THE SUBMISSIONS AND THEIR RESOLUTION
73 With due deference to the careful submissions of Mr Maiden for the Trustees, as supported by Mr Galvin KC for the Funder, it is more useful to commence with an analysis of the opposing arguments.
74 Mr Waller KC for the Mr Jones parties makes the following submissions. First, properly understood, the Trustees application is not one that seeks approval to enter into the Funding Agreement, as the outcome of the application will not determine the fate of the Funding Agreement, but rather is an exoneration application whereby the Trustees seek protection from personal liability which they may have in consequence of their decision-making to enter into and to perform it. When that proposition was directly put to Mr Maiden in reply, he characterised the application as "in the nature of exoneration and advice".
75 In accordance with the various authorities that I have referenced, it is certainly the case that if the declaration that is sought is made, a consequence is that the Trustees, on the assumption that they have made full disclosure, will no longer be at risk of personal liability at the suit of the creditors for breach of trust. That consequence is not, plainly, of itself a reason to refuse the relief sought by the Trustees. It is however a matter that requires careful consideration as to whether I am positively persuaded that the decision of the Trustees to enter into the Funding Agreement is, in all of the circumstances, in the interests of the creditors of the bankrupt estate as a whole: McDermott and Potts in their capacities as joint and several liquidators of Lonnex Pty Ltd (in liq) [2019] VSCA 23 at [92]; One.Tel at [35]. The inquiry is necessarily broad and fact sensitive: Re Great Southern Managers Australia Ltd (in liq); Ex parte Jones (2014) 9 BFRA 555; [2014] WASC 312 at [63] where Pritchard J, in a proposed compromise of litigation advice application, and which is in my view equally applicable to this case, observed:
In the case of an application under s 511 of the Act, the Court's focus will be on whether the giving of the direction will be just and beneficial (that is, advantageous) in the winding up of the company. Determining whether the direction should be given will necessarily involve a broad consideration of matters including the nature of the proposed course of action about which the direction is sought, the circumstances relevant to that proposed course of action (especially those said to warrant the making of the direction), the reasons for and consequences of that proposed course of action (and in the case of a proposed compromise of litigation, the liquidator's commercial judgment that the proposed settlement should be pursued), and in those cases involving the determination of a legal issue relevant to that decision, the principles relevant to the determination of that issue. All of these matters will be considered for the purpose of determining whether the liquidator would be justified in taking the proposed course of action, within the overall context of the liquidation.
76 In this matter, Mr Bianco has given quite comprehensive and unchallenged evidence that explains the rationale of the Trustees, the perceived advantages for the creditors as a whole and his opinion that the Funding Agreement, because it allows the Trustees to actively participate in the Family Court proceeding, is in the best interests of the creditors. Despite the expression of that opinion, I consider this to be a matter of which I must ultimately be satisfied, and I am for all of the reasons that I express.
77 Secondly, criticism is directed to the timing of the Trustee's application particularly in circumstances where the condition precedent for approval was either ignored or waived, the creditors were not informed about the Funding Agreement in a timely way and no reference to it was made in the report to creditors of 24 April 2020. Mr Bianco at paragraph [80] of his affidavit of 30 September 2021 gives somewhat unsatisfactory evidence as to why the condition precedent clause of the Funding Agreement was not complied with. In part he says: "notwithstanding the condition precedent… which has not yet been fulfilled (and is the subject of this application), the Funder has paid the following funds pursuant to the Funding Agreement". That evidence misstates the effect of the condition precedent at clause 2.1 which is expressed as "a condition precedent of this agreement" that the Trustees obtain approval for the "entry into" it. There is no satisfactory explanation in the evidence of Mr Bianco as to why this application was not made shortly after the Funding Agreement was entered into and in order to comply with the condition precedent. In contrast, there is an explanation as to why creditor approval was not sought: in substance the Trustees perceived that certain creditors, who may described as "adverse" would likely vote against approval "in an attempt to halt or adversely interfere with" the involvement of the Trustees in the Family Court proceeding. I find that this belief was genuinely held by the Trustees and in part explains their conduct.
78 There is also an explanation for the delay in informing the creditors of that fact that the Funding Agreement had been entered into. It is found in a decision of the Family Court of Australia that was published on 8 September 2021 whereby detailed orders were made pursuant to s 121(9)(g) of the Family Law Act for the purpose of authorising the Trustees to disclose aspects of the Family Court proceedings to the creditors of the bankrupt estate, which disclosure was obviously necessary as a component of disclosing the fact of the Funding Agreement. Disclosure was made and shortly thereafter this proceeding was commenced on 1 October 2021.
79 What is not explained, however, is the significant delay between entry into of the Funding Agreement on 14 April 2021 and the commencement of this proceeding. I accept the submission that this unexplained delay is a material consideration in the exercise of my discretion. Mr Maiden accepted the fact of delay and the absence of an explanation, but submitted that balanced against it is the fact that none of the opposing parties gave evidence of prejudice suffered in consequence of the delay. That consideration is usually important in inter partes litigation. It does not have particular merit where the Trustees in this case are tasked with performing important statutory functions and for the benefit of the creditors of the bankrupt estate as a whole.
80 Thirdly, significant emphasis is placed upon the fact that in consequence of the sale of the [Redacted] property, the Trustees received, in July 2017, $1,383,012.23 which could then, and in their submission should have, been applied to a dividend of approximately $0.32 in the dollar in favour of the creditors. Instead an amount of $397,247.68 was applied by the Trustees to their fees and $504,161.92 was paid in legal fees. The thrust of the submission is that the Trustees "squandered a certain distribution" by their active involvement in the Family Court proceeding.
81 I reject that submission. As explained in the evidence of Mr Bianco, at the time the sale proceeds were received Mr Jones Senior had been involved in significant litigation in the Supreme Court of Victoria, in addition to the Family Court proceeding. The Trustees did not take an active part in the Family Court proceeding until after the first decision on the preliminary point was published on 4 December 2018. The decision then taken by the Trustees to become actively involved in the Family Court proceeding, and thereafter to enter into the Funding Agreement, cannot be linked to the retrospective criticism that is now made of the fact that a dividend was not considered or paid to the creditors in 2017. What I am concerned with is a decision taken by the Trustees to enter into the Funding Agreement in April 2020.
