage as a result" of acting or omitting to do a particular act in reliance on the recommendation of a securities adviser. Lindgren J held at 539 that the causes of action under those pieces of legislation were not assignable, on the basis that only the original claimants "could possibly satisfy the statutory descriptions of being persons who suffered loss or damage caused by the conduct described in the statutes". In this case it is necessary to consider whether the Act permits the payment of compensation out of a court fund to an assignee in the position of the applicant. If that is not permitted, it makes no difference whether the rights of the assignors were of such a nature as not to be inherently incapable of assignment. 114 His Honour ultimately concluded the application before him adversely to the applicant and in favour of the Solicitors' Trust. 115 It is impossible to reconcile the reasoning of Blow CJ in Garrisons with the proposition advanced on the liquidator's behalf that any rights of the Solicitors' Trust to a return of capital necessarily must flow from the debt itself and thus remains with the borrower. 116 It is uncontentious that none of the debts owed by Piggott Wood & Baker to the investors were assigned to the Solicitors' Trust. 117 The reasoning of Blow CJ at [6] compels the conclusion that the borrowers themselves would lack capacity to assign a bare right to litigate to the Solicitors' Trust, or to any other third party. 118 For s 113 to be effective in achieving what Blow CJ referred to as its evident purpose, that section necessarily must be construed to create in the Solicitors' Trust a distinct legal entitlement, otherwise not known to the law, to enforce the statutory assignment it provides for. Any other conclusion would denude the provision of effect. 119 As a matter of statutory construction, consistent with the reasoning of Blow CJ in Garrisons, I proceed on the basis that it is s 113 of the LP Act, not any legal or equitable interest deriving its existence from the investors, which clothes and invests the Solicitors' Trust with its relevant proprietary rights. 120 Having regard to that conclusion, I turn to the nature of the Jones Litigation recoveries. 121 It is not in dispute that that litigation was compromised on terms which make no distinction between amounts attributable to principal, interest or Hungerfords damages. It is impossible to attribute any part of those recoveries to a specific loan or series of loans taken out against the alleged negligent and excessive valuations made by Mr Jones or his company in respect of any of the properties listed at [H] in the deed of release set out at [55] above. 122 However, the nature of the pleadings in respect of the claims made against the Jones parties allows the Court to infer that an entitlement to interest or Hungerfords damages would arise, in each instance, only if there was also an entitlement to recover an amount attributable to principal. That such an inference is open to be drawn as applicable to the actual recoveries made by Mr Hamilton pursuant to the compromise is consistent both with Mr Hamilton's submissions as set out at [57] above and with the aggregate sums respectively involved. 123 It is uncontentious that the unrecovered amount paid by the Solicitors' Trust to investors affected by the Jones Litigation as a return of their principal was $6,110,440.49 and the interest accrued to investors as at the commencement of the winding up of the scheme stood at $3,195,339.85. 124 I do not think it plausible to suggest that as at the time Mr Hamilton signed the deed of release to settle the Jones Litigation in October 2007 he would have been unaware of those broad proportions. As liquidator, he held records of the loans made in respect of the allegedly overvalued properties the subject of that litigation. I infer he would have been aware at least in broad terms of the amounts of lost principal for which the Solicitors' Trust had indemnified the relevant investors. He would have been equally aware in broad terms of the total amount of interest, which the investors in those loans had claimed as losses. I infer that he would have been able readily to calculate that the total of the former was significantly in excess of the total of the latter. 125 Mr Hamilton cannot be criticised for not insisting that the deed of release in the Jones Litigation refer to any proportion of the recovery as was to be attributed to principal. That was not then a material question. It could be dealt with later. However, I am satisfied that Mr Hamilton in his capacity as liquidator received that settlement amount as a trustee for those to whom a distribution would be due having regard to their underlying proprietary interests. 126 Putting aside the possible application of the rule in Falk, there was nothing entitling Mr Hamilton, nor does he suggest he is entitled, to prefer the interests of one class of claimants (the Solicitors' Trust asserting a claim for capital and the investors asserting a claim for interest) over the other. 127 The character of the receipt of those funds in Mr Hamilton's hands as at the time does not dispose of the question of whether the distribution he proposes is justified. However, I am prepared to infer that Mr Hamilton would have understood that the Solicitors' Trust and the investors would have had, and in law did have, different underlying proprietary interests in the funds he recovered from the settlement of the Jones Litigation. Given the reasoning of Gordon J in Letten (No 7), as referred to above at [80], the character of those funds as they came into Mr Hamilton's hands cannot be dismissed as irrelevant. That is so notwithstanding those funds came into his hands without any specific prior apportionment. 128 Mr Murphy submits that a justifiable distribution of the amounts Mr Hamilton recovered after the compromise of the Jones Litigation would be for the liquidator to apportion the amounts he recovered in the Jones Litigation ($1,485,381.52) to the Solicitors' Trust and the investors in the same ratio as $6,110,440.49 (the total of unrecovered funds paid out by the Solicitors' Trust on account of principle) is to $3,195,339.85 (the total of the investors claims for unpaid interest). 129 That proposition would result in $975,301.51 being received by the Solicitors' Trust as a return of principal, and $510,080.01 being received by the investors as a return of unpaid interest. 