defendant. Motion dismissed; applicants (plaintiffs/trustees) to pay the respondent's (defendant's) costs of the motion. Further mention fixed for 19 October to permit trustees to consider next steps (Orders...
Key principles
Leave to discontinue was refused because the discretionary balance of prejudice favoured the defendant: as a self-represented litigant Mr Boensch could not recover an award for...
The Trustees' financial inability to continue litigation did not obligate the Court to permit discontinuance; the decision to discontinue was a forensic choice and not compelled...
The prior order granting the Trustees' costs as a priority expense in the bankruptcy (BA s 109) weighed against allowing discontinuance because it would risk duplication of...
The Trustees had available an alternative administrative procedure under Real Property Act s 90 (application to the Registrar-General) which they did not pursue; that...
Issues before the court
Should the Court grant the Trustees leave to discontinue proceedings which seek a declaration that property vested in them under BA s 58, where the...
Plain English Summary
The trustees in bankruptcy lodged a caveat over the bankrupt's property and commenced proceedings asserting the property vested in them under s 58 of the Bankruptcy Act. Unfunded and with a Federal Court challenge to the sequestration order unresolved, they sought leave to discontinue the Supreme Court proceedings. Parker J refused leave. The judge treated the trustees' lack of funds as a forensic choice, gave weight to the prejudice discontinuance would cause the self-represented defendant (who cannot recover a charge for his time), and to the risk of duplicative priority costs harming creditors. The trustees were ordered to pay the defendant's costs of the motion.
AI-generated legal information, not legal advice. Zoe can make mistakes. Check the cited source, and for advice about your situation consult a qualified Australian lawyer.
Deep Dive
1,694 words · generated 07/07/2026
What happened
The trustees in bankruptcy (Liam Bailey and Christopher Palmer) lodged a caveat on 17 December 2019 over land registered in the name of the bankrupt, Franz Boensch, asserting an equitable interest derived from the bankrupt's right of indemnity as trustee of the "Boensch Trust" and claiming their entitlement under Bankruptcy Act 1966 (Cth) s 58. The trustees commenced proceedings in the New South Wales Supreme Court seeking declaratory relief and interlocutory protection for the caveat. Earlier litigation between the same parties had reached the High Court in Boensch v Pascoe (reported at [2019] HCA 49 / 94 ALJR 112), which refined the law about when a trustee in bankruptcy acquires a beneficial interest via a bankrupt's indemnity against trust assets.
Should the Trustees be required to pay the defendant's costs on discontinuance, and what is the effect of the existing priority costs order?
What is the evidentiary burden concerning the bankrupt's right of indemnity and how did that affect the Trustees' decision to discontinue?
Cited legislation
2 cited instruments linked from this judgment.
The trustees obtained interim extensions of their caveat and an order that their costs of the proceedings be paid as a priority expense in the bankruptcy. They were, however, effectively unfunded and, with a separate Federal Court application to set aside the sequestration order still unresolved, decided to seek leave to discontinue the Supreme Court proceedings rather than continue at their own expense. The defendant, self-represented, served a lapsing notice and contested the discontinuance application.
On 25 September 2020 Parker J refused the trustees' application for leave to discontinue and ordered the trustees to pay the defendant's costs of the motion. The court published reasons for that decision (see the judgment opening: “On 25 September I refused an application…” [1]).
Why the court decided this way
Parker J approached the application as a discretionary question. The central elements of the Court's reasoning were:
The trustees' reason for seeking discontinuance was primarily financial, they lacked funds in the bankruptcy administration and were unwilling to continue to litigate at their own risk ([Procedural history and evidence on application] [7], [Discontinuance application] [3]-[6]). The Court accepted the trustees' predicament as understandable, but treated it as a forensic choice (a tactical decision), not a legal necessity, and therefore not a reason that obliged the Court to grant leave ([Discontinuance application] [3], [6]).
Prejudice to the defendant was significant. Mr Boensch was self-represented and had spent substantial time defending the case. The Court pointed out that a self-represented litigant ordinarily has no entitlement to recover a monetary charge for his own time; therefore if the Court permitted discontinuance the defendant would be left uncompensated for the effort already expended and, if the claim were renewed later, would face duplicative work ([Discontinuance application] [7]-[9]).
The trustees had previously obtained an order that their costs be paid as a priority expense in the bankruptcy. Parker J accepted that that order would probably stand; allowing discontinuance would risk duplication of priority costs if the trustees later recommenced and again sought priority, which would be prejudicial to the creditors of the bankrupt estate ([Discontinuance application] [10]-[11]).