82 Further, the estimated dividend of approximately $0.32 in the dollar is mathematically wrong for the simple reason that it expressly excludes the most substantial creditor in the estate being the ATO. And the submission overall ignores the fact that once the Funding Agreement was entered into, the Trustees became entitled to receive, and were paid, their costs associated with the Family Court proceeding incurred prior to the date of the agreement. On the evidence of Mr Bianco the amounts received were $198,152.51 for legal costs and $77,244.75 for trustee costs. Thus I accept the submission for the Trustees put in reply that even if they are unsuccessful in the Family Court proceedings "the amount available to distribute amongst creditors will still have increased" by reason of the Funding Agreement.
83 Fourthly, the terms of the Funding Agreement are detrimental to the interests of the creditors as a whole and "substantially beneficial" to the Trustees and the Funder. By way of example that submission was developed in the written case by accepting the evidence of Mr Bianco that the total costs of the Family Court proceeding will likely be up to approximately $2 million:
The Funding Agreement is already in its second year. If the Funder's costs are $2,000,000 and a "Resolution" is achieved within the fifth year (being the calendar year commencing 1 January 2025) the Funder will be entitled to receive a Commission of $6,500,000 plus the Funder's costs of $2,000,000. The Funder would therefore receive a total amount of $8,500,000 and achieve a massive 225% return on its outlay before any money is paid to creditors. After five years the Funder's return on its outlay of $2,000,000 will increase by $250,000 per annum, which is 12.5% each year (assuming the Funder's costs do not increase beyond $2,000,000, which seems unlikely).
84 The submission then continues with another worked example, assuming that the Family Court proceeding is prolonged for up to 10 years. The Trustees do not dispute this calculation. Nor, and to adopt the language of their written reply, do they "resile from the reality that [the Funder], having assuming the risks of the Primary Proceedings, stands to make a substantial return on its investment. No commercial Funder - otherwise disinterested in the outcome of given litigation - would assume its risks without that prospect". They also invite this Court to consider that the Trustees were presented with one alternative funding option that proposed a commission of 65% of any sum recovered.
85 The Mr Jones parties did not adduce expert evidence in support of the premise that sits behind this submission: that the return to the Funder is commercially disproportionate to the risks that the Funder accepts. What must not be overlooked is that the Funding Agreement indemnifies the Trustees for their past and future legal costs of the Family Court proceedings, any adverse costs order that is made against them and if security for costs is ordered, the Funder assumes this obligation as well. The unchallenged evidence of Mr Bianco, which I accept, is that the return on investment that the Funder might receive in the event that the Resolution Sum is achieved, is in his view "fair and reasonable" and that the creditors "as a whole will be better off by reason of the entry into the Funding Agreement" which opinion turns upon his detailed analysis of success, wholly or partly, and failure in the Family Court proceedings. Of course, that view turns upon two relatively large assumptions. One, that if the Deed and Declaration of Trust is set aside as a sham or a fraudulent instrument then it is likely that the ATO will withdraw the capital gains tax assessment and with it the proof of debt. The consequence is that the liabilities of the bankrupt estate will very significantly decrease. The other is that the units in the unit trust, if they vest in the bankrupt estate, will be of significant value even if more substantial property settlement orders are made in favour of Ms Wright. As I have found, there is a reasonable and rational basis for the belief held by the Trustees that the units are likely to be of significant value being the valuation relied upon by the ATO which founds the capital gains tax notice of assessment. If it is the case that the units are of minimal value, then one would have expected the Mr Jones parties (being the person's best placed to assess value) to have adduced evidence to that effect in this proceeding.
86 In any event, I need not be positively satisfied of that fact for the purposes of this proceeding because I have accepted the evidence of Mr Bianco that even if the Trustees are wholly unsuccessful in the Family Court proceedings, the creditors as a whole will not be worse off in that the amount of money available for a distribution, by reason of the payment of past costs, has increased.
87 However, there is an aspect of this submission which is not addressed by this reasoning. At its heart is the contention that the Trustees personally benefit from the Funding Agreement in that they have and likely will receive payment for their administration costs of the bankrupt estate in the day-to-day conduct and administration of the Family Court proceeding. In submissions this was refined somewhat: the Funding Agreement obliges the Trustees to account to the Funder from any Resolution Sum and provides the Trustees with the opportunity to earn fees directly related to the conduct of the Family Court proceeding, which fees they would most likely not have been able to earn absent the Funding Agreement.
88 The Trustees accept this, albeit as an "apparent conflict". Indeed, they further accept that it is a reason why they bring this application to, in part, be exonerated from the consequences of a conflict of interest of that type. In their written case the Trustees answer this in two ways: one, at all times they have acted bona fide and in good faith and for the benefit of the creditors as a whole, and the other that this conflict sits "at the minimal end of the scale of potential conflicts" and in this case is outweighed by the advantages to the bankrupt estate of participation in the litigation and in accordance with the Funding Agreement.
89 There is certainly the potential that the Trustees may, in the future, face a claim that they were conflicted in their decision-making to enter into the Funding Agreement because of the prospect of personal gain through the generation of fees that they would not, or would not likely, receive if there were no Funding Agreement. In my view however this potential, or actual, conflict is not of itself a reason to refuse to exercise my discretion to grant the relief that is sought. In a general sense, in the administration of any bankrupt estate, a commercial trustee will be remunerated. Whether the remuneration is ultimately received depends upon the course of realisation of the assets of the estate and the quantum of the liabilities. In any litigation that a trustee chooses to engage in, which he or she perceives to be for the benefit of the creditors as a whole, there is the prospect that fees will be earned in addition to the general fees that one might expect to receive in the course of the administration. Further, a conflict of this character is inherent in any litigation funding agreement that a trustee enters into in order to pursue claims for the benefit of a bankrupt estate and even in circumstances where the funder, for example a creditor, expects to receive no more than a reimbursement of costs paid and in priority as provided for at s 109(10) of the Bankruptcy Act.
90 These considerations explain why it is often the case that a trustee in bankruptcy will seek court approval to embark upon or defend litigation in order to be exonerated from the prospect of future personal liability claims that may be brought by creditors of the estate. In this case, in my view, the more important consideration is why the Trustees entered into and then performed the Funding Agreement for approximately 17 months before seeking approval, to which I return in these reasons.