130 Mr Walker accepts that Piggott Wood & Baker had maintained its accounts so as reveal distinct liabilities in respect of capital and liabilities in respect of interest in relation to each investor, and each investment. 131 As noted above, Mr Hamilton has obtained leave to amend his application to include 2A, the terms of which are premised on his not disputing, on the assumption that the Solicitors' Trust's alternative argument were to be accepted, that those proportions are appropriate to reflect the respective shares to be apportioned to principal and interested respectively. 132 The dispositive issue is whether Mr Walker was correct when submitted on Mr Hamilton's behalf: …[W]e say that in the context of liquidation of a mortgage fund, that this ought - or this receipt ought to be treated simply as being a claim for debt and interest, clothed in a different form, if you like. That being the case, the liquidator says, "Well, the principles that we've identified in that long line of authorities [the Falk authorities] should apply and that the receipt in my hands should be treated as interest". … And when you look at that - when you consider that matter, what is actually being raised here is not whether one party or the other should get these funds, but simply how the funds should be treated in the investors' hands, because on the one hand you've got the investors' capital rights, on the other hand you've got the investors' interest right. It's the same party. 133 The Court has concluded that the underlying proposition that the Solicitors' Trust and the investors have the same rights cannot be sustained on a proper construction of s 113 of the LP Act as in force at the relevant time. Each had distinct and several proprietary rights: the former with a statutory right to seek a return of the amounts it had paid out to investors who had lost principal, and the latter for a share in any recovery on account of interest. 134 In his liquidation, Mr Hamilton has been astute to recognise that Piggott Wood & Baker had not operated a pooled scheme. I have accepted the propriety of his having attributed his recoveries to a particular loan or series of loans on that basis. Consistently with that underlying legal position Mr Hamilton maintained his accounts, as Piggott Wood & Baker had, so as to reveal distinct liabilities in respect of capital and liabilities in respect of interest in relation to each investor and each investment made by them. 135 The Court is not persuaded that what is in issue in the Jones Litigation can be properly characterised simply as a claim for debt and interest so as to attract the Falk principle. That litigation was commenced by the firm of Piggott Wood & Baker prior to the liquidator's appointment. Its claims involved multiple allegations of negligence in respect of valuations of real property. What was sought in that litigation was damages for losses in respect of principal, losses of interest and Hungerfords damages. 136 Even assuming the Court would be in error in concluding that the recoveries in Mr Hamilton's hands are not analogous to the recovery of a debt and interest, the Court would not be satisfied that the distribution proposed was justified. I accept the Solicitors' Trust's submission that ever since Chase, it had been plainly established that the principle in Falk is a rule of equity. Equity follows the law. Such a rule cannot operate to negate a proprietary right founded in a statute that the law recognises. 137 I am accordingly satisfied that the distribution originally proposed by Mr Hamilton involves an error of law or principle of the kind Giles J in Spedley identified as a proper basis for the Court to not apply the general rule of non-interference with a liquidator's judgement. 138 As Blow CJ observed in Garrisons the purpose of s 113 of the LP Act and its predecessor provisions clearly was to facilitate the maintenance or replenishment of the Solicitors' Guarantee Fund. I am satisfied that that distribution fails adequately to take into account the Solicitors' Trust's proprietary interest in the funds recovered by Mr Hamilton in the Jones Litigation as had been conferred upon it by statute in the circumstances of it having made payments out of the Court Fund to investors in Piggott Wood & Baker's failed unregistered managed investment mortgage scheme on account of those investors' loss of principal. 139 I note the repeal of the LP Act and its replacement by the Legal Profession Act 2007 (Tas) has maintained the continuing existence of the relevant fund: see Pt 3.5. 140 A liquidator is not entitled to prefer the interests of one otherwise equal claimant over another. Mr Hamilton does not submit that there is a basis other than the rule in Falk, the application of which, in the circumstances of the present case, I have rejected, for preferring the interests of the investors in a return of their unpaid interest above the claims in respect of principal advanced by the Solicitors' Trust. 141 That conclusion in no respect affects my conclusion that the evidence establishes that Mr Hamilton has been meticulous, scrupulous and at all times has acted honourably in the discharge of his responsibilities as liquidator of the Run-out Mortgage Business formerly conducted by Piggott Wood & Baker. 142 I am satisfied in the circumstances I have referred to above that it would be justifiable for Mr Hamilton to make the distribution he proposes at 2A of his amended application. 143 The parties have advised the Court that they anticipate that they will reach agreement and will be in a position to file proposed consent orders without delay as to the final dollar amounts to be distributed pursuant to that direction. I would order the parties to file agreed terms for directions that give effect to these reasons, including final figures for distribution, within 14 days of the publication of these reasons. 144 For completeness I note that the funds Mr Hamilton will distribute to the investors pursuant to the direction the Court has made are clearly on account of interest. For that reason, no occasion for the operation of the clause in their agreements with the Solicitors' Trust for repayment of principal arises. I certify that the preceding one hundred and forty-four (144) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kerr.