The trustees had an available alternative: an administrative transmission procedure under Real Property Act s 90. Parker J described it as curious the trustees had not used that administrative route, since it would have shifted the onus to the bankrupt to show why the trustees should not be registered on the title, and avoided the same extent of court costs and procedural burdens ([Discontinuance application] [3]).
Weighing these factors, Parker J concluded the balance of prejudice and fairness favoured refusing leave to discontinue. In short: the trustees' difficulties were real but elective; the prejudice to a self-represented defendant and to creditors from potential duplicate priority cost claims was decisive.
Before and after state of the law
Before the High Court’s decision in Boensch v Pascoe, there had been a line of authority suggesting a bankruptcy trustee could lodge a caveat and claim property in equity more readily. The High Court clarified that a trustee only acquires a beneficial interest in trust property if the bankrupt had a valid beneficial interest (vested or contingent), for example through a right of indemnity, and that merely a “forensic possibility” is insufficient (see the High Court passages quoted at [15], [91], [97] in Parker J’s reasons).
Parker J applied the High Court’s guidance as the controlling statement on when trustees acquire an equitable interest. Importantly, the Supreme Court in Bailey v Boensch did not change the legal test from Boensch v Pascoe; rather, it applied Boensch as the background on the substantive entitlement. The novel (procedural) question decided was whether an unfunded trustee may be permitted to discontinue proceedings commenced to protect an arguable equitable interest. The decision clarifies that insolvency-related fundraising or tactical withdrawal, by itself, will not automatically persuade a court to allow discontinuance where significant prejudice to a defendant and to creditors would follow, and where administrative alternatives under the Real Property Act were available.
Key passages with plain-English translation
“On 25 September I refused an application by the plaintiffs to discontinue these proceedings. I now publish my reasons for doing so.” ([1])
Plain English: The judge refused the trustees’ request to stop the case and set out the legal reasons for that refusal.
“...bankruptcy trustees should always be careful about running up legal costs... But ultimately whether to initiate litigation, or to continue it once initiated, is a matter for judgment.” ([Discontinuance application] [3])
Plain English: Trustees must be cautious spending estate money, but the law does not force them to stop litigation just because they lack funds; it is their strategic decision.
“From the Bar Table, Mr Boensch asserted that he had spent 80 hours ... He claimed that his normally hourly rate is $50 ... But I thought that I would have no power to impose such a condition when Mr Boensch, as a self‑represented litigant, has no entitlement to recover time charges for his work on the proceedings.” ([Discontinuance application] [8])
Plain English: The defendant said he had spent lots of time and should be compensated, but the court explained self-represented litigants cannot recover fees for their own time, so the claimed loss cannot be directly compensated by a costs award.
“...the Trustees had not availed themselves of the RPA s 90 procedure... On what the High Court said at [93], the onus would then have fallen on Mr Boensch to demonstrate why the Trustees should not be registered.” ([Discontinuance application] [3])
Plain English: The judge pointed out a procedural shortcut existed that could have been used to shift the evidential burden onto the bankrupt, and the trustees’ failure to use it weakened their case for discontinuance.
What fact patterns trigger this precedent
This decision will be most relevant where:
A trustee in bankruptcy has lodged a caveat asserting equitable ownership of land (often via a bankrupt’s right of indemnity) and later seeks to discontinue proceedings because of lack of funds in the bankruptcy estate.
The defendant is self-represented and has expended time and effort in defending proceedings, such that discontinuance would force duplication of work.
The trustees have already secured an order that their costs be a priority charge in the bankruptcy administration, raising risk of duplicative priority claims if proceedings are restarted.
There is an available administrative route under the Real Property Act (s 90) that could have been used but was not pursued.
In these circumstances the Court is likely to treat discontinuance as a forensic choice and refuse leave where the balance of prejudice to other parties and creditors outweighs the trustees’ financial justification.
How later courts have treated it
As this is a 2020 Supreme Court of NSW procedural ruling, subsequent treatment will depend on whether other courts adopt Parker J’s balancing approach on discontinuance applications by trustees. The decision is principally a discretionary ruling, so its precedential weight lies in the exposition of relevant factors rather than in establishing new legal norms. Key takeaways for later courts will be: (a) consider the defendant’s status and realistic compensation possibilities; (b) weigh existing costs orders (particularly priority orders) and creditor interests; (c) examine whether administrative alternatives were available and could have been pursued.
Users should check subsequent decisions for confirmation or divergence, especially where a trustee genuinely cannot fund litigation and where the defendant is legally represented and able to recover costs in conventional ways. For bankruptcy administrators and creditors the case is a warning that priority cost orders already made will weigh heavily in procedural decisions.
