Crossman v PILT Nominees

Supreme Court of NSW|2009-04-23|Before: White J

CITATION : Crossman v PILT Nominees [2009] NSWSC 393 This decision has been amended. Please see the end of the judgment for a list of the amendments.

DECISION : Refer to paras 73 and 74 of judgment.

CATCHWORDS : EQUITY - trusts and trustees - proceedings between trustees and beneficiaries or third parties - beneficiary of sub-trust seeks appointment of receiver to property of trustee - defendants propose interim appointment of new independent trustees - balance of convenience favours this course - notice of motion stood over for arrangements to be made - EQUITY - equitable remedies - injunctions - freezing orders sought against the first, second and third - undertakings made by first, second and third defendants to the court - undertakings offered from first and second defendants provide the same protection as freezing orders sought - restraining order made against third defendant - EQUITY - equitable remedies - injunctions - plaintiff seeks order requiring affidavits of discovery -narrower order made subject to the third defendant being entitled to object to making an affidavit on the ground of privilege against self-incrimination or self-exposure to a penalty - EQUITY - equitable remedies - injunctions - mandatory injunction sought that second defendant repay money to first defendant - plaintiff does not point to any loss he will suffer if the relief is not made until final determination - balance of convenience does not favour granting the orders sought

Crossman v PILT Nominees Pty Ltd [2008] NSWSC 557 Chow Yoong Hong v Choong Fah Rubber Manufactory [1962] AC 209 CASES CITED : KD Morris & Sons Pty Ltd (in liq) v Bank of Queensland Ltd (1980) 146 CLR 165 Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd and Ors (1990) 3 ACSR 649 Ex Parte D (1995) 17 ACSR 52 Attorney-General v Punch Ltd [2003] 1 AC 1046

TEXTS CITED : R P Meagher, J D Heydon & M J Leeming, Meagher, Gummow & Lehane's Equities: Doctrines & Remedies 4th ed 2002

Phillip Michael Crossman PARTIES : v PILT Nominees Ltd & 3 Ors

Plaintiff: R J H Darke SC with J B Spinak COUNSEL : Defendants: A J Sullivan QC with D K L Raphael and C H Withers Mr Londish: S Burchett

SOLICITORS : Plaintiff: Allens Arthur Robinson Defendants: Johnson Winter & Slattery

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE'S LIST

2847/08 Phillip Michael Crossman v PILT Nominees Ltd & 3 Ors JUDGMENT 1 HIS HONOUR: The plaintiff seeks the following orders: First, he seeks the appointment of a receiver and manager to the property of the first defendant, PILT Nominees Pty Ltd as trustee of the Prime Index Lease Trust. Next he seeks freezing orders to restrain PILT Nominees from dealing with its assets other than to repay a facility between it and ANZ Banking Group Ltd. He seeks a freezing order to restrain the second defendant, Baltarna Pty Ltd, from dealing with its assets other than by repaying money it received from the first defendant. He seeks an order restraining the third defendant, Mr Seller, from dealing with moneys transferred by PILT Nominees to Baltarna and transferred by Baltarna to any entity. 2 As well as freezing orders, the plaintiff seeks an order that Mr Seller make an affidavit detailing payments made by PILT Nominees out of funds advanced to it by ANZ or payments made by ANZ at its direction. He seeks orders that Mr Seller and an officer of Baltarna make affidavits detailing all the payments Baltarna has received from PILT Nominees and how those moneys have been disbursed and by stating Baltarna's assets and liabilities. 3 Finally, he seeks orders requiring Baltarna to repay $3,340,409.66 to PILT Nominees and requiring Mr Seller to take all necessary steps in his power to cause Baltarna to comply with that order.

