David Alan Thomson & Ors v Golden Destiny Investments Pty Limited & Ors

Supreme Court of NSW|2015-10-29|Before: Sackar J

Background facts

Putting the question of costs aside, it is necessary briefly to set out the circumstances in which money was paid into Court. On 22 May 2015 I ordered that an amount of $6 million be paid into Court consequent upon the settlement of the sale of the Turramurra Properties on 3 July 2015. These monies were frozen pending further order, and on 18 September 2015 I extended the operation of the freezing order.
The figure of $6 million is referrable to the amount contributed by NGI to the purchase price, said to be pursuant to the Short Form Deed. This money was released from the Gold Stone Future Investments Fund (Fund) and comprised $5 million invested in the project to develop the Turramurra Properties by Ms Zhang and an additional $1 million obtained from a further four investors (Ms Zhang and the other investors have played no part in these proceedings, other than Ms Zhang being called as a witness during the substantive hearing). The events leading up to the payment of the $6 million are set out in detail at [195]-[196], [217], [235]-[246] and [271] of the primary judgment.
The $6 million was required to be paid to GDI by the plaintiffs upon the rescission of the contracts for sale between those parties (see cl 19.2.1 of the New Contracts).
In my judgment in August I found in favour of the plaintiffs entirely as against NGI. GDI was also successful against NGI and Mr Geering, and in resisting NGI's cross claim. MVGDD's amended cross claim has been put to one side pending the outcome of certain matters to be determined in the Court of Appeal. Depending upon what occurs there it may have no life in it at all. On the other hand, it may need to be determined in the future.

Costs

The ordinary rule is, of course, that costs follow the event (see r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) (Rules)).
Pursuant to s 98 of the Civil Procedure Act costs may be ordered on an indemnity basis.
What is required, however, is for a party against whom the order is being made to have conducted themselves unreasonably in some way. The unreasonable conduct must relate to the conduct of the proceedings.
A party giving prior notice that such an order may be sought may enhance the prospects of the court exercising the discretion in their favour. Here, for example, the plaintiffs gave such notice prior to the commencement of proceedings.
Most commonly, such an award will be appropriate where it can be said a party has maintained proceedings that they should have known had no real prospect of success: Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [4]. As is pointed out in Harrison v Schipp [2001] NSWCA 13 at [139] some special or unusual feature will be required before the discretion will be exercised in favour of an indemnity costs order.
In addition, however, a wilful disregard of known facts, or conducting proceedings in such a way as to cause unreasonable delay and expense, can in either case provide ample grounds for such an award: Sewell v Zelden (No 2) [2010] NSWSC 1181 at [437]; Wentworth v Rogers [1999] NSWCA 403 at [21]-[47].