Still-open questions
Quantification of prejudice to self-represented defendants: Parker J treated the inability of self-represented parties to recover payment for their time as a relevant prejudice. Questions remain about how courts will assess non-monetary prejudice (time, stress, lost opportunity) in other contexts where the defendant is self-represented but the plaintiff offers some costs undertaking.
Revocability of priority costs orders: The judgment discusses the difficulty of revoking or undermining a prior order that trustee costs be paid as a priority (Macedonian Orthodox Community Community was cited). Further authority may be required to define the circumstances and mechanics for rescinding or varying prior priority cost grants, particularly where litigation is discontinued and re-commenced.
The interplay between RPA s 90 administrative transmission and court-based declaratory processes: Parker J lamented the trustees’ failure to use the RPA s 90 process. It remains to be developed how often trustees will be expected to use the Registrar-General route, and whether refusal to use it will count against trustees in other discretionary applications.
Onus and evidentiary burdens post-Boensch: The High Court's statements about the bankrupt bearing the ordinary burden of proving absence of a beneficial interest (cited at [93] in the reasons) interact with procedural choices by trustees. It is not settled how courts will reallocate evidential burdens in interlocutory settings where trustees seek protective relief but have not yet conducted detailed forensic investigations.
Practical implication: trustees should carefully evaluate procedural routes (RPA s 90), plan funding strategies before commencing protective litigation, and be prepared to demonstrate both the existence and quantum of any right of indemnity when relying on s 58. Defendants should understand their procedural posture can be influential in discretionary applications; self-represented parties will have limited prospects of recovering compensation for their own time if a plaintiff discontinues.
Judgment (7 paragraphs)
[1]
Judgment
On 25 September I refused an application by the plaintiffs to discontinue these proceedings. I now publish my reasons for doing so.
The defendant, Franz Boensch, is a bankrupt. He was made bankrupt by order of the Federal Circuit Court on 12 December 2019. The plaintiffs, Liam Thomas Bailey and Christopher John Palmer, are his trustees in bankruptcy. I will refer to them as "the Trustees".
The proceedings arise out of the Trustees' decision to lodge a caveat over a property at Victoria Road, Rydalmere. Mr Boensch is the registered proprietor of the property. It is subject to a registered mortgage in favour of the Australia & New Zealand Banking Group Limited ("ANZ"). There are also two prior caveats recorded on the title from persons claiming to be secured creditors.
The Trustees claim that, on Mr Boensch's bankruptcy, his ownership of the Rydalmere property (subject to ANZ's registered mortgage and any other prior security interests in the property) vested in them pursuant to the Bankruptcy Act 1966 (Cth) ("BA"), s 58. They also contend that they have a statutory entitlement to have the property registered in their names.
The Trustees' claim is disputed by Mr Boensch. He says that he holds the property as trustee under a trust for the benefit of his family (referred to in the evidence as the "Boensch Trust").
The trust deed for the Trust is dated March 2004, but purports to confirm an earlier memorandum of trust dated August 1999. In August 1999, the property was registered in the names of Mr Boensch and his ex-wife. Ms Boensch executed a transfer into Mr Boensch's sole name in March 2004. The transfer was not immediately registered, but it appears to have been registered following the litigation in the Federal Magistrates Court to which I will refer shortly.
The Trustees do not dispute the validity of the Boensch Trust. But they say that it does not affect their entitlements. Mr Boensch as trustee of the Trust has a right of indemnity against the property for any expenditure which he has made on it, or which he has outlaid in connection with the administration of the trust. That right of indemnity is an asset which, on Mr Boensch's bankruptcy, passed to the Trustees for the benefit of his creditors. And unless there is nothing owing under the indemnity, the effect of s 58 is that the Trustees are entitled to be registered as proprietors.
Mr Boensch replies by denying that he has any current entitlement under the indemnity. This is the critical issue between the parties.
[2]
Procedural history and evidence on application
On 13 December, the day after being made bankrupt, Mr Boensch lodged an appeal to the Federal Court against the earlier decision of the Federal Circuit Court refusing to set the relevant bankruptcy notice aside. Mr Boensch also applied separately to the Federal Court to have the sequestration order set aside.
The Trustees' caveat was lodged under Division 3 of Part 7A of the Real Property Act 1900 (NSW) ("RPA"). It was lodged on 17 December 2019. The interest claimed is "Estate in Fee Simple". The supporting details are:
Details Supporting The Claim: Upon the making of the Sequestration Order on 12 December 2019, the property vested in equity in the caveators by reason of the registered proprietor's right of indemnity pursuant to s58(1)(a) of the Bankruptcy Act, 1966 (Cth).
The Trustees' solicitor is Ms Daniela Naidenov. Mr Boensch is self-represented.
