Boensch as trustee of the Boensch Trust v Pascoe

Issues 5 Before summarising the facts as found by the primary judge, it is convenient to identify the issues in broad form so that the relevance of the facts is readily appreciated. 6 There was a dispute between Mr Boensch and Mr Pascoe as to the party beneficially entitled to the real property at 255 Victoria Road, Rydalmere, New South Wales (the property). Mr Boensch claimed that he held the property as trustee for his two children and no interest vested in Mr Pascoe as a result of Mr Boensch's bankruptcy. Mr Pascoe disputed this claim on two broad grounds. First, he contended that the alleged trust was not a valid and effective trust at general law. Secondly, he contended that the alleged trust was void as it fell within the terms of s 120 or s 121, or both, of the Bankruptcy Act 1966 (Cth). In either event, Mr Boensch was the owner of the property and on his bankruptcy it vested in Mr Pascoe as the trustee in his bankruptcy. 7 Mr Pascoe caused a caveat to be placed on the property on 25 August 2005 (the Caveat). It lapsed on 15 September 2009. Mr Boensch pleaded in his Statement of Claim that he made three separate requests that the Caveat be removed and those requests were made on the following dates: 15 November 2005, 10 December 2007 and 18 August 2008 respectively. 8 Mr Pascoe brought proceedings in the then Federal Magistrates Court of Australia to establish his claims that there was no valid trust over the property. The claims proceeded in that Court, then on appeal to the Full Court of this Court, and then by way of an application for special leave to appeal to the High Court of Australia. Mr Pascoe's claims were unsuccessful. He did not seek to re-agitate them before the primary judge. 9 Under s 74P of the Real Property Act, a caveatee has a right to compensation for pecuniary loss sustained which is attributable to a caveator without reasonable cause lodging a caveat or refusing or failing to withdraw such a caveat after being requested to do so. 10 The primary judge's reasons and the issues arising from the appeal and a notice of contention filed by Mr Pascoe are best understood by reference to the law as to reasonable cause which his Honour held to be applicable. His Honour held that Mr Boensch had the onus of establishing the absence of reasonable cause. We did not understand that to be disputed by Mr Boensch and, in any event, is plainly correct. Critically, his Honour held that to establish the absence of reasonable cause, Mr Boensch had to establish two matters. First, he had to establish that Mr Pascoe did not have a caveatable interest. Secondly, he had to establish that Mr Pascoe did not have an honest belief based on reasonable grounds that he had a caveatable interest. 11 The primary judge's dispositive reasoning related to these two requirements. 12 First, his Honour proceeded on the basis that there was a trust over the property, but held that a caveatable interest in the property vested in Mr Pascoe by the operation of s 58(1)(a) of the Bankruptcy Act. On his Honour's approach, that conclusion was sufficient to dispose of Mr Boensch's claim. Mr Boensch challenged the conclusion that Mr Pascoe had a caveatable interest in the property by the operation of s 58(1)(a). He further submitted that if Mr Pascoe did not have a caveatable interest, then that established an absence of reasonable cause and it was not necessary for the Court to consider whether Mr Pascoe had an honest belief on reasonable grounds that he had a caveatable interest in the property. In the alternative, he submitted that even if Mr Pascoe had a caveatable interest in the property, it was nevertheless necessary to consider whether he had an honest belief based on reasonable grounds that he had a caveatable interest in the property. It should be noted at this point that Mr Boensch also challenged his Honour's formulation of the second part of the test, submitting that an honest belief was not part of the test and that the test was wholly objective. 13 Secondly, his Honour considered the case on an alternative basis, that is to say, on the basis that Mr Pascoe did not have a caveatable interest in the property. He did this in case he was wrong in deciding that Mr Pascoe had a caveatable interest. He concluded that Mr Pascoe had an honest belief based on reasonable grounds that he had a caveatable interest in the property and this was an alternative basis for his answers to the three questions. As we have said, Mr Boensch submitted that that was an error and once it was found (as Mr Boensch submitted it should have been) that Mr Pascoe did not have a caveatable interest in the property, an absence of reasonable cause was established. Mr Boensch submitted that even if the primary judge was correct to consider the requirement of an honest belief based on reasonable grounds, he made a number of errors in concluding that Mr Pascoe held such a belief. 14 His Honour's conclusion that Mr Pascoe had an honest belief based on reasonable grounds that he had a caveatable interest in the property was made by reference to Mr Pascoe's belief in his claims that the alleged trust was invalid at general law or void by reason of the operation of ss 120 and 121 of the Bankruptcy Act. However, in the course of his reasons, his Honour referred to an honest belief by Mr Pascoe that he might have a right of indemnity in relation to the property of the type discussed in Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 (Octavo) at least from November 2005 (at [112]) and that there were reasonable grounds for such a belief by May 2009 at the latest (at [129]). However, his Honour did not make a finding that Mr Boensch had a right of indemnity which vested to Mr Pascoe by reasons of the former's bankruptcy and that that was a caveatable interest. Mr Pascoe accepted that, putting the matter in terms of the onus on Mr Boensch, the primary judge did not find that he had failed to prove that Mr Pascoe did not have a right of indemnity and, therefore, a caveatable interest. In his notice of contention, Mr Pascoe contended that the primary judge should have done so and that had he done so this would be an alternative basis for his decision.

The Facts 15 The following is a summary of the facts as found by the primary judge. 16 In May 1999, Mr Boensch and Ms Sabine Boensch reached a matrimonial property settlement and, under that settlement, Ms Boensch agreed to transfer her interest in the property to Mr Boensch for a consideration of $50,000. The transfer of the property by Ms Boensch to Mr Boensch was not effected until July 2010. 17 On 23 August 1999, Mr Boensch and Ms Boensch executed a memorandum of trust. The document is in the following terms: This is a memorandum of trust created for the benefit of Boensch family with the most important purpose to provide secure means of support to the children of the marriage, Dominic Boensch and Stefanie Boensch, after the divorce of their parents. The trust property is the land and buildings at 255 Victoria Rd, Rydalmere NSW. Sabine Boensch will cause her share of ownership of that land to be transferred to Franz Boensch for him to hold the whole of the land in trust as described above. In due course Franz Boensch will arrange with a solicitor or accountant to prepare a detailed trust document, professionally drafted to give best protection to the children and to ensure favourable tax treatment of income earned by the trust. 18 Mr Michael Costin sued Mr Boensch in the Ryde Local Court and in July 2003 he obtained a judgment against Mr Boensch. In October 2003, Mr Costin served a bankruptcy notice on Mr Boensch and the judgment debt was the basis of the notice. 19 On 18 March 2004, Mr Boensch and Ms Boensch executed a Deed of Trust under which they were the settlors and Mr Boensch was the trustee. The trust was known as the Boensch Trust. Recital A in the Deed of Trust stated that the settlors wished to confirm the settlement made by them jointly in a memorandum of trust dated 23 August 1999. The property of the trust remained as it was under the memorandum of trust and the First Group Beneficiaries defined in the Deed of Trust were the children of Mr Boensch and Ms Boensch. Mr Boensch was nominated as the appointor under the trust. 20 On 21 March 2004, Mr Boensch and Ms Boensch executed a transfer of an estate in fee simple in the property in favour of Mr Boensch. However, the first mortgagee, the State Bank of New South Wales Limited, would not consent to the registration of the transfer, and it was not registered at that time. 21 In July 2005, Mr Costin filed a Creditor's Petition in the Federal Magistrates Court seeking a sequestration order against Mr Boensch. Such an order was made on 23 August 2005 and Mr Pascoe, a partner of the firm, Sims Partners, became the trustee of Mr Boensch's bankrupt estate. Mr Pascoe was asked by Mr Costin's solicitor, Ms Karen McLean, to provide his consent to act as trustee and he did so before the sequestration order was made. In the same month, Mr Boensch lodged the Deed of Trust with the attached memorandum of trust with the Registrar-General and made a request that he record a caveat in respect of the property pursuant to s 82 of the Real Property Act forbidding registration. The caveat should forbid registration of any instruments not in accordance with the trusts declared by the memorandum of trust and the Deed of Trust. A caveat to that effect was recorded on the title on 17 August 2005. 22 On the day the sequestration order was made, and shortly after it had been made, Mr Pascoe spoke to Ms McLean. Ms McLean had engaged Mr Jim Johnson to act as counsel for Mr Costin. At the meeting with Mr Pascoe, Ms McLean told Mr Pascoe that Mr Johnson believed there were strong prospects of defeating the trust claim or having any purported trust set aside. Ms McLean used the expression "lay down misere". 23 On 24 August 2005, Mr Pascoe and Mr Moretti, an employee of Sims Partners, had a meeting with Mr Boensch. Mr Boensch provided certain documents to Mr Pascoe, including a copy of the memorandum of trust and, at least, the front page of the Deed of Trust. The trust and its establishment was discussed and Mr Boensch said that the property was held by him on trust for his children. 24 The Caveat, which is the subject of this proceeding, was prepared on 25 August 2005. It was certified by Ms McLean. She solemnly and sincerely declared that the caveator, Mr Pascoe, had a good and valid claim to the estate or interest set out in Schedule 1. Schedule 1 deals with the estate or interest claimed. In describing the nature of the estate or interest in the land, Mr Pascoe states the following: Legal interest pursuant to the Bankruptcy Act 1966. 25 In describing the instrument which gave rise to the estate or interest in the land, Mr Pascoe states that the nature of the instrument was a court order dated 23 August 2005 and that the parties were Mr Boensch and Mr Costin. In describing the facts which gave rise to the estate or interest in the land, Mr Pascoe states the following: On 23 August 2005 a Sequestration Order was made against Franz Boensch and scott (sic) Darren Pascoe was appointed Trustee. Pursuant to the operation of s 156A(3) and s 58(1)(a) of the Bankruptcy Act 1966 property of the bankrupt vests in the Trustee. 26 By 25 August 2005, Mr Pascoe and Mr Moretti had met Ms McLean twice and, on one or more of those occasions, the preparation and lodgment of the Caveat was discussed. Mr Pascoe or Mr Moretti, or both, instructed Ms McLean to lodge the Caveat. If it was Mr Moretti who gave the instruction, he did so with the knowledge and approval of Mr Pascoe. 27 In circumstances where a bankrupt was a registered proprietor of land, it was Mr Pascoe's usual practice to lodge a caveat over the property at an early stage in the administration. Mr Pascoe believed, following that practice, that as trustee of the bankrupt estate he had an interest in the land which would support a caveat. Mr Pascoe understood that whatever interest the bankrupt had as at the date of the bankruptcy was vested in him as trustee. The caveats lodged by Mr Pascoe usually claimed an interest by virtue of the Bankruptcy Act and the form of words used in the caveat "were a relatively standard form of wording used in caveats lodged in my name as a bankruptcy trustee". Mr Pascoe did not think he should depart from his usual practice in Mr Boensch's case. He was not satisfied about Mr Boensch's claims of a trust and he suspected that he may be making such a claim as a means of putting the asset beyond the reach of his creditors. Mr Pascoe's instructions for the lodgment of the Caveat were given in accordance with his usual practice. 28 At the time the Caveat was lodged, Mr Pascoe had no reason to believe one way or another whether Mr Boensch was insolvent when the trust was established in 1999 and there was no suggestion that he could discern an imminent transfer of the property. Mr Pascoe said that, as a trustee, he needed to act quickly to lodge a caveat because there may be unknown circumstances that could affect the title to the property. 