Claudio Grizonic v Suzanne Ranken Suttor & ors; Dawn Wade v Suzanne Ranken Suttor

Ms Wade's claim to be a creditor of the partnership 12Ms Wade's claim to be, in her own right and by assignment from others, a creditor of the partnership, is common to both proceedings. In respect of that claim, the essential issues are: (1) was each relevant debt incurred; (2) if so, was it a partnership debt; and (3) has it been effectively assigned to Ms Wade so as to bind Ms Suttor. 13While 22 creditors are mentioned in Ms Wade's cross-claim, RAMS and the landlord have admittedly been repaid. There is no allegation or evidence of assignment to Ms Wade of the alleged debts to Telstra, Orange, Energy Australia, Spacebuds or American Express, so they can be put to one side. The remaining alleged debts in respect of which she claims are:

• Ms Wade herself ($5,040 for wages and a further $200 advanced into float);
• Ms Wade's son Charles Firns ($4,210 for wages), assigned to her by deed dated 24 March 2008;
• George Mblog ($338 paid to a creditor on behalf of the partnership in January 2004), assigned to Ms Wade by deed of 4 May 2006;
• Jose Ares ($501 paid on behalf of the partnership to Ray the Butcher and thereupon assigned to Mr Ares), subsequently assigned by him to Ms Wade by deed of 4 May 2006;
• Janine Extner ($433 paid on behalf of the partnership to Highguard Security and thereupon assigned to her), subsequently assigned by her to Ms Wade by deed of 4 May 2006;
• Wilhelm Trnka ($219 paid on behalf of the partnership to Alsco Linen and thereupon assigned to him), subsequently assigned by him to Ms Wade by deed of 4 May 2006;
• Daniel Dickenson ($382, being $226 paid on behalf of the partnership to John Fairfax and thereupon assigned to him, and $156 for services), assigned to Ms Wade by deed of 17 May 2006;
• City Meats (NSW) Pty Ltd ($3,003), assigned to Ms Wade as "agent" by deed dated 15 September 2008;
• Chem-Pak Supplies ($986), assigned to Ms Wade as "agent" by deed dated 25 February 2009;
• Napoli Food Supply Pty Ltd ($5,018), assigned to Ms Wade as "agent" by deed dated 6 March 2009;
• D & J Confectionary ($392), assigned to Ms Wade as "agent" by deed dated 6 March 2009;
• Matthew Trnka, another of Ms Wade's sons ($26,257, in respect of advances made and debts paid by him on behalf of the partnership, and interest), assigned to Ms Wade by deed of 20 January 2006;
• YCC Poultry ($778, paid on behalf of the partnership by Ms Wade), assigned to her by deed dated 2 February 2006; and
• La Casa del Caffe ($455, paid on behalf of the partnership by Ms Wade) assigned to her by deed dated 2 February 2006. 14There is sufficient evidence of the incurring of each of those alleged debts - chiefly in the bundle that became Exhibit WX08, which was not the subject of objection. Copies of invoices from the third party creditors, and assignments from them to the intermediate assignees (Mblog, Ares, Extner and Dickenson), are in evidence. Except for City Meats, this evidence, however slight in some respects, was unchallenged and uncontradicted. In respect of City Meats, the circumstance that after the date of the purported assignment, City Meats had sued Ms Suttor and obtained a default judgment, which was later set aside on her application, does not deny the existence of the debt. While, in respect of D & J Confectionary, the only evidence is the deed of assignment of the debt by the creditor to Ms Wade, which was prepared in contemplation of these proceedings, nonetheless, it was admitted without objection; it is some albeit slight evidence of the existence of the debt; and there is no contrary evidence. While it was submitted that the debts of Ms Wade herself and her sons (Matthew Trnka and Charles Firns) were not among those listed by the Receivers in their report, that is of little moment - what evidence was before the Receivers is not known, and in any event the present judgment must be made on the evidence before the court, not on the basis of what the Receivers determined. Ms Wade deposed to, and produced records and schedules of, the hours worked by her and Charles Firns, and a schedule of the amounts paid for the benefit of the partnership by Matthew Trnka. In those circumstances, I accept that each of the relevant debts is established to exist. 15For Ms Suttor, it was contended that, to the extent that the debts in question were established, they were (at least for the most part) liabilities not of the partnership, but of Mr Grizonic alone, having been incurred by him while he was carrying on the restaurant business, after 8 December 2003 - the date on which the partnership was dissolved (by service of the summons). It is not in dispute that most of the relevant debts were incurred between the filing of the summons on 8 December 2003, and the appointment of the receivers on 5 February 2004. On 19 December 2003, when Mr Grizonic's summons was returnable before the Court, he and Ms Suttor executed a document, entitled "Heads of Agreement", which relevantly provided as follows:

3. The business known as Da Valentinos ("the business") is to be sold. From the proceeds of the sale of the business there is to be paid: (i) All outstanding accounts incurred on behalf of the partnership; (ii) 50% of the proceeds to the plaintiff and 50% of the proceeds to the first defendant. (iii) From the proceeds given to the first defendant there is to be paid to the plaintiff a sum equal to 50% of the partnership's debts paid by the plaintiff from his own personal funds. ...
4. The parties consent to orders 1, 2, 3 and 5 of the Short Minutes of Order attached to this Heads of Agreement.
5. That the plaintiff be permitted to draw $1,000 per week from the takings of the business and the first defendant be permitted to draw $450 per week from the takings of the business. 16The Short Minutes referred to in par 5 of the Heads of Agreement provided as follows:
6. That the bank account known as Da Valentinos at the Commonwealth Bank (Crows Nest branch), ... be operated by the plaintiff and first defendant as a joint account with both parties required to sign withdrawals upon that account.
7. That both the plaintiff and first defendant be restrained from making any withdrawals from Commonwealth Bank account number ... until all such steps as are necessary for such account to be operated on a "both parties to sign" basis have been undertaken.
8. That both the plaintiff and first defendant are to, by 5.00 pm on Monday 22 December 2003, take all steps necessary to have Commonwealth Bank account number ... operate on a "both parties to sign" basis.
