Department of Employment and Workplace Relations v Howell, in the matter of Castel Electronics Pty Ltd

Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226

Department of Employment and Workplace Relations v Howell, in the matter of Castel Electronics Pty Ltd [2024] FCA 566

F & D Normoyle Pty Ltd v Transfield Pty Ltd [2005] NSWCA 193; (2005) 63 NSWLR 502

Federal Commissioner of Taxation v Thomas [2018] HCA 31; (2018) 264 CLR 382

James v Commonwealth Bank of Australia (1992) 37 FCR 445

Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406

Minerology Pty Ltd v Sino Iron Pty Ltd [2017] FCAFC 55

Moratic Pty Ltd v Gordon [2007] NSWSC 5

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104

National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548

New Zealand Farmers' Co-operative Distributing Company Ltd v National Mortgage and Agency Company of New Zealand Ltd [1961] NZLR 969

R v Board of Trade; Ex parte St Martins Preserving Co Ltd [1965] 1 QB 603 at 617

Rae & Partners v Shaw [2020] TASFC 14

Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603

South Johnstone Mill Ltd v Dennis [2007] FCA 1448; (2007) 163 FCR 343

State Government Insurance Office (Qld) v Brisbane Stevedoring Pty Ltd [1969] HCA 59; (1969) 123 CLR 228

Thacker v Hardy [1878] UKLawRpKQB 87; (1879) 4 QBD 685

The Indian Grace (No 2) [1997] UKHL 40; [1998] AC 878

Visbord v Federal Commissioner of Taxation [1943] HCA 4; (1943) 68 CLR 354

Wright v Lemon [2024] WASCA 19

Wyong Shire Council v Shirt [1980] HCA 12; (1980) 146 CLR 40

Youyang Pty Ltd v Minter Ellison, Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484

Counsel for the Defendants and First and Second Cross-claimants to the First Cross-claim:

Solicitor for the Defendants and First and Second Cross-claimants to the First Cross-claim:

Counsel for the First and Second Cross-Respondents to the First Cross-claim and Cross-claimants to the Second Cross-claim:

Solicitor for the First and Second Cross-Respondents to the First Cross-claim and Cross-claimants to the Second Cross-claim:

Counsel for the First and Second Cross-Respondents to the Second Cross-claim:

Solicitor for the First and Second Cross-Respondents to the Second Cross-claim:

DEPARTMENT OF EMPLOYMENT AND WORKPLACE RELATIONS

MALCOLM KIMBAL HOWELL (and another named in the Schedule)

1STCASH PTY LTD (ACN 127 658 262) (and another named in the Schedule)

THORN AUSTRALIA GROUP LIMITED (ACN 072 507 147) (and others named in the Schedule)

1. By 4.00pm on 2 February 2026 the parties must either:

(a) File agreed minutes to give effect to these reasons, including agreement as to interest and costs; or

(b) If there is not agreement, in whole or in part, their respective submissions (not exceeding three pages) and draft declarations and orders, including as to interest and costs.

1. If order 1(b) applies then, subject to any further order, final orders will be determined and made on the papers.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