91 Fifthly, there is the criticism made by the Appeal Division of the Family Court when it decided the appeal costs applications in November 2021 and the related submissions that the Trustees' participation was and is unnecessary, or at least unnecessary in the extent of participation, and that they substantially wasted costs in doing so. The Court in deciding against the Trustees' costs application said:
However, we do not see that that answers why the third respondents participated in the application and the appeal to the extent that they did. To satisfy the "obligation" that they assert they had, and to act responsibly, they need not have filed the written submissions that they did. Given that they were a repetition of the written submissions of the first respondent, all the third respondents needed to do was adopt those submissions, and that would have amply satisfied their "obligation" to the bankrupt estate and the creditors, and avoided the incurring of significant legal expenses. Plainly, they also did not need to have their Queen's Counsel and his junior sit through the oral argument in relation to the application and the appeal against the declaratory order, because as was conceded by them in their reply submissions, their oral submissions principally concerned the recusal appeal.
92 Although I accept that to date the interests of the Trustees and Ms Wright in the Family Court proceeding are aligned, in that it is to the benefit of each that the Deed and Declaration of Trust is set aside as a sham or a fraud, at that point their interests will diverge. Ms Wright will then, doubtless, make a claim for further property provision in her favour. The Trustees will most likely seek to negotiate that claim or if it cannot be resolved on appropriate terms, will resist the balance of Ms Wright's application. It cannot in my view be said that to that point the Trustees do not have a legitimate interest in the Family Court proceeding or that they should not be active participants in the litigation. Despite the protracted litigation that has characterised the Family Court proceeding, it is not beyond prospect that the feuding parties may be persuaded to mediate. It is vital that the Trustees participate in that process. Whilst one must accept the criticisms made by the Appellate Division of the Family Court of the extent of participation by the Trustees in the appeal, it does not follow that by doing so the Trustees wasted or squandered the assets of the bankrupt estate. These costs were met by the Funder pursuant to the Funding Agreement and by clause 3.2(d) the Trustees are obliged to conduct the proceeding "in such manner as to avoid unnecessary cost and delay". Despite the quantum of fees expended by the Trustees in their participation in the appeal (a matter specifically criticised by the Mr Jones parties), the creditors of the bankrupt estate were not prejudiced by reason of the costs indemnity that is provided for in the Funding Agreement.
93 Accordingly, I reject a number of submissions advanced by the Mr Jones parties in reliance upon the criticism of their conduct by the Appeal Division of the Family Court. There is a clear distinction between the reason why the costs application made by the Trustees was refused (section 117 of the Family Law Act states that the default position is that each party is to bear their own costs which may only be departed from if the court forms the opinion that there are circumstances that justify the making of a costs order) and the anterior decision made by the Trustees that they believed that their participation to the extent that they did in the appeal was in the best interests of the creditors. It may be the case that in the future the Trustees will be more mindful of the extent of their participation, but none of that founds the submission that the court's criticism fundamentally undermines the reason for the Funding Agreement. Nor is it to the point for present purposes that the expenditure by the Trustees on the legal costs for the appeal was approximately twice that of Ms Wright as no prejudice was suffered by the creditors of the bankrupt estate because it is the Funder that discharged the liability. Although I accept the general proposition that a trustee of a bankrupt estate must proceed efficiently and in a commercially sound way (s 19(1)(j) and (k) of the Bankruptcy Act) I am not able to conclude on the evidence before me that the Trustees breached that obligation. I emphasise that there was no cross-examination of Mr Bianco whereby the waste and squander allegation might have been put directly to him and in that circumstance it would be distinctly unfair to make the finding that I am invited to make by the Mr Jones parties.
94 Another point that is made under this general heading in the submissions is that this Court should not give its imprimatur to a funding arrangement whereby the commission due to the Funder is mathematically linked to the costs incurred and especially so in light of the criticisms made by the Appeal Division of the Family Court. I reject that submission as it is contrary to my finding that overall the Funding Agreement is in the best interests of the creditors of the bankrupt estate and in making that finding I have necessarily accepted the method of calculation of the commission. Linked to that submission is the additional contention that having "already wasted costs", the Trustees are at liberty to do so again "with the imprimatur of this Court" and that such conduct should not be countenanced. I do not make that finding of fact on the evidence before me as, once again, it would be distinctly unfair to do so when Mr Bianco was not cross-examined to that effect. In any event, it is open to any creditor of the bankrupt estate to approach this Court to inquire into the administration of the bankrupt estate and to make orders in relation to the costs of an action, including court action, taken by a trustee pursuant to clauses 90-10 and 90-15 of the Insolvency Practice Schedule. No aspect of the advice sought by the Trustees seeks to determine future questions of that character.
95 Sixthly, it is submitted that the Trustees have not been entirely forthcoming in disclosing information to the creditors and that, more generally, there has been "a lack of candour" as to the reason for this application. It is certainly the case, as I have found, that the Trustees delayed the commencement of this application and have provided no satisfactory explanation for the delay. It is also the case that the Trustees delayed in notifying the creditors of the fact of entry into the Funding Agreement, although there is an explanation why they did not obtain approval to disclose information from the Family Court until orders were made on 8 September 2021. Beyond that, I do not make a finding of lack of candour on the part of the Trustees, again for the reason that an allegation of that type, which is serious, was not put by way of challenge to the evidence of Mr Bianco.
96 Seventhly, and lastly, I address a submission that I regard as having greater substance. In short, that claims that the creditors may have against the Trustees for breach of trust (in the broadest sense including but not limited to breach of any of the duties at s 19 of the Bankruptcy Act, breach of general fiduciary duty and claimed conflicts of interest) will not be able to be pursued by reason of the exonerating effect of the orders sought. In argument, I pressed Mr Waller to identify potential claims that might reasonably be pressed against the Trustees, as clearly this is a very important consideration in applications for relief that result in exoneration. His submissions in answer were to the following effect:
(a) a lack of candour being the failure to mention the Funding Agreement in the report to creditors of 24 April 2020, as amounting to a breach by the Trustees of their duties and obligations under the Bankruptcy Act, or as fiduciaries, or both;
(b) claims arising from a conflict of interest being the financial benefit received and to be received by the Trustees in the form of remuneration pursuant to the Funding Agreement as priority creditors in the administration of the bankrupt estate;
(c) an application to "scuttle" the Funding Agreement;
(d) a lost opportunity claim for not receiving a distribution in consequence of the sale of the [Redacted] property;
(e) claims for breach of the duty to administer the bankrupt estate efficiently as possible by avoiding unnecessary expense, s 19(1)(j) of the Bankruptcy Act or more generally for breach of trust;
(f) the consequences of a failure to consult the creditors as to whether the agreement should have been entered into, and in particular the failure to act in accordance with the condition precedent in the Funding Agreement;
(g) claims that may arise from the "disproportionate" return to the Funder; and
(h) The inability to have the conduct of the Trustees reviewed pursuant to clauses 90-10 or 90-15 of the Insolvency Practice Schedule.