9. That the plaintiff and/or the first defendant deposit all takings from Da Valentino's restaurant into Commonwealth Bank account number ... and be otherwise restrained from taking, using or dealing with the takings of the Da Valentinos restaurant except as in accordance with the ordinary course of business of the restaurant. 17The court noted the Heads of Agreement, and made orders in accordance with the Short Minutes. However, Mr Grizonic subsequently formed the view that Ms Suttor was not complying with the orders and was inhibiting his operation of the business, and on 13 January 2004 filed a motion claiming orders setting aside the Heads of Agreement and Consent Orders of 19 December. It was in those circumstances that, on 5 February 2005, Young CJ in Eq declared that the restaurant partnership was dissolved upon the filing of the summons on 8 December 2003, appointed receivers and managers of the partnership business, and made the usual orders for the taking of partnership accounts. 18After the dissolution of a partnership, the authority of each partner to bind the firm, and the other rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the partnership, and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise [(NSW) Partnership Act 1892, s 38]. For Ms Suttor, it was argued that trading debts incurred after dissolution on 8 December 2003 were not incurred for the purpose of winding up the affairs of the partnership - and indeed that they could not have been, since no order for winding up had then been made. However, in my view, the authorities favour the view that where one partner carries on the partnership business between dissolution and winding up and, in doing so, incurs debts, those debts are to be considered "necessary to wind up the affairs of the partnership" for the purposes of the section [see IRC v Graham's Trustees 1971 SLT 46, 48; Welsh v Knarston 1972 SLT 96, 97; Butchart v Dresser (1853) 4 De GM & G 542; 43 ER 619; Cheesbrough v Thompson (1866) 5 SCR(NSW) 366, 373]. Upon dissolution, the partner's right and duty is to wind up the partnership's affairs, and the surviving (or continuing) partners are entitled and obliged not only to complete all unfinished operations to fulfil contracts still in force [ IRC v Graham's Trustees ], but also to realise the partnership property, and for that purpose to carry on the partnership business in the meantime [ In re Bourne [1906] 2 Ch 427, 430 (Vaughan Williams LJ), 433 (Romer LJ), 434 (Fletcher-Moulton LJ)]. Although Bourne concerned the powers and duties of a surviving partner after death of the other, there is no apparent distinction, for the purposes of s 38, between that situation and the position of a partner in whose hands the business is left following dissolution inter vivos. One reason for the continuing authority of a surviving or continuing partner is to avoid the necessity for an application in every case for the appointment of a receiver [ Butchart v Dresser ]. The underlying rationale is that someone must carry on the business pending winding up to preserve its value for the benefit of both parties, that the partner who does so is acting in the interests of both in preserving the business and its value, so that the other partner is bound by the acts of the continuing partner for that purpose. 19Here, following the dissolution of the partnership (retrospectively declared to have taken effect on 8 December 2003), Mr Grizonic - by acquiescence if not arrangement between the partners - continued to manage the restaurant business, until the receivers and managers were appointed on 5 February 2004, thereby preserving it so that it retained value until the appointment of the receivers - whereupon it was ultimately realised (by sale to Ms Suttor for $100,000) for the benefit of both partners. The Heads of Agreement and Short Minutes of 19 December 2004 reinforce this view. Accordingly, in my view, debts incurred by Mr Grizonic in the conduct of the business of the restaurant, after the date of dissolution up until the appointment of the receivers, were incurred on behalf of the partnership, and bind Ms Suttor. 20Assignment of debts, at law, is governed by (NSW) Conveyancing Act 1919, s 12, which relevantly gives effect to an absolute assignment of a debt under the hand of the assignor of which express notice in writing has been given to the debtor . Each of the assigned debts is the subject of an instrument in writing, the purport of which is to assign it to Ms Wade, signed by the relevant creditor (or, in the case of a corporation, an officer of the creditor). There is, therefore, in each case an assignment under the hand of the assignor. However, the assignments by City Meats, Chem-Pak, Napoli Foods and D & J Confectionary describe Ms Wade as "The Agent/Assignee", and provided that she would pay the amount of the debt to the creditor within seven days of collection. Other evidence - including Ms Wade's own in cross-examination in respect of City Meats, and a letter to her from Chem-Pak - shows that in those cases the creditor appointed her agent for collection, which means that the assignor remained entitled to sue as principal, as well as Ms Wade as agent. There was therefore no such absolute assignment as required by Conveyancing Act , s 12. In my view, Ms Wade fails to establish title to sue as legal assignee in respect of those four debts. 21As to notice of the assignments, for Ms Wade, reliance is placed (1) in respect of the debts due to Matthew Trnka, YCC Poultry, La Casa del Caffe, Wilhelm Trnka, Jose Ares, Janine Extner, George Mblog, Daniel Dickerson, and Charles Firns, on a letter addressed to Ms Suttor at a Post Office Box address of 2 July 2008; (2) in respect of City Meats, on delivery of a copy of the deed of assignment to Ms Wade's then solicitor at Court sometime after 15 September 2008; (3) in respect of Napoli Foods, D & J Confectionary and Chem-Pak, on an email to Ms Wade's solicitor of 16 March 2009; and (4) alternatively, on service of certain of the pleadings in the proceedings. 22Ms Wade deposed (in her affidavit of 23 February 2009, par 2) that on or about 4 July 2008 she wrote and sent to Ms Suttor at PO Box 5411, West Chatswood, a letter signed by her in the following terms (the annexed copy demonstrates that it was in fact dated 2 July 2008): LETTER OF DEMAND Dear Madam I hereby give you official notice that I paid certain debts of Da Valentino's restaurant in 2005. I have taken over assignments of debts from third parties whom paid debts of Da Valentino's restaurant between 2003 and 2006. You have been well aware of these debts having been paid and assigned as you and your lawyer attended the creditors meetings in 2005 and 2006. Please find attached all deeds assigning debts to myself. If you do not pay what I am rightfully owed within 14 days I will be forced to take legal action against you. 23She deposed that she sent with the letter "a copy of all those deeds". Although the letter does not itself refer to specific debts or deeds, according to her verified Statement of Cross-claim, par 74, the letter was accompanied by Deeds of Assignment of the debts of Spacebuds, Matthew Trnka, YCC Poultry, La Casa del Caffe, Wilhelm Trnka, Jose Ares, Janine Extner, George Mblog, Daniel Dickerson, and Charles Firns, and I take the reference in the affidavit to "those deeds" to be a reference to the deeds mentioned in par 74 of the cross-claim. 