On 6 March this year, Mr Boensch lodged a lapsing notice against the caveat. This required the Trustees, should they wish to maintain the caveat, to commence proceedings within fourteen days.
On 19 March, the Trustees commenced proceedings in this Court. As is conventional, the Summons set out both the interlocutory and final relief claimed by the Trustees. The interlocutory relief included an order that the operation of the caveat be extended "until further order". The final relief claimed was:
1. A declaration that the Plaintiff has an equitable interest in the [Rydalmere property] by way of a charge in circumstances where the Defendant's beneficial right of indemnity as Trustee of the Boensch Trust, and with it the equitable estate of the property, has vested in equity in the Plaintiff pursuant to s58(1) of the Bankruptcy Act 1966 (Cth).
2. Such further or other orders as the Court sees fit to give effect to the relief sought by the Plaintiff.
In addition, both as interlocutory relief and as final relief, the Trustees sought an order that their costs of the proceedings be a priority debt in the bankruptcy under BA s 109.
The proceedings were commenced by way of urgent application before Stevenson J in the Duty List. His Honour granted short service. On the following day, he made an order on an interim basis extending the caveat to 9 April. On that date Robb J made a further interim order extending the operation of the caveat until 29 April.
[3]
Previous proceedings
Mr Boensch's bankruptcy is his second one. He was earlier made bankrupt in August 2005. In that bankruptcy, Scott Darren Pascoe was Mr Boensch's trustee.
The present case is a sequel to earlier litigation between Mr Boensch and Mr Pascoe concerning the ownership of the property. Part of that litigation reached the High Court: Boensch v Pascoe (2019) 94 ALJR 112.
The earlier litigation arose out of a caveat which Mr Pascoe lodged over the Rydalmere property. Mr Pascoe claimed ownership of the property on a wider basis than simply relying on Mr Boensch's right of indemnity against asses of the Boensch Trust. He alleged that the 1999 memorandum of trust was void as a sham. He also alleged that, if the Trust had validly been established, the March 2004 trust deed and the transfer of Ms Boensch's share of the property were transactions made to defeat creditors which should be set aside under BA ss 120 or 121.
There were proceedings in the Federal Magistrates Court (as it then was) between Mr Pascoe and Mr Boensch. The validity of the memorandum of trust was determined as a separate question. The Federal Magistrates Court determined the question in favour of Mr Boensch. Mr Pascoe's appeal to the Full Court of the Federal Court was unsuccessful. The Federal Magistrates Court then refused Mr Pascoe permission to amend so as to pursue claims under BA ss 120 and 121 and dismissed Mr Pascoe's case in its entirety.
At that point Mr Pascoe apparently decided that the prospect of pursuing a claim based on Mr Boensch's right of indemnity was not financially worthwhile. He allowed the caveat to lapse. Subsequently his appeal against the Federal Magistrates Court decision was dismissed.
Later, in May 2012, Mr Boensch brought a claim against Mr Pascoe in this Court. He alleged that Mr Pascoe lodged the Rydalmere caveat without reasonable cause and claimed compensation under RPA s 74P.
Mr Boensch's claim failed before Darke J. The allegation of want of reasonable cause could not succeed if, in fact, Mr Pascoe had an interest in the property as claimed in the caveat. The Court of Appeal had earlier decided that the effect of s 58 was that a bankruptcy trustee was entitled to lodge a caveat even if in fact the owner was a trustee and there was nothing owing by way of indemnity. Darke J followed that decision. His Honour's judgment was upheld on appeal to the Full Federal Court, which also followed the Court of Appeal's decision. Mr Boensch then appealed to the High Court.
[4]
Pre-litigation correspondence
As I have already mentioned, the caveat was lodged on 17 December 2019. This was four days after the High Court handed down its decision. On 18 December, Ms Naidenov wrote to Mr Boensch. She stated:
For the reasons determined by the High Court in the decision of Boensch v Pascoe [2019] HCA 49 (13 December 2019) there can be no doubt that upon the making of the Sequestration Order your interest in the [Rydalmere property], being your right of indemnity as Trustee of the Boensch Trust vested in your Trustees pursuant to Section 58(1)(a) of the Bankruptcy Act, 1966 ("the Bankruptcy Act").