97 I have explained why I reject the submissions that concern the matters at (b), (d) and (g) and for the same reasons I do not accept that these contentions give rise to any viable claims that might be formulated against the Trustees. In any event, they are not of such significance as to warrant refusal of the application once it is understood that exoneration from some form of identifiable claim is normally a consequence of granting relief of the type that is sought by the Trustees.
98 The lack of candour submission is not of significant weight for the reason that I have found that there is an explanation and I am not prepared to make that finding where it was not put to Mr Bianco. The lost opportunity to scuttle the Funding Agreement should be seen for what it is: self-interest. Mr Jones is the primary respondent in the Family Court proceeding. Less active participation by the Trustees is likely to be to his advantage. Although Mr Waller emphasised in submissions that one should not conflate his interests with those of his related corporations that are creditors in the bankrupt estate, but are not parties in the Family Court proceeding, Mr Jones is a director of those corporations and it may be safely inferred that they participate in this application ultimately for a purpose that includes his benefit. Notably, despite being aware of the Funding Agreement since no later than the commencement of this proceeding, no application has been made by the Mr Jones parties to have it set aside or reviewed. No legal basis to do so was identified in submissions, beyond the broad contention that the Trustees acted in breach of trust in the decision to enter into it. Whether that is a sufficient reason not to give judicial advice in this proceeding is a matter that I take into account when considering submissions (e) and (h).
99 The failure to consult the creditors as to whether the Funding Agreement should be entered into combined with the failure to comply with the condition precedent is a matter of merit in the exercise of my discretion not to afford relief to the Trustees. More so where there is unexplained delay between April 2020 and October 2021 in the making of this application. In accordance with my findings, there is some explanation by way of exculpation as to why the Trustees did not take the question of entering into of the Funding Agreement to a meeting of the creditors in that they believed that any resolution to approve it was likely to be defeated. Whether as a fact that is so does not materially matter for the reason that I am concerned with their honest belief by way of explanation. More troubling, however, is the unexplained failure to make this application in accordance with the condition precedent and in a timely way. This circumstance tends against the exercise of my discretion. But like all factors, it must be considered as part of an overall balancing exercise.
100 I deal next with submissions (e) and (h), which in my assessment carry the most weight. It must not be overlooked that this is a summary procedure where it has not been possible to identify the factual or legal basis for claims that might be made against the Trustees for breach of duty, or for review of the decision-making to enter into the Funding Agreement. During oral submissions I questioned Mr Waller as to what sort of claims might be extinguished if the relief sought by the Trustees was granted. Mr Waller emphasised that I should understand "that the sole purpose of this application is not to benefit the creditors but in fact it's to protect the Trustees from action by creditors". I pressed Mr Waller to identify claims that might be open against the Trustees. In answer he pointed to a claim that might exist "for instance" whereby money spent on the appeal in the Family Court proceedings for legal costs of approximately $450,000 should not have been expended but ought to have been held for the benefit of the creditors. The difficulty with that submission is that it must be accepted that this expenditure was reimbursed by the Funder and, in accordance with my factual findings, the creditors are no worse off by reason of the fact of the initial expenditure.
101 A further point made by Mr Waller is that the decision to enter into the Funding Agreement was, or may possibly have been, a breach of trust in that the Trustees were conflicted, and despite that conflict negotiated terms to their financial benefit in the form of fees which they anticipate receiving in the administration of the bankrupt estate and as a priority debt. Even if one accepts a conflict or a "real sensible possibility of conflict" of that character (Boardman v Phipps [1967] 2 AC 46 at 124, Lord Upjohn), that submission cannot be ignored, though it loses much of its force once it is also accepted in accordance with my findings that any trustee in bankruptcy who enters into a litigation funding agreement is likely to receive fees for undertaking work that would not otherwise be undertaken, and indeed in estates where there is sufficient money to conduct litigation for the benefit of the creditors that will also be the case. The fact that there is a priority right to receive payment by the Trustees is the consequence of s 109 of the Bankruptcy Act. The submission further loses force in accordance with my finding that it is in the best interests of the creditors as a whole for the Trustees to participate in the Family Court proceeding in that if it is successfully resolved in favour of the contentions of the Trustees, the assets of the bankrupt estate are likely to very significantly increase. Conversely, and as I have also found, failure by the Trustees in the litigation will not likely have an adverse costs consequence for the administration of the estate.
102 Later in submissions, when this point was returned to, Mr Waller emphasised that the effect of the application is that the Trustees seek exoneration for each step involved in the implementation of the Funding Agreement that is "every step they take going forward in the litigation in the Family Court would be insulated". I reject that submission. A declaration that the Trustees were justified in entering into the Funding Agreement necessarily subsumes a finding that I am satisfied that its terms are equally justifiable with the consequence that performance by the Trustees of their obligations pursuant to the agreement is also justifiable. It does not follow, however, that "every step" that is taken by the Trustees in the conduct of the litigation is exonerated. The submission conflates steps that may be taken in the litigation with the provisions of the agreement and overlooks that this application does not seek to determine questions that may arise as to how the Trustees have conducted the litigation. For example, if the Trustees were to take steps in the conduct of the Family Court proceeding which one or more of the creditors later considers to be a breach of trust, nothing in the exoneration application affects the right of a creditor to contended that there has been a particular breach or to have the decision-making of the Trustees reviewed upon application pursuant to ss 90-10 or 90-15 of the Insolvency Practice Schedule. The important distinction is that this application seeks advice concerning the decision to enter into the Funding Agreement: it is not an application to exonerate the Trustees for all future conduct in the litigation or the administration of the bankrupt estate and for events, facts and circumstances which have not yet arisen. I should add that Mr Waller accepted in oral submissions that despite the giving of the advice that the Trustees seek, this Court retains power to ultimately review amounts charged by the Trustees in the conduct of the administration of the bankrupt estate.