29 On 29 August 2005, Ms McLean sent a letter enclosing a memorandum of costs and disbursements in relation to the lodging of a caveat. 30 On 29 August 2005, Mr Pascoe sent a "Notice to Produce Books of an Associated Entity pursuant to s 77A of the Bankruptcy Act" to JP Leong & Co, solicitors, who were acting for Mr Boensch. The notice required the production of documents prior to 12 September 2005. Mr Leong received the letter on 31 August 2005. He did nothing about it at the time because he considered that virtually all of his file relating to the trust was privileged. On 23 September 2005, Mr Pascoe sent a letter to Mr Leong stating that the period under the notice had expired and that he was referring the issue of non-compliance to the Insolvency and Trustee Service Australia (ITSA) Fraud Investigation Unit for prosecution. 31 Mr Leong responded on 29 September 2005. He stated that the notice had been complied with and he indicated that as Mr Boensch's trustee in bankruptcy, Mr Pascoe was "de facto trustee of the Trust". He asked Mr Pascoe if he was prepared to relinquish the position. 32 The primary judge found that Mr Leong also deposed that he had a conversation with Mr Moretti during which he informed Mr Moretti that at least parts of the file were privileged. Despite that, Mr Moretti demanded that Mr Leong produce the file or face prosecution. The primary judge said that Mr Leong stated that he then photocopied his entire file and sent it to Mr Pascoe on 30 September 2005 without formulating any claim for privilege. The documents produced were inspected by Mr Pascoe. 33 On 1 September 2005, ITSA sent to Mr Pascoe an email sent by Mr Boensch on 31 August 2005. In that email, Mr Boensch referred to being trustee of a trust of a property for his children and stated that the agreement for the trust was made with a memorandum of trust in 1999. The email also referred to a decision made in 2003 to establish a trading trust with Elise Capital Pty Limited as trustee and Mr Boensch and his children as beneficiaries. Mr Boensch was the sole director of Elise Capital Pty Limited. 34 The primary judge noted that Mr Pascoe stated that the assertion of two different trusts increased his suspicion that Mr Boensch was making statements of that kind in order to defeat creditors. Mr Pascoe said that the reason was that the deed of confirmation of the first trust occurred after the establishment of the second trust and in circumstances where Mr Boensch was being pursued by a creditor, namely, Mr Costin. 35 On 22 September 2005, Mr Pascoe and Mr Moretti had another meeting with Mr Boensch. Mr Boensch produced his Statement of Affairs and in answer to the question when he first had difficulty paying his debts, Mr Boensch stated "always". In dealing with the mortgage over the property held by the Commonwealth Bank of Australia Mr Boensch stated that he considered himself a joint guarantor for the mortgage for land owned by the Boensch Trust and that the loan repayments were made by the Boensch Trust. In addition, the Statement of Affairs refers to Elise Capital Pty Limited and states that it is the trustee of the Boensch Family Trust No 1 and the Boensch Family Trust No 2. Mr Pascoe made a note in relation to Elise Capital Pty Limited to the effect that "never done anything yet" and there is a reference to "Trust" next to notes "s 75 proposal", and "sensible commercial advice to cut losses …". Mr Pascoe said that he suggested that it might be sensible for Mr Boensch to make a proposal to creditors under s 75 of the Bankruptcy Act, and that he made that suggestion because he was not persuaded by Mr Boensch's trust claims in relation to the property. 36 On 23 September 2005, Mr Pascoe was contacted by telephone by Mr Stephen Mullette of the Argyle Partnership. Mr Mullette said that he was acting for Mr Boensch. There was a discussion between the two about the Caveat and its removal. On 27 September 2005, Mr Mullette sent a letter to Mr Pascoe which included the following: I note that following your appointment, and no doubt as a matter of course, a caveat was lodged on Property Registered in the name of Mr Boensch together with his former wife, Sabine Boensch, at 255 Victoria Road, Rydalmere, being Volume 7366 Folio 5 ('the Property'). I am instructed that the Property is held on trust for Mr Boensch's children pursuant to the terms of a memorandum of trust created between Mr Boensch and his former wife on 23 August 1999, and confirmed by Deed of Trust dated 18 March 2004. A copy of these documents are enclosed. No doubt you will need to review these documents for your own benefit. However, the terms of the trust are clear, such that the property does not fall within the divisible property in the bankruptcy, and the trustee's interest will not support the caveat lodged on the title. My client requests that the caveat be withdrawn within 21 days from the date of this letter, in the absence of which he will need to consider his options, including whether to file a lapsing notice at the Department of Lands. I will notify you prior to filing the lapsing notice. If you require longer than the 21 days to form a view on my client's claim please advise how long and I will obtain instructions. 37 On 30 September 2005, Mr Pascoe sent a letter to Mr Leong in which he stated that, in his opinion, the trustee in bankruptcy does not take over the role of trustee of the trust. 38 In the file produced by Mr Leong, there was a further copy of the memorandum of trust dated 23 August 1999. Whilst the copy was executed, there was no notation to the effect that the execution had been witnessed by a Justice of the Peace and there were, in addition, formatting differences between the copy in Mr Leong's file as produced, and the memorandum of trust previously provided. Mr Pascoe thought that this was unusual in the absence of some explanation. Furthermore, Mr Pascoe's scepticism was increased by another document. This is a letter from Mr Leong to Mr Boensch dated 17 March 2004 which refers to Mr Boensch wanting to be nominated as a beneficiary of the trust. Mr Pascoe's suspicions were further aroused by affidavits signed by Mr Boensch and Ms Boensch in March 2004, which he thought may have been prepared for the purpose of supporting the claim that the property had been held on trust since 1999 and by the executed transfer to Mr Boensch dated 21 March 2004 which he suspected was part of an attempt by Mr Boensch to defeat his creditors. 39 On 11 October 2005, Mr George Nicolaou, a chartered accountant who was acting for Mr Boensch and some companies associated with Mr Boensch and Ms Boensch, including Elise Capital Pty Limited and Boensch Pty Limited, sent various records, including trust deeds dated 18 November 2003 for Boensch Family Trust No 1 and Boensch Family Trust No 2 - Rentals. Mr Pascoe, on reviewing the trust deeds, had difficulty understanding what assets were held in the trusts. This reinforced his doubts about whether the documents already provided by Mr Boensch, truly reflected his affairs. 40 On 12 October 2005, Mr Pascoe sent a letter to Mr Mullette asking that Mr Boensch provide any documentation he intended to rely on in establishing the trust by 8 November 2005. He also asked for originals of the trust documents and, in a further letter to Mr Mullette on the same date, Mr Pascoe asked for 60 days in which to obtain documentation and advice and form a view about Mr Boensch's claim. 41 On 17 October 2005, Mr Pascoe, Mr Moretti and Ms McLean had a conference with Mr Johnson. There was discussion about the need to see original documents. Following the conference, Mr Pascoe sent a letter to Ms McLean outlining the further actions to be undertaken by each of them in relation to the "recovery process". At that stage, it was envisaged that, in the first instance, preliminary advice on the prospects of success would be obtained from counsel and it was also contemplated that examinations of Mr Boensch and Ms Boensch may be necessary. 42 On 21 October 2005, Mr Pascoe made his first report to creditors and, on page 3 of his report, he advised that he was investigating the validity of the Boensch Trust and he was doing so for various reasons, including the fact that no action in relation to the trust appeared to have been taken until 2003 and that was after proceedings by Mr Costin were well advanced. Mr Pascoe also referred to the fact that he could not register himself on the title because the Registrar-General had registered a caveat over the property to protect the interest of the trust. He advised the creditors that he had registered his own caveat to protect their interests. 43 On 24 October 2005, Mr Pascoe sought information from the Commonwealth Bank of Australia concerning the mortgage over the property and, on 28 October 2005, he sent a letter to Mr Boensch requiring him to produce the original Boensch Family Trust Deed and original Declarations of Trust. 44 On 31 October 2005, Mr Mullette wrote to Mr Moretti in terms which included the following: I refer to your recent letters. My client relies on the trust deed and declaration provided to you previously. If there is any reason not to accept these documents as sufficient to satisfy the trustee of the claim of my client, then please advise. Otherwise I will be advising my client to lodge an application for a lapsing notice on the caveat on the property. My client is not prepared to wait 60 days and does not understand why such a long period would be required. I note that you have requested certain documents from my client, including original trust documentation. This is not property of the bankrupt estate, and is required for the administration of the trust. My client will provide a certified copy shortly, and is prepared to allow the inspection of the original trust deed at our offices by prior arrangement. … I look forward to your advice as to when the caveat will be withdrawn. 45 As foreshadowed in Mr Mullette's letter on 7 November 2005, Mr Boensch forwarded a certified copy of the Deed of Trust dated 18 March 2004 and attached to that document was a certified copy of the memorandum of trust dated 23 August 1999. On 9 November 2005, Mr Mullette advised that the original Boensch Trust Deed was available for inspection at his office. 46 On 11 November 2005, Mr Leong sent a letter to Mr Pascoe advising him that he considered that the trust property now vested in Mr Pascoe as Mr Boensch's trustee in bankruptcy and asking Mr Pascoe to sign a deed providing for Ms Boensch to be appointed as trustee of the trust. 47 On 15 November 2005, Mr Mullette sent a letter to Mr Pascoe in which he disputed concerns Mr Pascoe had expressed in his report concerning the validity of the trust. The letter included the following: In reality, it seems to us, the only basis upon which the trust may be questioned is if the Memorandum of Trust dated 23 August 1999 is some form of fraud or sham. There is simply no evidence or indication of this and we do not understand the trustee to seriously contest otherwise. If we are incorrect, please let us know. In the circumstances, then, there can be no question of the entitlement of our client, as trustee of the Boensch Trust to hold the property clear of any encumbrances including the caveat which you have caused to be lodged. Our client instructs us that he has given all such information as the trustee required in relation to the establishment of the trust, and yet the report to creditors and our previous communications have given no indication that the caveat will be withdrawn in the immediate future. In the circumstances, our client is no longer prepared to suffer the caveat to remain on title. We will be filing a Lapsing Notice after seven days from the date hereof unless the caveat is withdrawn by that time. 48 The primary judge said that this letter constituted the first request to remove the Caveat pleaded in the Statement of Claim. 49 A meeting of creditors took place on 16 November 2005. There was discussion at the meeting about the possibility of action to recover property from the trust and the funding of such action. Sometime prior to the meeting, Mr Pascoe had formed the view that even if Mr Boensch's trust claims were valid, Mr Boensch was likely to have a trustee's right of indemnity out of trust assets. 50 On 23 November 2005, Ms McLean spoke to Mr Mullette and arrangements were made for an inspection of the original trust documents. Mr Mullette agreed that in the meantime, no lapsing notice would be issued. 51 On 30 November 2005, Mr Pascoe and Mr Moretti attended at the Mr Mullette's office to inspect the original trust documents. Mr Boensch was present and he produced the original documents. Mr Boensch assured Mr Pascoe that there was only one original executed memorandum of trust. That caused Mr Pascoe to feel further doubt about Mr Boensch's credibility in light of the existence of a second executed version of the memorandum of trust in Mr Leong's file. 52 On 5 December 2005, Mr Mullette sent an email to Ms McLean which was copied to Mr Pascoe. The email apparently attached a statutory declaration made by Mr Boensch to the effect that there was only one version of the memorandum of trust. The email provided an address for Mr Parsons, the Justice of the Peace, who apparently witnessed the signatures on the memorandum of trust. The email included the following: On my instructions and from the documents I have seen, there can be no question that the trust is valid. My client intends filing a lapsing notice shortly. I will seek instructions and notify you beforehand. If you have any reason to suspect that the trust is not exactly what it says it is, I would be happy to take instructions regarding the trustee's concerns. 