1. These reasons resolve the cross-claims in this proceeding, which arise out of my determination of a separate question as between the Commonwealth as plaintiff and Malcom Howell and Liam Bellamy as the first and second defendants. The defendants were appointed privately as the receivers and managers of Castel Electronics Pty Ltd in January 2018. During the receivership, the defendants realised assets and accounted for the balance proceeds to Thorn Australia Pty Ltd, which at the time had succeeded to the rights of the appointor 1stCash Pty Ltd. In so accounting, the defendants did not make any priority payment to the Commonwealth for funds advanced pursuant to the Fair Entitlements Guarantee Scheme as established pursuant to the Fair Entitlements Guarantee Act 2012 (Cth) (FEG Act and FEG Scheme). For reasons that I published on 28 May 2024, I determined that the realised funds were circulating assets within the meaning of the Personal Property Securities Act 2009 (Cth) (PPSA). As such, the Commonwealth was a priority creditor in accordance with ss 433, 556(1)(e), (g), (h) and 561 of the Corporations Act 2001 (Cth): Department of Employment and Workplace Relations v Howell, in the matter of Castel Electronics Pty Ltd [2024] FCA 566.
2. Following publication of the separate question reasons, on 21 June 2024 the defendants settled the Commonwealth's claim for $900,000 inclusive of costs and interest (Settlement Sum). It is not said that the settlement was unreasonable. The defendants by cross-claim seek indemnity for the Settlement Sum from either 1stCash or Thorn Australia and, if they are not entitled to an indemnity, they rely on various alternative claims ranging across estoppel, restitution for payments mistakenly made and a constructive trust. The claims are complicated due to another dispute between 1st Cash and Thorn Australia. Thorn Australia Group Ltd (Thorn Group) held all the issued shares in 1st Cash. It sold those shares to CML Group Ltd in February 2018. A consequential Deed of Novation was entered into on 21 February 2018 between 1stCash, Castel, Thorn Australia and the defendants pursuant to which the parties effected a novation of that which is described as the Transaction Documents whereby Thorn Australia assumed the obligations of 1stCash. One issue is whether the assumption of those obligations extended to the obligation to indemnify the defendants for the Settlement Sum pursuant to a Deed of Indemnity dated 25 January 2018. That dispute founds the cross-claim between 1stCash and Thorn Australia and whether 1stCash or Thorn Australia has the obligation to indemnify the defendants.
3. Another issue is whether the defendants are entitled in any event to an indemnity by reason of the exclusion of loss caused by their neglect or negligence. If the exclusion applies, then the defendants rely on the estoppel, mistake and constructive trust claims.
4. For the reasons that follow, I find that Thorn Australia is the indemnifying party and the contractual exclusions apply. However, Thorn Australia is estopped from relying on the exclusions and it is unnecessary to decide the mistake, restitution or constructive trust claims.

1. To their credit the parties faithfully complied with one of my pretrial orders to attend a confidential conference before a registrar to discuss and agree a chronology of material events, a statement of agreed facts and a list of issues for determination. Each party is to be commended for making a real effort consistently with the overarching purpose to narrow the field of factual dispute and the issues to be determined. They have set a model for other litigants. The residual area of factual dispute was resolved by the affidavit of Malcom Howell made on 23 December 2024, and some succinct cross-examination by counsel for 1stCash.
2. I commence with the essential elements of the statement of agreed facts received pursuant to s 191 of the Evidence Act 1995 (Cth). Castel was a distributor of electrical goods, including air conditioning units. It entered into a distribution agreement with a Chinese corporation. Disputes arose, which were referred to and determined at an arbitration proceeding in December 2010. Castel received an award of approximately $2.8 million plus costs (Award Proceeds). For some years, the Chinese corporation refused to abide by the award. Eventually judgment was entered in this Court in November 2012 in favour of Castel for the award amount, costs and interest (Judgment Sum). Still, the Chinese corporation refused to pay.
3. On 29 October 2015, Castel entered into a security agreement with 1stCash together with an invoice financing deed. By 22 January 2018, Castel had defaulted on its obligations to 1st Cash and was then indebted to it in the sum of approximately $1.3 million. Castel failed to comply with a demand for payment. As a result, on 25 January 2018, 1stCash appointed the defendants as joint and several receivers and managers of the property and assets of Castel. By the Deed of Indemnity 1stCash agreed to indemnify the defendants against losses, charges and claims arising out of their appointment as receivers and managers. At the time of their appointment, the defendants were each experienced insolvency practitioners.
4. The Deed of Indemnity relevantly records that the defendants had agreed to be appointed as the receivers and managers of Castel, and the parties further agreed as follows. Clause 1 sets out the indemnity:

1 INDEMNITY

1.1 Acts

The Secured Party indemnifies and keeps the Receivers and Managers indemnified against any and all losses, charges and expenses, claims, actions, and proceedings whatsoever, whether arising at common law, in equity, under statute or otherwise, sustained, suffered, brought against or incurred by the Receivers and Managers and all liability for all debts incurred by the Receivers and Managers arising on or after the date of this deed and out of their acceptance of appointment as receivers and managers under the Securities and all or any acts performed by them or either of them in such capacity with the consent of the Secured Party except to the extent that the same are the result of personal default or neglect or negligent omission of the Receivers and Managers or their partners, employees or agents including employees of their firm or any of them.