103 In balancing these claims in the exercise of my discretion, the primary consideration is the interests of the creditors of the bankrupt estate as a whole and the important statutory function that is performed by the Trustees in the administration: Macedonian Church at [72]-[73]. It is not a primary matter of objection that the advice sought, if given, will foreclose future contentions by interested persons that the Trustees breached their duty and/or were conflicted. In Macedonian Church, the plurality repeatedly emphasised that this is not of itself a reason to refuse to exercise the discretion, but rather is the usual consequence of an application of this character: in particular see [45], [59], [70], [75], [103], [125] and [133]. Nor is the fact that this is a summary procedure of itself a reason to refuse relief where, as in the present, there is a lack of precision in identifying possible claims against the Trustees that may be precluded by granting the application. That point is directly addressed in Macedonian Church at [79]-[80]:
It is very common in judicial advice applications for the court to be invited to give advice on the basis of facts, whether proved by affidavit as contemplated by s 63(4) or alleged in a "written statement" or "other material" as contemplated by s 63(3), which are contested and controversial. As Palmer J said, a "judicial advice application … is founded upon facts stated to the Court by the trustee, untested by adversarial procedure, and assumed by the Court to be true" - although "only for the purpose of the application" .
Palmer J understood that if the challenge made by the plaintiffs were to be fully ventilated, "it would doubtless engender yet another protracted and expensive piece of litigation as a spin-off to the Main Proceedings". Palmer J was right not to permit that to happen. Section 63(2) affords a safeguard against the mischief complained of by the plaintiffs: the trustee loses the protection which the "opinion advice or direction" would otherwise have given if, in obtaining it, the trustee has been "guilty of any fraud or wilful concealment or misrepresentation".
(Footnotes omitted.)
104 See also [106].
105 In this proceeding, I am satisfied that all issues of substance, as presently known on the facts as disclosed by the Trustees, relevant to the exercise of my discretion have been ventilated and argued. The fact is that this application has been scrutinised by no less than three senior counsel, seven junior counsel and numerous solicitors. Despite the absence of a provision to the effect of s 63(2) of the Trustee Act 1925 (NSW), if the Trustees have not made full disclosure or have been guilty of some wilful concealment, the protection they seek will be lost by application of settled principles which apply to judicial advice applications and which in my view are not displaced by the broad wording of s 90-15 of the Insolvency Practice Schedule: see Re Ansett at [44], Goldberg J in the context of an application by administrators under s 447D(1) of the Corporations Act. No different principle in my opinion applies under s 90-15.
106 For these reasons, I conclude that none of the matters relied on by the Mr Jones parties foreclose the exercise of my discretion to grant relief. To the extent relevant, they must be balanced in its exercise.
107 I turn to the submissions for Hasst Pty Ltd as developed by Mr Liondas. Hasst Pty Ltd is also a litigation funder. It has a funding agreement with Ms Wright, Mr Jones Senior and Logan Investments Pty Ltd which concerns the Family Court proceeding. A redacted version of it is annexed to the affidavit of Stephen Gregory. There are certain clauses in it that relate to arguments put to me on its behalf. A non-redacted version has not been provided to each other participant in this proceeding, in particular the Mr Jones parties. By an interlocutory application filed on 28 October 2022, Hasst Pty Ltd applied for various orders that its funding agreement not be published generally and that the redacted portions remain so. After argument it was agreed that I should dismiss the interlocutory application on the ground that the Trustees did not seek to read a further affidavit of Mr Bianco made on 7 July 2022 in a different proceeding and which annexes a complete copy of the agreement. Specifically, I stated that I could not see the relevance of that document to the determination of the issues upon the Trustees' application. In fairness to the Trustees, it was sought to be read in discharge of their obligation to provide all information known to them and which they considered to be relevant. During argument on this question, Mr Liondas was keen to emphasise that nothing in my determination should prejudice any rights that his client may have against the Trustees in relation to his client's separate funding agreement. It does not. By way of comfort, it was agreed that I should record in these reasons that I am not determining issues that may arise between the Trustees and Hasst Pty Ltd concerning that agreement. However, the existence of that agreement and its terms are relevant to a separate contention by Hasst Pty Ltd that I should refuse the advice sought or make a court fund order pursuant to s 90-15 of the Insolvency Practice Schedule to require the Resolution Sum, when received, to be paid into Court pending a final determination of the rights of Hasst Pty Ltd and Ms Wright to it.
108 Hasst Pty Ltd claims to be a secured priority creditor of the bankrupt estate. It relies on two matters. One, pursuant to the separate funding agreement it has a priority over any funds recovered. The other, in accordance with the general principle that expenses in recovering a fund must be borne by that fund, even where there are other secured creditors having priority: Re Universal Distributing Co Ltd (in liquidation) (1933) 48 CLR 171.
109 From that premise, two submissions are made. First, there is a lack of clarity as to what is meant by paragraph 1 of the relief sought by the Trustees: the declaration extends to justify the implementation of the Funding Agreement by the Trustees. That is a point that I have given careful consideration to. In my view, a declaration could only properly be made that the Trustees were justified in entering into the Funding Agreement if, upon a consideration of the entirety of its terms, I am also satisfied as to propriety of those terms and what is required by the Trustees for performance. Thus I have concluded that if I am otherwise satisfied that it is appropriate to make a declaration, then it will be confined to the decision to enter into the Funding Agreement.
110 Secondly, the Funding Agreement relevantly provides at clauses 7 and 8:
7.1 The Bankruptcy Trustees acknowledge that they irrevocably authorise and direct the Lawyers to receive any Resolution Sum and to immediately pay same into a trust account kept for that purpose. The Funder may waive this requirement at its sole discretion by notice in writing to the Bankruptcy Trustees.