53 On 14 December 2005, Mr Leong sent a letter to Mr Pascoe calling for the execution of the deed he had earlier forwarded to him and stating that if the deed was not executed and returned by 27 January 2006, then proceedings would be commenced. Mr Pascoe did not respond to either Mr Mullette's email of 5 December 2005 or Mr Leong's letter of 14 December 2005. No lapsing notice was served and no proceedings were commenced. 54 On 21 February 2006, Mr Boensch sent an email to Mr Pascoe which contained a signed statement of Mr Boensch in which he stated, among other things: Most of the living expenses are provided for by the Trust. I live at the trusts will. At the moment I do not have any living expenses. My accommodation is at the mercy of the Trust as it is a mutually beneficial arrangement. I provide some form of security for the balance of the property. 55 On 22 February 2006, Mr Pascoe sent a letter to Mr Boensch seeking further information about various matters, including the "mutually beneficial arrangement" referred to in Mr Boensch's statement. Mr Boensch responding by stating, in effect, that the mutually beneficial arrangement only concerned the room he occupied. He explained that it was not of a standard as would permit it to be let, and that the mutually beneficial arrangement was that he had a roof over his head and the property appeared occupied. 56 Mr Pascoe made arrangements for the examination of Mr Boensch and Ms Boensch to take place on 3 May 2006 in the Federal Court. Ms Boensch attended and was examined on that date. Mr Boensch was unable to attend for medical reasons and he was not examined until March 2009. 57 A second meeting of creditors was held on 9 June 2006. Mr Pascoe informed those present at the meeting that he had obtained advice regarding the recovery of assets pursuant to s 121 of the Bankruptcy Act and that he had formed the view that he had reasonable prospects of success in proceedings seeking the recovery of property from the trust. 58 By the time of the second meeting of creditors, Mr Pascoe had received a memorandum of advice from Mr Johnson and he relied on that advice in forming his view as to reasonable prospects of success. Mr Johnson's advice was prepared after the examination of Ms Boensch. 59 Mr Johnson expressed the view that the underlying transaction concerning the trust took place on 23 August 1999, and that, in those circumstances, a claim under s 120 would not be available. As to a claim under s 121 of the Bankruptcy Act, Mr Johnson said the following: It is clear from the terms of the trust document of 23 August 1999 that there was no consideration paid for the transfer. It is equally to be inferred from the file notes which I have referred to in the above chronology that at all times it was the intention of the bankrupt to retain an equity in the property which was the subject of the Declaration of Trust. To that extent the terms of the Memorandum of Trust would appear, at least until the signing of the Deed of Confirmation, a "sham" or illusory not truly and properly reflecting the intention to create legal relationships between the parties reinforced in the present circumstances having regard to the expressed desire on the part of the bankrupt in communications with JP Leong to retain a position of beneficiary of the property when the new trust was being considered. 60 Mr Johnson expressed the opinion that it was appropriate for Mr Pascoe to make an application for orders seeking relief under s 121 of the Bankruptcy Act to set aside the memorandum of trust and the Deed of Trust. 61 On 19 July 2006, Mr Pascoe commenced proceedings against Mr Boensch and Ms Boensch in the Federal Magistrates Court. He sought declaratory relief to the effect that the memorandum of trust, the Deed of Trust and the transfer dated 21 March 2004, were of no force or effect, a declaration under s 121 of the Bankruptcy Act that the memorandum of trust was void as against Mr Pascoe, and relief under s 120 or alternatively, s 121 of the Bankruptcy Act in respect of the Deed of Trust and the transfer dated 21 March 2004. Mr Pascoe's solicitor throughout the proceedings was Ms McLean and his counsel was Mr Johnson. Mr Pascoe believed, based on the legal advice provided to him, that the proceedings had good prospects of success. 62 On 29 August 2006, Mr Johnson sent an email to Ms McLean. He referred to what was then a recent decision of this Court in Marchesi v Apostoulou [2006] FCA 1122; (2006) 235 ALR 136 (Marchesi v Apostoulou) and he said that he considered that the principles concerning voluntary assignments that were discussed in that case were of relevance to the proceedings against Mr Boensch. Mr Johnson concluded that it was obvious that the memorandum of trust was an imperfect gift and was not effective to convey any equity for the purposes stated. He further stated that the Deed of Trust made on 18 March 2004 was, if anything, a declaration of trust which would clearly fall within the ambit of ss 120 and 121 of the Bankruptcy Act. 63 There were numerous interlocutory disputes in the course of the proceedings in the Federal Magistrates Court and they included a dispute as to whether privilege had been lost in relation to certain documents relied upon by Mr Pascoe. On 8 October 2006, Ms McLean forwarded to Mr Pascoe a report made to her by Mr Johnson concerning a directions hearing held in the matter. Mr Johnson's report contains the following: As indicated to you in conference, I consider the position of the Trustee, Applicant, should be that even if the documents which are the subject of the claim for privilege are not capable of being used, there would be reasonable prospects of success in relation to the proceedings, both in relation to Milroy v Lord issue and also in relation to the operation of sections 120 and 121 of the Bankruptcy Act 1966. Mr Pascoe noted Mr Johnson's advice. 64 On 27 November 2006, Mr Johnson sent an email to Ms McLean with a copy of the email to Mr Pascoe wherein he expressed the opinion that, having regard to the judgment in Marchesi v Apostoulou, and a further judgment of the Federal Court in Official Trustee v Turner (1999) 94 FCR 512, Mr Pascoe was entitled to be registered as the proprietor of the property. 65 On 13 December 2006, there was a conference between Mr Pascoe, Mr Moretti and Mr Johnson. The purpose of that conference was to discuss the proceedings that had recently been commenced by Mr Boensch against Mr Pascoe in which he sought Mr Pascoe's removal as the trustee in bankruptcy. A memorandum of advice by Mr Johnson was dictated by him during the conference and in that memorandum, he refers to Marchesi v Apostoulou and his view that the memorandum of trust was an imperfect gift. A copy of that memorandum of advice was sent to Mr Pascoe on 18 December 2006. 66 It was considered that Ms McLean may have a conflict of interest dealing with the proceedings brought by Mr Boensch against Mr Pascoe, and Mr Pascoe retained Ms Sally Nash, solicitor, to act for him. In March 2007, and in the course of the proceedings brought by Mr Boensch, he produced the original transfer dated 21 March 2004. The solicitors were instructed to hold the document in their possession pending the final decision of the Court in Mr Pascoe's proceedings, and they were instructed that if the Court found that the trust was validly constituted, then the transfer would be returned to Mr Boensch, but if the Court found that the trust was not validly constituted, they would deliver the transfer to Mr Pascoe. On 11 April 2007, Ms Nash wrote to Mr Pascoe and expressed the view that the transfer was clearly void under ss 120 or 121 of the Bankruptcy Act. Mr Pascoe noted Ms Nash's views and that they were generally consistent with the other advice he had received, although he agreed that as she had not been retained in the proceedings in the Federal Magistrates Court, he could not place much weight on those views. 67 On 6 September 2007, an order was made in Mr Pascoe's proceedings for the determination of a preliminary question. That preliminary question was whether the memorandum of trust constituted a valid declaration of trust, or otherwise created a valid interest in the property. The Federal Magistrates Court delivered judgment on 6 December 2007 and answered the question in the affirmative (Pascoe v Boensch (No 6) [2007] FMCA 2038). 68 On 10 December 2007, Mr Boensch's then lawyers, Wright Commercial Lawyers, sent a letter to Ms McLean formally requesting that Mr Pascoe withdraw his Caveat. The letter stated that if the Caveat was not promptly removed, then Mr Boensch would either apply for an order for removal under s 74MA of the Real Property Act or apply under s 74J of the Real Property Act for a lapsing notice to be prepared. The request was expressly made to be without prejudice to Mr Boensch's rights to claim compensation under s 74P of the Real Property Act. This letter is the second request to remove the Caveat identified in the Statement of Claim. 69 Mr Pascoe decided to appeal against the determination of the preliminary question. He had an understanding from his lawyers that he had a proper basis to maintain the Caveat at least until the determination of an appeal from the orders of the Federal Magistrates Court. He did not receive any legal advice following those orders to the effect that he ought to withdraw the Caveat, although at the same time it should be noted that he did not seek or obtain advice as to whether the Caveat should be withdrawn. By 10 December 2007, he discussed the matter with Ms McLean and a view had been formed that an appeal was likely to be lodged. 70 On 16 December 2007, Ms McLean sent a further email to Mr Pascoe wherein she sought confirmation that she could respond to Mr Boensch's lawyers by saying that the Caveat would not be removed and that it was likely that an appeal would be lodged. 71 On 13 December 2007, Mr Boensch's proceedings against Mr Pascoe were dismissed (Boensch v Pascoe [2007] FCA 1977; (2007) 5 ABC(NS) 480). On 17 December 2007, Ms Nash sent an email to Mr Pascoe concerning those proceedings, but at the same time making some observations concerning the proceedings in the Federal Magistrates Court. 72 On 18 December 2007, Ms McLean sent Mr Pascoe an email she had received from Mr Johnson. In his email, Mr Johnson expressed the view that it would be appropriate for Mr Pascoe to seek leave to appeal from the orders of the Federal Magistrates Court. Mr Johnson referred to the fact that he intended to discuss the appeal with a Queen's Counsel in Melbourne. 73 Mr Johnson sent a further email to Ms McLean on 17 January 2008 with a copy to Mr Pascoe. In that email, Mr Johnson discussed the issue of whether the assets of the Boensch Trust were property which vested in Mr Pascoe as Mr Boensch's trustee in bankruptcy. Mr Johnson noted that such an argument would be a "fall-back position" to the contention that the trust was a sham. He sought instructions as to whether he should fully investigate the issue and provide a detailed advice. 74 Mr Pascoe gave evidence of his understanding of the advice Mr Johnson was giving. It was that even if the trust was upheld as valid, Mr Boensch may still have a beneficial interest in the property which would vest in his trustee in bankruptcy. Mr Pascoe said that he believed at the time that Mr Boensch would have a beneficial interest in the property by reason of his right of indemnity out of the trust assets and that Mr Johnson was suggesting an additional reason to conclude that Mr Boensch may have a beneficial interest in the property. 75 Leave to appeal from the orders made by the Federal Magistrates Court was granted. However, the appeal was dismissed by the Full Court of this Court on 18 August 2008 (Pascoe v Boensch [2008] FCAFC 147; (2008) 250 ALR 24). On the day the appeal was dismissed, Mr Boensch's solicitors sent a letter to Ms McLean seeking the withdrawal of the Caveat. This is the third request to remove the Caveat identified in the Statement of Claim. 76 Despite the dismissal of the appeal on the separate question, Mr Pascoe continued to believe that he had a basis for maintaining his Caveat because he still had his applications under ss 120 and 121 of the Bankruptcy Act to have the "transaction" declared void. He did not receive any legal advice following the dismissal of his appeal to the effect that he should withdraw the Caveat. 77 On 15 September 2008, Mr Pascoe filed an application in the High Court of Australia for special leave to appeal against the decision of the Full Court of this Court. On 12 March 2009, that application was dismissed. 