24PO Box 5411 was the postal address of Mr Gallego, a solicitor who was at that time acting for Ms Suttor in connection with the winding up of the partnership. In her affidavit of 30 June 2009, Ms Suttor deposes that the letter of 2 July was not received, but insofar as she purported to give evidence to that effect as hearsay of Mr Gallego, it was rejected. An affidavit of Mr Gallego was read in the proceeding, but it does not address the receipt of this letter. The cross-examination of Ms Wade and Ms Suttor did not touch on the issue. In the absence of any denial of receipt on the part of Mr Gallego, to whose post office box it was allegedly sent, the preponderance of the evidence, slight as it is, favours the view that the letter, accompanied by the deeds mentioned above, was sent as alleged and received by Mr Gallego. 25This letter is said to be inadequate notice by reason that it does not specify the debts concerned, and was sent not to Ms Suttor but to Mr Gallego's post office box. However, save that it must be in writing and express, there are no formal requirements for notice under s 12, though it must not mislead; all that is required is "notice in writing", not " a notice in writing" [ Van Lynn Developments Ltd v Leias Construction Co Ltd [1968] 1 QB 607, 613, 614, 615]. Although it would have been insufficient for want of identifying the relevant debts had the letter alone been sent, sufficient particularity was provided by the accompanying deeds. While s 12 requires written notice to the debtor, it does not stipulate for personal service, and where a solicitor is acting for a client in a matter, notice to the solicitor is notice to the client, in respect of matters in which the solicitor is engaged [ Magee v UDC Finance Ltd [1983] NZLR 438 (NZCA)]. Here, Mr Gallego was at the relevant time acting for Ms Suttor in respect of the winding up of the partnership, and notice to his postal address was notice to Ms Suttor. Accordingly, I accept that the debts of Matthew Trnka, YCC Poultry, La Casa del Caffe, Wilhelm Trnka, Jose Ares, Janine Extner, George Mblog, Daniel Dickerson and Charles Firns were assigned at law to Ms Wade with effect from shortly after 2 July 2008. 26There is no evidence supportive of the assertion in Ms Wade's pleadings, that a copy of the deed of assignment of the City Meats debt was delivered to Mr Gallego at Court sometime after 15 September 2008. 27Ms Wade's affidavit of 20 March 2009 establishes that on 16 March 2009 she sent to Mr Gallego an email, as follows: Mr Gallego, I give notice that further creditors of the former partnership have assigned their debts to me. 6 th March 2009 - Napoli Foods Supply Lty Ltd, $5,018.49 6 th March 2009 - D & J Confectionary, $391.05 (had already written the debt off but resurrected it) 25 th February 2009 - Chem-Pak $986.24 Sincerely Dawn Wade 28For reasons already given, notice to Ms Suttor's solicitor was, in the circumstances, notice to her for the purposes of s 12. In my view, notice by email is, at least ordinarily, notice in writing, although in the context of particular statutes or instruments that may not invariably be so [ Islamic Council of South Australia Inc v Australian Federation of Islamic Councils Inc [2009] NSWSC 211, [18]-[21]]. Accordingly, the manner of provision of notice would not have been an objection to the effectiveness of the assignment of the debts referred to in it, had there been an absolute assignment. 29For Ms Wade, reliance was alternatively placed on notice by service of an Amended Summons in proceedings 09/287047. However, although an unfiled Amended Summons was provided to the court, there is no evidence that it had been filed or served. Nonetheless, the original summons filed in those proceedings (then 1001/09) on 2 January 2009, alleged that on 1 May 2008 Ms Wade entered into Deeds of Assignment with Wilhelm Trnka, Jose Ares, and Janine Extner in respect of their debts; that on 17 May 2006 Daniel Dickenson by deed assigned to Ms Wade his debt of $226.38; that on 20 January 2006 Matthew Trnka assigned to her his debt of $26,257.45; that on 24 March 2008 Charles Firns assigned by deed to her his entitlement to unpaid wages amounting to $4,210; and that on 15 September 2008 City Meats assigned to her by deed its debt of $3,002.99. The summons claimed payment of those amounts, plus the amounts owed directly to Ms Wade. Further, Ms Wade's cross-claim, in proceedings 03/087265, of 5 May 2009, of which Ms Suttor had notice, pleads the deeds of assignment to Ms Wade of all the relevant debts. 30I prefer the view of Scrutton LJ ( contra Slesser LJ) in Williams v Atlantic Assurance Co [1932] 1 KB 81, 98, 106, to the effect that for the purposes of s 12, notice may sufficiently be given by the pleadings. This view is consistent with the rule that service of proceedings may operate to terminate a tenancy at will without prior notice to quit [ Martinali v Ramuz [1953] 1 WLR 1196], or to dissolve a partnership [ Smith v Smith [1926] NZLR 311], and is reinforced nowadays by provisions such as (NSW) Uniform Civil Procedure Rules 2005, r 14.17 (which permits the pleading of matters arising after the commencement of proceedings) and (NSW) Civil Procedure Act 2005 , s 64(3) (which permits amendment to add a cause of action arising after commencement of proceedings) - all the more so as notice of assignment is required only to perfect title of the assignee at law, Ms Wade already being entitled in equity [cf Weddell v Pearce & Major [1988] 1 Ch 26, 42]. 31Accordingly, if my conclusion as to notice by the 2 July 2008 letter were incorrect, nonetheless notice of the assignment of the debts of Matthew Trnka, Dickenson, Ares, Extner, Charles Firns and City Meats was sufficiently given at least by Ms Wade's summons filed in proceedings 09/287047 on 2 January 2009. Further, notice of all the relevant assignments was sufficiently given by service of her cross-claim filed in proceedings 03/087265 on 5 May 2009. 32I conclude, therefore, that Ms Wade has established that she is entitled to recover from Ms Suttor, as one of the partners, $5,240 owed to Ms Wade, and the following debts of the partnership, express notice in writing of their assignment to Ms Wade having been given to Ms Suttor: Charles Firns - $4,210, George Mblog - $338, Jose Ares - $501, Janine Extner - $433, Daniel Dickenson - $382, Wilhelm Trnka - $219, Matthew Trnka - $26,257, YCC Poultry - $778, and La Casa del Caffe - $455. These total $38,813. For want of absolute assignment, she is not however entitled to recover the following debts of the former partnership: City Meats - $3,002.99, Chem-Pak - $986, Napoli Foods - $5,018, and D & J Confectionary - $392. 33It follows that, in proceedings 09/287047, Ms Wade is entitled to judgment against Ms Suttor for $38,813.