Your interest in the property and in any other property as defined in s5 of the Bankruptcy Act will remain vested in your Trustees until one of the following events occurs:-
1. The Trustees sell your interest in the property to a friend or family member for its equity, subject to the existing mortgage and Caveats registered over the title of the property;
2. The property is sold by the mortgagee;
3. The property is sold by the claimed equitable charge holders, subject to order of the Court (and without any admission by the Trustees in Bankruptcy of the validity of such claims as at the date of this letter);
4. The Trustees disclaim your interest in the property;
5. You pay out all of your creditors, all interest claims, all estate realisation charges, all of the Trustees remuneration, all expenses, all legal costs being costs of the administration and your bankruptcy is annulled;
…
Ms Naidenov continued:
You are advised that the Trustees have now lodged a Caveat against your interest on the title of the property. The Caveat will remain in place until one of the above events occurs.
You are further advised that if none of the above events has occurred by the time you are discharged from your bankruptcy, your interest in the property will, notwithstanding your discharge from bankruptcy, remain vested in the Trustees until such time as one of those events does occur.
You are advised that the Trustees intend to take steps to register a Bankruptcy Application against your interest on the title of the property if their enquiries reveal there is sufficient equity in the property to warrant its sale for the benefit of the unsecured creditors in your bankrupt estate. Once a Bankruptcy Application has been registered, the Trustees will be the new registered proprietors of that property.
[5]
Discontinuance application
The Trustees' motion sought leave to discontinue on the basis that they would pay Mr Boensch's costs of the proceedings. This was a shift in favour of Mr Boensch from the proposal in Ms Naidenov's letter of 3 September.
Counsel for the Trustees drew attention to the evidence from Mr Bailey about the practical difficulties facing the Trustees. Counsel submitted that the Trustees had no real alternative but to discontinue. Counsel relied on case law authority which emphasises the importance of trustees not incurring legal costs unnecessarily: see for example Kyriackou v Shield Mercantile Pty Ltd (No 2) [2004] FCA 1338.
But although the Trustees had no current intention of continuing the claim against Mr Boensch in these proceedings, they wished to be able to reinstate the claim should the Federal Court proceedings be resolved in their favour. Counsel made it clear that the Trustees did not wish to have the proceedings dismissed, because of the possibility that dismissal could work some res judicata which would prevent them from pursuing the claim in future. This question was not fully debated, but I proceeded on the assumption that dismissal could have that effect.
Counsel for the Trustees contended that on Mr Boensch's side there was no disadvantage to the discontinuance. Counsel acknowledged that the effect of the proceedings being discontinued would be that the caveat would lapse and the Trustees would be unable to lodge a fresh caveat without leave of the Court: see RPA s 74O. Counsel also noted that the ANZ remains on the title as first mortgagee and there are two other caveators claiming an interest in the property.
For his part, Mr Boensch contended that the Trustees clearly had no entitlement to be registered. Mr Boensch quoted from the High Court decision at [91] (footnotes omitted):
… where the bankrupt has but a mere expectancy, or a "possibility of becoming entitled in the future to a proprietary right", no property can pass unless and until it is acquired by or devolves upon the bankrupt during the period of bankruptcy. … As the Court of Exchequer in effect held in Parnham v Hurst, nothing passes where there is merely the forensic possibility of a beneficial interest in the bankrupt being established.
In Mr Boensch's submission, the present case was simply a case of a "forensic possibility", namely that, upon investigation, the Trustees would be able to establish the existence of unreimbursed expenses giving rise to a right of indemnity.
[6]
Orders of the Court
The orders made by the Court on 25 September on the Trustees' notice of motion dated 22 September 2020 were:
Order that the motion be dismissed.
Order that the applicants (plaintiffs) pay the costs of the respondent (defendant) of the motion.
Following the making of the orders, the Court fixed the proceedings for further mention on 19 October, to allow the Trustees to consider their next step.
[7]
Amendments
14 October 2020 - minor typographical amendments
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 14 October 2020
Motion dismissed; applicants (plaintiffs/trustees) to pay the respondent's (defendant's) costs of the motion. Further mention fixed for 19 October to permit trustees to consider next steps (Orders of the Court [1]-[2]).
On 29 April, the proceedings came before Kunc J. At that time, a hearing on the papers had taken place in the Federal Court before Abraham J, and the parties were apparently awaiting her Honour's decision.
Before Kunc J there was a hearing of the Trustees' application. This involved the reading of evidence and the presentation of submissions, but no formal judgment was delivered. His Honour made an order extending the operation of the caveat until 28 August, apparently on the assumption that the Federal Court proceedings would be determined by then. His Honour also made an order that the Trustees' costs of the proceedings be paid as a priority expense in the bankruptcy, as had been sought in the summons.
By late August, the deadline for expiry of the orders was approaching. In May Abraham J had dismissed the bankruptcy notice appeal, but the application to set aside the sequestration order had not been decided. On 27 August 2020 the proceedings were brought before me in the Duty List by the Trustees, seeking a further extension of time.