Monies paid into Court

In Harmer v Commissioner of Taxation (Cth) (1991) 173 CLR 264 the High Court (Mason CJ, Deane, Dawson, Toohey and McHugh JJ) considered that (citations omitted): Upon payment into court, the $198,195 owed by Riverhall became "trust moneys" in the broad sense that neither the Accountant of the Crown Law Department nor the court itself was beneficially entitled to them. They were received by the court (through the Accountant as the appropriate officer) pursuant to the statutory provisions or Rules of Court under which they were paid in. After payment in, the claimants acquired an interest in the moneys in the sense that they were entitled to insist that they be properly administered and applied for the purposes for which they were paid in. However, no claimant was beneficially entitled to either the whole or any part of the moneys paid into court or of the interest earned thereon. The moneys were received and held by the Accountant to be applied in accordance with the orders ultimately made by the Supreme Court. The respective interests of the individual claimants were, at best, contingent. None had an entitlement to the capital or the income of the fund which was vested either in interest or in possession. A fortiori, none had a present legal right to demand or receive payment of either capital or income. It follows that none of the claimants was "presently entitled" to the income of the fund for the purposes of s. 99A of the Act during the period between the time of the payment in of the moneys and the time when they were received by In Residence's solicitors to be deposited with the Building Society.
In Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2014] VSCA 326 Santamaria JA (with whom Maxwell P and Whelan JA agreed) made the following remarks at [75] (footnotes omitted): 75 The reference to Professor Goode was to the second edition of his text Commercial Law. In the fourth edition of that text, under the heading 'Procedural Securities', a distinction is drawn between court orders that attach the fund paid into court and freezing orders. Of the former category, it is said: A party whose claim is purely personal may nevertheless be able to invoke court procedures by which moneys or other assets of his opponent are taken into the custody of the law, either to abide the outcome of the action or for the purpose of enforcing a judgment or order in favour of the claimant. The effect of the attachment is to make the assets in question a security for the claimant to which he can have recourse for satisfaction of his judgment even if the other party has meanwhile become bankrupt or gone into liquidation. Among the acts giving rise to a procedural security are: the issue of an Admiralty writ in rem; the payment of money into court, whether in fulfilment of a condition of leave to defend or in satisfaction of the claimant's claim or in compliance with an order for security for costs; the payment into court of a fund, or surrender into legal custody of other property, the subject of the action pursuant to an interim order for detention, custody or preservation of the fund or property; the appointment of a receiver of property by the court at the behest of the claimant; and the attachment of an asset by way of execution.
In JKB Holdings Pty Ltd v de la Vega [2013] NSWSC 501 Lindsay J said that: 101 First, if funds paid into court are the subject of a pre-existing trust, the funds paid in remain (as between competing claimants to the fund) subject to the pre-existing trust notwithstanding the payment in: 173 CLR 272, 272-273 and 274. 102 Secondly, if the funds paid into court are not the subject of a pre-existing trust but are the subject of a disputed liability in debt, no party has an interest in the funds that is vested in interest or possession; each party has no more than an interest contingent upon orders of the Court; and competing claimants have an interest in the funds in the sense that they are entitled to insist that the funds be properly administered and applied for the purposes for which they were paid in: 173 CLR 272-273. 103 Thirdly, insofar as funds in court may be held on trust pursuant to legislation governing court practice and procedure, the trust may be regarded (subject to the terms of the legislation) as a trust for statutory purposes (173 CLR 274, citing Fouche v Superannuation Fund Board (1952) 88 CLR 609 at 604) and the interest of contributors to the fund (vis á vis the trustee) is an entitlement in equity to have the trust fund duly administered rather than a property interest in the fund in specie. It is open to parliament to create "a trust for statutory purposes, with no ascertained beneficiary to enjoy beneficial ownership": Re McJannet; Ex parte Minister for Employment, Training and Industrial Relations (1995) 184 CLR 620 at 664n 132. Cf (by analogy), Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 at 717C-F, upholding Livingston v Commissioner of Stamp Duties (Queensland) (1960) 107 CLR 411 at 435 (Fullager J), 451 (Kitto J) and 459 (Menzies J). 104 Under the Uniform Civil Procedure Rules 2005 (NSW), funds paid into court are paid to the Court (UCPR rules 41.1, 41.2, 41.10 and, for example, 55.9(2)(b)) but they may be, and generally are, paid by the Court to the NSW Trustee & Guardian for payment into a "common fund" (UCPR r 41.7) regulated by the NSW Trustee & Guardian Act 2009 NSW (including ss 103-104, 105(1)(c), 105(3)(a) and 106-108). 105 Insofar as the Court receives and retains funds in court, there is room for debate about the correctness of any characterisation of the Court as a "trustee". An allusion to this issue appears in Harmer at 173 CLR 272, where the High Court said that upon payment into court moneys "become 'trust moneys' in the broad sense that neither the Accountant of the Crown Law Department [of South Australia, in that case] nor the Court itself was beneficially entitled to them". 106 The expression "'trust moneys' in the broad sense" suggests an acceptance by the High Court that moneys paid into court are not (absent legislation providing for such an outcome) moneys held on trust according to ordinary private law principles. There is a distinction between a "true trust" (according to private law principles) and a trust "in the higher sense" of a governmental obligation: The Registrar of the Accident Compensation Tribunal v Federal Commissioner of Taxation (1993) 178 CLR 145 at 162-163. 107 In fact, the High Court has held that, when (absent legislation to the contrary) this Court receives a payment into court it receives that money as an exercise of the judicial function of the State, not as a trustee for particular parties: New South Wales v The Commonwealth [No 3] (1932) 46 CLR 246 at 260-261, 262, 266 and 268. Harmer was a case involving a trust for statutory purposes (173 CLR 272 n 19, 273 and 274 n 23) but the result of its analysis is similar insofar as it denies individual parties a beneficial interest in funds in court vis à vis the Court. 108 If ever a "trustee" of funds paid into court, the Court must be viewed as a trustee sui generis, one of a kind. Its obligations might be analogous to those of a trustee, but it is not readily viewed as a trustee. Its role is that of the judicial branch of government. Its juristic identity is not readily equated with that of a natural person or a private corporation. It has jurisdiction, in equity, to grant an order for the general administration of trusts in court, which enables it to supervise trusts generally, but it does not thereby become a trustee. 109 In bygone days officers of the Court, and more especially its English analogues, may personally have received, and dealt with, funds in court: McLean v Burns Philp Trustee Co Pty Limited (1985) 2 NSWLR 623 at 634E. However, those days passed from view, generally, in the 19th century - not without some pain in the history of this Court, arising from misappropriation of money by a Master of the Court (JE Manning): JM Bennett, A History of the Supreme Court of New South Wales (Law Book Co, Sydney, 1974), pp 90 and 137. 