The funds in court 34The funds in court represent part of the proceeds of sale, by the 66G Trustees, of Magdala Road, which they sold to Mr Grizonic for $600,000 by contract dated 14 September 2004. 35Following receipt of a draft of the motion that Mr Grizonic subsequently filed on 21 October 2004, seeking an order restraining the 66G trustees from making any distribution from the net proceeds of sale of Magdala Road to Ms Suttor, Yates Beaggi wrote on 25 October 2004 to Dimocks and Oliveris, confirming discussion and agreement between the parties to the effect that upon completion of the sale they would apply the proceeds to discharge of the RAMS mortgage and legal expenses, payment of agent's commission and adjustments, payment into their trust account of an amount representing an estimate of their remuneration and costs (pending proper calculation and assessment and to become payable only on court order), and (emphasis added): 6. Payment of balance of proceeds into Court to allow the beneficiaries to apply for the taking of accounts . 36They tendered a draft consent order, relevantly providing that upon completion the proceeds be distributed and applied as follows: ... (d) Payment in the sum of $80,000.00 to the trust account of Yates Beaggi Lawyers representing an estimate of the trustees' remuneration and costs payable only upon proper calculation and formal assessment of same; (e) Payment of the balance of proceeds of sale into Court until further Order. 37Dimocks responded that Ms Suttor agreed, subject "only" to an additional sum of $160,000 being released - $80,000 to each of Ms Suttor and Mr Grizonic - so that paragraph (e) of the draft order would be replaced with the following: (e) payment in the sum of $80,000 to the Solicitors for the First respondent, and $80,000 to the Solicitors for the Second respondent; (f) payment of the balance of proceeds of sale into Court, until further Order. 38The letter continued: Assuming that your client agrees to the consent orders being changed in this way, then this will leave approximately $170,000 that will be paid into Court, that will more than meet the respective claims of your client, and of ours. 39When Mr Grizonic's motion first came before the Court on 28 October, Ms Suttor filed and served a Motion seeking orders that from the net proceeds the trustees pay $80,000 to her solicitors and $80,000 (subject to deduction of $4,763 said to be owed to her pursuant to an unpaid costs order made earlier in the proceedings) to Mr Grizonic's solicitors, and $10,000 to the 66G trustees' solicitors, with: the balance of proceeds of sale to be paid until further order into Controlled Moneys Account held by Yates Beaggi lawyers on trust for [Ms Suttor and Mr Grizonic], or in the alternative such Account is to be held in the names of Chris Dimock and Emanuel Oliveri, on trust for [Ms Suttor and Mr Grizonic]. 40The Court noted the agreement of Mr Grizonic and Ms Suttor that the 66G trustees may retain from the proceeds of sale $80,000 on account of their costs, expenses and remuneration, to be held in their solicitor's trust account pending determination of the amount of their entitlements, and adjourned the motions to 5 November. 41On 1 November, Oliveris proposed that each party withdraw their respective motions. This was rejected by Dimocks who, on 2 November, proposed to Oliveris that the sum of $80,000 be retained in the 66G trustees' solicitors' trust account, that $100,000 be invested in a controlled moneys account in the names of Mr Oliveri and Mr Dimock, and that the balance (estimated to be $230,000 - later corrected to $245,000) be divided equally between Mr Grizonic and Ms Suttor, subject to an adjustment in favour of Ms Suttor of $4,763 in respect of the outstanding unpaid costs order. 42On 3 November 2004, Dimocks wrote to Yates Beaggi and Oliveris, relevantly as follows: Suttor and Grizonic - Sale of X Magdala Road, Ryde We note that settlement of the above sale is due to take place this Friday, 5 November at 2pm. We are pleased to be able to confirm that the parties have been able to reach agreement in relation to the disbursement of the proceeds of the sale, and in relation to the determination of their competing Notices of Motion in the Supreme Court. Basically, what has been agreed is that the gross proceeds of sale be applied as follows, and according to the following priority:

1. In payment of the mortgage and any costs and expenses incurred by the mortgagee.
2. In payment to the agents of any commissions due on the sale.
3. In payment of rate/utility adjustments, subject to our comments below.
4. In payment to your Trust Account of the sum of $80,000, in accordance with the agreement noted at Court on 28 October.
5. In payment to Emanueli Oliveri and Chris Dimock as trustees for the parties in the sum of $85,000, with the intention that this amount be deposited into a Controlled Moneys Account.