4 PILT Nominees is the trustee of a unit trust known as the Prime Index Lease Trust. Baltarna holds all of the ordinary units in the trust. The defendants say it is the only unit holder. It holds the units on the trusts of a trust known as the Baltarna trust. 5 The assets of PILT Nominees consist of a number of service stations leased to the Shell company. Rental income from those leases was used to repay the debt incurred to acquire the service stations. The trust deed of the Baltarna trust provides for two classes of beneficiaries, namely, unit holders and general beneficiaries. The sole unit holder of the Baltarna trust is Valofo Pty Limited, a company described by the defendants as belonging to the Londish family. 6 The trust deed of the PILT is dated 15 December 1995. The trust deed of the Baltarna trust is dated 15 December 1996. This may be a typographical error because it seems to be common ground on the pleadings that the trust was established before then. 7 The Baltarna trust deed provides that, with the consent of the appointor, being a nominee of the trustee, the trustee can nominate general beneficiaries and may remove beneficiaries. It is admitted on the pleadings that Mr Seller is the appointor of the Baltarna trust. I understand it to be common ground that prior to 6 March 2008 Baltarna had nominated as a general beneficiary itself in its capacity as trustee of a trust called the Baltarna Class Trust. The beneficiaries of the Baltarna Class Trust are class A general beneficiaries and class B general beneficiaries, the former being entitled to one-third and the latter to two-thirds of the income and capital of that trust. 8 The plaintiff, Mr Crossman, is included within the class of class B general beneficiaries along with members of his family and companies or trusts with which he or they are associated. Mr Seller was included within the class of class A general beneficiaries. He says he renounced his interest as a class A general beneficiary on 18 March 2008. 9 Mr Crossman complains that on 6 March 2008 Mr Seller caused Baltarna to resolve to exclude the Baltarna Class Trust as a beneficiary of the Baltarna Trust. 10 In these proceedings, Mr Crossman alleges that the resolution was void. He seeks the removal of Baltarna as trustee of the Baltarna Trust and the removal of PILT Nominees as trustee of the PILT. 11 The PILT trust deed provides in clause 24.3 that if there are no Borrowings or Bonds (both being defined expressions) outstanding and the manager does not intend to direct the trustee to thereafter enter into any Borrowings or to issue Bonds, the manager will, by written notice to the trustee, declare its intention for the trust to terminate. On such a notice being given the trustee is to call a meeting of ordinary unit holders and there is only one, namely, Baltarna. The unit holder may resolve to terminate the trust. If the trust were terminated and all the assets distributed to Baltarna to be held on the assets of the Baltarna trust, then the trustee of the Baltarna trust could bring forward the vesting date of that trust and distribute the assets of that trust. On such a distribution the unit holder, Valofo, would be entitled to be paid the greater of $7.5 million or 55 per cent of the capital paid up on ordinary units. 12 The trustee at its discretion could appoint to any general beneficiary an amount up to at least the amount first to be paid to Valofo, i.e., at least $7.5 million. After payment of any amount which might be appointed to a general beneficiary, the balance would be paid to the unit holder. 13 Mr Crossman alleges that the transaction was structured with two sub-trusts on the advice of Mr Seller. He alleges that he and Mr Seller as promoters and Mr Londish as the equity investor were aware that he, Mr Crossman, intended that after 12 years, when the debt to acquire properties to be acquired by PILT Nominees had been paid off, the properties would be either sold to Shell or on the open market and the proceeds of sale would be distributed to the participants through the two sub-trusts. He alleges that neither Mr Seller nor Mr Londish indicated that they had a different intention and that Mr Seller confirmed it. 14 In his statement of claim filed on 4 June 2008, Mr Crossman alleges that on 18 March 2008 he became aware that it was proposed by Mr Seller and Valofo that the trustee of the PILT borrow approximately $11.5 million secured over the service stations (called Designated Properties) to fund the payment of up to $7.5 million to Valofo. He alleges that PILT Nominees does not have the power to borrow, except for the purpose of acquiring Designated Properties and that such a borrowing as proposed would be a breach of the PILT trust deed. 15 These proceedings were commenced on 23 May 2008 by summons. The plaintiff sought amongst other relief a final injunction that PILT Nominees be restrained from entering into any agreement pursuant to which any money was borrowed by it otherwise than to finance the acquisition or holding of a Designated Property (as defined in the PILT deed). 16 The plaintiff immediately sought interlocutory relief in the same terms. In an affidavit sworn in support of that application, the plaintiff deposes to having had a conversation with Mr Peter Londish in which Mr Londish told him that Mr Seller was proposing to raise $11.5 million of borrowings within PILT using the service stations as security and using cash flow from the Shell leases to pay interest and repay a significant amount of principal over ten years. According to Mr Crossman, Mr Londish told him that the proceeds of borrowings would be used to pay a distribution to Valofo and that Valofo was entitled to a distribution in the order of $7.5 million or 55 per cent of the property value. 