110 That does not mean that, by legislative enactment, an officer of a court or tribunal cannot (subject to Part III of the Australian Constitution) be constituted a trustee for limited purposes: The Registrar of the Accident Compensation Tribunal v Federal Commissioner for Taxation (1993) 178 CLR 145 at 161, 163-164, 168-169 and 171. However, that is not this case. It is neither necessary nor appropriate to characterise the Court itself, literally, as a trustee. 111 Fourthly (and by inference from the first three of these propositions), funds paid into court for a particular purpose associated, as it must be, with the administration of justice by the Court, are dedicated to that purpose and orders made by the Court in pursuit of that purpose. It is not open to claimants to the funds, by private agreement unattended by an order of the Court, to divert the funds away from a purpose to which they are dedicated or to override orders of the Court. 112 This analysis is not inconsistent with that of the Full Court of the Supreme Court of South Australia in Duncan (as Trustee for the bankrupt estate of Garrett) v National Australia Bank Limited [2006] SASC 239; 235 ALR 385 at [31], [35], [39], [41] and [46]-[56]. Whether or not a party has a "security interest" in funds in court may depend on the character of payments into court and the purposes for which the payments were made: [47]. To speak of such an interest is to speak of the rights of parties as between themselves, not of a private property right vis á vis the Court. Any obligation on the part of the Court to recognise, or give effect to, such interests as parties may have inter se arises not from the law of property, but from the obligation of the Court to administer justice in discharge of its judicial function.
These remarks were cited by White J at [46] of Drexler v Karabay [2014] NSWSC 1863 (Drexler v Karabay). At [47] his Honour went on to say: 47 In my view, if the only relevant contest is between Mr Karabay, on the one hand, and Mr Kramer in respect of the sum of $33,625 and interest, on the other hand, due administration of the fund would require payment out to Mr Kramer. However, his right to that payment would be subject to the rights of solicitors who could claim security over the funds in Court and, accordingly, there should be no payment out at this stage.
In Vertical Australia Pty Ltd v Air Company Vertical-T LLC [2012] NSWSC 719 (Vertical Australia) Ward J (as her Honour then was) said at [66]: 66 As noted by the authors of Jacobs' Law of Trusts in Australia (7th ed, 2006), in Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264 the High Court emphasised that the payment of trust money into court does not, of itself, affect the rights and duties attached to the pre-existing trust, such that the funds will still remain subject to the trust. Hence, if these moneys had the characteristic of trust moneys when paid into Court then they would retain that characteristic.
In Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 (Quistclose) at 579 the following statement was made by Lord Wilberforce: It is not difficult to establish precisely upon what terms the money was advanced by the respondents to Rolls Razor Ltd. There is no doubt that the loan was made specifically in order to enable Rolls Razor Ltd. to pay the dividend. There is equally, in my opinion, no doubt that the loan was made only so as to enable Rolls Razor Ltd. to pay the dividend and for no other purpose. This follows quite clearly from the terms of the letter of Rolls Razor Ltd. to the bank of July 15, 1964, which letter, before transmission to the bank, was sent to the respondents under open cover in order that the cheque might be (as it was) enclosed in it. The mutual intention of the respondents and of Rolls Razor Ltd., and the essence of B the bargain, was that the sum advanced should not become part of the assets of Rolls Razor Ltd., but should be used exclusively for payment of a particular class of its creditors, namely, those entitled to the dividend. A necessary consequence from this, by process simply of interpretation, must be that if, for any reason, the dividend could not be paid, the money was to 'be returned to the respondents: the word "only " or " exclusively " can have no other meaning or effect.

The question of priorities

In Commissioner of Taxation v Fitzroy All Pty Ltd [2013] WASC 427 (Fitzroy All Pty Ltd) Kenneth Martin J summarised the position as follows: [28] There is a significant body of case authority supporting a creditor's right of subrogation to the position of the trustee - commencing with observations in Octavo Investments v Knight [1979] HCA 61 ; (1979) 144 CLR 360, 367 in the High Court of Australia, observations of Owen J (as he then was) as a member of the Full Court in Custom Credit Corporation v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 53 and more recently observations by McLure P in Yara Australia Pty Ltd v Oswal (No 2) [2013] WASCA 187 [60] where, having referred to Octavo v Knight at (367) her Honour expressly acknowledged the principle that creditors of a trustee are entitled to be subrogated to the trustee's right of indemnity against trust assets. [29] The Commissioner's submissions also referred me to a recent decision of the New South Wales Court of Appeal in Agusta Pty Ltd v Provident Capital [2012] NSWCA 26, by reference to the observations of Barrett JA, particularly as regards subrogation rights of creditors against a trustee's right of indemnity at [70]. Those observations culminated at [75] where his Honour detailed circumstances where a judgment creditor is a sole creditor seeking this type of subrogation relief.
In Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26 (Agusta v Provident) Barrett JA (with whom Campbell JA and Sackville AJA agreed) said: [70] Before a trustee actually pays debts that have given it a preferred beneficial interest in the trust assets, the interest enures for the benefit of the unpaid creditors. As stated in Octavo Investments Pty Ltd v Knight (above) at 371, creditors themselves "may have resort to the assets of the trust to the extent of the liabilities incurred by the trustee". [71] The basis on which equity thus protects the unpaid creditors lies in the right to be subrogated to the debtor-trustee's own right to resort to the trust property. It is pertinent to quote, in that connection, the following passage at paras 21-38 of Lewin on Trusts (18 th ed, 2008, J Mowbray, L Tucker, N Le Poidevin and E J F Simpson (eds) ): Although unsecured creditors and other claimants do not have a direct claim against the trust property in respect of unsecured liabilities incurred by trustees in the administration of the trust, and cannot levy execution upon trust property they may by subrogation have a right to stand in the place of the trustee and enforce their liabilities against the trust property to the extent that the trust will be so entitled. [72] The "right" of subrogation might perhaps be better viewed as a "remedy" of subrogation (P W Young, C Croft and M L Smith, On Equity (2009) at 868). That characterisation seems appropriate in a case such as the present where equity would allow creditors with an unsatisfied money judgment at law to bring proceedings in which the creditors, for their own benefit, asserted in respect of the trust property in the trustee's hands, the beneficial interest enjoyed by the trustee by virtue of the right of indemnity. [73] In Boscawen v Bajwa [1996] 1 WLR 328 at 335, in a passage approved by the High Court in Bofinger v Kingsway Group Ltd [2009] HCA 44 at [94], Millett LJ described the foundation of subrogation as an equity that arises from the conduct of the parties on well-settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff. In the situation under discussion, it is unconscionable for the trustee to retain for itself the preferred beneficial interest in trust assets when it is the unsatisfied debts of the trustee to the creditors that gives rise to that interest of the trustee. The trustee therefore cannot deny the right of the creditors to the benefit of preferred beneficial interest.