6. In payment of one-half of the balance, by way of cheque drawn in favour of this firm.
7. In payment of the other one-half, as directed by Oliveri Attorneys. 43On the same day, Oliveris submitted to Dimocks proposed "Terms of Settlement", relevantly providing for: (d) The sum of $80,000 to be paid into the trust account of the solicitor for First and Second Respondents ("the trustees"). (e) The sum of $85,000 to be paid into a controlled moneys account in the joint names of the respective solicitors for Applicant and the Third Respondent. (f) One half of the balance of the proceeds of sale to be adjusted in favour of the Applicant towards the purchase price of the property. (g) The other half of the balance of the proceeds of sale to be paid to the solicitor for the Third Respondent. 44In response, Mr Dimock proposed the addition to (d) of the words "to be held in accordance with the agreement as noted by the Court on 28 October 2004". That proposal was apparently accepted, as orders were made in accordance with the terms, so varied, on 5 November. 45Upon completion of the sale on 8 November, from the net proceeds, $80,000 was duly paid to the Yates Beaggi trust account, $85,000 to Messrs Oliveri and Dimock, and $123,903 to each of Ms Suttor's solicitors and Mr Grizonic's solicitors. The $85,000 payable to Oliveri and Dimock was invested by Oliveris in a controlled moneys account in their joint names. Together with interest, it constitutes the sum now in court. 46Although there was some suggestion that $5,000 of the $85,000 was to be treated as drawn from Mr Grizonic's share of the proceeds, the settlement statement shows that each received an equal interim distribution, and the whole $85,000 preserved came from their shares equally. Nonetheless, there is sufficient evidence to conclude that the sum was increased from $80,000 to $85,000, with the intent that it secure Ms Suttor's outstanding claim for costs. 47Several of the protagonists and their then solicitors gave, or attempted to give, evidence of their (subjective) intention or perception as to the purpose of creating this fund. If objection were taken to this evidence, it would have been rejected; nonetheless much survived, through absence of objection. While I regard it as of very slight utility - the basis of the creation of the fund is to be ascertained objectively, from the contemporaneous dealings and communications of the parties, and not from their subjective intentions - the evidence does reveal some degree of consensus. Although she had more recently come to a slightly different view - in cross-examination, she said that from perusal of the contemporaneous correspondence she had now concluded that the $85,000 fund was established "pending the finalisation of partnership accounts" - Ms Suttor had originally been of the view that the fund was there "for whoever won the case. They would get it to cover their legal costs". For that purpose, "the case" was the dispute between Mr Grizonic and herself over their entitlements from the partnership. Mr Oliveri said that the fund was to secure the position of the successful party in the accounting proceedings, including in respect of costs. 48The principles that apply to a payment into court apply equally to a payment to solicitors as stakeholders [ Shirlaw (Now Rogers) v Malouf (1989) 15 ACLR 641, 647]. Those principles include that upon payment into court pending determination of liability, the successful party becomes a secured creditor to the extent that it is entitled to the money in court [ Shirlaw v Malouf, 646-647]. In my view, the fund, being the proceeds of property to which Mr Grizonic and Ms Suttor were prima facie equally entitled, secured the entitlements of each of the parties against the other in respect of the proceedings for partnership accounts. It was preserved rather than distributed in order to protect the position of whichever party might establish an entitlement against the other party, pending the outcome of the taking of accounts, by taking measures to ensure that it could not be disbursed without the assent of each party. Upon determination of the proceedings, to the extent that either partner was found to be indebted to the other on taking of accounts, the debtor partner's share of the fund would secure the creditor partner's entitlement. 49In the circumstances of this case at least, this extended to any costs that one party might be ordered to pay to the other. While the correspondence did not refer to security for costs, and neither party could have been ordered to give security for costs, the conclusion that the fund also secures any costs order made in the proceedings is favoured by: (1) the circumstance that the fund was plainly intended to secure at least Ms Suttor's claim that $4,743 was owed to her pursuant to a costs order; (2) the fact that the same order separately made provision for a fund (of $80,000) to secure the 66G trustees' legal costs and other remuneration; (3) Mr Oliveri's and Ms Suttor's evidence to that effect, coming as it does from the two opposite sides of the record; and (4) that where the parties did not give close attention to the precise scope of what the fund would secure, the preferable view is that it was intended to secure any monetary liability of one to the other that might be established in the proceedings, which includes any costs order. 50However, Ms Suttor's submission, that whichever party "won" the partnership proceedings would be entitled to the fund, goes too far. In my view, the position is not so simple. To the extent that the fund was sufficient, it secured any liability established in the proceedings, but no more: it was not a stake that passed to the "winner" regardless of how small the amount due on taking of accounts, and costs, might be. If only a small amount were due, and the debtor partner's share of the fund were more than adequate to satisfy it, the balance would revert to that partner, not to the "winner". 51Ms Wade submits that the fund was set aside for the purpose of finalising the partnership accounts, including to meet partnership liabilities, and thus that, as a creditor, she has a claim on it. However, the proceeds of Magdala Road did not change their character, so as to become a partnership asset, by the payment into court. The funds in court are and represent the remaining undistributed proceeds of sale of the property that was held in co-ownership by Mr Grizonic and Ms Suttor. They were to be preserved pending determination of the partnership proceedings, and to secure the entitlements of each party to those proceedings against the other on the taking of accounts, and in respect of costs. But subject to that, they were and remained the proceeds of sale of Magdala Road, to which Mr Grizonic and Ms Suttor were equally entitled. Nowhere in the terms of settlement or preceding correspondence is there any reference to the $85,000 being for the purpose of paying partnership liabilities. Nowhere in the correspondence is there any reference to any sum or estimate for partnership creditors. No creditor was a party to the proceedings, such that it might be implied that the payment in was for the purpose of securing the creditor's position. Ms Suttor denied any intention on her part that creditors would be paid from it; and Mr Oliveri's evidence to the contrary is subjective opinion, not objective intention. The fund was not set aside to secure partnership liabilities, but to secure the competing claims of each partner against the other. Ms Wade cannot sustain a claim to a proprietary entitlement to the funds in court, or any part of them. 52Ms Suttor claims that the whole of the funds in court should be paid out to her. The accounting having been permanently stayed after Mr Grizonic declined further to participate, with costs in favour of Ms Suttor, it is said that the funds in court should be paid out to her, together with at least half of the $3057.88 remaining in (or restored to) the Yates Beaggi trust account. But, although it is said that Ms Suttor won the partnership proceedings, in reality proceedings on the taking of accounts were permanently stayed, albeit that Mr Grizonic was ordered to pay Ms Suttor's costs. Had the accounting been finalised, the debtor partner's share of the fund would have secured his or liability to the creditor partner. Neither party has established an entitlement against the other on taking of accounts. However, Ms Suttor has obtained a costs order, which remains unquantified. In those circumstances - but subject to the 66G trustees' claim - Ms Suttor is entitled to one-half of the funds in court, plus so much of the other half as corresponds with her as yet unquantified entitlement to costs; Mr Grizonic (whose interest is now vested in his trustee in bankruptcy) is entitled to the remainder, if any. 53Likewise, subject to the claim of the 66G trustees, Ms Suttor and Mr Grizonic's trustee in bankruptcy would also be equally entitled to the sum of $3,057.88 that remains to their credit in the Yates Beaggi trust account.