I decided to extend the time, but also to make directions for the progress of the Trustees' substantive claims. On 27 August, I extended the caveat to 25 September. On 28 August I made directions fixing a timetable for the Trustees to file a statement of claim and a notice of motion for an order extending the caveat until further order, and for the filing of evidence on that motion.
The Trustees did not file a statement of claim or a notice of motion as contemplated by my orders. Mr Bailey swore an affidavit in support of the discontinuance application which explained why not. Mr Bailey stated that there were no funds in the administration and the Trustees have no funding from any creditors. On 28 August, following the orders which I made on that date, the Trustees made enquiries of the creditors concerning the funding of the litigation. Those enquiries did not result in any funding becoming available.
As at 3 September, the Federal Court application to set aside the sequestration order had still not been decided. Mr Bailey's affidavit stated that no hearing date had been set and the "appeal books" were "yet to be finalised". This is not easy to reconcile with earlier evidence about the progress of the Federal Court proceedings, which indicated that a hearing on the papers had already taken place, but neither party took the question any further. Whatever the precise position, Mr Boensch's Federal Court application remained outstanding.
Mr Bailey stated that the Trustees considered they were obliged to minimise costs, and did not wish to incur further costs when their appointment was still under challenge. In these circumstances, on 3 September the Trustees decided to seek to discontinue the proceedings. On that day, Ms Naidenov wrote to Mr Boensch seeking his consent to discontinuance on the basis that there be no order as to costs. Mr Boensch did not reply.
When Mr Bailey made his affidavit on 21 September the status of the Federal Court proceedings was unchanged from 3 September. The Trustees' notice of motion was filed on 22 September. As I have already mentioned, it came before me in the Duty List on 25 September.
The High Court (Bell, Nettle, Gordon and Edelman JJ) qualified the Court of Appeal authority which had been followed by Darke J and the Full Federal Court. The High Court held that, in order for ownership in equity and a right to be registered to pass to the bankruptcy trustee, the bankrupt had to have some actual beneficial interest in the property, whether by way of indemnity or otherwise. The Court stated (at [15]):
… provided the bankrupt has a valid beneficial interest in the trust property, the trust property will vest in the trustee in bankruptcy subject to the equities to which it is subject in the hands of the bankrupt. For these purposes, a valid beneficial interest means a vested or (subject to applicable laws as to remoteness of vesting) contingent right or power to obtain some personal benefit from the trust property.
At first instance, Darke J had not undertaken the factual exercise of determining how much was owing to Mr Boensch under the indemnity. Nevertheless the High Court was satisfied that some liability existed. The Court stated (at [97], footnote omitted):
[The] evidence included Mr Boensch's own admission that he had incurred significant expenses in his capacity as trustee for the Boensch Trust, in the form of "bank payments, loan payments, the council rates, [and] every other cost … required" for the trust. In the absence of any suggestion that they were not properly incurred, such expenses would ordinarily entitle Mr Boensch to be indemnified out of the trust property, as counsel for Mr Boensch acknowledged before this Court.
In the result, Mr Boensch's appeal was dismissed.
The "Bankruptcy Application" to which Ms Naidenov was referring appears to have been an application under RPA s 90. That enactment establishes a statutory procedure for a bankrupt's registered interest in land to be transmitted to the bankrupt's trustee. The application is made by the trustee to the Registrar-General, who may record the transmission if satisfied that the trustee is entitled to be registered as the proprietor. In fact no such application has been made by the Trustees in this case.
After receiving a reply from Mr Boensch, Ms Naidenov wrote back to him on 14 January. She maintained that the caveat was valid. She stated that Mr Boensch's entitlement to indemnity from the assets of the Boensch Trust was property which vested in the Trustees and quoted from the High Court judgment at [97] which I have already set out. She continued:
Accordingly, by incurring such expenses and by reason of you having an entitlement to indemnification out of the trust property in any event and regardless of the value of that right of indemnity, which gives rise to a beneficial interest in the property the Trustees maintain that interest vests in them and gives right to an equitable interest, and with it, the equitable estate in the property which vests in Mr Palmer and Mr Bailey as your Trustees in Bankruptcy at law pursuant to s58(1) of the Bankruptcy Act and so supports their Caveat.
There is no reason to doubt that, upon the making of the Sequestration Order on 12 December 2019, the property vested in equity in your Trustees in Bankruptcy by reason of your right of indemnity and gives rise to a legal interest pursuant to s58(1) of the Bankruptcy Act and therefore your Trustees in Bankruptcy honestly believe on reasonable grounds that they have a caveatable interest in the property.