Contentions of the parties - costs

The plaintiffs seek, pursuant to the broad discretion under section 98(1) of the Civil Procedure Act, an order that NGI pay the costs of the entire proceedings on an indemnity basis. Unsurprisingly, the plaintiffs rely upon a number of my findings, but in particular [394] of my judgment.
The plaintiffs submit on my findings it should be, in effect, found that NGI, in seeking to support their caveats, in their attempt in circumstances where the caveats should not have been lodged in the first place. The existence of the caveats unduly and unreasonably prolonged the proceedings.
Further, they submit that NGI at no time put forward a satisfactory explanation as to when its proprietary interest in the plaintiffs' land arose. The plaintiffs submit NGI sought to maintain the caveats for no legitimate reason and, further, that NGI was prepared to sabotage the completion of the sales by the plaintiffs to create commercial and/or forensic leverage.
GDI also seeks costs against NGI on an indemnity basis.
GDI submits that from the outset NGI's cross claim and its defences to the claims of the plaintiffs and GDI had no reasonable prospects of success and NGI knew or ought to have known this.
In addition, GDI submits that NGI's cross claim and defences depended upon two things, the first being the Short Form Deed at all times remaining on foot between NGI and GDI, and the other being the existence of a caveatable interest in the Turramurra properties. GDI submits both arguments were untenable and NGI ought to have known they were.
In addition, GDI submits that NGI's argument for specific performance of the Short Form Deed was hopeless from the start because that relief depended upon it being enforceable and, on the basis of Ms Gai's email of 23 May 2014, it simply was not enforceable because it had been abandoned. In addition, the offer of finance to enable NGI to complete the purchase expired on 31 December 2014, about six months before that reality dawned on NGI.
MVGDD also points out NGI's failure on the two central issues - the Short Form Deed and the point regarding a caveatable interest. In effect, for reasons advanced in [7] and [8] of its submissions of 17 October 2015, it submits that NGI's position was hopeless on both points.
In addition, however, MVGDD points out yet again (as it has on a number of occasions) the operation of special condition 48 of the contract (which was mandatory) and says, therefore, that it was too late for NGI to insist on the contracts being novated to NGI. It says further that no satisfactory answer to this point has ever been provided by NGI.
NGI opposes any order for indemnity costs. It accepts that there is a finding that its lodgement and maintenance of the relevant caveats was without reasonable cause. However, it submits that this fact in and of itself could not lead to such an order.
Moreover, NGI submits that its conduct could not be described as plainly unreasonable. In addition, it submits that the belated withdrawal of the caveats on 15 May 2015 was not accompanied by a concession that there was no legal basis for the caveats or that there was not a caveatable interest. In addition, NGI only conceded it was not ready, willing and able to perform from 15 May 2015, not at any earlier point in time.
Further, NGI says although the legal basis for the caveats was rejected, NGI's contention that, as it had contributed $6 million in part payment of the purchase price at the time, it had a right to novation and as a result had a charge or lien over the plaintiffs' legal interest in the properties and GDI's equitable interest in the properties as purchaser was reasonably arguable. In addition NGI submits such an argument was not hopeless or destined to fail.

Consideration - costs

My findings on the caveatable interest and abandonment of the Short Form Deed were stringent: see [394] (on caveats and caveatable interest) and also [427] and [435] (on the abandonment point).
Those findings were provoked by what I saw to be a detailed appreciation of the facts.
In my view, NGI did not have a reasonable basis for lodging and maintaining those caveats on the facts and the law as I saw it. Likewise, I do not consider, given my findings, that there was any reasonable argument available to NGI in relation to the Short Form Deed. NGI knew much more about its own case than its opponents and, for that matter, the Court. Any interlocutory process to have the caveats removed, although one was mooted by MVGDD, was in my view not a satisfactory way to proceed. That is why, in all the circumstances, given the plight of the plaintiffs, I regarded an expedited final hearing as essential. That was not capable of being achieved in its most desirable form because the evidence took longer than expected and the court had to adjourn for submissions. Common sense generally in circumstances such as these points to a quick final hearing. Hence I was disinclined to encourage an interlocutory application.
There was in my view plenty of time for NGI to carefully and reasonably consider its position. Apart from the proceedings there were at least two mediations, and yet NGI steadfastly clung to its contractual arguments, its caveats, and its demand for specific performance.
In all the circumstances I am of the view that NGI unreasonably lodged and persisted in asserting it had a tenable argument concerning the caveats. In addition, its contractual claim was hopeless bearing in mind the express terms of Ms Gai's email of 23 May 2014. In addition, it never did provide in any form a reasonable argument in response to MVGDD's argument on special condition 48. In each of those respects it persisted in arguments which were without merit and in that sense behaved unreasonably.
To the extent it is necessary to do, I agree with Brereton J in Arkbay Investments at [32] that a party found to have breached s 74P of the Real Property Act would, perhaps, for the reasons above, attract an order against it for indemnity costs.
It follows that the plaintiffs, GDI and MVGDD are, in my view, entitled to their costs of the entire proceedings on an indemnity basis.