1.2 Claims

The Secured Party indemnifies and keeps the Receivers and Managers indemnified from and against all actions, proceedings, claims and demands arising out of their appointment as receivers and managers which may be made on the Receivers and Managers by any person or corporation whatsoever including the Company, any debtor and any successor or assign of the Company and/or any debtor, any other mortgagee whether such mortgagee is the holder of a registered security over the Secured Property or any other property of the Company and/or any creditors of the Company and against all reasonable costs, charges and expenses incurred by the Receivers and Managers in respect thereof or any invalidity or irregularity in, as the case may be, the Securities or in the appointment of the Receivers and Managers or in the exercise of or purported exercise of the powers of the Secured Party under the Securities or the appointment of the Receivers and Managers provided always that the provisions of this clause shall not entitle the Receivers and Managers to any indemnity arising out of any act or omission done or not done before the date of this deed, or in respect of or arising out of any negligent act or negligent omission or in respect of or arising out of any act or omission done or omitted by them or either of them otherwise than in the bona fide performance of their rights and powers as receivers and managers.

1.3 For the avoidance of doubt, this indemnity will apply whether or not the appointment of the Receivers and Managers is valid and effective.

1. By cl 3, the defendants were required to have recourse to the assets of Castel before claiming on the indemnity. By cl 4, if the defendants required legal services during the term of their appointment, they were obliged to "seek and obtain such services only with the prior consent" of 1stCash. By cl 6, the defendants were required to keep 1stCash "informed regarding their actions as receivers and managers and will furnish to [1st Cash] such reports and accounts and give to [it] such details and general information concerning the progress of the recovery and realisation of the assets of [Castel] as [1stCash] may reasonably require". As is usual, the instrument of appointment of the defendants dated 25 January 2018, provides that they "are deemed to be agents of [Castel] in all things and [it] alone is responsible for [their] acts and defaults to the extent allowed by law": cl 2.2.
2. At the time, 1stCash was a wholly owned subsidiary of Thorn Group. On 21 February 2018, Thorn Group as vendor and CML as purchaser entered into a Share Sale Agreement whereby Thorn Group sold all the issued shares in 1stCash to CML. The sale excluded specified accounts, including Castel.
3. On or about 26 February 2018, 1stCash, Castel, Thorn Australia and the defendants entered into the Deed of Novation in respect of certain Transaction Documents as defined therein. The Deed of Novation is a curiously drafted document which I address in detail below. For present purposes it is sufficient to note that it provides an indemnity in favour of the defendants for liabilities incurred in relation to the receivership of Castel but is subject to limitations and exclusions which 1stCash and Thorn Australia rely on in answer to the cross-claims.
4. Between 25 January 2018 and 24 January 2019, the defendants recovered $239,282.42 from the sale of stock and inventory on hand of Castel. This is referenced as the Inventory Proceeds. As of 18 April 2019, the defendants had disbursed the Inventory Proceeds by paying therefrom various expenses arising in the course of their receivership, including their remuneration of $82,500 and a balance amount of $100,000 to Thorn Australia.
5. On 23 July 2018, liquidators were appointed to Castel.
6. Between 22 and 28 September 2018, the Commonwealth made payments under the FEG Scheme to former employees of Castel totalling $631,169.42, in respect of unpaid wages, annual leave, leave loading, long service leave, payments in lieu of notice and redundancy payments. On 28 September 2018, the Commonwealth submitted a proof of debt in the liquidation of Castel for the FEG payments. By 18 October 2018, the defendants were aware of that proof of debt.
7. On 11 July 2019, Mr Bellamy retired as one of the joint receivers and managers of Castel.
8. During the receivership, the defendants negotiated to recover from the Chinese corporation the Judgment Sum. Relevantly at the time, Emmanuel Shumba was an employee of or contractor to Thorn Australia. Email correspondence was exchanged between the defendants, or their employees of the firm Jirsch Sutherland and Mr Shumba, relating to the prospective recovery of a compromised amount of the Judgment Sum. It is necessary to set out the course of the correspondence in detail because it founds the estoppel, mistake and constructive trust claims.
9. On 18 June 2020, Andrew Mattinson emailed Mr Shumba and provided advice about the likely flow of funds if the negotiations to compromise the Judgment Sum were successful. He provided two scenarios based on forecast expected returns, one on the assumption that any funds received pursuant to a compromise would be a circulating asset within the meaning the PPSA and the other that they would not. He stated that advice had been sought on the circulating asset issue as "This will obviously have an impact on the priorities afforded in the Receivership". He noted that most of the employees made claims pursuant to the FEG Scheme, and the amount paid to date was $631,169. He foreshadowed the provision of updated figures.
10. Later, on 18 June 2020, Mr Howell emailed Mr Shumba attached a copy of an email from his solicitor Mary Nemeth to Nicole Papaleo of counsel and asked:

Can you check your funding agreement/ security docs to advise TCL debt owed to Castel is covered by it?

1. The email from Mary Nemeth noted that Mr Howell had asked her for advice whether "any judgment sum received is a non-circulating asset. If it is then any amount received from TCL would be available to the secured creditor rather than priority creditors". Pausing there, it should be understood that Nicole Papaleo had earlier been briefed to give advice in relation to the administration of Castel and was familiar with the background.
2. Mr Shumba responded to Mr Howell that he was "seeking legal opinion on it". On 22 June 2020, Mr Shumba emailed Malcom Howell:

Further to our (sic) I confirm our lawyers have advised me as follows.

Judgment debt is covered by Thorn s Company Security Deed.

In summary, by reason of the operation of clauses 2.1 and 2.3 of the Company Security Deed (GSD), Thorn has a security interest over the judgment debt being the after acquired property of Castel. Accordingly, Thorn s security includes any proceeds of the judgment debt.

Circulating/ Non-circulating asset?

Whilst it is arguable the judgment debt is a non-circulating asset, this area of law is not settled and there is no clear authority on the issues presented by this matter. Accordingly, please get a quote from Counsel on how much it could cost to obtain advice on the matter.

1. Mr Howell was provided with a quote from Nicole Papaleo on 22 June 2020 at between $1,150 and $1,935. He sent that quote to Mr Shumba who approved it with the words "Please get it done".
2. Advice was received in email form from Michael Galvin QC and Nicole Papaleo on 30 June 2020, which Malcom Howell forwarded to Mr Shumba on 1 July 2020. The advice provided:

Dear Malcolm,

We write to set out our advice in relation to the question of whether the judgment debt is a circulating asset or a non-circulating asset within the meaning of the Personal Property Securities Act 2009 (Cth) (the PPSA).

Whether the debt is a circulating or non-circulating asset

We note that, in the time we have had to consider this question, we have not found any authorities that deal with the specific question of whether damages arising from a breach of contract comprise a circulating asset within the meaning of s 340 of the PPSA or not. In addition, we are providing this advice urgently, in the interests of facilitating a settlement of this matter well before Friday (given that TCL's instructions are coming from China). In those circumstances, we cannot give you a comprehensive (or conclusive) answer. However, we consider the better view to be that the judgment debt is a non-circulating asset, and would therefore be available to satisfy your appointor's debt ahead of the priority creditors.

In summary, the reasons we have formed that view are:

l. section 340(1) of the PPSA provides that, for the purposes of the PPSA, if a grantor grants a security interest in personal property to a secured party, the personal property is a circulating asset if:

a. the personal property is covered by subsection (5) (unless subsection (2) or (3) applies);

b. in any other case - the secured party has given the grantor express or implied authority for any transfer of the personal property to be made, in the ordinary course of the grantor's business, free of the security interest;

2. by operation of the dictionary, the only way the judgment debt could be "covered by subsection 5" (and therefore be captured by subparagraph (a) above) is if it was an account that arose from granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind (our emphasis);

3. the only way the judgment debt could be captured by subsection (b) above is if authority had been given for its transfer in the ordinary course of business (our emphasis); and

4. in our view, damages arising from a breach of contract are not incurred in the ordinary course of business.