7.2 The Bankruptcy Trustees acknowledge that they irrevocably authorise and direct the Lawyers forthwith to pay out of the account referred to in cl 7.1 all payments referred to in cl 8.1 (subject to cl 9).
…
8.1 Subject to cl 9, upon Resolution the bankruptcy Trustees will pay to the Funder or its nominee, from the Resolution Sum, the following amounts:
(a) The Funder's Costs; and
(b) The Commission.
8.2 No fees, commissions or other payments will become due or owing by the Bankruptcy Trustees to the Funder unless and until Resolution and then will not exceed the Resolution Sum.
111 By clause 9, the Resolution Sum will be distributed in an order of priority whereby the first is payment to the Funder of the Funder's costs, the second is payment to the lawyers for the lawyer's unpaid costs and the unpaid costs of the Trustees and the third is payment of the commission to the Funder. If the Resolution Sum is insufficient, distributions will be made pari passu and no amounts will be paid in respect of any lower priority.
112 The argument is that if the Trustees were to take steps to dispose of the Resolution Sum in accordance with these clauses, then the interests of Hasst Pty Ltd would be prejudiced as a creditor with a claimed right to security and/or priority in the administration of the bankrupt estate. As put in its written case, it "wishes to protect itself against a situation where if any Resolution Sum is transferred to the Trustees of the lawyers for [the Funder], in contravention of the asserted rights of [Hasst Pty Ltd], that those monies are subsequently paid away without an opportunity for the parties respective rights to be determined". It is further submitted that these provisions of the Funding Agreement conflict with s 116(2)(q) of the Bankruptcy Act.
113 In further support, reliance is placed on correspondence between the solicitors, the effect of which is that despite the clarification that was sought from the Trustees as to the meaning and effect of these clauses, the Trustees have not committed to the meaning contended by Hasst Pty Ltd and Ms Wright. Their position is: "the Trustees do not comment on the construction of the [Funding Agreement]" as advanced by the solicitors for Hasst Pty Ltd. Rather, and in an endeavour to assuage the concerns raised, an undertaking has been offered (in addition to one in favour of Ms Wright that I address below) that the Trustees and their lawyers will give to Hasst Pty Ltd at least one week's notice in writing before making any payment to the Funder of the Funder's costs or the commission from any property that vests in the Trustees as a result of the Family Court proceeding. Hasst Pty Ltd has not accepted it to resolve its concerns.
114 I reject the submission that I should refuse relief because the claimed rights of Hasst Pty Ltd to security and priority in the administration of the bankrupt estate may be adversely affected by the provisions of the Funding Agreement. I accept the submission put to me in reply by Mr Maiden, that costs incurred in realising assets for the benefit of the creditors of the bankrupt estate, including the reasonable costs of funding recovery proceedings, are subject to a priority lien: IMF (Australia) Ltd v Meadow Springs Fairway Resort Pty Ltd (in liq) (2009) 253 ALR 240; [2009] FCAFC 9, North, Emmett and Rares JJ. Nothing in this application determines any question of priority inter se between the Funder and Hasst Pty Ltd as litigation funders. For the same reasons, I reject the application for a court fund order.
115 I turn next to the submission that I should refuse to grant relief because of a claimed inconsistency between the Funding Agreement and s 116(2)(q) of the Bankruptcy Act, the effect of which is that the divisible property of the bankrupt estate does not extend to any property that under the Family Law Act the trustee is required to transfer to a spouse or a former spouse of the bankrupt. This contention was particularly emphasised by the solicitors for Ms Wright in correspondence that is in evidence. I did not have the benefit of written submissions from her counsel, Mr Dinelli, and orally he was content to adopt the submissions of Mr Liondas on this contention.
116 The point which is developed in the solicitor's correspondence is best summarised in the following passage from a letter dated 3 June 2022 from Ms Wright's solicitor to the Trustees' solicitor:
As you will no doubt appreciate, our client's application which seeks the transfer of the units in [redacted] to [the bankrupt Estate of Mr Jones Senior (Deceased)] lays the necessary foundation for an application by our client for new property settlement orders to be made under s 79 of the Family Law Act 1975 (Cth). Indeed, that was the very purpose of our client filing the above application. Thereafter, and in the usual course of such proceedings under s 79 of the Family Law Act, issues of priority between our client and the trustees in bankruptcy or unsecured creditors of the bankrupt estate (such as [the Funder]) would need to be determined by the Federal Circuit and Family Court of Australia or resolved before any distributions or payments could be made to creditors including [the Funder]. This is, of course, the effect of s 116(2) (q) of the Bankruptcy Act 1966 (Cth)…
Against this background, our client has since receipt of your letter of [redacted], been proceeding on the assumption that your clients will not make, or will not cause to be made, any payment under the terms of the Funding Agreement (including as set out above) until the final property settlement orders under s79 of the Family Law Act (and any issues of priority as referred to above) have been determined or resolved and after any necessary transfer of property (including units in the [redacted]) has been made to our client.
Of course, if this was not the case, the Funding Agreement and any actions taken by the trustees could defeat our client's rights under s79 of the Family Law Act. Accordingly, our client will continue to proceed on the basis that under the Funding Agreement no monies (or other goods, assets, property, services or other benefits) will be dealt with or paid out of the bankrupt estate by or on behalf of the trustees in a way that could defeat our client's potential rights discussed above. Please let us know as a matter of urgency if the basis on which we are proceeding is incorrect in any way.
117 The response from the solicitors for the Trustees did not provide the requested confirmation. Rather, the then stated position of the Trustees was that they were not "presently in a position to confirm the assumptions set out in your letter". Further correspondence ensued. On 13 October 2022, the solicitors for the Trustees offered an undertaking to the solicitors for Ms Wright, without conceding Ms Wright's contentions as to her legal claims and the effect that the Funding Agreement may have on her. It is in the following terms:
17. Subject to [18] and [19] below, the Trustees and our firm will not deal with any property that vests in the Trustees as a result of the Family Court Proceeding and which is the subject of a claim under Part VIII of the Family Law Act, in a way that could defeat [Ms Wright's] potential rights, until the latest of the following events has occurred:
(a) [Ms Wright's] Application has been finally determined;
(b) any appeal or application for leave to appeal from such a decision has been determined, or the period in which such an appeal or application may be initiated has expired; and
(c) [Ms Wright's] Application has been settled.