The 66G Trustees' claim 54The 66G trustees contend that the funds in court remain an identifiable and traceable fund, derived as a direct result of the performance of their duties as 66G trustees, and that they are entitled to an equitable security or lien by way of indemnity or exoneration against the fund in priority to all other claims. Their opponents argue that the 66G trust was discharged on 8 November 2005, when the trustees completed the sale and distributed the proceeds; that the $85,000 paid to Oliveris and now in court was not trust property of the s 66G trust, but was distributed from it to the beneficiaries; that there was thereafter no remaining property of the s 66G trust; and that without trust property, there was no trust, and no entitlement on the part of the trustees to indemnity. 55The liability in respect of which the 66G trustees claim indemnity - namely, the costs payable by them to Yates Beaggi particularised in the second bill and certified in the sum of $109,346.79 - arose from Mr Grizonic's proceedings brought against them in April 2005 (after the 66G trust had been discharged) and ultimately dismissed, with costs against Mr Grizonic, in April 2007. Those proceedings were brought by Mr Grizonic, as a disgruntled beneficiary, against the 66G trustees, in respect of the manner in which they had performed their functions in the execution of their duties as 66G trustees. 56Trustees are entitled to be reimbursed from the trust assets for all charges and expenses incurred in the execution of the trust [ Worrall v Harford (1802) 8 Ves Jun 4, 8; 32 ER 250, 252 (Lord Eldon LC)]. This right takes prioirity over the rights and interests of the beneficiaries [ Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319, 335]. To secure this right, trustees have a charge or lien over the trust assets [ Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360]. As well as a right of indemnity out of the trust assets, trustees have a related but distinct right to be indemnified personally by the beneficiaries, the rationale being that a beneficiary who gets all the benefit of trust property must also bear its burden [ Hardoon v Belilios [1901] AC 118, 123; Balkin v Peck (1998) 43 NSWLR 706]. These indemnities are the price paid by the beneficiaries for the gratuitous and onerous services of trustees [ Re Beddoe, Downes v Cottam [1893] 1 Ch 547, 558 (Lindley LJ, CA)]. It is immaterial that the beneficiary has never requested the trustee to become trustee [ Hardoon, 123; Balkin v Peck, 712]; the beneficiary's liability arises from accepting, or failing to disclaim, the benefit of the trust - that is to say, acquiescing in becoming or being a beneficiary [ Hardoon; Cameron v Renouf (No 2) [2009] WASC 84]. 57Where a beneficiary unsuccessfully brings a suit against trustees for breach of trust, the beneficiary will ordinarily be ordered to pay the trustees' costs. If the trustees are not able to recover all the costs from the beneficiary then - absent misconduct on their part - they will ordinarily be allowed to recover the deficiency, on an indemnity basis, from the trust assets [ National Trustees Executors and Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268; Drummond v Drummond [1999] NSWSC 923, [43]-[47]; Bovaird v Frost [2009] NSWSC 917, [26]-[45]; Fay v Moramba Services Pty Ltd [2010] NSWSC 725, [4]]. This is so, even where the trustees have defended the action solely on their own behalf against personal liability, the right of indemnity not being limited to cases where the defence can be seen to be for the benefit of the trust, and the question being whether the costs were properly incurred by the trustees as an incident of administration of the trust [ In re Llewellin; Llewellin v Williams (1887) 37 Ch D 317, 327; National Trustees Executors and Agency Co of Australasia Ltd v Barnes, 278-9; Fay v Moramba Services Pty Ltd , [4]]. And this entitlement extends to costs incurred in defence of proceedings brought against a former trustee after the trust is terminated [ Pantzer v Wenkart (2006) 153 FCR 466, [41], [44]]. 58Where some but not all of the beneficiaries unsuccessfully sue the trustees for breach of trust, the same principles apply, but the indemnity must be implemented so that the burden falls on the beneficiaries equitably: thus the shares of the unsuccessful plaintiff beneficiaries are to be exhausted before there is resort to the shares of the others [ National Trustees Executors and Agency Co of Australasia Ltd v Barnes, 279; Fay v Moramba Services Pty Ltd , [16]]. 59It was submitted that the costs incurred in defence of Mr Grizonic's proceedings were not incidental to the administration of the trust, as the trustees had completed the discharge of their duties and the trust was at an end before those proceedings were instituted. However, the essence of those proceedings was a complaint as to how the trustees had performed their duties. The trustees' defence does not cease to be incidental to the administration of the trust, just because the trust has been terminated. This is consistent with Pantzer v Wenkart . Had the trustees retained any trust property, they would plainly have been entitled to indemnity from it. There would be no sense or justice in withholding indemnity from a trustee when a beneficiary defers suing until after distribution. 60It was also submitted that the trustees should not be entitled to costs, having not sought the advice of the court before embarking on the defence of the proceedings, invoking Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66. However, while it may well be advisable or prudent for a trustee to seek judicial advice prior to incurring costs, so as to avoid personal risk in the event that it ultimately be found that the costs were not "properly" incurred in the administration of the trust, the decision of the High Court of Australia in The Macedonian Church case does not mean that a failure to seek such advice prophylactically disentitles a trustee from resorting to the trust funds if such resort is otherwise proper, and the absence of such advice does not reverse the prima facie position that prevails in equity, and is reinforced by statute: for example, UCPR r 42.25, and (NSW) Trustee Act 1925 , s 59(4) [ Bovaird v Frost, [32]; Fay v Moramba Services Pty Ltd , [29]]. In this case, the trustees were vindicated; they successfully resisted the proceedings Mr Grizonic brought against them (albeit by obtaining a dismissal for failure to provide security), and obtained a costs order against him. 61Accordingly, at least if there were still in existence trust property, in principle the 66G trustees were entitled to be indemnified out of the trust property for the costs of defending Mr Grizonic's claim against them; first by resort to Mr Grizonic's share, but once it was exhausted also by resort to Ms Suttor's share. The more difficult question concerns the position where, as here, all the trust assets have been distributed: are the trustees entitled to be indemnified out of the funds in court, notwithstanding that the 66G trust has been extinguished? While neither counsel nor I have been able to find any authority that directly answers that question, guidance may be obtained from decided cases and established law on several related issues. 