Contentions of the parties - monies paid into Court

The plaintiffs submit that the purpose of the order that the $6 million be paid into Court was to ensure that any judgment in favour of the plaintiffs could be satisfied, bearing in mind the concession by NGI that it had no basis for seeking specific performance, and the subsequent withdrawal of the caveats.
The plaintiffs submit that, ultimately, the Court has discretion as to how monies paid into Court are to be dealt with. The plaintiffs say that it is a particularly wide discretion and the Court is entitled to take into account any circumstance relevant to the exercise of the discretion. The plaintiffs say that the purpose for which monies were paid into Court is such a relevant consideration.
In this case, the plaintiffs submit, the purpose served by the order that the $6 million be paid into Court and frozen was to protect and preserve that amount in relation to the plaintiffs' compensation claim.
In this case, the plaintiffs say, upon the monies being paid into Court, the plaintiffs acquired, in effect, an equitable charge enabling them to invoke the authority of the Court for the purpose or enforcing a judgment or order in their favour.
The plaintiffs accept that there are others who assert an interest in the $6 million, namely Avondale, which on 9 February 2015 registered a fixed charge over the assets of NGI to the extent of legal fees payable by NGI, and NGI itself, which claims an indemnity and lien in respect of the assets of the Fund (aka the $6 million) in respect of NGI's current and future legal costs incurred in relation to the Fund. NGI, of course, submits that these interests are secured and take priority over the plaintiffs' charge over the $6 million.
The plaintiffs submit that this position is not in accordance with the relevant authorities. They submit that when NGI paid the monies into Court they ceased to have the legal characteristics they possessed beforehand.
The plaintiffs submit that even if NGI or Avondale were able to satisfy the Court that they enjoy priority over the plaintiffs' interest, the maximum outstanding amount payable to Avondale and the precise figure of NGI's past and future legal costs is unknown. Adopting a conservative figure, the plaintiffs estimate that, having subtracted the amount of compensation payable to the plaintiffs, the amount remaining to satisfy the costs of the plaintiffs, GDI and MVGDD would be approximately $3.4 million. The plaintiffs say this would be an ample amount and would, in fact, exceed by a significant amount the costs of the parties.
As a consequence the plaintiffs seek an order "unfreezing", so to speak, the amount of $799,526.70 - that is, the amount of damages awarded to them. The plaintiffs submit that this is appropriate because they have a crystallised judgment. Further, they say that if the $6 million were otherwise released to NGI then it would be capable of redemption by the Unitholders of the Fund (like Ms Zhang) and therefore unavailable to satisfy the plaintiffs' entitlement to statutory compensation and costs. Finally, the plaintiffs say they should not be denied the fruits of their success merely because the defendants continue to argue amongst themselves in relation to claims that have yet to be determined.
On the other hand GDI accepts, as mentioned above, that it was liable to pay $6 million to NGI. However, it submits that it is entitled or should be permitted, before doing so, to set-off that liability against NGI's liabilities to GDI. These comprise damages as a consequence of misleading and deceptive conduct and under s 74P of the Real Property Act, and GDI's costs.
GDI says that NGI's liabilities may be set-off against GDI's liability to NGI on the basis of s 90(2) of the Civil Procedure Act or in the exercise of the Court's inherent jurisdiction, or by application of the equitable doctrine of set-off.
In relation to the latter, it is said that NGI's liability on GDI's claim of misleading and deceptive conduct goes to the root of NGI's title to recover the $6 million because, absent the misleading and deceptive conduct on the part of NGI, the events which led to GDI's obligation to pay $6 million to NGI would not have occurred.
GDI notes that NGI's liability in damages, as at 22 May 2015, was $66,735 in relation to GDI. However, NGI's liability to GDI includes amounts which have not yet been quantified. One of those amounts is any liability GDI is found to have to indemnify MVGDD pursuant to cl 2(e) of the Novation Deed. The quantum of MVGDD's claim for indemnity from GDI on its cross claim is, on MVGDD's primary case, in excess of $9 million.
It follows, GDI submits, that should MVGDD succeed in its cross claim, the quantum of NGI's liabilities will exceed the $6 million GDI is liable to repay to NGI. In those circumstances, where GDI's rights of set-off might extinguish the sum entirely, GDI submits that no payment should be made until the full extent of NGI's liability to GDI has been quantified.
NGI submits that, while it is understandable that the plaintiffs seek to receive the benefit of the judgment in their favour, there are unusual circumstances in this case and compelling reasons why the Court should decline to order satisfaction of the judgment debt from the $6 million paid into Court.
NGI submits that there is every possibility that when the judgment sums and costs due by NGI to the other parties are calculated and added together, they may well exceed the $6 million. NGI points to the following factors: 1. The claim by Avondale that NGI owes it slightly less than $1 million plus interest; 2. MVGDD's initial cross claim, against NGI, sought damages in the amount of approximately $800,000, and its amended cross claim seeks damages in the sum of approximately $9 million; 3. GDI's claim for damages against NGI is around $70,000 plus interest; 4. The total costs of the plaintiffs, GDI and MVGDD, which are sought on an indemnity basis, could amount to a sum of $2 million or more; and 5. NGI, as trustee of the Fund, is entitled to be reimbursed for legal costs incurred in connection with the proceedings (and related proceedings to remove a receiver), presently in the sum of slightly over $1 million.
NGI submits that adding these together, even excluding the $9 million sought in the amended cross claim, there is a real prospect that the existing claims of the parties will exceed the $6 million in Court.
Secondly, NGI submits that both Avondale and NGI claim priority over the funds in Court, Avondale on the basis of a registered security interest and NGI on the basis of an equitable charge over the Fund to secure its right of indemnity, recoupment of expenditure and exoneration from liability out of the Fund for expenses or liabilities incurred in connection with the Fund.
NGI further submits that the plaintiffs' contention that the payment of the $6 million into Court itself created a security in their favour is not supported by the factual circumstances in which the monies came to be paid into Court, or by the authorities. NGI says that the monies were paid into Court for the benefit of all the parties, the Court recognising that the monies were trust property. Secondly, NGI points out that there are a number of parties claiming an entitlement to be paid from the $6 million.
Thirdly, NGI says that the authorities make it clear that payment of monies into Court does not affect the rights and duties arising from any pre-existing trust, or pre-existing security interest. Thus, NGI says, the funds remain subject to the charges of Avondale and NGI notwithstanding the payment into Court.
Finally, NGI submits that it is the only entity prima facie entitled to the funds as it is the trustee of the Fund. The $6 million, NGI submits, was paid by NGI on account and for the purpose of part payment of the purchase price of the Turramurra Properties. That purpose failed, NGI says, and thus the $6 million should be repaid to NGI as monies had and received or pursuant to the principles in Quistclose.
In the alternative, NGI submits that if the Court is minded to order that a portion of the $6 million be paid to the plaintiffs forthwith then that order should be stayed pending the determination of an appeal NGI proposes to bring.
In its submissions in reply, responding to the submissions of the plaintiff dated 5 November 2015, NGI says that its equitable charge over the assets of the Fund is not lost by virtue of the fact the monies were paid into Court. NGI says the authorities are clear in saying that existing trusts and securities over property are not lost when that property is paid into Court.
NGI says that there is nothing in JKB Holdings that denies NGI's claim, as a trustee of the Fund, to priority over the funds in Court. NGI submits that the remarks at [102]-[114] are subject to overarching statement at [101].
Similarly, NGI submits that nothing in Dura displaces the fundamental contention that funds that are subject to an existing trust or security interest retain that character if they are paid into court. That case, NGI says, concerned the payment by a judgment debtor of a sum of money into a join interest-bearing account pending an appeal. The debtor subsequently granted a charge over its assets to another party. Thus, at the time of payment into the joint account, the funds were not subject to an existing security interest and it was this fact that led the Court to consider the issue of whether a charge was created by reason of the payment of the funds into the account. As noted by Santamaria JA at [61]-[63] and [86(f)] it was this fact which, relevantly, distinguished the case from the situation in Harmer.
As a consequence, NGI says that the plaintiffs' submissions miss the point that the funds in Court represent trust monies and that NGI's existing charge on the $6 million remains. Even accepting, NGI says, the proposition that payment into Court might otherwise create a form of charge in favour of all the parties, NGI says that charge was and is subject to the pre-existing equitable charge NGI has to secure its rights of indemnity, recoupment and exoneration.
In response to the submission by the plaintiffs that the costs and expenses for which NGI seeks to be reimbursed were not properly incurred, NGI accepts that a trustee cannot avail itself of the right of indemnity, reimbursement and recoupment if the activity which generated the liability in question amounted to a breach of trust or was fraudulent or criminal in nature.
For the following reasons, NGI submits that its defence of the proceedings was not conduct that prevents it from seeking reimbursement, out of the Fund, of its liabilities for legal costs and damages: 1. By lodging a caveat and defending the proceedings NGI was taking steps to attempt to purchase the Turramurra Properties or, alternatively, to ensure the recovery of the $6 million paid out of the Trust Fund; 2. In that way, NGI was acting to preserve the interests of the beneficiaries of the Fund, and was clearly acting in their interests; 3. The fact that the Court has found that there was no caveatable interest (or even that NGI did not reasonably believe there was such an interest) does not mean, ipso facto, that NGI's expenses were not incurred in the interests, and for the benefit, of the Fund and its beneficiaries; 4. It is apparent that NGI was legally represented throughout the proceedings - there is no evidence that NGI conducted the litigation without the willing participation, or contrary to the advice, of its lawyers; 5. Clause 16.1(q) of the Constitution of the Fund provides that legal expenses may be incurred by the trustee in connection with the Fund; and 6. As a consequence, there is no basis for a conclusion that NGI acted in breach of trust, engaged in any criminal or fraudulent acts, or incurred expenses in excess of the powers conferred by the trust.