18. In the event that an order of a court of competent jurisdiction is made, or any action is taken by any person, and that order or action deals with or affects or purports to deal with or affect the Units (including the traceable proceeds thereof) vested in the Trustees, then the Trustees are entitled to take whatever action they reasonably believe is necessary to preserve their rights to that property and to the creditors' interests therein, but the terms of the Undertakings are not otherwise affected.
19. In the event that the Trustees reasonably form the view that [Ms Wright's] Application is not being prosecuted expeditiously, then:
(a) the Trustees may give [Ms Wright] seven days' written notice of that belief; and
(b) the Undertakings will be discharged at noon seven days after the provision of that notice, unless (before that time) the Trustees and [Ms Wright] have otherwise agreed in writing or [Ms Wright] has remedied the failure to prosecute the application expeditiously.
118 This undertaking has not been accepted by Ms Wright as sufficient to satisfy her concerns upon this application. Ms Wright's submissions turn upon a particular interpretation of s 116(2)(q) of the Bankruptcy Act that is not shared by the Trustees. In their view, if Ms Wright succeeds and the Deed and Declaration of Trust is set aside as a sham or a fraudulent instrument, the units will vest in the bankrupt estate and thereafter s 116(2)(q) will only operate upon property that the trustee "is required" to transfer to her. Until that time, the units will vest in the bankrupt estate pursuant to s 58(1) of the Bankruptcy Act. Put another way, if the Family Court makes an order in favour of Ms Wright, the property so identified is then removed from the divisible assets of the estate.
119 In my view, the answer to the submissions of Ms Wright is that the Trustees do not on this application seek a determination as to the effect of s 116(2)(q) of the Bankruptcy Act and nor do they seek to determine any substantive rights that may arise between them and Ms Wright in the event that, at a future date, Ms Wright succeeds in the Family Court proceeding. First and foremost the Trustees remain bound to comply with each relevant provision of the Bankruptcy Act in their administration of the bankrupt estate. The agreement cannot displace the statutory provisions. The concern raised by Ms Wright is temporal; any Resolution Sum may vest in the bankrupt estate before orders are made in her favour. In the ordinary context where a property settlement order is made before, but not effected prior to, the making of a sequestration order (and is in the nature of an immediate vesting order) the property does not vest in the bankrupt estate by operation of s 116 (2)(a): Jones v Daniel (2004) 141 FCR 148; [2004] FCAFC 278, Hill, Moore and Allsop JJ.
120 Section 116(2)(q) was considered in its interaction with ss 75 and 79 of the Family Law Act by the Full Court of the Family Court in Trustee of the Property of Lemnos v Lemnos (2009) 223 FLR 53; [2009] FamCAFC 20, Coleman, Thackray and Ryan JJ. By s 79(1)(b), in a property settlement proceeding the court may make orders that alter the interests of a bankruptcy trustee in property vested in the trustee. As concluded by the Full Court, the statutory scheme requires it to consider and balance the competing claims of unsecured creditors in the bankrupt estate with the claims of the former spouse.
121 Once that is understood, and with the benefit of the undertaking that has been offered (and which the Trustees maintained before me), I accept the submission as put to me in reply by Mr Maiden, that Ms Wright will have a sufficient opportunity to seek specific, if necessary interim, relief in the Family Court proceeding so as to completely preserve and protect her interests in the event that she succeeds upon her primary contention and before property orders are made in her favour. It will be recalled that Mr Jones Senior gave evidence upon all aspects of the claim made by Ms Wright in the Family Court proceeding and, with appropriate case management, there would not seem to be any impediment to having her property claims concurrently determined with her claim that the Deed and Declaration of Trust should be set aside. In any event, nothing in the advice application if acceded to will prejudice arguments that Ms Wright may seek to make in the Family Court proceeding about how the Funding Agreement may operate to her prejudice and if so, what orders should be made by that court so as to protect her position pursuant to s 79(1)(b) of the Family Law Act.
122 I return to a final submission that is made by Hasst Pty Ltd and which is a variation of the conflict of interest submissions put by the Mr Jones parties. In a separate proceeding in this Court, the trustees make application to disclaim the Funding Agreement between Ms Wright, Hasst Pty Ltd and Mr Jones Senior to the extent that he is a party to it. That proceeding is yet to be determined. The contention is that pursuant to that funding agreement, Mr Jones Senior was bound, and the Trustees remain bound, not to enter into any conflicting agreement in relation to the Family Court proceeding and to pay the fruits of that litigation, if received and described as the "Success Sum". The contention is that by entering into the Funding Deed, the Trustees breached their obligations owed to Hasst Pty Ltd in that they will receive any Resolution Sum, partly for their financial benefit in the form of their fees relating to the conduct of the Family Court proceeding. Further, in those circumstances there is a conflict between the provisions of the Funding Agreement and the Hasst Pty Ltd agreement and, despite these matters, the Trustees have purported to disclaim the Hasst Pty Ltd agreement in order to avoid a potential personal liability for breach of contract. As such, the submission is that relief should be denied to the Trustees in circumstances where they have "a clear and continuing conflict of interest".
123 The Trustees do not accept these contentions. Their position as outlined in their solicitor's correspondence is that the trustees personally are not parties to the Hasst Pty Ltd agreement, have not adopted it and in consequence are not personally bound to comply with any obligations that Mr Jones Senior may have had pursuant to it. Accordingly, the separate proceeding raises no question of personal liability that the trustees may have. Further, there is no question of conflict of interest in that the trustees do not have any personal interest in that agreement.
124 It is not necessary that I interrogate the merit of these competing arguments. The simple point upon this application is that the judicial advice that is sought by the trustees does not resolve these claims. The Trustees do not seek a substantive determination as to the meaning and effect of the Hasst Pty Ltd agreement, whether it conflicts with the Funding Agreement, or as to what might or will be the rights of Hasst Pty Ltd and the Trustees in the event that the Family Court makes orders the effect of which is to vest the units in the bankrupt estate. They do not seek, as correctly submitted by Mr Maiden, "…carte blanche in respect of actions they might take following the determination of this application, being actions outside the scope of the issues presently before the Court". Further, as I have noted, the exoneration that the Trustees seek is confined to claims or potential claims as identified in the affidavit material relied upon by the Trustees. That material does not open for inquiry and advice any potential conflict between the provisions of the Funding Agreement and the Hasst Pty Ltd agreement.