78 On 13 August 2009, Mr Pascoe's proceedings in the Federal Magistrates Court were dismissed. The Court dismissed an application by Mr Pascoe to amend his application and upheld an application by Mr Boensch for summary dismissal. Mr Pascoe had adduced some evidence concerning the state of Mr Boensch's solvency in 1999, but the Court was of the view that Mr Pascoe did not have reasonable prospects of establishing insolvency at that time. Having reached that conclusion, the Court considered that Mr Pascoe would not be able to make out a case under s 121 of the Bankruptcy Act. The Court decided that it was appropriate to dismiss the proceedings pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) (Pascoe v Boensch (No 9) [2009] FMCA 769; (2009) 8 ABC(NS) 495). 79 On 25 August 2009, Ms McLean was served with a lapsing notice in respect of the Caveat. She sent it to Mr Pascoe on the same day. On 8 September 2009, she sought instructions from Mr Pascoe about whether to make an application to extend the operation of the Caveat. Mr Pascoe responded on the same day in the following terms: I have thought about this overnight and think we should try to minimise the fronts we are fighting him on by letting the caveat lapse. He still has the Reg Gen caveat and the mortgage on title. We know that he won't sell. His only option is refinance. It would take a very brave refinancier to lend against the property after doing a title search. I think this is a risk we can bare (sic). 80 Mr Pascoe said that at that time he thought that any interest which Mr Boensch had in the property as a consequence of a right of indemnity "would be of limited value". He also said that he did not want to be a party to another set of proceedings that might ultimately be of little value to creditors. 81 Although the decision had been made to allow the Caveat to lapse, an application for leave to appeal against the decision of the Federal Magistrates Court to dismiss the proceeding was filed. On 3 November 2009, that application was dismissed (Pascoe v Boensch [2009] FCA 1240). 82 The Caveat lapsed on 15 September 2009. 83 Before leaving this section of the reasons, two matters should be noted. First, the primary judge generally accepted Mr Pascoe's evidence as truthful and reliable (at [110]). He said that he did not doubt that at all relevant times, Mr Pascoe honestly believed that he had a caveatable interest in the property. He believed that as a trustee in bankruptcy of a registered proprietor, he had an interest in the land which would support a caveat and he understood that whatever interest the bankrupt had as at the date of bankruptcy, was vested in him as trustee. The primary judge accepted Mr Pascoe's evidence to the effect that at all relevant times up to 3 November 2009, when his application for leave to appeal against the orders of the Federal Magistrates Court was refused, he believed that there were reasonable prospects that the trust or trusts asserted by Mr Boensch in respect of the property would either be found to be invalid or declared void against him pursuant to the Bankruptcy Act (at [112]). The primary judge also accepted Mr Pascoe's evidence to the effect that he thought from at least the time of the first meeting of creditors in November 2005, that even if Mr Boensch held the property on trust, Mr Boensch might have a right of indemnity in relation to the property. The primary judge said that it followed that, at all relevant times, Mr Pascoe believed that Mr Boensch might have an interest in the property that was more than a bare legal title, and that upon the making of the sequestration order, such interest was vested in him as the trustee in bankruptcy. The primary judge said that Mr Pascoe's beliefs concerning Mr Boensch's interest in the property were not based solely on legal advice. They were a combination of his own views based on his investigations and legal advice received (at [113]). 84 The second matter is that Mr Boensch made it clear in his oral submissions on the appeal, that he did not challenge his Honour's conclusions to the effect that he generally accepted Mr Pascoe's evidence as truthful and reliable and that Mr Pascoe had an honest belief in the terms described above. That did not appear clearly from his written submissions on the appeal. We would make the point that, in any event, none of the matters which would provide grounds for an Appeal Court to set aside a primary judge's finding as to the credit and reliability of a witness are present here (Fox v Percy (2003) 214 CLR 118). Mr Boensch's main challenge was to the primary judge's conclusion that Mr Pascoe's belief concerning the existence of a caveatable interest was based on reasonable grounds.

The Relevant Legislative Provisions 85 Section 58(1)(a) of the Bankruptcy Act provides as follows: 58 Vesting of property upon bankruptcy - general rule (1) Subject to this Act, where a debtor becomes a bankrupt: (a) the property of the bankrupt, not being after acquired property, vests forthwith in the Official Trustee or, if, at the time when the debtor becomes a bankrupt, a registered trustee becomes the trustee of the estate of the bankrupt by virtue of section 156A, in that registered trustee; The terms "property" and "the property of the bankrupt" are defined in s 5(1) of the Bankruptcy Act as follows: property means real or personal property of every description, whether situate in Australia or elsewhere, and includes any estate, interest or profit, whether present or future, vested or contingent, arising out of or incident to any such real or personal property. the property of the bankrupt, in relation to a bankrupt, means: (a) except in subsections 58(3) and (4): (i) the property divisible among the bankrupt's creditors; and (ii) any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become a bankrupt; and (b) in subsections 58(3) and (4): (i) the property, rights and powers referred to in paragraph (a) of this definition; and (ii) any other property of the bankrupt. 86 Section 116 of the Bankruptcy Act is also said to be relevant. It provides, relevantly: 116 Property divisible among creditors (1) Subject to this Act: (a) all property that belonged to, or was vested in, a bankrupt at the commencement of the bankruptcy, or has been acquired or is acquired by him or her, or has devolved or devolves on him or her, after the commencement of the bankruptcy and before his or her discharge; and … (2) Subsection (1) does not extend to the following property: (a) property held by the bankrupt in trust for another person; … 87 Section 115 deals with the commencement of bankruptcy and, subject to an exception not presently relevant, provides that in the case of a creditor's petition that the bankruptcy is taken to have commenced at "the time of the commission of the earliest act of bankruptcy committed by the person within the period of six months immediately before the date on which the creditor's petition was presented". 88 Caveats are dealt with in Part 7A of the Real Property Act. Section 74F deals with the right to lodge caveats. Subsections (1) and (5) provide as follows: 74F Lodgment of caveats against dealings, possessory applications, plans and applications for cancellation of easements or extinguishment of restrictive covenants (1) Any person who, by virtue of any unregistered dealing or by devolution of law or otherwise, claims to be entitled to a legal or equitable estate or interest in land under the provisions of this Act may lodge with the Registrar-General a caveat prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled. (5) A caveat lodged under this section must: (a) be in the approved form, (b) specify: (i) the name of the caveator, (ii) where the caveator is not a body corporate - the residential address of the caveator, (iii) where the caveator is a body corporate - the address of the registered office of the body corporate, (iv) unless the Registrar-General dispenses with those particulars - the name and address of the registered proprietor concerned, (v) the prescribed particulars of the legal or equitable estate or interest, or the right arising out of a restrictive covenant, to which the caveator claims to be entitled, (vi) the current reference allocated by the Registrar-General to the folio of the Register, or, as the case may be, the lease, mortgage or charge, to which the caveat relates, (vii) where the caveat relates only to part of the land described in a folio of the Register or a current lease - a description of that part in the form or manner prescribed, and (viii) an address in Australia at which notices may be served on the caveator (and, if that address is a box at a document exchange, an alternative address in Australia that is not such a box), (c) be verified by statutory declaration or, in the case of a caveat lodged by means of an Electronic Lodgment Network, be verified in a way approved by the Registrar-General, and (d) be signed by the caveator or by a solicitor or other agent of the caveator. 89 Section 74L of the Real Property Act provides as follows: 74L Strict compliance with formalities with respect to caveats not necessary If in any legal proceedings a question arises as to the validity of a caveat lodged under a provision of this Part, the court shall disregard any failure of the caveator to comply strictly with the requirements of this Part, and of any regulations or conveyancing rules made for the purposes of this Part, with respect to the form of the caveat. 90 Section 74J of the Real Property Act enables the registered proprietor to serve a notice that will either lead to the caveat lapsing or force the caveator to seek an order from the Supreme Court under s 74K extending the operation of the caveat. 91 Section 74P of the Real Property Act provides as follows: 74P Compensation payable in certain cases (1) Any person who, without reasonable cause: (a) lodges a caveat with the Registrar-General under a provision of this Part, (b) procures the lapsing of such a caveat, or (c) being the caveator, refuses or fails to withdraw such a caveat after being requested to do so, is liable to pay to any person who sustains pecuniary loss that is attributable to an act, refusal or failure referred to in paragraph (a), (b) or (c) compensation with respect to that loss. (2) Compensation referred to in subsection (1) is recoverable in proceedings taken in a court of competent jurisdiction by the person who claims to have sustained the pecuniary loss. (3) A person who is a caveator is not entitled to bring proceedings under subsection (1) (b) if that person, having had an opportunity to do so, has failed to take all reasonable steps to prevent the caveat from lapsing. 92 Finally, s 82 of the Real Property Act, which deals with notice of trusts, and s 90 of the Real Property Act, which deals with transmission on bankruptcy, are as follows: 82 No notice of trusts to be recorded in Register (1) Except as provided by section 12 (1) (f) the Registrar-General shall not record in the Register any notice of trusts whether express, implied, or constructive. (2) Trusts may be declared by any instrument, which instrument may include as well lands under the provisions of this Act as land which is not under the provisions thereof: Provided that the description of the several parcels of lands contained in such instrument shall sufficiently distinguish the land which is under the provisions of this Act from the land which is not under the provisions thereof, and a duplicate or an attested copy of such instrument may be deposited with the Registrar-General for safe custody and reference but shall not be registered. (3) When any such instrument or duplicate or attested copy thereof is so lodged, the Registrar-General shall forthwith record in the Register a caveat forbidding the registration of any instrument not in accordance with the trusts and provisions therein declared and contained so far as concerns the land affected by such instrument. 90 Transmission on bankruptcy (1) In this Part: "the Commonwealth Act" means the Bankruptcy Act 1966 of the Parliament of the Commonwealth and any Act of that Parliament amending or replacing that Act. "The Official Receiver in Bankruptcy" means the body corporate constituted by section 18 of the Commonwealth Act. (2) The Official Receiver in Bankruptcy, a trustee, or any other person claiming to be entitled to land under the provisions of this Act by virtue of the operation of the Commonwealth Act, or of anything done thereunder, may apply in the approved form to the Registrar-General to be registered as proprietor of that land. (3) On being satisfied that an applicant under subsection (2) is entitled to be registered as proprietor of the land to which the application relates, the Registrar-General may record the applicant in the Register as proprietor. (4) Where an official receiver, having claimed to be entitled to land under the provisions of this Act by virtue of the operation of the Acts repealed by the Commonwealth Act is registered as the proprietor of that land, the Registrar-General may register a dealing affecting that land and executed by The Official Receiver in Bankruptcy.