NGI submits that even if NGI were not entitled to indemnity and reimbursement from the Fund, the plaintiffs would nonetheless not be entitled to payment from the funds in Court. That is because, NGI says, the funds in Court belong beneficially to the trust (not the trustee) and it is an accepted principle that judgment creditors (such as the plaintiffs) may not enforce a judgment against assets of that nature: see General Credits Ltd v Tawilla Pty Ltd [1984] 1 Qd R 388 at 389 per McPherson J. This is because, NGI says, a judgment creditor's recourse to trust assets is only by right of subrogation to the trustee's right of indemnification: see Agusta v Provident at [70]-[74].
As a consequence, NGI submits that absent NGI's right of indemnity, reimbursement and recoupment, the plaintiffs (and any other judgment creditor of NGI) are not entitled to have recourse to the Trust Fund (presently consisting of the funds in Court).
On the other hand, Avondale seeks payment out of Court, in priority to any other party to the proceedings, of the following amounts: 1. $227,422.83 on account of costs incurred in the enforcement of Mr Gutierrez's charge; 2. $200,000 into the trust account of Mr Gutierrez (or to be otherwise quarantined from the rest of the funds in Court) on account of anticipated future legal costs associated with these proceedings and the cost assessment of his invoices; 3. $988,643.54 into the trust account of Mr Gutierrez (or to be otherwise quarantined away from the rest of the funds in Court) on account of his invoices currently the subject of costs assessment.
Avondale opposes the payment out of any funds in priority to their own claims.
Avondale submits that the cases identified by the plaintiffs fall into two categories being, firstly, cases where the subject matter of the proceedings was the disputed ownership of those particular funds (Harmer, Dura and JKB Holdings) and/or cases where the security interest was entered following the payment into Court (Dura, JKB Holdings). Neither of these facts, Avondale says, was present at the time the monies were paid into Court. The only extant interest in the monies at that time was the entitlement of NGI, as trustee, to have those monies returned, subject to the security interest of Mr Gutierrez.
Avondale says that the purpose of the payment into Court was akin to the operation of a freezing order. A freezing order, without more, Avondale says, is not sufficient to create a security interest. Here, Avondale submits, the monies paid into Court were the subject of a pre-existing charge. No one challenged the charge and the later claim of NGI was, to this extent, dismissed. As such, Avondale says that there was no articulated "disputed liability in debt" or any other articulated dispute which precluded Avondale from exercising their rights, or which made (to this extent) the funds subject to, or contingent upon, this Court's determination (to paraphrase Lindsay J in JKB Holdings).
Avondale says that the foundation of the plaintiffs' claim is the proposition that the orders destroyed or impaired the pre-existing security interest of Avondale. Avondale submits that a fundamental problem with that proposition is that Avondale was not given notice of the motion, or otherwise alerted to the consequences now relied upon by the plaintiffs.
Relying on the statement in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 that "where a court is invited to make, or proposes to make, orders directly affecting the rights or liabilities of a non-party, the non-party is a necessary party and ought to be joined". Avondale says that any submission founded upon the effect of the Court's orders of 22 May 2015 would work profound unfairness on Avondale. Avondale says the parties to the proceedings were aware of the Avondale charge, and that notice had to be given to Avondale if the orders were to prejudice its position. Avondale says that this is a good reason for the Court to refrain from granting any equitable or discretionary relief.
In the alternative, Avondale asks the Court to refrain from making an order that might prejudice their charge, or its efficacy from a practical perspective, until they have made an application under r 36.15 of the Rules.
In summary, Avondale says that the Avondale charge and the interest it secures could not have been broken by the payment into Court of those monies. Further, that the Avondale charge, being a charge, must be paid in priority to any other claimant to those funds, including any claim the plaintiffs have to those funds (although the existence of that claim, given the circumstances that existed and the purpose of the payment of the funds in to Court, on a proper construction of the authorities, is also denied by Avondale).
In a second set of submissions dated 25 November 2015, Avondale submits that the only party with standing to challenge the efficacy of the Avondale charge, NGI, had already done so by bringing proceedings which were listed before Brereton J. Those proceedings, Avondale says, were settled on terms including one that the Avondale charge is valid. Avondale says that no other party to the proceedings has the right to impugn the validity of the Avondale charge.
Avondale says that the charge secures, inter alia, the fees of Mr Gutierrez (trading as Avondale Lawyers) while acting for NGI and the costs of enforcement of the security, including the fees of Messrs Kassem and Kite.
The fees of Mr Gutierrez are currently the subject of costs assessment as a consequence of the orders made by Brereton J. While the costs assessment has yet to be finalised, Avondale submits that any order for payments satisfying the charge can be made in principle while the quantum remains unknown. In addition to the matter being quantified, Mr Gutierrez has incurred sums in the amount of $25,691.50. Avondale submits there is no reason these amounts could not be paid immediately.
Messrs Kassem and Kite, the receivers of NGI, submit that they are entitled to be paid immediately their fees for acting as receivers. They acted in that capacity from 16 June 2015 until the settlement of the proceedings challenging their appointment on 8 September 2015. The affidavit of Mr Gutierrez identifies those costs as comprising an amount of $125,751.58. Pursuant to the orders of Brereton J made on 8 September 2015, the receivers can only recover their fees by application in these proceedings.
Avondale submits that the authorities relied on by the plaintiffs do not have the effect of displacing the validity or priority of the Avondale charge as a pre-existing security interest. Avondale says that any claim on the part of GDI to deduct from the money in Court sums said to be due to it cannot displace the proprietary rights accruing pursuant to the Avondale charge. It is said that the definitions of "Assets and Undertakings" and "Secured Property" are wide enough to encumber the chose in action.
Avondale says the Avondale charge remains a security interest that predates the payment into Court, and that there is no challenge to it. To the extent the Court has discretion in relation to the payment of monies out of Court, Avondale says it must be exercised subject to the existing security interest.
Further and in the alternative, if it is that the discretion of the Court extends to displacing an unchallenged existing security interest, Avondale submits that the Court, as a matter of discretion, ought to find that the Avondale charge ranks in priority to any other claim on the funds in Court, given that it is an unchallenged pre-existing security interest.
In a set of submissions dated 2 December 2015, Avondale addresses the priority between the Avondale charge and NGI's right of indemnity as a trustee. Avondale notes that there is now no dispute between the parties that the Avondale charge is effective according to its terms.
The Avondale charge defines (by cl 1.1) the expression "Assets and Undertakings" to mean all assets and undertakings of the chargor whatsoever and wheresoever situated, "including Book Debts". According to cl 1.1, the term "Book Debts" includes "all trade debts and other debts owed to the Chargor in respect of the Business of the Chargor." The definition of "Business" in cl 1.1 includes that carried on "in its capacity as trustee of any trust".
Clause 2.1 of the Avondale charge provides as follows: The Chargor hereby creates in favour of the Chargee, a fixed charge over all of the Assets and Undertakings of the Chargor.
Clause 2.3 states: The Chargor must not, without the prior written consent of the Chargee, create or permit to subsist any encumbrance whether ranking in priority to or pari passu with or subsequent to this charge without the prior written consent of the Chargee other than the Disclosed Encumbrances.
Having regard to the definition of "Disclosed Encumbrances" and the contents of Sch 1 of the Avondale charge, Avondale submits that NGI did not disclose to Avondale in the Avondale deed the proprietary rights in now relies upon to assert its claim of priority. Importantly, Avondale says, cl 5.1(c) of that document recorded a warranty by NGI that there were no encumbrances over the secured property other than the "Disclosed Encumbrances".
That is, Avondale says, the background against which the parties' submissions must be considered.
Avondale says there is really no contest between NGI's rights and the Avondale charge. Avondale submits that the definition of "Assets and Undertakings" in the Avondale charge is sufficient to encompass NGI's right to indemnity, and to charge it accordingly. The same can be said, Avondale says, about the right conferred by s 59(4) of the Trustee Act and the clauses of the Trust Deed relied upon by NGI. Indeed, Avondale submits, whatever rights NGI relevantly seeks to invoke entitled it to a claim for a debt (albeit secured by a lien), which claim was also secured by the Avondale charge as a consequence of the definition of "Book Debts".
Avondale says this is an entirely orthodox conclusion, making reference to Heydon JD and Leeming MJ, Jacobs' Law of Trusts (7th edition, LexisNexis Butterworths, 2006) [2104]: In Custom Credit Corp Ltd v Ravi Nominees Pty Limited [(1992) 8 WAR 42] it was held that since the interest of a trustee in the trust assets which arises from an equitable lien is a proprietary chose in action, a trustee which is not under any form of insolvent administration may charge or assign its right of indemnity to a creditor of the trust to the extent necessary to discharge the liability of that creditor in respect the right of indemnity arose.
Avondale submits NGI does not - and cannot - suggest that the Avondale charge was entered into ultra vires because of the consent orders made by Brereton J. Alternatively, Avondale says, as a creditor of NGI, Avondale is entitled to be subrogated to NGI's right of indemnity. In short, Avondale submits it is entitled to stand in the shoes of NGI to obtain payment of the monies due to it.
Avondale says that it follows from Fitzroy All Pty Ltd and Agusta v Provident that such rights as NGI has apropos the trust fund are subordinated to Avondale's rights, on the basis of the charge and/or as creditor of NGI qua trustree.