Ms Naidenov went on to warn Mr Boensch about taking any action to have the caveat lapsed:
… we strongly recommend that before you commence to take steps to lapse the Trustees Caveat as you have threatened in your letter under reply that you obtain your own independent legal advice. In the event a Lapsing Notice is issued by the Registrar General of NSW at your request against your Trustees in Bankruptcy for the reasons pertained in your letter under reply and the Trustees determine it necessary to apply to the Supreme Court of New South Wales for an extension of their Caveat, the Trustees will seek an order for the costs of that Application to be paid on the indemnity basis and in priority out of your bankrupt estate pursuant to s109(1) of the Bankruptcy Act. This letter will be tendered to the Court on the question of costs.
Mr Boensch's point was that the Trustees had to be precise about their claim. On Mr Boensch's argument, the question was what particular expenses, if any, had been incurred by Mr Boensch and not reimbursed to him out of the assets of the Boensch Trust. While the usual investigations into a bankrupt's affairs might possibly touch on this, a separate and specific investigation was required to address it properly.
It was not clear to me that the Trustees, in lodging their caveat, had appreciated that their proprietary interest was limited in its quantum. Indeed, the passage I have quoted from Ms Naidenov's letter of 18 December, by not mentioning any such limitation, perhaps implicitly denied that the issue existed. And although Ms Naidenov's letter of 14 January referred to the Trustees' proprietary interest as deriving from Mr Boensch's right of indemnity, the letter asserted that the interest existed "regardless of the value of that right of indemnity". At all events, if the Trustees were alive to the need to quantify the amount owing by way of indemnity, I was not referred to any evidence which showed that they had ever in fact conducted any investigations into it.
In response to Mr Boensch's argument, counsel for the Trustees referred to the High Court judgment at [97], which had earlier been quoted in Ms Naidenov's letter of 14 January. But those observations were made in the context of the earlier bankruptcy of Mr Boensch. The interest which passed to Mr Pascoe was a beneficial interest to the extent of unreimbursed expenses under the indemnity as at the date of the first bankruptcy. I suggested to counsel for the Trustees that an interest arising from any subsequent expenditure would not have passed to Mr Pascoe. She did not disagree.
What this underlined was that in order to succeed in the present case, the Trustees had to rely upon expenditure since 2005 which remained unreimbursed at the time of Mr Boensch's second bankruptcy in December last year.
On the face of it, there would have been obligations (most obviously, to pay interest) to the ANZ under its mortgage. Rates would also have been payable. As the property is held on trust, it may well attract land tax. It is not obvious where the money to meet these expenses would have come from, apart from Mr Boensch. There is no suggestion that the Trust had any other income to meet them. It might therefore seem unlikely that there is nothing at all owing to Mr Boensch under the right of indemnity. But this point was not made by counsel for the Trustees. There was simply no evidence before me one way or the other. And the reference to the High Court judgment at [97] did not itself establish that any amount was owing.
The High Court judgment emphasised that a caveat must be lodged so as to protect an existing interest. But the Court added (at [105], footnotes omitted):
That is not to say, however, that where, as here, there are reasonable grounds to conclude that a bankrupt has an extant beneficial interest in property held by the bankrupt on trust for another, the trustee in bankruptcy may not lodge a caveat to protect the interest of the trustee in bankruptcy pendent lite. For reasons later to be explained, provided the caveat is lodged on the basis of an honest belief on reasonable grounds that the bankrupt has an extant beneficial interest in the property (including a beneficial interest by way of right of indemnity), the trustee in bankruptcy will be warranted in lodging a caveat, as Mr Pascoe did in this case.
This is what the Trustees have done in the present case. These proceedings were not simply brought for the purposes of obtaining an extension of the caveat until some point after the Federal Court proceedings had been determined. Nor were they concerned solely with the question whether the Trustees had a caveatable interest. The Trustees sought substantive relief, in the form of a declaration. They sought to establish that they have an equitable interest in the property under s 58 of the Bankruptcy Act. In passing, the question of the Court's jurisdiction to determine this issue (see Coshott v Crouch [2018] NSWSC 853 at [18], [59]-[61]) was not raised and does not need to be considered further for present purposes.
The lapse of the caveat following the discontinuance application would not bring the proceedings to an end, nor even would the withdrawal of the caveat under RPA s74M. The question of equitable ownership would remain to be determined.
In my view it was an overstatement to say that the Trustees had no alternative but to discontinue these proceedings. I accept of course that bankruptcy trustees should always be careful about running up legal costs, particularly (in their own interests) if there is a lack of funds in the administration. But ultimately whether to initiate litigation, or to continue it once initiated, is a matter for judgment.