The Challenge to the Conclusion that Mr Pascoe had a caveatable InterEst 93 The primary judge found that Mr Pascoe had a caveatable interest in the property at the time the Caveat was lodged which continued to subsist throughout the life of the Caveat. The caveatable interest arose by reason of the operation of s 58(1)(a) of the Bankruptcy Act. The primary judge proceeded on the basis, as previously held by the Federal Magistrates Court and upheld on appeal to the Full Court of this Court, that Mr Boensch held the property as trustee of the trust established by the memorandum of trust dated 23 August 1999 and that the vesting in Mr Pascoe was itself subject to the terms of the trust. His Honour held that the existence of the trust did not prevent Mr Boensch's interest in the property vesting in Mr Pascoe in accordance with s 58(1)(a). He held that upon Mr Pascoe becoming Mr Boensch's trustee in bankruptcy, s 58(1)(a) operated in equity to vest Mr Boensch's interest in the property as the proprietor of an estate in fee simple in Mr Pascoe and that that was an estate or interest in land within the meaning of s 74F(1) of the Real Property Act and, therefore, a caveatable interest. The primary judge held that Mr Pascoe's interest was not merely a right to be registered as proprietor pursuant to s 90 of the Act, but rather that the interest that arose by the operation of s 58(1)(a) of the Bankruptcy Act "underpinned" that right (at [105]). In reaching these conclusions, his Honour followed two previous decisions of the Supreme Court of New South Wales in Official Trustee in Bankruptcy v Ritchie (1988) 12 NSWLR 162 (Ritchie) and Lewis v Condon (2013) 85 NSWLR 99 (Lewis v Condon). 94 Mr Boensch challenged his Honour's conclusions in three related respects which are conveniently dealt with under this heading. First, he contended that in circumstances where he held the property on trust, s 58(1)(a) did not operate to vest a caveatable interest in the property in his trustee in bankruptcy. He contended that that result did not follow as a general principle of law (Ground 2) and it did not follow from what was held in Ritchie or Lewis v Condon (Ground 3). In the alternative, he contended that if that conclusion did follow from what was held in Lewis v Condon, then this Court should not follow that decision (Ground 4). Secondly, and in the alternative, he contended that even if Mr Pascoe held an interest of the nature described by the primary judge, that interest was not the interest claimed by Mr Pascoe in the Caveat and that was fatal to any contention that he had lodged the Caveat with reasonable cause (Ground 5). Finally, and again, in the alternative, he contended that even if Mr Pascoe held a caveatable interest of the nature identified by the primary judge and had properly claimed that interest in the Caveat, that was not conclusive of the issues raised by the separate questions. It was necessary for the primary judge to go on to consider whether Mr Pascoe had an honest belief based on reasonable grounds that he had that caveatable interest (Ground 1). 95 We turn now to deal with these issues. 96 Mr Boensch put three submissions in support of his contention that a caveatable interest did not vest in Mr Pascoe by the operation of s 58(1)(a) of the Bankruptcy Act. For reasons we will give, we think that there are, in reality, two submissions. 97 First, Mr Boensch pointed to two aspects of s 58(1)(a) which he submitted were relevant, being the fact that it is expressed to be subject to the Act, and the fact that it operates where a debtor becomes bankrupt. He referred to s 116(1) and (2) and pointed out that having regard to s 115(1), which refers to the commencement of the bankruptcy, s 116(1) and (2) operate, or potentially operate, at an earlier time than s 58(1)(a). Section 116(2)(a), which is a "carve out" (as Mr Boensch put it) from subsection (1) also operates, or potentially operates, at that earlier time. The argument was, as we understood it, that s 116 had taken the property out of the bankruptcy before s 58(1)(a) was engaged. We do not think that his argument, insofar as it is based solely on an asserted timing difference, has any merit. The real argument is Mr Boensch's second argument which is to the effect that what is taken out of the property divisible amongst the creditors of the bankrupt is the property held on trust in the sense of the whole of the property held by the bankrupt in trust for another person. 98 Secondly, Mr Boensch submitted that there is a long line of cases going back to Scott v Surman (1743) Willes 400; (1743) 125 ER 1235 (Scott v Surman) which have held that no interest in property held by a bankrupt trustee on trust passes to the bankrupt's assignee or trustee in bankruptcy. In Scott v Surman¸ Lord Chief Justice Willes said (at 402; ER at 1236): My motion is that assignees under a commission of bankrupt are not to be considered as general assignees of all the real and property estate of which the bankrupt was seised and possessed, as heirs and executors are of the estates of their ancestors and testators; but that nothing vests these assignees even at law but such real and personal estate of the bankrupt in which he had the equitable as well as the legal interest, and which is to be applied for the payment of the bankrupt's debts. (Footnote omitted.) 99 Mr Boensch submitted that this principle has been applied in subsequent cases with the Court distinguishing between those cases where the bankrupt trustee also has an equitable interest or right and those cases where he does not (Morgan v Swansea Urban Sanitary Authority (1878) 9 Ch D 582 at 585 per Jessel MR; and Governors of St Thomas' Hospital v Richardson [1910] 1 KB 271 at 277 per Cozens-Hardy MR; 279-281 per Fletcher-Moulton LJ). Brereton J referred to these authorities in Re Standsfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484; (2014) 291 FLR 17 (Re Standsfield) at [16]: It would be extraordinary, in the context of insolvency law, if "property of the company" included property of which it was a trustee and in which it had no beneficial interest. It is of course well-established, in the field of bankruptcy, that property held by the bankrupt on trust does not vest in the trustee-in-bankruptcy: [(CTH) Bankruptcy Act 1966, s 116(2)(a), (which excludes from the property divisible among creditors property that is held by the bankrupt in trust for another person); Scott v Surman (1743) Willes 400, 402; 125 ER 1235; Morgan v Swansea Authority (1878) 9 Ch D 582, 585 (CA); St Thomas's Hospital v Richardson [1910] 1 KB 271, 277 (CA)]. A trustee in bankruptcy takes only the property of the bankrupt, subject to all liabilities and equities which affect it in the bankrupt's hands [Bagshaw v Scott [2002] FCAFC 362; (2002) 126 FCR 27; [15]-[20]]. 100 The authors of McDonald, Henry & Meek, Australian Bankruptcy Law & Practice¸ McQuade P, Gronow M (ed) (Thomson Reuters, subscription service) at [116.2.20] (update 229) suggest that the legal estate of property held by a bankrupt on trust and without the bankrupt having any beneficial interest in the property does not pass to the bankrupt's trustee in bankruptcy. They do so on the basis of the same authorities referred to by Brereton J in Re Stansfield. 101 In Ritchie, the issue before the Court was quite different from that before this Court. However, in the course of addressing whether a proceeding was a "matrimonial cause" within the Family Law Act 1975 (Cth), Powell J considered whether any interest in property, in that case an equitable interest, held by a bankrupt on trust vested in his trustee in bankruptcy. A similar argument was put to his Honour concerning the interaction of the definitions of "property", and "the property of the bankrupt", and ss 58(1)(a), 116(1)(a) and (2)(a) of the Bankruptcy Act as is put by Mr Boensch in this case. The argument was that because the benefit of the rights held by the bankrupt were held on trust for a third party and were not divisible among the bankrupt's creditors, they did not fall within the definition of "the property of the bankrupt" and thus did not ever vest in the Official Receiver and have never vested in the Official Trustee. Justice Powell rejected this argument for reasons with which we respectfully agree. His Honour said (at 174): While, as a matter of language, the various provisions would seem to compel the conclusion for which the Solicitor-General has contended, the acceptance of that conclusion would involve the jettisoning of authorities of long standing, decided upon statutory provisions which, despite some minor linguistic differences, do not differ in substance from those upon which the Solicitor-General relies, and which authorities lay down: "… The broad and general principle is, that the trustee in a bankruptcy takes only the property of the bankrupt, and takes it subject to all the liabilities and equities which affect it in the bankrupt's hands, unless, indeed, he takes the property in question under some particular provision such as the order and disposition clause." (My emphasis.) (Re Clark; Ex parte Beardmore [1894] 2 QB 393 at 410 per Davey LJ; see also Tailby v Official Receiver (1888) LR 13 App Cas 523 at 538 per Lord FitzGerald; Ex parte Holthausen; Re Schiebler (1874) LR 9 Ch App 722; Re Lind; Industrials Finance Syndicate Ltd v Lind [1915] 2 Ch 345.) Although one cannot regard the matter as one which is completely free from doubt, it seems to me that the better view is that, even if the true position were that Mr Ritchie's rights under the contract were held upon trust for Mrs Ritchie, those rights became vested in the Official Receiver upon the making of the sequestration order, but the benefit of those rights was to be regarded as held by the Official Receiver, and is to be regarded as held by the Official Trustee, upon trust for Mrs Ritchie, not having been divested from the Official Trustee by the subsequent discharge of Mr Ritchie from bankruptcy: Pegler v Dale; Piwinski v Corporate Trustees of the Diocese of Armidale. 102 Mr Pascoe submitted that this reasoning is correct. The definition of property as including any estate or interest arising out of or incidental to real property, the fact that before his bankruptcy Mr Boensch held the legal estate in the property subject to equitable obligations to use his legal rights in a particular way for the benefit of other persons (DKLR Holding Co (No 2) v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510 at 518-520 per Hope JA (with whom Glass JA agreed); on appeal to the High Court DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431) and that theoretically the trustee in bankruptcy could dispose of the bare legal interest of the bankrupt (Re Stansfield at [17] per Brereton J) all support (Mr Pascoe submits) Powell J's reasoning in Ritchie. We are disposed to agree, but the issue is not one free of difficulty. 