17 Mr Crossman deposed that Mr Londish said he presumed Mr Seller would distribute the remainder to the other beneficiaries but he was not sure. He deposed to various uncommunicative statements from Mr Seller and to having been told by an employee of Bankwest on 19 May 2008 that a loan would be finalised that week. He deposed: " 86. If the PILT enters into a further loan using the Land as security (the Proposed Loan ), as contemplated by my discussion with Peter Londish on 18 March 2008, there will be no funds distributed the General Beneficiary of the Baltarna Trust, or to the beneficiaries of the BC Trust, while that loan is on foot. 87. The Proposed Loan contemplates a payment to Valofo of approximately $7.5 million. I do not know what Seller and Baltarna Pty Ltd propose to do with the balance of the Proposed Loan, in the amount of $4 million. 88. The Proposed Loan will have the effect of tying up the assets of the PILT and/or the Baltarna Trust for around 10 years. If the Proposed Loan goes ahead, it will thwart the intentions of all parties, when the various trusts were entered into, that the distributions to the beneficiaries of all the various trusts would occur around March or April 2008. " 18 The application for interlocutory relief was heard and determined by Hamilton J on 27 May 2008 (Crossman v PILT Nominees Pty Ltd [2008] NSWSC 557). It appears that the principal matters debated before his Honour were whether the plaintiff had standing and whether the proposed borrowing would be a breach of the PILT. In relation to the latter question the plaintiff relied on clause 6.1 and clause 13.2(s) of the PILT Trust deed. Those clauses provided: " 6.1 Trustee may Borrow The Manager may from time to time direct the Trustee to enter into a Borrowing to finance the acquisition or holding by the Trustee of a Designated Property. Without limiting the identity of a Lender, such a Borrowing may be made from the Manager or from any Related Body Corporate of the Manager. Such a Borrowing will be upon such terms and conditions as the Manager thinks fit and that are acceptable to the Trustee acting reasonably (including, without limitation, that the terms of the Borrowing include a provision in compliance with clause 23.16). ... 13.2 Specific Powers Without in any way affecting the generality of the foregoing or the other provisions of this Deed, but subject to the Trustee's obligations under, and the provisions of, this Deed, the Trustee shall have the following powers (which shall be construed as separate and independent powers of the Trustee): ... (r) ( Bonds ): to borrow and raise moneys by the issue of Bonds as provided in this Deed; (s) ( Other Borrowings ): to enter into any Borrowing as provided in this Deed; 19 "Bond" and "Borrowing" were defined as follows: " ' Bond ' means a debt security issued by the Trustee as trustee of the Trust. ' Borrowing ' means raising or borrowing any sum or sums of money or obtaining credit or financial accommodation and includes any guarantee indemnity or other assurance against financial loss, but does not include the issue of Bonds. " 20 Clause 13.1 provides: " 13.1 General Power Subject to the provisions of this Deed, the Trustee shall have all the rights, powers and discretions over and in respect of the Assets of the Trust which it could exercise if it were the absolute and beneficial owner of such Assets. " 21 The plaintiff emphasises that clause 13.1 is expressed to be subject to the provisions of the deed and submits that it does not confer on PILT Nominees the power to borrow beyond the extent provided for in clause 6.1. Clause 13.2 enumerates certain specific powers of the trustee without affecting either the generality of clause 13.1 or other provisions of the deed. Two relevant powers are contained in clause 13.2(s) and clause 13.2(r) set out above. 22 Hamilton J held: " 7 In coming to this conclusion on the question of standing, I refer to what was said about questions of standing by Young J (as his Honour then was) in McLean v Burns Philp Trustee Company Pty Ltd (1985) 2 NSWLR 623 at 636 - 638 and by Powell J in Ramage v Waclaw (1988) 12 NSWLR 84 at 91. As to the rights of discretionary beneficiaries see what was said by Powell J in Spellson v George (1987) 11 NSWLR 300 at 316. 8 As I have found that there are serious questions to be tried raised by the plaintiff, I proceed to the question of the balance of convenience. I conclude that, if the plaintiff's rights are as he claims them to be, they would or could be seriously compromised by the raising at this stage of the proposed loan of $11.5 million. 9 Mr Raphael has proferred on the defendants' behalf an undertaking that, if the loan were allowed to be raised it would be drawn down only to the extent of $2.5 million to pay obligations which have been mentioned from the Bar table, but which are not dealt with in the evidence. However, there really is no evidence to support any inconvenience of substance on the defendants' part if the injunctive relief sought is granted. 10 In light of what Mr Raphael has told me about the possibility of a proposal for borrowing alternative to that shown in the evidence, I shall say specifically that leave will be granted to the defendants to apply to the Court to discharge or vary the injunction in relation to a proposal for borrowing different from the proposal for an $11.5 million borrowing that is the proposal in the evidence before me. " 23 His Honour made orders including the following: " 1. Each of the first defendant, the second defendant and third defendant whether by itself or himself, his or its officers, employees, agents or otherwise be restrained until further order from: (a) entering into any agreement pursuant to which any money is borrowed by the first defendant otherwise than to finance the acquisition or holding of a Designated Property (as defined in the Prime Indexed Lease Trust deed); and (b) entering into any transaction whereby any or all of the Designated Property (as defined in the Prime Indexed Lease Trust Deed) is used as security for any borrowings otherwise than by the trustee of the Prime Indexed Lease Trust to finance the acquisition or holding of a Designated Property. 2. The second defendant, whether by itself, its officers, employees, agents or otherwise be restrained until further order from: (a) nominating any individual, corporation, trust or other entity to be a member of the class of General Beneficiaries (as defined in the Baltarna Trust deed); (b) making any payments out of, or transferring the whole or any part of, the Trust Fund of the Baltarna Trust (whether capital or income) to any Unitholder of the Baltarna Trust or any member of the class of General Beneficiaries of the Baltarna Trust; and (c) redeeming any Units in the Baltarna Trust. 