62There is significant support for the view that a trustee's personal right of indemnity against beneficiaries survives distribution of the trust assets to the beneficiaries. First, beneficiaries remain liable on their personal indemnity notwithstanding assignment of the beneficial interest to another, even in respect of liabilities falling due after the assignment [ Hardoon v Belilios [1901] AC 118; Trautwein v Richardson [1946] ALR 129; Matthews v Ruggles-Brise [1911] 1 Ch 194]. This indicates that the persistence of the indemnity does not depend on the continuation of the relationship of trustee and beneficiary. Secondly, termination of a trust by distribution of the corpus does not preclude a claim for indemnity against a beneficiary. In Ron Kingham Real Estate Pty Ltd v Edgar [1999] 2 Qd R 439 McPherson JA (with whom Davies JA and Fryberg J agreed) upheld a claim by a creditor to be subrogated to a trustee's right to be indemnified by the beneficiaries personally, where the trust assets had been fully distributed to the beneficiaries - albeit at a time when the liability to the creditor was outstanding. In Balkin v Peck (1998) 43 NSWLR 706, Mason P (with whom Priestley JA and Shepherd AJA concurred) held that trustees who had distributed the trust assets to the beneficiaries, overlooking their liability to pay capital transfer tax, were entitled to be indemnified by the beneficiaries against the tax liability. His Honour said (at 714, emphasis added): Nor is it to the point that the flat was sold and the net assets distributed in late 1986 . The trustee's liability to pay the tax arose earlier, upon the death of the life tenant. In July 1989 the appellants were approached by the trustees seeking indemnity, but were met with a prompt refusal based upon denial of any tax liability. But it is no longer disputed that the trustees were obliged to pay the tax if the British revenue authorities pressed them to meet it. 63Although both those were cases in which the liability arose before the distribution - as Mason P acknowledged in Balkin - it is not apparent why this should be material. 64In Toyama Pty Ltd v Landmark Building Developments Pty Ltd (No 2), trustees who had been appointed to act as trustees for sale of property, prior to completion of the sale, became apprehensive that Landmark (one of the beneficiaries) would bring proceedings against them. They unsuccessfully sought a release, and alternatively proposed to retain some of the proceeds, but ultimately relented in the face of protest by Landmark at that course. After distribution of the proceeds, Landmark brought proceedings against the trustees, which the trustees successfully defended, obtaining a costs order against Landmark. Citing Balkin v Peck, White J (at [25]) rejected a submission that the trustees were entitled only to an indemnity from the assets of the trust held by the trustees, and that once the assets were distributed the right to indemnity was gone. While holding that Landmark, by challenging the way in which the trustees had executed the trust, had caused them to incur legal expenses such that it was only just that it should indemnify them against all expenses properly incurred in defending the claim "so that the trustees would be put in the same position as that in which they would have been had they still had possession of the trust funds", his Honour also concluded that the other beneficiary, Toyama - which was in no way responsible for the incurring of the relevant costs and did not stand to benefit from Landmark's claim - should not have to bear any of the burden. However, National Executors v Barnes shows that, in the event that the shares of beneficiaries who have caused the costs to be incurred are insufficient, resort may then be had to the shares of the "innocent" beneficiaries, and there seems no reason why an equivalent approach would not apply in respect of the personal indemnity. In Toyama, it does not appear to have been contemplated that Landmark might be unable to satisfy the liability in full itself, and that is the probable explanation why this aspect of the case did not require further consideration. 65As to the right of indemnity against trust property, in Ron Kingham Real Estate v Edgar , McPherson JA said (at 441, emphasis added): A trustee who properly incurs liability in acting as trustee is entitled to be indemnified out of the trust assets. In Queensland the right of indemnity is recognised in s. 72 of the Trusts Act 1973, ... . In the present case, according to the admission in the defence, the entire trust assets have been paid away to the defendants as beneficiaries. Whether it is correct to say that, in consequence, there is no longer anything on which s. 72 is capable of operating would no doubt depend on whether the assets paid away are capable of being identified or traced in equity and so retain their character as "trust property" for the purpose of that section. 66However, because it was the right of personal indemnity that was relied upon in that case, it was not necessary to explore that matter any further. Ford & Lee similarly state that , while distribution of trust assets to beneficiaries would tend to destroy a trustee's security interest, if it takes place in circumstances which show no intention to abandon the lien, and the property remains traceable, the trustee would as a matter of principle remain entitled to enforce the lien against anyone other than a purchaser in good faith for value without notice [Ford & Lee, Principles of the Law of Trusts, [14.370]]. The seminal case of Re Diplock; Diplock v Wintle [1948] 1 Ch 465 established that distributions made by a trustee (upon an erroneous view of the trusts, as it later turned out) to persons supposed to be beneficiaries could be followed by the trustee into the hands of recipients who were volunteers (as the relevant "beneficiaries" were) and recovered for the benefit of the trust. It is also germane that an equitable lien of this type is not possessory [ Hewett v Court (1983) 149 CLR 639, 663 ; Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550 ]. In my judgment, consistent with the observations of McPherson JA and Ford & Lee, and analogously to the position in respect of the right of personal indemnity, where the entire trust assets have been distributed, and the trustees subsequently incur a liability incidental to their administration of the trust, their right of indemnity against trust assets extends to entitle them to recover assets that remain identifiable and traceable from a recipient, other than a bona fide purchaser for value without notice. 67The moneys now in court remain clearly identifiable and traceable as the proceeds of the trust property, Magdala Road. Mr Grizonic and Ms Suttor were, when they received them, unaware of any potential claim by the trustees. But they received them as volunteers. (I do not think that the terms of settlement of 5 November 2005, providing for setting aside of the two funds - the $80,000 to secure the 66G Trustees costs and remuneration pending ascertainment, and the $85,000 to secure the claims of each against the other - involved any such consideration as to deprive their receipt of a voluntary character). 68In my view, therefore, the trustees' right of indemnity and lien having arisen, the trustees are entitled to trace that part of the proceeds into the hands of Mr Grizonic and Ms Suttor, and recover them, to satisfy their indemnity. While they would be required to have recourse first against Mr Grizonic's interest, it is insufficient, as their entitlement exceeds the whole of the fund. 69Similarly, the sum of $3,057.88 in the Yates Beaggi trust account represents traceable proceeds of the trust property, and the 66G trustees are entitled to it also.