In any event, Avondale submits that NGI's general law rights were equitable, and could be defeated by a later legal or equitable interest depending on the equities. Here, Avondale submits, NGI warranted that there were no other encumbrances over the secured property. The parties, Avondale submits, contracted on the basis that there was no other encumbrance to which Avondale had to defer. As a consequence, Avondale says, there is no reason why Avondale's conscience should be bound by what it might have known of NGI's rights qua trustee and a court of equity should not confer priority in favour of NGI in the face of the warranty given by it in favour of Avondale.
Alternatively, Avondale says, this can be seen as an agreement by NGI to postpone any other proprietary interest.
In submissions filed on 2 December 2015, NGI submitted that on a proper construction of the deed of charge Avondale has no interest in the Funds. NGI submits that the phrase "Assets and Undertakings" does not include the monies advanced by the Fund. NGI relies on the following factors: 1. Recital A of the deed of charge records NGI's capacity to grant security over "all of its assets, undertakings, property and rights…" but does not extend this to the grant of security over assets of the Fund; 2. By cl 2.1 of the deed of charge NGI granted a fixed charge over its "Assets and Undertaking" and that term is defined in cl 1.1 to include book debt, plant and equipment, intellectual property, marketable securities, and the real or intellectual property - however, the definition does not in its terms include trust property; and 3. The absence of reference to trust assets or trust property in the definition of the property to be charged (or indeed in any part of the deed of charge) militates in favour of the conclusion that the charge does not extend to trust assets (if that had been intended, NGI submits, Avondale could have widened the definition of "Assets and Undertaking".
NGI submits that in the absence of the language of the deed of charge extending the charge to assets of the Fund, Avondale only has security over assets held by NGI in its own right. As such, NGI says that Avondale has no right to enforce its security interest directly against the funds in Court (which, NGI says, do not represent the "Assets and Undertaking" of NGI in its own right). Rather, NGI says, Avondale remains merely a creditor of NGI and is able to enforce its rights against NGI's own assets but not those of the Fund.
Accordingly, NGI submits, Avondale's recourse to trust assets is merely by way of subrogation to the trustee's right of indemnity, recoupment and exoneration from liability. In that light, NGI says, Avondale's charge constitutes a charge over NGI's security interest as a trustee. The consequence of this, NGI submits, is that Avondale may have priority over other unsecured creditors of NGI such as the plaintiffs.
If the Court were to find that the deed of charge charged the Fund, NGI submits that it is a well-accepted principle that a trustee's security interest over trust assets constitutes a first charge over that property. NGI submits that the trustee's security being paramount is consistent with the overarching principle that a trustee's right of indemnity, reimbursement and exoneration is an inherent part of the trustee's office and inseparable from it.
NGI submits that the registration of the deed of charge on the Personal Property Securities Register is of no significance because a trustee's security interest is not one to which the Personal Properties Security Act 2009 (Cth) applies, with the consequence that the question of priority is not governed by the Act.
Even if the Court finds that Avondale has a charge over the Funds and the charge has priority over NGI's security interest, NGI submits there remains the question as to payment out of the Funds, as sought by Avondale.
In relation to that issue, NGI contends that, in respect of the amounts representing further legal costs said to be owing by NGI to Avondale, there should be no payment out of Court of any alleged outstanding legal fees until the conclusion of the costs assessment process presently on foot. More generally, NGI says there should be no payment out of Court in advance of payment to other parties with a claim on the Funds.
In submissions dated 4 December 2015, MVGDD makes the following submissions. First, it submits that the monies the subject of the dispute comprise a sum of money the plaintiffs became contractually obliged to pay GDI on the rescission of the contracts for sale of the Turramurra Properties. Further, MVGDD says that whilst GDI is liable to account to NGI for the $6 million, it does not hold this particular sum of money on trust for NGI. Further, MVGDD says, as GDI submits, GDI has rights of set-off against NGI that may be applied to any obligation that GDI has to pay NGI. Those rights of set-off, MVGDD says, would include any damages GDI claims against NGI as a result of the contractual indemnity it granted MVGDD.
MVGDD also submits that the appointment of the receiver was not in good faith. The only purpose of the appointment, MVGDD says, was to recover the amount alleged to be owing by NGI to Mr Gutierrez from the monies paid into Court. MVGDD submits that there is a novel argument that the appointment of the receiver is void because the appointment breached the implied contractual duty only to exercise the power to appoint in good faith. If void, MVGDD says, the receiver's fees cannot be charged on the funds in Court.
In submissions dated 4 December 2015 the plaintiffs responded to the submissions of NGI and Avondale. The plaintiffs identify as a common thread between the two sets of submissions the contention that the $6 million held by the Court belongs to NGI. The plaintiffs submit that this foundational contention is incorrect.
The plaintiffs submit that NGI in its most recent submissions attempts to "massage" this inconvenient fact with the submission that "the $6 million…now represented by the Funds in Court was advanced by investors in, and the beneficiaries of, the Gold Stone Future Investments Property Fund…". The plaintiffs say that saying the $6 million "represents" the funds advanced by NGI does nothing to identify the proper legal characteristics of those funds today.
The plaintiffs refer to the history of the monies being paid into Court, namely that after the caveats were voluntarily removed the plaintiffs were able to sell their properties on 3 July 2015. Of the $15.3 million received, the plaintiffs were obliged to repay $6 million to GDI on the basis of the rescission of the original contracts. As such, the plaintiffs say that the money that was paid from the plaintiffs to GDI was not NGI's money, it was money that the plaintiffs had received from the incoming purchasers.
The plaintiffs say that although GDI has an obligation to pay NGI $6 million, the money paid into Court did not come from NGI, was not payable by the plaintiffs to NGI, and was only ever money that the plaintiffs voluntarily accepted they were required to pay GDI.
The plaintiffs say that the submission advanced by Avondale that the $6 million paid into Court was money previously impressed with a charge in favour of Avondale and the Receivers proceeds on a false premise. The plaintiffs submit that the actual money paid into Court by the plaintiffs was not NGI's money and NGI did not have a prima facie entitlement to it or a pre-existing charge over it. All NGI has, the plaintiffs submit, is a chose in action against GDI to be repaid $6 million.
The plaintiffs say there is an obvious difference between ownership of money and a chose in action for repayment of that money. The plaintiffs submit that the fact that GDI has, quite properly, acknowledged that it is obliged to pass that money back to NGI does not obscure this difference. The plaintiffs say that NGI does not own that money. NGI lent it, the plaintiffs say, to GDI, and once that happened NGI had a chose in action to obtain its return.
The plaintiffs submit that if the money had been received by NGI it would then have been owned by NGI (as trustee). That never happened. The plaintiffs submit that the money was intercepted by the Court's order to prevent that very eventuality from occurring. Further, the plaintiffs submit, had the money been received by NGI it would have been distributed to beneficiaries and beyond the reach, inter alia, of the plaintiffs. This was, the plaintiffs submit, the purpose of the Court's order. The position adopted by NGI is said by the plaintiffs to be seeking to neutralise the effect of the Court's order.
The plaintiffs submit that the proper analysis is as follows: 1. The plaintiffs, when they received the purchasers' $15.3 million, accepted they had to repay $6 million to GDI. GDI had a chose in action against the plaintiffs for that $6 million. The plaintiffs had no answer to GDI's claim and properly paid over the money; 2. The money was not banked and owned by GDI because it was intercepted by the Court and paid into Court; 3. The money was party of a daisy-chain of choses in action - GDI against the plaintiffs, NGI against GDI; 4. At the point in time when the money reached the Court's account it was either sui generis or best treated as funds owing to GDI by the plaintiffs.
For these reasons, the plaintiffs say there is no legitimate basis for criticising the reliance by the plaintiffs on the decision in JKB Holdings. To that end, the plaintiffs reiterate their earlier submissions. The plaintiffs finally submit that this answers the controversy between NGI and Avondale because neither of those parties have any priority over the money.
GDI, in its submissions in reply of 4 December 2015, reiterates its earlier submissions and submits that neither NGI nor Avondale addresses the fundamental point raised by GDI: that is, that GDI is entitled to set-off, against its liability to pay NGI the $6 million presently held in Court, NGI's liabilities to it for damages and costs. Indeed, GDI submits, NGI and Avondale proceed on the basis that the monies paid into Court are, notionally, in the hands of NGI. GDI says that is incorrect, and as a consequence neither NGI nor Avondale provides any persuasive reason why an order for payment out of Court should be made before the full extent of NGI's liabilities to GDI has been quantified.
In a belated set of reply submissions filed on 15 December 2015, Avondale reiterates a number of the points made in its earlier sets of submissions. In relation to the construction point, Avondale submits again that the Avondale deed was entered into by NGI "as the trustee and manager of [the Fund] and…in its own capacity" and that this, together with the proper construction of "Assets and Undertakings" and "Business" extends the charge to trust assets. Avondale submits that where Avondale's rights are of subrogation only, those rights are in priority to any rights of indemnity of NGI.
In relation to the priority point, Avondale submits that the cases relied upon by NGI advance the proposition that a trustee will have a first charge on property as against the beneficiaries, but do not assist in determining priorities between NGI and Avondale.
Avondale submits that the fact that GDI has claims against NGI which are yet to be finally quantified or legally determined does not mean that the monies in Court are frozen without order. Avondale says that they were due to be repaid by NGI and, given that equity will regard as done what ought to be done, ought to be treated as if they were owned by NGI, subject to the Avondale charge.