103 We note that the High Court in Octavo (at 370-371), albeit referring to a variation of the argument where the bankrupt trustee also had a charge over the trust property, said that it did not need to decide the point. The argument in that case concerned whether the legal title to trust property over which a bankrupt trustee had a charge vests in the trustee in bankruptcy. The Court noted that conflicting views had been expressed on that question. 104 The issue raised by Mr Boensch was considered directly by the New South Wales Court of Appeal in Lewis v Condon. Leeming JA (with whom McColl JA (at [1]) and Sackville AJA (at [118]) agreed) held that the property did vest in the trustee in bankruptcy by the operation of s 58(1)(a) of the Bankruptcy Act, albeit the trusts over the property remained effective. His Honour said (at [91]-[92]): Upon the making of the sequestration order on 14 May 2012, s 58 of the Bankruptcy Act 1966 (Cth) applied. That had the effect that such interest as Colleen had in the Property vested forthwith in equity in Mr Condon. Legal title did not vest forthwith in Mr Condon. (Section 90 of the Real Property Act establishes a procedure whereby a trustee in bankruptcy can obtain registration as proprietor of land pursuant to the vesting effected by s 58(2) of the Bankruptcy Act (Cth).) Mr Condon ultimately took advantage of that procedure to become registered proprietor of the Property and thereby acquire legal title. But it is clear law that those statutory vestings do not destroy any trust of which the bankrupt was a trustee. Section 116(2)(a) of the Bankruptcy Act (Cth) excludes from the vesting property held by the bankrupt in trust for another person, and s 82 of the Real Property Act excludes notice of trusts on the register. It follows that neither the vesting effected by s 58(1) nor the title created by registration of a transfer of an "estate in fee simple" to Mr Condon on which he relied destroyed any trusts in respect of the Property. 105 Furthermore, his Honour held that the trustee in bankruptcy had a caveatable interest. His Honour said (at [100]): It is not necessary to resolve this dilemma. The issue before Nicholas J was whether Mr Condon had a caveatable interest. Plainly, he did, from the time of the sequestration order and his appointment as trustee in bankruptcy, for by dint of s 58 of the Bankruptcy Act (Cth) he was entitled to become the registered proprietor. That was so irrespective of whether or not Colleen, or for that matter Appinville or Robana, was the trustee of the Kenthurst Investments Trust. Even if a new trustee has not obtained title to trust property from a retiring trustee before a sequestration order is made against the latter, that does not prevent the trustee in bankruptcy from having a caveatable interest derived from s 58. … 106 Although the matter is not, as we have said, free of difficulty, we are of the opinion that we should follow the decision in Lewis v Condon. We are not persuaded that it is clearly wrong (Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [135]). The primary judge was correct to hold that Mr Pascoe held a caveatable interest of the type he identified. 107 The next question relates to Mr Pascoe's description in the Caveat of the caveatable interest he claimed. Mr Boensch submitted that the description in the Caveat did not match the caveatable interest found by the primary judge and, as we understood the submission, if that was correct, that would have a material bearing on the question of whether Mr Pascoe had an honest belief based on reasonable grounds that he had a caveatable interest of the typed claimed. We do not need to deal with the second aspect of this submission because we are satisfied that his Honour was correct, for the reasons he gave, to conclude that the caveatable interest he found was held by Mr Pascoe was described in the Caveat. His Honour said (at [106]): It is correct that unless Mr Pascoe attained the status of registered proprietor, the interest in the property vested in him only in equity, and it would not be accurate to describe his interest as a legal, as opposed to an equitable, interest. Nevertheless, I do not think that Mr Pascoe's caveat, albeit that it employs the expression "legal interest", should be construed in that way. It is clear from Schedule 1 of the caveat, read as a whole, that the estate or interest claimed consists of the property of Mr Boensch, the registered proprietor, which vested in Mr Pascoe pursuant to s 58(1)(a) of the Bankruptcy Act when he became Mr Boensch's trustee in bankruptcy. The expression "legal interest pursuant to the Bankruptcy Act 1966" is apt to describe an interest that arises as a matter of law pursuant to statute. I would not read it as expressing an intention to confine the claim to only a legal interest in the property as opposed to an equitable interest in the property. The intention seems to be to claim whatever interest arises by virtue of s 58(1)(a). The claimed interest is, in my view, adequately described in the caveat. I note further that it is not necessary, in order to comply with the requirements for particularisation of the estate or interest claimed, to specify whether the estate or interest is legal or equitable (see clause 7 and Schedule 3 to the Real Property Regulation 2003 (NSW), in force when the caveat was lodged). If my construction of the claimed interest is incorrect, the assertion of a legal as opposed to an equitable interest could properly be regarded as a technical deficiency, and it would not necessarily follow that the caveat was lodged or maintained without reasonable cause (see Beca Developments Pty Limited v Idameneo (No 92) Pty Limited (supra) at 468E per Clarke JA). 108 We would add to these remarks the following. The description in the Caveat covers not only the interest identified by the primary judge, but also a full legal interest, that is, an interest not subject to a trust because no valid trust has been created or the transaction creating the purported trust is void by reason of s 120 or s 121 of the Bankruptcy Act. Furthermore, we reject the submission by Mr Boensch (as we understood it) that a caveator cannot claim "inconsistent" interests, an interest acknowledging the trust and an interest denying the trust, as Mr Boensch put it. 109 The final question relates to the test his Honour applied which we have identified above (at [10]). Mr Boensch submitted that the presence of a caveatable interest does not end the inquiry under s 74P and it remains necessary to consider whether Mr Pascoe had an honest belief based on reasonable grounds that he had a caveatable interest. That submission is contrary to a number of well-established authorities which are to the effect that to establish an absence of reasonable cause, a claimant must establish two matters, that is, the lack of a caveatable interest and the lack of an honest belief based on reasonable grounds and that the failure to establish either matter is fatal to a claim under s 74P of the Real Property Act (Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 (Beca Developments) at 474-475 per Clarke JA; Natuna Pty Ltd v Cook [2007] NSWSC 121 at [195] per Biscoe AJ; Mahendran v Chase Enterprises Pty Ltd [2013] NSWCA 280; (2013) 17 BRP 32,733 (Mahendran) at [52] per Barrett JA (with whom Emmett JA and Gleeson JA agreed); New Galaxy Investments Pty Ltd v Thomson [2017] NSWCA 153; (2017) BPR 36,811 (New Galaxy Investments); Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] WASCA 179; (2007) 35 WAR 27 (Brogue Tableau) at [80] per Buss JA). In Mahendran, Barrett JA said (at [52]): Had the matter been approached in that way, the central question would have been whether the lodgment of the caveat by Chase was "without reasonable cause"; and that would have led to an inquiry of the kind suggested by the following passage in the judgment of Biscoe AJ in Natuna Pty Ltd v Cook [2007] NSWSC 121; BC200700915 (at [195]): "Reasonable cause" for the lodgement of a caveat exists where the caveator has an honest belief, based upon reasonable grounds, that the caveator has a caveatable interest. In order to establish liability under s 74P, the onus is on Mr Cook to prove, first, that Natuna had no caveatable interest and, secondly, that Natuna did not have an honest belief based on reasonable grounds that a caveatable interest existed. As to the second issue, the test is partly subjective and partly objective. It is subjective in that it requires an examination of the caveator's actual belief and whether it was honestly held. It is objective in that it requires that the belief be held on reasonable grounds: see Lee v Ross (No 2) (2003) 11 BPR 20,991 ; [2003] NSWSC 507 at [21]-[23]; Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 at 469-470 (CA); Bedford Properties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106; Northstate Carpet Mills Pty Ltd v B R Industries Pty Ltd [2006] NSWSC 1057 at [61]. A caveator may have reasonable grounds on which to believe that it has a caveatable interest even though it is mistaken and it is ultimately held that it did not: Ceda Nominees Pty Ltd v Registrar of Title [1982] ANZ ConvR 524. 110 In Beca Developments at 468E, Clarke JA said expressly that the presence of a caveatable interest of itself defeats a claim under s 74P of the Real Property Act. 111 We see no reason to depart from this well-established line of authority. There may be an exception to the general approach that a caveatable interest is sufficient to defeat a claim under s 74P where the caveator has an ulterior or improper motive in lodging or maintaining a caveat (see Brogue Tableau at [84] per Buss JA; and the discussion in Edgeworth B, Butt's Land Law (7th ed, Thomson Reuters, 2017 at [12.1120])). However, there is absolutely no suggestion here that Mr Pascoe had an ulterior or improper motive and this possible exception may be put to one side. 112 In our opinion, the primary judge was correct to conclude that Mr Pascoe had a caveatable interest which was described in the Caveat and that, in the circumstances, that conclusion was sufficient to lead to the dismissal of Mr Boensch's claim under s 74P of the Real Property Act. 113 Like the primary judge, we will address the appeal on an alternative assumption that Mr Pascoe did not have a caveatable interest in the property and the issue was whether he had an honest belief based on reasonable grounds that he had a caveatable interest.