3. The first defendant, whether by itself, its officers, agents, employees or otherwise, be restrained until further order from entering into any deed of alteration, addition or modification in respect of the Prime Indexed Lease Trust. 4. The defendants be restrained until further order from taking any step or doing any thing to cause the first defendant to cease to be trustee of the Prime Indexed Lease Trust. ... 9. The defendants be granted leave to apply on 3 days' notice to the plaintiff's solicitors to vary the injunctions in respect of any proposal for borrowing other than the borrowing of $11.5 million, evidence of which was given in the plaintiff's application for interlocutory relief. " 24 The proceedings have been listed for hearing on 15 June 2009. On 16 June 2008, Johnson Winter & Slattery, the solicitors for the defendants, wrote to Allens Arthur Robinson, the solicitors for the plaintiff, in the following terms: " We refer to the orders made by His Honour Justice Hamilton on 27 May 2008. PILT Nominees Pty Limited (ACN 129 137 976) in its capacity as trustee of the Prime Indexed Lease Trust ( PILT Nominees ) is proposing to raise funds through a bill discount facility with the Australia & New Zealand Banking Group Limited. PILT Nominees proposes to use the funds to pay debts incurred by it in the administration of the Prime Indexed Lease Trust. The failure to pay these debts incurred in the course of administering the Prime Indexed Lease Trust could result in legal action being brought against PILT Nominees thereby resulting in orders that may affect the holding of the property of the Prime Indexed Lease Trust (for example, the appointment of a provisional liquidator to PILT Nominees). Furthermore, the trustee proposes to use funds in the ongoing administration and management of the property of the Prime Indexed Lease Trust. The attached annexure outlines the proposed outgoings that will be incurred, as well as the outgoings that have already been incurred PILT Nominees. [sic] We would be grateful if either your client or you would please confirm in writing by 4.00pm on Tuesday 17 June 2008 that neither your client nor you have any objection to the proposed financing arrangements. In particular, we would be grateful if you could please confirm in writing that the proposed financing arrangements do not breach Order number 1 of the Orders made by His Honour Justice Hamilton on 27 May 2008. In the alternative, should your client or you not be prepared so to say, we ask that you inform us that your client will not object to such an order being obtained and that it is purely a matter for the Court. " 25 The attached annexure described what were called holding costs totalling $1,326,525.38. These related to legal fees for counsel and solicitors, valuer's fees, an amount for working capital, an amount for "AT Lawyers", which appears to be a firm or company associated with Mr Seller, and provision for legal fees in relation to the current dispute. 26 Allens Arthur Robinson responded the following day stating that the proposed financing would clearly breach order 1(a) of 27 May 2008. They gave reasons for objecting to the proposal described in Johnson Winter & Slattery's letter of 16 June. It does not appear that there was a response to Allens Arthur Robinson's correspondence of 17 June. 27 Two of the solicitors with Allens Arthur Robinson who act for the plaintiff have deposed that on 3 March 2009 they became aware that PILT Nominees may have notified ASIC of the details of a charge on 17 July 2008. The charge in question was lodged by Kemp Strang, who, other evidence shows, were acting for ANZ, on 14 July 2008. The charge is to ANZ and secures any money owing by PILT Nominees to ANZ. It does not describe any facility under which moneys may have been provided to PILT Nominees. 28 After becoming aware of the charge, the plaintiff's solicitors issued notices to produce and subpoenas. It appears from documents produced pursuant to these notices to produce and subpoenas that on 28 May 2008, that is, the day after Hamilton J's orders, ANZ offered to PILT Nominees a commercial bill acceptance and discount facility up to $11.3 million on security inter alia of the service station sites leased to Shell. On 3 June 2008, it appears that Mr Seller and Mr Londish, as directors of PILT Nominees, agreed to accept this offer after legal advice from solicitors and counsel about the company's ability to accept the offer had been received. 29 Also produced, pursuant to notices to produce or subpoenas, were minutes of a meeting of directors of PILT Nominees held on 30 June 2008 attended by Mr Londish and Mr Seller. The minutes include the following: " FUNDING The ANZ funding was discussed. It was agreed to go ahead with it on the basis of legal advice received and the need for funding of future expenses in the trust and the Baltarna Trust. There cannot be any distributions whilst the Court Orders remain current but to the extent that there are funds available and the Trust Deed permits it then advances can be made to related entities for the ultimate beneficiary Valofo Pty Limited to allow funding inside that Group. Mr Londish indicated that it was critical to have funding in the group because particularly of legal proceedings being taken by third parties against the main principals behind the group namely Mr Sid Londish Mr David Bowman and himself. Mr Seller said that provided the funding was not greater than 55% of the issued units in Baltarna trust to Valofo then there should be little difficulty in accommodating the request. Mr Londish agreed to obtain approval from Valofo and to get requests for funding to be paid to Davlon Management Pty Limited a company related to Valofo, secured against future distributions to Valofo. ... RESOLVED THAT the trust go ahead with the ANZ borrowing. This would be for the purpose of funding through Davlon Management Pty Limited a related company of Valofo Pty Ltd up