Consideration - monies paid into Court

This aspect of this matter gives rise to a complex series of disputes over which of, and if so to what extent, the various parties to the suit have claims, but more to the point priority, to the monies which I ordered be paid into Court.
For reasons which I later express I am of the view no monies should be paid out of Court for the time being. It is premature to do so.
As the parties currently stand, the plaintiffs have been entirely successful and are entitled to judgment and costs on an indemnity basis but are relevantly unsecured. I do not agree the plaintiffs have a charge over the monies either because the monies were paid into Court or because they have a judgment. I do not regard any of the authorities as supporting the proposition a charge is created by any of these events.
The same can also be said of GDI and MVGDD. They are likewise unsecured.
The parties cannot, of course, create by their success in the litigation a property right to the funds. The management of the funds, however, remains within the power of the Court, subject to any pre-existing rights.
NGI asserts that it at all relevant times acted as trustee of the Fund. The $6 million advanced to the vendors' agent and thereafter released to the plaintiffs, it is said, was sourced from investors in, and beneficiaries of, the Fund, and NGI held those monies as trustee. I do not regard the latter as controversial. The Constitution of the Fund provides for an indemnity out of the Fund for various liabilities and/or expenses etc as may be incurred by NGI. NGI submits, necessarily, that at all times the $6 million must be regarded as trust monies.
On the other hand Avondale also has a charge, broadly speaking, over the assets etc of NGI.
Prima facie, both NGI and Avondale are secured. The question is over what. In the case of NGI it is the Fund (whatever currently constitutes it).
As between NGI and Avondale, the latter has to show that the $6 million falls within one or more of the relevant definitions of assets etc in the deed between it and NGI.
In so far as any of the $6 million could be said to be impressed with a trust, I am not satisfied Avondale at any point had any security over those monies. That, in my view, is tolerably clear on the plain construction of the deed between Avondale and NGI. In particular, Recital A and cl 2.1 of the deed make no reference to trust assets or trust property. There is express reference to the "assets, undertakings, property and rights…" of NGI (Recital A). The other reference to assets, as it were, in cl 2.1 likewise does not include trust property and, in my view, could not reasonably do so. It would have been a simple matter for that to be made clear: Corozo Pty Ltd v Total Australia Ltd [1988] 2 Qd R 366 at 373, Andrews CJ (with whom Shepherdson and Vasta JJ agreed).
In that event, in my view Avondale only has security over assets held by NGI in its own right.
Alternatively, Avondale's recourse to trust assets is merely by way of subrogation to the trustee's right of indemnity, recoupment and exoneration from liability in accordance with the usual principles. It is arguable Avondale as a "sub-chargee" has priority over other unsecured creditors of NGI such as the plaintiffs. I need not decide this, however, given my findings otherwise.
In addition, I am of the view that registration of Avondale's charge is of no significance. In my view NGI's security interest arises by operation of the general law and therefore the Personal Properties Security Act is irrelevant. This is because NGI's security interest over the Fund arises by operation of the general law and would appear to be expressly excluded from the provision of the Personal Properties Security Act by s 8(1)(c). The trustee's security interest arises from s 59(4) of the Trustee Act 1925 (NSW) and equitable principles.
So far as NGI is concerned, the Fund was of course the subject of a pre-existing trust, and the $6 million was initially paid to the plaintiffs (ie. the plaintiffs' agent) by NGI as trustee of the Fund.
The all important question is precisely what constitutes the Fund at present. To that end the journey the monies took and the circumstances of that journey after they left NGI is in my view crucial. Equally crucial were the intentions of the relevant parties. It also must be said in passing that whilst the trustee's security interest over the trust assets can be characterised as a first charge, that notion is, of course, predicated on an important underlying assumption, namely the existence of trust property. That is why it is important to determine whether the $6 million currently conforms with that characterisation.
I ordered that the $6 million be paid into Court so that it could be properly administered and applied for the purposes for which it was paid in. I will return to this aspect of the matter.
In these circumstances the Court is not a trustee in the true sense. It is one only in the broad sense. In that regard I respectfully agree with Lindsay J in JKB Holdings at [106] and [108]. The Court is, however, a custodian.
In order to determine whether monies paid, for example, by a trustee to a recipient, are to be held on trust, it is necessary to determine the mutual intention of the relevant parties at the relevant time. Their intentions are to be objectively ascertained: Byrnes v Kendle (2011) 243 CLR 253 at [59]-[60] per Gummow and Hayne JJ and [98]-[104] per Heydon and Crennan JJ.
If it was intended that the person receiving the monies should thereafter hold those monies for the benefit of some third person then there will be a trust because there is identified, actual trust property.
Recourse must be had to the actual expression used by the parties and, more particularly, the nature of the transaction and the exact circumstances of the case will combine to determine the way in which the relationship will be characterised.
NGI relies upon Quistclose as supporting the proposition that the $6 million was at all times impressed with a trust. However, on a careful examination of the facts of that case, in my view it has no application here. NGI also relies on Harmer but again, in my view, that case equally has no application here.
First, the evidence in Quistclose was that the mutual intention of Quistclose and Rolls Razor, and indeed the essence of their bargain, was that the sum advanced should not become part of the assets of Rolls Razor but should be used exclusively for the payment of a particular class of creditors, namely those entitled to a dividend. The cheque drawn by Quistclose in favour of Rolls Razor which represented the moneys borrowed by Rolls Razor had been paid into a special account with Barclays who, importantly, had been informed that the account was to be used only to pay the dividend. After Rolls Razor went into liquidation the bank sought to set off the claim in the dividend account against other indebtedness to it of Rolls Razor.
Lord Wilberforce said (580-2) that a necessary consequence of the mutual intention of Quistclose and Rolls Razor to create arrangements which gave rise to a "primary" trust in favour of those entitled to the dividend was that if the dividend could not be paid for any reason, the money now held on a "secondary" trust was to be returned to Quistclose. The intention was to create a secondary trust for the benefit of the lender to arise if the primary trust to pay the dividend could not be carried out.
Whether the situation should be characterised as an express trust with two limitations or an express trust in favour of the shareholders and a resulting trust in favour of Quistclose is perhaps not of any real relevance: Re Australian Elizabethan Trust (1991) 30 FCR 491 at 502-3 per Gummow J.
There is no doubt that a sum of money paid by a purchaser under a contract for the sale of land can be the subject of a trust in the hands of the vendor. However, it is necessary to show either a mutual intention that moneys are paid for a special purpose or that having originally been paid over without restriction the recipient later constitutes himself a trustee of the money: Re Goldcorp Exchange Ltd [1995] 1 AC 74 at 100.
I accept unequivocally that the express trust is a flexible instrument, however each case turns on its own facts. Here I found no such mutual intention nor did the plaintiffs ever, in my view, constitute themselves as trustees. Equally I did not regard GDI as a trustee (see the primary judgment [522]-[529]).
Once the monies were paid away to the plaintiffs, without it being impressed with a trust, it became the plaintiffs'. It was no longer NGI's money or the beneficiaries'. Upon rescission of the original contracts, of course, the plaintiffs were obliged to repay the $6 million to GDI. At this point there existed a chose in action. GDI was indebted to NGI, subject to its right of set-off.
GDI accepts that but for the order directing the monies be paid into Court it would otherwise have had an obligation to pay the monies to NGI. It may also be accepted that had that repayment occurred NGI would hold those monies afresh on trust for the beneficiaries subject to its right of indemnity under the terms of the deed. The monies in Court, however, cannot be characterised as an asset of NGI, nor are they any longer impressed with a trust. Avondale is left to enforce its charge according to its terms against other assets etc of NGI. On the other hand, once repatriated to NGI, had that occurred, the monies would, in my view, have in any event been beyond the reach of Avondale for the reasons stated.
The principle in Harmer in my view is not engaged because implicit in the reasoning is that monies when paid into Court were the subject of a pre-existing trust. That is, the property is impressed with a trust immediately prior to payment in. Here, however, the monies coming as they did from the plaintiffs were not by then impressed with a trust. This underlying premise also explains the reasoning in JKB Holdings and Vertical Australia. For completeness I should say once it is accepted the monies in Court are not impressed with a trust, no question of charge arises in NGI's interest.
In my view the Court as custodian of the funds has a very wide discretion ultimately as to how the funds should be dealt with. It will no doubt take into account a number of factors so as to ensure the funds are properly administered.
Those factors include, but are not limited to: the extent to which NGI has a right to indemnity under the deed and/or the general law; whether NGI has any other assets; whether for any reason Avondale should rank ahead of other parties; and whether, if not, all claimants should be dealt with pari passu or on some other basis, to identify just a few.
I should in passing also note that so far as the receiver is concerned, again there has been an exchange of submissions and what MVGDD describes as a novel but as yet somewhat embryonic argument that the appointment of the receivers is void. Given my reasons otherwise, it seems to me that this point need not be determined.
The argument that NGI may by reason of its conduct be precluded from insisting upon indemnification out of the trust assets was agitated to some extent before me. Again, there have been exchanges of written submissions. If, of course, the plaintiffs are correct and NGI cannot seek indemnity from the Fund, they may find themselves without any effective and/or practical remedy at all. Prima facie on my findings I am of the view that NGI would not be precluded from seeking indemnity (see Gatsios Holdings Pty Ltd v Kritharas Holdings (in liq) [2002] NSWCA 29 at 47).
However, because of the outstanding claims (in particular the cross claim), and set-off yet to be determined, it is clear that the time for payment out has not yet arrived. There are a number of steps to be taken including the appeal in the main proceedings which will or may have an impact on the potential demands on the funds. The competing claims have not yet fully crystallised and hence quantified.
The funds in Court should not, indeed cannot, be paid to anyone at present given the various extant issues. When all issues are determined the Court as custodian of the funds will be in a position to ensure they are properly administered, and all issues can be fully and finally determined.
For the time being, then, I am of the view no order can or should be made for the payment out of any funds to any party before the Court.
In relation to the submission made by Avondale, both in its early submissions and in its reply submissions, concerning the absence of notice to them of the original orders and the unfairness that may occasion them, Avondale, along with the other parties, will have ample opportunity to be heard further when a number of the matters raised in this judgment are susceptible to final order.

Stay of final orders

NGI indicated that it intends to appeal against the substantive judgment. NGI had undertaken to file a notice of appeal forthwith and, for its part, to prosecute such an appeal expeditiously.
In these circumstances, NGI says that the final judgment and orders in the proceedings should be stayed in any event for a sufficient period to allow the appeal to be lodged.
In the absence of a stay, NGI submits, NGI and other parties may be prejudiced. That is because: 1. In the case of NGI, there may be a real risk that payments out of the funds in Court will not prove recoverable if the appeal is successful and repayment of the monies to NGI is ordered; 2. In the case of other parties, the funds in Court may not be sufficient to meet the claims made by all the other parties against NGI and, if so, all of those claims should as far as possible be finalised before payments are made out of the funds in Court.
I agree with these submissions and they provide additional reasons not to order any payment out at this stage. I would order that there be a stay of proceedings pending the appeal. I have already made certain orders to that effect. If for any reason a party wishes additional orders, the matter can be returned for that purpose. If the additional orders are by consent of all the relevant parties I would make those orders in Chambers.

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: 17 December 2015

Personal Properties Security Act 2009(Cth)

Under the Uniform Civil Procedure Rules 2005(NSW)

Judgment

I gave judgment in this matter on 21 August 2015: Thomson v Golden Destiny Investments Pty Limited [2015] NSWSC 1176 (primary judgment). Terms used in those reasons bear the same meaning in these reasons.
Both Avondale Lawyers (Avondale) and the receivers appointed to NGI in June 2015 (Receivers) are represented by the same lawyers. I have referred to their submissions as being put on behalf of "Avondale" unless distinction need be made between them. Neither Avondale nor the Receivers were parties to the primary judgment.
As a result of some debate before me on 29 October 2015, the outstanding issues for determination at present are essentially twofold. The first question that arises is that of costs. The second is what orders should be made and, perhaps more importantly, whether judgment, for example, in favour of the plaintiffs, or any costs orders, ought to be satisfied out of an amount of $6 million which was paid into Court.

At a glance

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