The Challenge to the Conclusion that Mr Pascoe had an Honest Belief Based on Reasonable Grounds that he had a Caveatable Interest 114 Mr Boensch raised a number of preliminary arguments. 115 First, the assumption in this section is that Mr Pascoe did not have a caveatable interest and Mr Boensch submitted that that circumstance is in itself is sufficient to establish an absence of reasonable cause. There are two insurmountable problems with that submission. First, it would involve reading s 74P of the Real Property Act as if it read "without a caveatable interest" instead of "without reasonable cause", and such an approach is neither warranted, nor permissible. Secondly, it would involve a departure from well-established authority with which we agree that a caveator may establish reasonable cause even though it is found that he or she does not have a caveatable interest (see, for example, Bedford Properties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106 (Bedford Properties v Surgo)). 116 Secondly, Mr Boensch submitted that the test did not involve as an element proof of an honest belief by the caveator and was wholly objective, that is to say, whether the belief was reasonably held (Ground 6). Mr Boensch submitted that the primary judge's statement of the law was incorrect and the correct test was whether, in the circumstances, a belief that there was a caveatable interest was reasonably held. In our opinion, the case Mr Boensch relied on in support of his submission - State of New South Wales v Taylor (2001) 204 CLR 461 - is distinguishable on the material point. The legislative provision considered in that case was s 151A(5)(c) of the Workers Compensation Act 1987 (NSW) and it was not linked to the applicant's belief as a matter of the statutory language. As Gleeson CJ, McHugh and Hayne JJ said (at [4]): … Section 151A(5)(c) requires the court to determine whether it would be unreasonable for a person to believe that the evidence before the court, concerning the applicant's condition at the time of election, demonstrated that the further deterioration would occur. The reasonable cause for belief is determined by reference to the evidence before the court concerning the applicant's condition at that time and expert opinion as to what the medical prognosis for that condition was at that time. What the applicant knew or ought to have known is irrelevant. If the court determines that it would not be unreasonable for a person to believe that the further deterioration would occur, the application for revocation fails. 117 In this case, the statutory language - any person who, without reasonable cause lodges a caveat - firmly links the criterion of reasonable cause to the knowledge and actions of the caveator. We see no reason to depart from the test formulated and applied in numerous authorities of the Supreme Court of New South Wales (see also the discussion in Brogue Tableau at [80] per Buss JA). 118 Thirdly, Mr Boensch submitted that the primary judge erred in taking into account a privileged communication when assessing the reasonableness of Mr Pascoe's conduct in lodging the Caveat (Ground 9). The privileged communication was a letter from Mr Boensch's then lawyer to Mr Boensch dated 17 March 2004. Mr Boensch's lawyer sent his file to Mr Pascoe on or about 20 September 2005 in response to a notice from Mr Pascoe under s 77A of the Bankruptcy Act. The file included the letter dated 17 March 2004. The letter suggests that in early 2004, Mr Boensch was asking why he could not be a beneficiary of the Boensch Trust. The primary judge placed some weight on this letter in determining that Mr Pascoe's honest belief was based on reasonable grounds. We will deal with this in our general consideration of the challenge to his Honour's conclusion that irrespective of whether Mr Pascoe had a caveatable interest, he had an honest belief based on reasonable grounds that he had such an interest. 119 Finally, in terms of preliminary arguments, Mr Boensch submitted that the primary judge erred in concluding that "the caveatable interest claimed in the Caveat by Mr Pascoe was one which he [Mr Pascoe] believed in …" (part of Ground 6). We reject this argument. The assumption in this section is (contrary to our conclusion) that Mr Pascoe did not have the caveatable interest identified by the primary judge. As we have previously said, the description in the Caveat covers, not only the interest identified by the primary judge, but also a full legal interest not subject to a trust because no valid trust has been created or the transaction creating the purported trust is void by reason of s 120 or s 121 of the Bankruptcy Act. The primary judge found that Mr Pascoe had, at all material times, an honest belief he had reasonable prospects of obtaining that interest and, as we have also previously said, there is no basis to interfere with the primary judge's conclusion as to Mr Pascoe's credibility and reliability. 120 We turn now to consider the most substantial argument by Mr Boensch in respect of this section, that is, that Mr Pascoe did not have reasonable grounds for his belief that he had a caveatable interest throughout the relevant period. As we have previously said, the primary judge found that Mr Pascoe's beliefs concerning Mr Boensch's interest in the property were not based solely on legal advice. They were a combination of his own views based on his investigations and legal advice received. 121 A caveator may have reasonable grounds for a belief that he or she has a caveatable interest where reliance is placed on legal advice. That may be so even if it transpires that the legal advice is erroneous. We respectfully agree with how Sackville AJA put the matter in New Galaxy Investments at [327]-[329]: Legal advice that the caveator was entitled to lodge a caveat may be of considerable significance in determining whether the claimant has established that the caveat was lodged without reasonable cause. Even if the legal advice is incorrect, the fact that the caveator acted on the advice when lodging the caveat may preclude the claimant from establishing that the caveator lacked reasonable grounds for believing that he or she was entitled to lodge the caveat. On the other hand, it has been said that a caveator does not necessarily absolve himself or herself of responsibility by taking legal advice. It has been held in a New South Wales case, for example, that where a solicitor had no reasonable basis for advising the caveators to lodge a caveat, the caveators had no reasonable grounds for their belief that they were entitled to lodge a caveat. In Brogue Tableau, Buss JA of the Western Australian Court of Appeal cast doubt on the proposition that a client acts without reasonable cause in lodging a caveat if the solicitor giving advice to the client lacks reasonable grounds for the advice. Buss JA expressed the view that the content and accuracy of legal advice must be evaluated with all other relevant facts and circumstances to determine the honesty and reasonableness of the caveator's asserted belief in the existence of a caveatable interest. In my opinion, there is considerable force in this view. For present purposes, however, it is enough to say that the significance of the legal advice received by a caveator will depend on such matters as the completeness of instructions given to the lawyer, whether the advice has an arguable basis and the commercial or legal sophistication of the particular client. (Citations omitted.) (see also Basten JA at [78]-[79]; Gleeson JA at [122].) 122 Mr Boensch submitted that, although Mr Pascoe obtained legal advice about his interest in the property, it is significant that he did not obtain legal advice about whether he should lodge a caveat and, after receiving requests to remove it, whether to maintain it. He referred to Bedford Properties v Surgo at 109 per Wootten J. However, we note the following. First, Ms McLean provided the necessary certificate in the Caveat (see [24] above) and Mr Pascoe thereafter had solicitors acting for him throughout the relevant period. Secondly, there may be cases where there is a substantial issue about whether there is an interest and a substantial issue about whether the interest is a caveatable interest. This is not such a case. If Mr Boensch had full legal ownership, that interest was clearly an interest which could be the subject of a caveat. 123 The primary judge analysed whether Mr Pascoe had reasonable grounds for his beliefs by reference to the following times or periods: the date upon which the Caveat was lodged being 25 August 2005; from 25 August 2005 to July 2006 when Mr Pascoe commenced the proceedings in the Federal Magistrates Court; from July 2006 to 6 December 2007 when the Federal Magistrates Court answered the preliminary question about the validity of the trust adversely to Mr Pascoe; from 6 December 2007 to 18 August 2008 when the Full Court of this Court dismissed the appeal; from 18 August 2008 to 13 August 2009 when the Federal Magistrates Court entered summary judgment for Mr Boensch on Mr Pascoe's claim that the transfer effected by the memorandum of trust was void under s 121 of the Bankruptcy Act; and from 13 August 2009 to 15 September 2009 when the Caveat lapsed. 124 The primary judge found that Mr Pascoe had reasonable grounds for his belief on the date he lodged the Caveat because, although he was aware of Mr Boensch's claim that there was a trust over the property and had seen the memorandum of trust dated 23 August 1999 (not stamped until March 2004), he had information that Mr Johnson considered that there were strong prospects of defeating the trust claim or having the trust set aside and it was not unreasonable for Mr Pascoe to hold the view that the matter required investigation and assessment. The primary judge said that the fact that Mr Boensch's solicitors themselves in their letter dated 27 September 2005 seem to accept that Mr Pascoe would need some time to form a view about Mr Boensch's claim was not an irrelevant matter. There is no suggestion that the primary judge placed undue weight on that matter. Mr Boensch submitted that it was not reasonable for Mr Pascoe then and at certain times thereafter to rely on the advice of Mr Johnson and Ms McLean because they had a conflict of interest having previously acted for the judgment creditor, Mr Costin. It seems that Mr Johnson and Ms McLean continued to act for Mr Pascoe throughout the proceedings in the Federal Magistrates Court and the appeal from the orders of that Court. The first thing that may be said is that the conflict of interest is not obvious. Furthermore, as the primary judge said, even if Mr Johnson and Ms McLean also continued to act for Mr Costin, there was no evidence that that had any effect on their understanding or compliance with their professional obligations in providing advice to Mr Pascoe. There is no error in his Honour's conclusion that Mr Pascoe had reasonable grounds for his belief that he had a caveatable interest as at the date he lodged the Caveat. 125 The primary judge found that Mr Pascoe had reasonable grounds for his belief from the date he lodged the Caveat on 25 August 2005 to 19 July 2006 when he commenced proceedings in the Federal Magistrates Court, having regard to the following matters. First, Mr Pascoe carried out investigations and he asked for relevant taxation returns for the trust, but none were provided. In fact, no documents were provided which showed that the trust was being "carried on" (to use the primary judge's words) between August 1999 and the date upon which the bankruptcy notice was served in October 2003. Secondly, various documents were produced to Mr Pascoe during this period. These documents included Mr Leong's letter to Mr Boensch dated 17 March 2004 which referred to Mr Boensch wanting to be nominated as a beneficiary of the trust and trust deeds dated 18 November 2003 for two further family trusts, one of which apparently related to rentals. Finally, by June 2006, Mr Pascoe had received advice from Mr Johnson to the effect that the memorandum of trust appeared to be a sham (at least until it was confirmed in March 2004) and that it would be appropriate to seek relief under s 121 of the Bankruptcy Act in relation to the transfers of property purportedly affected by the memorandum of trust and the later Deed of Trust. In relation to this period, the primary judge also noted that Mr Boensch was due to be examined in May 2006, but that examination did not proceed for medical reasons. 126 Mr Boensch criticised the above reasoning on a number of grounds. We have already dealt with the complaint that Mr Pascoe was not entitled to rely on the advice of Mr Johnson (or Ms McLean) because Mr Johnson had a conflict of interest. 127 As we have said, Mr Boensch submitted that the primary judge erred in taking into account the letter from Mr Boensch's lawyer to Mr Boensch dated 17 March 2004 in assessing the reasonableness of Mr Pascoe's belief. That letter was said by Mr Boensch to be protected by solicitor and client privilege (Ground 9). The basic factual foundation of this submission is not at all clear. Counsel for Mr Boensch did not address the issue in his oral submissions on the appeal, but said he relied on his written submissions. The letter was the subject of objection at trial, but the objection was overruled by the primary judge. The ruling is not dealt with in the primary judge's reasons. 128 Mr Boensch submitted that a claim for privilege in relation to the letter was upheld by this Court in 2007 in Boensch v Pascoe [2007] FCA 532. As far as we can see from the transcript, the primary judge did not consider that there had been any prior determination about privilege in relation to the letter (trial transcript p 112 line 18). We have considered the decision in 2007 and it is not apparent to us that the letter was held to be one of the privileged documents. 129 Mr Boensch submitted that before his solicitor sent his file to Mr Pascoe, which included the letter, he had a conversation with Mr Moretti of Mr Pascoe's office and claimed that his file was privileged. As we read the evidence, this is not a full summary of the evidence. Mr Boensch's solicitor spoke to Mr Moretti and said that he had not yet been given instructions by Mr Boensch as to which parts of the file were privileged and which were not. Thereafter, he sent the file to Mr Pascoe's office without making any claim for privilege. 130 Finally, there is no suggestion that Mr Pascoe obtained the letter improperly or wrongfully. An allegation that he obtained the letter "improperly" was excluded from the grant of an extension of time and cannot be reintroduced, as Mr Boensch sought to do in his written submissions (paragraph 99), by using the word "wrongfully". 131 In the circumstances, we are unable to see how, whatever other limitations might attend the letter, Mr Pascoe was precluded from relying on the letter in defending the claim against him. We reject the challenge in Ground 9. 