to a level no greater than 55% of the face value of the issued Units in Baltarna Trust held by Valofo Pty Limited. In addition to pay all expenses of the Prime Indexed Lease Trust and Baltarna Pty Limited including trustee Fees. " 30 It appears from other documents produced on subpoena including a document produced by Mr Londish that either $5.3 million or $5.5 million has been paid by PILT Nominees to Davlon Management Pty Limited. The minutes of 30 June 2008 described that as a company related to Valofo and it appears from the minutes that the payment made to Davlon is "secured against future distributions to Valofo", whatever that might mean. It appears from other documents that $3,340,409.66 has been paid to Baltarna. One document describes the payment as trustee commission. Counsel for the defendants submitted that a more accurate description of the payment is that it is an advance by PILT Nominees to Baltarna, being the beneficiary of PILT, permitted by s 44 of the Trustee Act 1925 (NSW). It may be inferred from the documents produced that Baltarna claims a right to the trustee's commission under the Baltarna trust deed. Clause 22 of that trust deed provides: " TRUSTEE'S COMMISSION Any Trustee hereunder being a company may from time to time charge and retain out of the Trust Fund in any Accounting Period such Trustee's commission (if any) as the Appointor may approve in writing. " 31 As I have said, it is common ground that Mr Seller is the appointor of the Baltarna trust. There was no evidence in this application of any written approval. 32 By a notice of motion filed 9 April 2009 the plaintiff has instituted contempt proceedings against PILT Nominees, Mr Seller and Mr Londish. It charges that PILT Nominees entered into an agreement pursuant to which it borrowed money otherwise than to finance the acquisition or holding of a Designated Property as defined in the Prime Index Lease Trust deed in breach of order 1(a) of the orders made on 27 May 2008. 33 The plaintiff also charges that PILT Nominees entered into a transaction whereby a Designated Property was used as security for borrowings, such borrowings being otherwise than by the trustee to finance the acquisition or holding of a Designated Property in breach of order 1(b). It charges that Mr Seller and Mr Londish are accessaries to the breaches. The contempt application is awaiting hearing. It is listed for hearing on 18 and 19 May 2009. 34 The plaintiff has also sought freezing orders, discovery orders and orders requiring the payment of money against Mr Londish and Davlon Management Pty Ltd. They were served only six days before the motions came on for hearing. Those respondents to the motions sought an adjournment in order to put on evidence, as I understand it, going to issues of hardship if Davlon Management were required to pay $5.3 million to PILT Nominees as sought by the plaintiff. Those parties consented to orders requiring Mr Londish to file and serve an affidavit of discovery and they gave undertakings restraining their dealing with assets. 35 The present application against the defendants raises four issues, namely, whether receivers should be appointed; whether freezing orders should be made; whether affidavits of discovery should be ordered; and whether Baltarna should be ordered to repay the sum of $3,340,409.66 to PILT Nominees. 36 In response to the application for the appointment of a receiver, the defendants have proposed to appoint new independent trustees to the PILT and the Baltarna trust pending the hearing and determination of the plaintiff's claims currently scheduled to commence on 15 June. The proposed appointment would be an interim appointment depending, I assume, on the outcome of the proceedings on 15 June 2009. The companies to be appointed as trustees of the trusts would be companies controlled by Mr Steven Parbury and Mr Anthony Sims, who are well known insolvency practitioners, and about whose independence there is no issue. 37 There is some complexity in implementing that proposal. It requires, amongst other things, the variation of orders made on 27 May 2008, the drafting of deeds varying the trust deeds, or at least the trust deed of the PILT, and obtaining stamp duty advice. The consent of the ANZ Bank is also required as a practical matter because in the absence of such consent the bank would be entitled to give notice to cause its charge to become immediately enforceable and to make the moneys secured by the charge become immediately due and payable. 38 There is evidence that the bank has advised that it ought to have no difficulty with the proposal for the appointment of new trustees on an interim basis, subject to court orders, but needs to take legal advice and to review the documentation and consider stamp duty questions. 39 The plaintiff initially submitted that a receiver should be appointed because it was necessary that an independent person be appointed to control the trusts. For the reasons which follow below, I think that prima facie there is considerable force in that contention, although it is not a question I need decide. The reason it is unnecessary to decide that question as matters presently stand is that the plaintiff accepts that the same objective would be satisfied by the appointment of the proposed new trustees. The appointment of a receiver would trigger the ANZ's charge immediately and would mean that without any further step being taken by the ANZ the money secured by the charge would become immediately payable. 40 The balance of convenience heavily favours the appointment of new trustees as proposed by the defendants rather than the appointment of a receiver. The defendants ask that that part of the notice of motion stand over to the afternoon of Tuesday 28 April 2009 so that the arrangements can be completed and I will take that course. 41 The second issue is whether freezing orders as sought should be made. The defendants, without admissions, have proffered undertakings to the court that: " (a) Until and subject to any further order the defendants undertake not to dispose of, deal with or diminish the value of any assets of the first defendant and/or the second defendant; and