In their correspondence with Mr Boensch, the Trustees threatened Mr Boensch with litigation if he attempted to remove the caveat. When he issued the lapsing notice, they took up the challenge by commencing these proceedings. At the time, the Federal Court proceedings were pending and the Trustees did not know when those proceedings would be decided or if they would prevail. The Trustees were unfunded and were potentially litigating at their own risk.
The length of time which the appeal has taken may have been unexpected but counsel for the Trustees accepted that she could not blame Mr Boensch for it. The simple fact was that the Trustees had changed their minds and were no longer prepared to run the risk of having to fund the litigation out of their own pockets. At the same time they did not wish to abandon their claim completely.
The judgment the Trustees had made was understandable. But it was not correct to say that the law required them to take the course of discontinuing the proceedings.
Against this background, there seemed to me to be two factors of particular importance. The first concerned Mr Boensch's position as a self-represented litigant. Although the Trustees had (belatedly) submitted to an order to pay his costs of the proceedings, such an order was of little or no value to him. It would only have covered fees (if any: Mr Boensch was, of course, the defendant) and other out of pocket expenditure.
From the Bar Table, Mr Boensch asserted that he had spent 80 hours of his time in defending the proceedings. He claimed that his normally hourly rate is $50 and that he was entitled to $4,000. He argued that I should, in granting leave to the Trustees to discontinue, require them to pay at least half of this amount. But I thought that I would have no power to impose such a condition when Mr Boensch, as a self-represented litigant, has no entitlement to recover time charges for his work on the proceedings.
The figure claimed by Mr Boensch might well have exaggerated the objective value of the work he had done. But there was no doubt that Mr Boensch must have devoted significant time and effort to meeting the Trustees' claims. If I permitted the discontinuance Mr Boensch would face the prospect, if the claim were later reinstated, of having to expend the effort and time required to work up his response for a second time.
The second issue concerns the Trustees' own costs. As I have mentioned, the Trustees have been successful in these proceedings in obtaining an order for priority for their costs. Counsel for the Trustees made it clear that they do not accept that that order should be revoked (if it would be possible to do so other than prospectively in any event: compare Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 at [89]-[96]). Counsel accepted that the order would stand and if a second claim were brought then a further application for a second set of costs to be paid out of the assets was at least a possibility. This would obviously be contrary to the creditors' interests.
At the time I delivered my judgment, I thought there was a third relevant factor. This was that counsel for the Trustees had not referred to any authority to contradict the apparent effect of the High Court judgment at [91].
On reflection, I should refer to what appears at [93] (footnotes omitted):
Where … property is held by a bankrupt on trust for another, then, upon the making of a sequestration order, the property will pass to the bankrupt's trustee in bankruptcy (subject to the trust), unless the bankrupt has no valid beneficial interest in the property. And, ordinarily, the burden of proving the absence of such a beneficial interest is on the bankrupt.
Ordinarily, where a declaration is sought as to a negative state of affairs, the onus lies on the plaintiff to establish its non-existence: Wickham Hill Investment Pty Ltd v Ding [2019] NSWSC 631 at [163]. Furthermore, the declaration which is sought in the proceedings goes beyond merely a declaration that the Trustees are entitled to be registered to be registered as the proprietors of the Rydalmere property. It goes to the existence of a right of indemnity. It may therefore be difficult for the Trustees, should they continue the proceedings, to do so in a way which will place the onus of establishing the lack of interest back on Mr Boensch.
But even accepting that the onus would ordinarily lie on Mr Boensch to prove that he has no beneficial interest in the Rydalmere property, and that this may make what the High Court said at [91] less compelling for the purposes of this case that it at first appears, all of that only emphasises that the current situation is the product of forensic choices made by the Trustees. Against that background, the other two factors to which I have referred remain important. Indeed I think they are decisive. I remain of the view that I held at the end of the argument, namely that the Court should refuse the Trustees' application.
In passing, it seems curious that the Trustees did not avail themselves of the RPA s 90 procedure. An application could have been made to the Registrar General based solely on the fact of the Trustees' appointment. On what the High Court said at [93], the onus would then have fallen on Mr Boensch to demonstrate why the Trustees should not be registered. This would have required Mr Boensch to show that he had no entitlement by way of indemnity. The Trustees could have confined themselves to responding to Mr Boensch's contentions in this regard, rather than conducting wide-ranging factual investigations of their own.
The procedure before the Registrar General is an administrative procedure and proceedings would only need to come to this Court if one or other party sought a review of the Registrar General's decision (RPA s 122) or, possibly, by way of stated case (RPA s 123). But for whatever reason, the Trustees in the present case have chosen to bring declaratory proceedings, with the forensic burdens and possible jurisdictional issues which they carry in their train.