132 Mr Boensch criticised Mr Pascoe's reliance on Mr Johnson's advice by submitting that Mr Johnson's advice was erroneous. He did so by reference to the Full Court's decision (Pascoe v Boensch [2008] FCAFC 147; (2008) 250 ALR 24). It is true that it transpired that Mr Johnson's advice was incorrect, but as we have said, that is not decisive and it is important to avoid the dangers involved in the use of hindsight. 133 In the context of Mr Johnson's advice in 2006, it is necessary to refer to further advice Mr Johnson gave a little over a month after Mr Pascoe commenced proceedings in the Federal Magistrates Court (i.e., August 2006) wherein he said by reference to a recent case considering voluntary assignments, that the memorandum of trust dated 23 August 1999 failed as an imperfect gift and the Deed of Trust if a declaration of trust would fall within the terms of both ss 120 and 121 of the Bankruptcy Act. 134 The Federal Magistrates Court in dealing with the preliminary question concerning the memorandum of trust, rejected Mr Pascoe's argument that the trust was a sham and that it was an incomplete gift of the beneficial interest in the property. There was no challenge in the Full Court to the finding that the trust was not a sham. The issues agitated before the Full Court were whether there was sufficient certainty of intention to create a trust and whether the beneficiaries and their beneficial interests had been identified. 135 The primary judge correctly described Mr Johnson's advice that the memorandum of trust might fail by reason of the principles relating to incomplete voluntary assignments as "somewhat wide of mark" (at [118]), but said that there was no evidence that Mr Pascoe relied on that advice. In any event, he did not rely on it in any significant way and saw it as confirming the substance of the advice he had earlier received. The same could be said about Mr Johnson's advice dated 18 December 2006 where he again referred to the memorandum of trust as an imperfect gift. 136 We do not think that there is any basis for challenging the primary judge's conclusion that Mr Pascoe had reasonable grounds for considering that he had reasonable prospects of succeeding in the Federal Magistrates Court. Mr Johnson's reference to the law relating to imperfect gifts does not persuade us otherwise. The primary judge also noted that in March 2007, solicitors for Mr Boensch were instructed to hold the original transfer dated 21 March 2004 and deal with it in accordance with whether or not the trust was found to be validly constituted. The primary judge said that this "rather suggests" that Mr Boensch himself accepted that Mr Pascoe might succeed on this issue. We consider that there might be a number of explanations for this conduct and, therefore, we would not have been disposed to put any weight on this factor. However, we do not discern any appealable error because if the primary judge put any weight on the factor, it was minimal. 137 We turn to the next period which is the period from the decision of the Federal Magistrates Court on 6 December 2007 to the decision of the Full Court of this Court on 18 August 2008. We consider the following matters were sufficient to support the primary judge's conclusion that Mr Pascoe had reasonable grounds for an honest belief that he had a caveatable interest. First, Mr Johnson gave Mr Pascoe advice that he should seek leave to appeal. Secondly, Mr Pascoe was given leave to appeal to the Full Court of this Court. Thirdly, there is no suggestion in the reasons of the Full Court that the appeal was completely baseless or without foundation. Finally, even if Mr Pascoe lost the appeal, he still had his claims that the purported trust was void under ss 120 and 121 of the Bankruptcy Act. 138 It is to the claims under ss 120 and 121 of the Bankruptcy Act that we now turn because it is the presence of these claims which either provide or do not provide the reasonable grounds for Mr Pascoe's belief from the date of the decision of the Full Court on 18 August 2008 to the decision of the Federal Magistrates Court on 13 August 2009 (Pascoe v Boensch (No 9) [2009] FMCA 769; (2009) 8 ABC(NS) 495). The primary judge described the outcome of those proceedings as follows (at [127]): However, on 13 August 2009, Raphael FM refused an application by Mr Pascoe to amend his Points of Claim so as to better particularise the s 121 case. His Honour further concluded that on the existing pleadings, Mr Pascoe did not have reasonable prospects of establishing Mr Boensch's insolvency at the time he entered into the Memorandum of Trust. Accordingly, his Honour dismissed the proceedings pursuant to s 31A of the Federal Court of Australia Act. I note that s 31A provides, for the purposes of the section, that a proceeding need not be hopeless or bound to fail for it to have no reasonable prospects of success. 139 Section 121 of the Bankruptcy Act provides that transfers of property by a person who later becomes bankrupt are void if the main purpose of the person was to defeat his creditors. Insolvency at the time of transfer may establish the transferor's purpose. 140 The primary judge accepted Mr Pascoe's evidence that he had some evidence of insolvency based on the evidence given by Ms Boensch at the examination up until he completed a report as to solvency on 26 May 2009. Mr Pascoe's report as to solvency contained the conclusion that Mr Boensch became insolvent at the time of entering into the memorandum of trust or shortly thereafter and that he remained insolvent up to the date of bankruptcy on 23 August 2005. The primary judge noted that while Mr Pascoe agreed that his conclusion about insolvency was not definitive in terms of timing, it was not put to Mr Pascoe that he did not actually hold the opinion expressed in the report, or that such opinion was not soundly based. We have considered the insolvency report and we do not think that the primary judge erred. 141 We do not think the primary judge erred in concluding that Mr Pascoe had an honest belief based on reasonable grounds that he had a caveatable interest. That was an alternative basis for his decision.

A Trustee's Right of Indemnity FOR EXPENSES pAID BY THE tRUSTEE IN THE COURSE OF pERFORMING THE tRUST 142 There was evidence before the primary judge that Mr Boensch made mortgage repayments to the Commonwealth Bank of Australia in relation to a mortgage over the property and, it seems, that he also paid rates levied on the property. Mr Pascoe did not claim a right of indemnity in the Caveat. Nevertheless, in his Defence, Mr Pascoe alleged that "he was entitled to maintain an equitable interest in the property by reason of the plaintiff's right to an indemnity from the trust property as its trustee". 143 For his part, Mr Boensch claimed that he had a "mutually beneficial arrangement" in relation to the property the subject of the trust under which he lived in the property with his children without paying rent and he conducted his business from the property without paying rent. In short, it was suggested that he both provided benefits to the trust and he received benefits from the trust and, as we understand the argument, there was no outstanding liability of the trust to him. 144 In the course of considering whether Mr Pascoe had an honest belief that he had a caveatable interest, the primary judge said that he accepted Mr Pascoe's evidence that he thought, from at least the time of the first meeting of creditors in November 2005, that even if Mr Boensch held the property on trust, Mr Boensch might have a right of indemnity in relation to the property. This was a reason for the primary judge's conclusion that at all relevant times, Mr Pascoe held the view Mr Boensch might have held an interest in the property that was more than a bare legal title, and that upon the making of the sequestration order, such interest was vested in him as the trustee in bankruptcy (at [112]). Furthermore, when examining reasonable grounds for Mr Pascoe's belief, the primary judge said that he found that by May 2009 at the latest, Mr Pascoe had reasonable grounds for believing that he might have a right of indemnity out of trust assets (at [129]). 145 Mr Boensch challenges the primary judge's reasoning with respect to the right of indemnity in relation to the reasonableness of Mr Pascoe's belief, not the honesty of his belief. 146 Mr Boensch's challenge is two-fold. First, he contended that the primary judge erred in concluding that Mr Pascoe's belief as to the possible existence of a right of indemnity was based on reasonable grounds (Ground 7). Secondly, he contended that the primary judge erred in concluding that Mr Pascoe had reasonable grounds for believing that any right of indemnity vested in him on Mr Boensch's bankruptcy (Ground 8). 147 Before we deal with these challenges, there is a prior issue which is raised by Mr Pascoe in his notice of contention. It is that Mr Boensch had a right of indemnity as trustee against the trust assets, that the interest vested in Mr Pascoe and the interest was a caveatable interest. Mr Pascoe put the matter in terms of the onus on Mr Boensch, that is to say he, Mr Pascoe, discharged whatever evidentiary onus was on him to bring forward evidence of a trustee's right of indemnity and Mr Boensch failed to negate such an interest. To simplify the discussion, we will refer to the existence or otherwise of a caveatable interest by way of a right of indemnity, while not losing sight of Mr Pascoe's submission concerning onus. 148 Mr Pascoe submitted that Mr Boensch had a right of indemnity against the trust assets by reason of his payment of mortgage repayments and rates with respect to the property. This was an equitable interest in the property and, as the primary judge found, the description of the interest in the Caveat covered both legal and equitable interests. The presence of a caveatable interest was fatal to Mr Boensch's claim under s 74P of the Real Property Act and it did not matter that Mr Pascoe's belief that he might have a right of indemnity did not arise until November 2005. 149 Mr Boensch put a number of arguments to the effect that Mr Pascoe did not have a right of indemnity which was a caveatable interest. A summary of these arguments is as follows. 150 First, he submitted, correctly in our opinion, that the primary judge did not find that Mr Pascoe had a right of indemnity which was a caveatable interest. 151 Secondly, he submitted that, although Mr Pascoe pleaded that he had a caveatable interest by way of a right of indemnity, he did not press this case at trial. 152 Thirdly, he submitted that a caveatable interest by way of a right of indemnity is not the interest claimed in the Caveat. 153 Fourthly, he submitted that there was no right of indemnity as a matter of fact. Mr Boensch did not make a claim for a right of indemnity in his Statement of Affairs and there is Mr Boensch's evidence about the mutually beneficial arrangement. A related point which is a powerful evidentiary matter that there was no right of indemnity is that Mr Pascoe did not pursue a claim for a right of indemnity because he ultimately came to the view that such a right was likely to have little value. 154 Finally, Mr Boensch submitted that even if Mr Pascoe had a right of indemnity, it is not a caveatable interest. Mr Boensch submitted that for an interest or right to be a caveatable interest, it must be a "legal or equitable interest in the land partaking of the character of an estate, or of an equitable claim upon the land…" (Municipal District of Concord v Coles (1906) 3 CLR 96 at 107 per Griffith CJ). He submitted that the right of indemnity was an equity, not an equitable estate or interest. He submitted that the holder of a right of indemnity did not have a security interest in the trust assets, but rather a preferred beneficial interest in the trust fund (Chief Commissioner of Stamp Duties v Buckle (1998) 192 CLR 226 at [50]-[51]; Newcastle Airport Pty Ltd v Chief Commissioner of State Revenue [2014] NSWSC 1501; (2014) 99 ATR 748 at [96] per White J). 155 We do not propose to resolve these arguments for two reasons considered cumulatively. First, there is no need to do so in order to decide this appeal. Secondly, to resolve the issues, this Court would first be required to make findings of fact about the "mutually beneficial arrangement" and possibly, whether the indemnity had any value. The primary judge did not make a finding about the mutually beneficial arrangement because he did not need to. All his Honour said was that the details of the arrangement were "somewhat obscure". Furthermore, although generally rejecting Mr Boensch's case, his Honour made no general finding about Mr Boensch's credibility and reliability. 156 That brings the Court back to Mr Boensch's challenge to the findings his Honour did make about the right of indemnity. It is important to note the limits of the finding. It went no further than a finding that by May 2009 at the latest, Mr Pascoe had reasonable grounds to believe that Mr Boensch might have a right of indemnity out of trust assets. At some point, probably shortly before or after being served with a lapsing notice on 23 August 2009, he decided that the right was likely to have little value and he would not pursue it. Quite independently, Mr Pascoe had an honest belief based on reasonable grounds that the trust would be set aside or declared void up to 13 August 2009. In those circumstances, it is difficult to see how a successful challenge to the primary judge's findings about the right of indemnity will affect the outcome of the case. The finding does not affect the lodging of the Caveat and only relates to its maintenance of the Caveat between May and August 2009. 157 For his part, Mr Pascoe sought a finding by this Court that he not only had an honest belief that he might have a right of indemnity by at least November 2005, but also reasonable grounds for that belief from that date. That is not the finding of the primary judge and there is no notice of contention raising the issue. Furthermore, it is likely the primary judge had in mind Mr Pascoe's insolvency report dated 29 May 2009 where the mortgage payments are mentioned, in selecting the date, "by May 2009 at the latest". 158 We see no reason to interfere with his Honour's finding. It seems clear that Mr Boensch did make mortgage repayments and, as we understand it, the so-called "mutually beneficial arrangement" was not documented. It is true that a right of indemnity is not claimed in the Caveat, but it is not a belief asserted from the date of the Caveat. It is a belief claimed from May 2009 and we see no reason why an honest belief based on reasonable grounds should not be relevant to the maintenance of a Caveat from the date from which the belief is held. We reject Mr Boensch's challenge to the primary judge's finding concerning the right of indemnity.

Conclusion 159 The appeal must be dismissed. The appellant must pay the respondent's costs of the appeal. I certify that the preceding one hundred and fifty-nine (159) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Besanko, McKerracher and Gleeson.