(b) Until and subject to any further order, the first, second and third defendants undertake not to cause any assets of the first defendant and/or the second defendant to be removed from Australia. "

42 Undertakings from the first and second defendants provide the same protection as would be afforded by the freezing orders the plaintiff seeks against them. The plaintiff's proposed freezing orders would allow those defendants to deal with their assets by the first defendant repaying the ANZ facility and by the second defendant repaying the sum of approximately $3,340,000 to PILT Nominees. 43 I infer that the defendants have no intention of making such payments, but, if they did, there is no doubt that the plaintiff would consent to them and I expect the undertakings will be modified to provide an exception in the case of a dealing to which the plaintiff gives his written consent. 44 The undertakings proposed do not go so far as the order sought against Mr Seller. The plaintiff seeks an order that: " 5. An order that the third defendant whether by himself, his employees, agents or otherwise, be restrained until further order from taking any step to transfer or otherwise deal with: (a) all or part of any money transferred from the first defendant to the second defendant; or (b) all or part of any money transferred from the first defendant to the second defendant, and then from the second defendant to any entity; except in respect of any transfer or dealing necessary to comply with order 2 above. " 45 Whilst Mr Seller's undertaking would preclude his causing any dealing which diminished the value of assets of the first defendant or the second defendant, his undertaking would not restrain him from dealing with any money transferred by the second defendant to any entity. The defendants have given no evidence as to how the moneys provided by the ANZ Bank have been dealt with, or to whom moneys have been paid. The plaintiff's case in that respect depends upon inferences to be drawn from documents which have been produced. 46 In written submissions the defendants disputed the plaintiff's standing to seek freezing orders. I understand that contention not to be pressed. Hamilton J held that there was a serious question to be tried that the plaintiff has standing to seek to compel the due administration of the trusts. His Honour was satisfied that the plaintiff had sufficient standing to justify a grant of interlocutory injunctions last year which restrained the dealing with trust assets. If that is so, the plaintiff has sufficient standing for the further freezing orders which are sought. I do not think that I ought to further enquire into the question of the plaintiff's standing. 47 In my view, there is a serious question to be tried that the accommodation provided by way of a bill acceptance and discount facility was a breach of trust by PILT Nominees whether or not it is a "borrowing" within the meaning of the orders of 27 May 2008. 48 On the latter question, the defendants submitted that a commercial bill facility, otherwise known as a bill acceptance and discount facility, or a bill endorsement and discount facility, is not a loan or a borrowing. (See, for example, Chow Yoong Hong v Choong Fah Rubber Manufactory [1962] AC 209; KD Morris & Sons Pty Ltd (in liq) v Bank of Queensland Ltd (1980) 146 CLR 165 at 193-194; Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd and Ors (1990) 3 ACSR 649 at 693), (but cf Ex Parte D (1995) 17 ACSR 52). 49 I express no view on the latter question which is the subject of the contempt applications listed for hearing next month. 50 The defined term "Borrowing" in the trust deed includes obtaining financial accommodation other than by the issue of Bonds. No submission was made that the ANZ facility is an issue of a bond as defined. The facility was not obtained for a purpose within clause 6.1. 51 There is a serious question whether the power to Borrow in the defined sense is limited to the circumstances described in clause 6.1. I did not understand the defendants to dispute that there is a serious question as to whether the raising of finance from the ANZ Bank is a breach of trust. 52 There is a further question whether the disposition of the proceeds was a breach of trust. The defendants submit that PILT Nominees was authorised by s 44 of the Trustee Act to advance the sum of approximately $3.4 million to Baltarna as the sole beneficiary of the PILT. However, there is a serious question to be tried that if the power to raise money was limited, PILT may be in breach of trust by disbursing the moneys obtained, even if it did so by way of advance to a beneficiary which was otherwise authorised. In other words, the question may be not only one of the trustee's power to make advances, but also as to the proper exercise of that power. 53 The material does not show how Baltarna has dealt with the sum of approximately $3.4 million which appears to have been paid to it. If the moneys paid to it have been transferred to third parties there is a serious question to be tried as to whether the trustee of either the Baltarna trust or the PILT may be able to trace those moneys. There is a serious question to be tried as to whether Mr Seller may be liable as an accessary for assisting a breach of trust in respect of such payments. 54 The plaintiff also submits that freezing orders are justified because the defendants have acted surreptitiously in breach of the orders of 27 May 2008 or, if not in breach of those orders, have acted surreptitiously to circumvent the intended effect of the orders and to frustrate the Court's purpose in making the orders. 55 The defendants denied acting surreptitiously. They submitted that behaviour could only be surreptitious if the plaintiff had a right to information and he had no such right. This does not explain the letter from Johnson Winter & Slattery of 16 June 2008 which referred to a proposed raising of funds to pay debts incurred by PILT in the administration of the PILT of $1,326,525.38, when the true position, it would seem, was that, subject to obtaining legal advice, the directors had resolved to accept an offer of funding of $11.3 million. 56 The clear inference is that the purpose of the proposed funding of $11.3 million was not limited to that described in the letter from Johnson Winter & Slattery of 16 June 2008, but that the purpose included provision of funds to a related company of Valofo of up to 55 per cent of the issued units in the Baltarna trust and included the purpose of paying substantial moneys to Baltarna which it would apply towards commission. 57 The defendants led no evidence to explain why the letter from Johnson Winter & Slattery omitted these matters. In my view, the correspondence justifies the plaintiff's complaint that the defendants have acted surreptitiously. 58 It is unnecessary to express a conclusion on the plaintiff's submission that the steps taken by the defendants were designed to circumvent the intended effect of the Court's orders and to frustrate the Court's purpose in making those orders. In view of the pending contempt proceedings, it is undesirable to express any conclusion on that matter. However, I accept that it is arguable that the Court's intention in making the orders of 27 May 2008 was to hold the status quo pending the trial of the action where no Borrowings, as defined, were outstanding so that the plaintiff's claims that the PILT should be wound up and its assets distributed could be determined at a final hearing. Whether that was a purpose reflected in the terms of the orders may be a matter to be decided on the contempt application. 59 Likewise, it is unnecessary to decide whether the advance by PILT to Davlon secured, it is said, over Valofo's right to a distribution from the Baltarna trust, was an intentional impedance or frustration of the court's purpose in making order 2(b) (Attorney-General v Punch Ltd [2003] 1 AC 1046 at [4], [43] and [100]). 60 Whether or not the steps taken constituted a breach of the Court's orders, and whether or not they amount to a contempt by interfering with the administration of justice, the defendants' conduct justifies a concern that if not restrained, the third defendant may take further steps to deal with funds which have been distributed by Baltarna to third parties so as to put them beyond the reach of the Court's orders. 61 I will therefore accept the undertakings proffered by the first to third defendants, but also make an order until further order in terms of paragraph 5 of the notice of motion of 9 April 2009. 62 The next issue is whether the defendants should be required to serve affidavits of discovery. The orders sought are as follows: " 12. An order that an officer of Baltarna Pty Limited serve, by 28 April 2008, an affidavit detailing: (a) in respect of any advances or payments received by Baltarna Pty Limited from the first defendant - (i) what amounts have been retained by Baltarna Pty Limited; (ii) the identity of any entity to which Baltarna Pty Limited has paid any money; (iii) what amounts have been paid by Baltarna Pty Limited to any entity; (iv) when any payments were made by Baltarna Pty Limited to any entity; and (b) the current assets and liabilities of Baltarna Pty Limited. 2. An order that the third defendant file and serve an affidavit by 7 April 2009 providing details of: (a) the date, amount and identity of the recipient of each payment made by Australia and New Zealand Banking Group Limited to, or at the direction of, PILT Nominees Pty Limited, pursuant to or in relation to the charge given by PILT Nominees Pty Limited on 9 July 2008; and (b) any advances or payments made by or at the direction of PILT Nominees Pty Limited to any person (natural or corporate) in the period 27 May 2008 to 2 April 2009 out of any funds advanced to it by Australia and New Zealand Banking Group Limited (including those referred to in paragraph 5 on page 2 of the letter from Johnson Winter Slattery to Allens Arthur Robinson dated 26 March 2009), including the following information in respect of each advance or payment: (i) the amount of each advance or payment; (ii) the date on which each advance on payment was made; (iii) the identity of the person to whom each advance or payment was made (including any applicable ACN or ABN and bank account details); (iv) the power or powers under the PILT Deed pursuant to which the advance or payment was made; and (v) the terms of any agreement relating to the advance or payment. 13. An order that the third defendant serve, by 28 April 2008, an affidavit detailing: (a) in respect of any advances or payments received by Baltarna Pty Limited from the first defendant - (i) what amounts have been retained by Baltarna Pty Limited; (ii) the identity of any entity to which Baltarna Pty Limited has paid any money; (iii) what amounts have been paid by Baltarna Pty Limited to any entity; (iv) when any payments were made by Baltarna Pty Limited to any entity; and (b) the current assets and liabilities of Baltarna Pty Limited. " [Para 12 of the notice of motion filed 9/4/09; para 2 of the notice of motion filed 3/4/09 and para 13 of the notice of motion filed 9/4/09.]