Conclusion 70My conclusions may be summarised as follows: 71As to Ms Wade's claim to be a creditor of the partnership, each of the relevant debts is established. Debts incurred by Mr Grizonic in the conduct of the restaurant business, after the date of dissolution up until the appointment of the receivers, were incurred on behalf of the partnership, and bind Ms Suttor. However, the assignments by City Meats, Chem-Pak, Napoli Foods and D & J Confectionary, were to Ms Wade as agent for collection, and were not absolute assignments as required by Conveyancing Act , s 12. 72As Mr Gallego was at the relevant time acting for Ms Suttor in respect of the winding up of the partnership, notice to his postal address was notice to Ms Suttor, and the debts of Matthew Trnka, YCC Poultry, La Casa del Caffe, Wilhelm Trnka, Jose Ares, Janine Extner, George Mblog, Daniel Dickerson and Charles Firns were assigned at law to Ms Wade with effect from shortly after 2 July 2008. If that conclusion be incorrect, notice of the assignment of the debts of Matthew Trnka, Dickenson, Ares, Extner, Charles Firns and City Meats was nonetheless sufficiently given by service of Ms Wade's summons filed in proceedings 09/287047 on 2 January 2009. Further, notice of all the relevant assignments was sufficiently given by service of her cross-claim filed in proceedings 03/087265 on 5 May 2009. 73Ms Wade has therefore established that she is entitled to recover from Ms Suttor, as one of the partners, $5,240 owed to Ms Wade personally, and the following debts of the partnership to third parties, which have been effectively assigned to her: Charles Firns - $4,210, George Mblog - $338, Jose Ares - $501, Janine Extner - $433, Daniel Dickenson - $382, Wilhelm Trnka - $219, Matthew Trnka - $26,257, YCC Poultry - $778, and La Casa del Caffe - $455. These total $38,813. For want of absolute assignment, she is not however entitled to recover the following debts of the former partnership: City Meats - $3,002.99, Chem-Pak - $986, Napoli Foods - $5,018, and D & J Confectionary - $392. 74The funds in court are and represent the remaining undistributed proceeds of sale of the Magdala Road property that was held in co-ownership by Mr Grizonic and Ms Suttor. They secure the entitlements of each party to the partnership proceedings against the other on the taking of accounts, and in respect of costs. The fund was set aside to secure the competing claims of each partner against the other, not for partnership creditors. Ms Wade cannot sustain a claim to a proprietary entitlement to the funds in court, or any part of them. 75Had the accounting been finalised, the debtor partner's share of the fund would have secured his or her liability to the creditor partner. By reason of the accounting having been stayed, neither party has established an entitlement against the other on taking of accounts. However, Ms Suttor obtained a costs order, which remains unquantified. In those circumstances - but subject to the 66G trustees' claim - Ms Suttor would be entitled to one-half of the funds in court, plus so much of the other half as corresponds with her as yet unquantified entitlement to costs; Mr Grizonic (whose interest is now vested in his trustee in bankruptcy) would be entitled to the remainder, if any. Likewise, subject to the claim of the 66G trustees, Ms Suttor and Mr Grizonic's trustee would also be equally entitled to the sum of $3,057.88 that remains to their credit in the Yates Beaggi trust account. 76The 66G trustees' defence of the proceedings brought against them by Mr Grizonic was incidental to their administration of the 66G trust. They are entitled to be indemnified out of the trust assets, and personally by the beneficiaries, in respect of the costs they incurred. Where, as here, the entire trust assets have been paid away to the beneficiaries, the trustees can, to the extent that the proceeds remain identifiable and traceable, recover them from a recipient other than a bona fide purchaser for value without notice. 77The moneys now in court remain identifiable and traceable as the proceeds of the trust property. Mr Grizonic and Ms Suttor received them as volunteers. The trustees' right of indemnity and lien having arisen, the trustees are entitled to trace that part of the proceeds into the hands of Mr Grizonic and Ms Suttor, and recover them, to satisfy their indemnity. While they would be required to have recourse first against Mr Grizonic's share, it is insufficient, as the trustees' claim exceeds the whole of the fund. Similarly, the sum of $3,057.88 in the Yates Beaggi trust account is traceable proceeds of the trust property, and the 66G trustees are entitled to it also. 78It seems to me, therefore, that the appropriate orders are to the following effect: A. In proceedings 09/287047: (1) Give judgment that the defendant Ms Suttor pay the plaintiff Ms Wade the sum of $38,813. B. In proceedings 03/087265: (2) Order that the funds in court to the credit of these proceedings including all accrued interest be paid out to Geoffrey David McDonald and Paul Andrew Leroy. (3) Declare that Geoffrey David McDonald and Paul Andrew Leroy are entitled to the sum of $3,057.88 standing to the credit of Claudio Grizonic and Suzanne Ranken Suttor in the trust account of Messrs Yates Beaggi including any interest accrued thereon. 79However, lest I have overlooked anything, and in case any question of interest arises in respect of the judgment in proceedings 09/287047, I shall afford the parties an opportunity to bring in short minutes. The parties have also requested that the question of costs be deferred until after judgment, and I will make directions in that respect. I will also make directions, if required, in respect of the outstanding motion concerning Mr Gallego, and any other remaining matters in the proceedings. 80My formal orders are: (1) Direct that the 66G trustees bring in short minutes of orders to give effect to this judgment; (2) Adjourn the proceedings to a date to be fixed for short minutes, costs and directions.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 May 2011