125 I deal next with the submissions of the Trustees in support of their application, and as supported by the submissions of Mr Galvin for AFC Pty Ltd. It is not, in my view, simply sufficient to conclude that I should exercise my discretion in favour of the Trustees, having determined that there is no material matter in the submissions put by the opposing parties, considered individually and as a whole, that I should not do so. In my view it is important to consider the entire circumstances of this proceeding mindful of the need to approach the questions cautiously and, as it is sometimes put, to act conservatively. Whether those cautions have survived Macedonian Church is not something that I find necessary to determine because, as I will explain, I am positively satisfied that a form of relief should be granted in favour of the Trustees.
126 I have found that the Trustees bring this proceeding in good faith and that their participation in the Family Court proceeding is likely to be of benefit for the creditors as a whole of the bankrupt estate. That will certainly be the case if a significant Resolution Sum within the meaning of the Funding Agreement is secured. But, as I have also accepted, even if the expectation of the Trustees turns out to have been overly sanguine as to the likely quantum of recovery, or the proceeding fails, there is not likely to be any overall detriment to the interests of the creditors as a whole. Although it is the case that the Trustees resolved to enter into the Funding Agreement without seeking judicial advice, ignored the condition precedent to obtain approval from this Court (and chose not to seek it from the creditors) and that there has been a significant period of unexplained delay between April 2020 and October 2021, I do not consider that these factors operate to require the application to be dismissed. They certainly have relevance in the balancing exercise, but are not dispositive once it is accepted, and as I have found, the Trustees would not be able to actively participate in the Family Court proceeding without litigation funding, the Funding Agreement is commercially realistic and, importantly, the entire risk of the Trustees' costs of the Family Court proceeding is thrown upon the Funder, including any adverse costs order that may be made against the Trustees.
127 Further, in my view, it is necessary for the Trustees to be active participants in the Family Court proceeding even though on one view, and to the point of decision as to whether the Deed and Declaration of Trust should be set aside, their interests elide with those of Ms Wright. There is obvious force in the criticism, supported by the findings of the Appeal Division of the Family Court, that they should not have participated to the extent that they did in the Full Court appeal, but that is not presently to the point. What I am concerned with is whether it was proper, in all of the circumstances, for the Trustees to enter into the Funding Agreement. The present application is not concerned with the degree of their participation or how they choose, from time to time, to conduct themselves in the litigation. Objecting creditors in the bankruptcy administration have rights that are available to them to review the degree of participation of the Trustees and the costs incurred in consequence pursuant to ss 90-10 and 90-15 of the Insolvency Practice Schedule.
128 Nor is it an answer to this application to point to the fact that the Trustees were not obliged to make it and, on their own admission, they will continue to implement its terms even if the present application fails. The reason why the Trustees bring this application is obvious: as trustees they are concerned about claims that they have breached their duties or have acted to take advantage of a conflict of interest. They maintain, and ask the Court to determine, that in April 2020 they acted properly, in good faith in the best interests of the creditors as a whole and that they should be exonerated from claims that they breached their statutory or fiduciary duties to the creditors. In my view, and for the detailed reasons I have given, I am not persuaded that the potential claims of breach and conflict that the opposing parties identify are of such significance as to refuse the application for relief. Moreover, as I have explained, exoneration in consequence of the granting of judicial advice is an ordinary incident of the summary procedure: it is not of itself a reason to refuse relief.
129 I am satisfied that there is no appreciable risk to the creditors of the bankrupt estate as a whole due to the decision to enter into the Funding Agreement. Without that agreement, there is the real likelihood that the creditors may be disadvantaged because the Trustees would not otherwise be able to actively participate in the Family Court proceeding. For example, there is the risk that Ms Wright may seek to enter into a settlement with Mr Jones and, despite the fact that the Trustees are parties to the proceeding and will most likely be given notice of any intended settlement, without active participation they will not in my assessment be able to substantively contest the terms of a settlement before it is agreed to so that the interests of the creditors as a whole of the bankrupt estate may be advanced.
130 I am satisfied that the Funding Agreement does not provide for an inappropriate, or exorbitant, return to the Funder having regard to the risks of the litigation, the costs risk of the Funder and that in particular the rate of commission and its method of calculation is not commercially inappropriate in accordance with the evidence of Mr Bianco.
131 I am required to undertake a balancing exercise, informed by the general principles that I have set out, but most particularly by the decision of the High Court in Macedonian Church, though it must be borne in mind that the exercise of the discretion that is sought to be invoked by the Trustees necessarily depends on particular facts and circumstances of this case. Overall, I am satisfied that it is in the best interests of the creditors of the bankrupt estate that the Trustees actively participate in the Family Court proceeding and that the Funding Agreement, on appropriate terms, permits them to do so.
132 On balance I am satisfied that limited relief ought to be given to the Trustees in the form of a declaration that they were justified in entering into the litigation funding agreement with AFC Pty Ltd dated 14 April 2020. In my view, it is not appropriate to go further and to declare that they were also justified in implementing that agreement: I have considered the entirety of the terms of the agreement as a component of my consideration as to whether it was proper for the Trustees to enter into it. Had I concluded that any of the terms of the agreement were inappropriate, or improper, it follows that I would not have reached my primary conclusion.
133 Additionally, the Trustees seek an order that to the extent that entry into the Funding Agreement "involved a breach of trust" that they be relieved from personal liability pursuant to s 67 of the Trustee Act 1958 (Vic) which provides:
Power to relieve trustee from personal liability
If it appears to the Court that a trustee, whether appointed by the Court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the Court in the matter in which he committed such breach, then the Court may relieve him either wholly or partly from personal liability for the same.
134 I am not prepared to grant this additional relief. As I have explained the effect of my judicial advice, framed in the form of declaratory relief, is to exonerate the Trustees from personal liability arising from their entry into the Funding Agreement to the extent that full disclosure has been made. It is not necessary therefore to go further in the particular circumstances of this case.
135 And as I raised with counsel during oral argument, it is difficult to see how this power might be exercised in this case where, as here, no actual finding of breach of trust has been made and which might be capable of amelioration in the exercise of this power.