The plaintiff sought this relief as ancillary orders to the freezing orders. 63 As I understood the defendants' submissions, the grounds on which they contended that such orders should not be made were that such orders could be justified only as ancillary to the making of freezing orders, and that freezing orders were not warranted. (Their undertakings having been proffered without admissions.) The defendants also submitted that the Court, in its discretion, should not make such orders when contempt proceedings were pending. Otherwise it was accepted that there would be no hardship in the defendants' providing such affidavits. 64 It seems to me inevitable that in the course of preparation for trial, discovery will be required, whether by production of documents or interrogatories or affidavits to elicit the information sought. There is this exception, I do not think that the third defendant should be required to state on oath a matter of law, namely, the powers pursuant to which advances or payments made at the directions of PILT Nominees were made. That is a matter for particulars. In my view, the discovery orders are appropriate in aid of the Mareva type relief to which the defendants have consented by proffering undertakings, or which I will order. 65 Mr Sullivan QC for the defendants said that he had no instructions to claim privilege against self-incrimination as an objection to an order requiring the making and service of affidavits. No such privilege would be available to Baltarna and there is no evidence or assertion that all persons who could swear or affirm an affidavit on behalf of Baltarna would wish to avail themselves of the privilege. 66 In my view, the orders should be qualified to allow the third defendant to claim privilege against self-incrimination or self-exposure to a penalty provided that if any such claim is made the grounds for such a claim are identified by an affidavit. 67 I will therefore make orders as sought in paragraph 12 of the notice of motion of 9 April 2009. I will also make orders as sought in paragraph 2 of the notice of motion of 3 April 2009, except by the deletion of paragraph (iv) in paragraph 2(b). The latter order will be subject to an order that if the third defendant objects to making an affidavit in respect of any of the matters in the preceding orders on the ground of privilege against self-incrimination or self-exposure to a penalty, that by 28 April 2009 he file and serve an affidavit or affidavits setting out the grounds for that objection. 68 The remaining question concerns paragraphs 2 and 3 of the notice of motion of 9 April 2009, namely: " 2. An order that the second defendant pay $3,340,409.66 to the first defendant by 28 April 2009. 3. An order that the third defendant take all necessary steps within his power to cause the second defendant to comply with order 2. " [Paras 2 and 3 of the notice of motion filed 9/4/09.] 69 The plaintiff has not yet formulated any claim for final relief in respect of the payment of $3,340,409.66 to Baltarna. He has only recently become aware of the payment. The present claim is for mandatory interlocutory relief. 70 Whilst I accept that there is a serious question to be tried that the raising of funds from the ANZ Bank was a breach of trust, the question is not free from difficulty, either in terms of the construction of the trust deed or as to whether Baltarna, as the only beneficiary of the PILT, could properly consent to what might otherwise be a breach of trust. Nor has the plaintiff yet formulated grounds to challenge Baltarna's right to be paid approximately $3.34 million as commission. The strength of a plaintiff's claim for final relief is material to assessing where the balance of convenience lies or, to put it another way, in assessing what is the lower risk of doing injustice by granting or withholding interlocutory relief. However, I am not able to assess the strength of the plaintiff's case to compel repayment of the moneys paid to Baltarna. 71 If the plaintiff is not entitled to such an order as final relief, the order should not be made as an interlocutory order. The plaintiff does not point to any loss he will suffer if the relief he now seeks is not made until the final determination of the proceedings. The possible loss would be by way of dissipation of funds if that meant that a final order could not be complied with. But protection from any such dissipation should be afforded by the undertakings which have been proffered and by the Mareva order which I will make. 72 As is often the case with applications for mandatory interlocutory injunctions (see R P Meagher, J D Heydon & M J Leeming, Meagher, Gummow & Lehane's Equities: Doctrines & Remedies 4th ed 2002 at [21-395]), the balance of convenience does not favour the making of the orders sought. I will therefore refuse orders 2 and 3. 73 I preface the orders by saying they are on the basis of the plaintiff by his counsel giving the usual undertaking as to damages. Therefore, subject to any submissions counsel may have as to the form of the orders, I propose to make the following orders:

That paragraph 4 of the notice of motion filed on 3 April 2009 be stood over to 2pm on 28 April 2009 before the Duty Judge. This will allow the defendants to complete arrangements for the appointment of new trustees and then seek necessary orders in relation to those appointments.

Note the undertakings of each of the first, second and third defendants to the court that, except with the consent in writing of the plaintiff, until further order, it and he will not dispose of, deal with, or diminish the value of any assets of the first defendant or the second defendant and will not cause any assets of the first defendant or the second defendant to be removed from Australia.

Order that until further order, the third defendant, whether by himself, his employees, agents or otherwise, be restrained from taking any step to transfer or otherwise deal with (a) all or part of any money transferred from the first defendant to the second defendant; or (b) all or part of any money transferred from the first defendant to the second defendant and then from the second defendant to any entity;

except with the consent in writing of the plaintiff.

Make an order in accordance with paragraph 12 of the notice of motion filed on 9 April 2009.

Order that, subject to the next order, by 29 April 2009 the third defendant file and serve an affidavit detailing (a) the matters in paragraph 2(a) of the notice of motion of 3 April 2009; (b) the matters in paragraph 2(b) of the notice of motion of 3 April 2009, but excluding subparagraph (iv); (c) the matters in paragraph 13(a) of the notice of motion of 9 April and the matters in paragraph 13(b) of that notice of motion.

Order that if the third defendant objects to making an affidavit in respect of any of the matters referred to in the preceding order on the ground of privilege against self-incrimination or self-exposure to a penalty, that by 29 April 2009 he file and serve an affidavit or affidavits setting out the grounds for that objection.

Order the plaintiff's claim for relief in paragraphs 2 and 3 of the notice of motion filed 9 April 2009 be dismissed.

Order the notices of motion filed 3 April, 2009 and 9 April, 2009, the latter being of 15 paragraphs, insofar as they seek relief against the 1st - 3rd defendants be otherwise dismissed except for costs. 74 These orders may be entered forthwith.

27/05/2009 - Correction to plaintiff's counsel: R Darke to RJH Darke SC - Paragraph(s) 0

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