In those circumstances, the judgment debt would not be captured by subsection l(a) or (b), and does not otherwise come within any subsections of section 340. Accordingly, it is not a circulating asset within the meaning of the PPSA (and is therefore a non-circulating asset).

As we have said, however, we have not found any judicial guidance on the question in the time we have had to consider it, and we have had to consider it quickly. That being said, however (and whether our view is correct or not), we do not consider that this issue should influence the settlement negotiations.

Whatever happens internally with the asset will not have any impact on the sum TCL is prepared to pay to resolve this dispute, and we think that Castel should obtain what it can now. If the matter proceeded on Friday and the court held that the winding up would be futile (because Castel had not satisfied it that there were any remedies that would be available to a liquidator if TCL were wound up), Castel would not be able to serve a further demand, absent some additional evidence that there were likely to be assets of TCL in Australia. Accordingly, Friday could bring an end to Castel's ability to chase the debt in Australia.

It is also important for these discussions to take place as a matter of urgency, given that TCL's instructions are coming from China and we will need to negotiate some means of obtaining security for any agreed settlement sum (for example, obtaining TCL's written consent to a winding up order which is to be held by Castel in escrow until the sum is paid). Accordingly, please instruct us as soon as possible to make an offer in reply. As discussed, we are comfortable with $1.95m, and we think that figure should be put to TCL this evening.

Possible application for directions

Finally, we note that it may be wise for you, as receiver, to seek the court's directions on the point in due course. We can provide you with advice on that issue if necessary.

During a telephone call between Mr Shumba that day, Mr Howell asked if Thorn Australia would agree to fund an application to the Court for directions about the settlement funds, but Mr Shumba responded with words to the effect that:

(a) Thorn Australia had received legal advice that the judgment was a non-circulating asset;

(b) Thorn Australia did not want to spend any money on seeking directions;

(c) Mr Howell was not authorised to issue an application for directions; and

(d) if Mr Howell did not pay the money to Thorn Australia, it would withdraw his appointment and sue to recover the money.

1. It took some time to negotiate a settlement of the Judgment Sum. Eventually, on 10 November 2020 an amount of $1,750,000 was received (Judgment Proceeds). In the meantime, there was more email correspondence, particularly in August 2020, whereby Mr Shumba sought to impress upon Mr Howell the necessity to quickly finalise resolution of the Judgment Sum. An example, is the email of 3 August 2020 where Mr Shumba advised Mr Howell:

Hi Malcolm,

Following on our discussion, as you are aware Thorn recently appointed a new board of directors and executive team.

Following this, there is an internal review process currently going on which aims to immediately finalise all outstanding appointment and legal matters.

I am under a lot of pressure to take all necessary steps to finalise any previous appointments and/or legal proceedings by Wednesday 5 August 2020 (Which is when our next board meeting is scheduled).

Given the exposure with Castel, this file has more attention now than ever. Unfortunately we have until Wednesday 5/8/20 to finalise this matter. What comes next will be beyond my control.

Can you please give me a quick update in regards to the status of this matter? What action needs to be taken to finalise the issue and why signing of the settlement deed is taking so long?

1. Mary Nemeth provided a response directly to Mr Shumba on 4 August 2020 and explained the reason for various delays in finalising the compromise. The executed settlement documents were received by her on 5 November 2020. On 12 November 2020, Mr Howell emailed Mr Shumba, noted receipt of the Judgment Proceeds and provided a draft distribution statement which, after accounting for various professional fees and disbursements, calculated an amount of $1,251,730 as payable to Thorn Australia in its capacity as the secured creditor. In the penultimate paragraph, Mr Howell stated:

As discussed, the legal advice from Nicole and Michael dated 30 June 2020 confirms that the claim against TCL is a non-circulating asset and as such should be available to Thorn under its security. The advice suggested that in order to confirm the position we may seek directions from the court or in the alternative seek further and more detailed advice from Nicole and Michael. You have indicated you have spoken with Cornwall's to seek your own advice in this respect and are comfortable that the settlement funds are a non-circulating asset and should be payable to Thorn less costs and expenses incurred by me as receiver and manager. Your confirmation of this would be appreciated prior to the funds being released.

As you note below, you have been provided with advice from barristers that confirms the proceeds of the claim against TCL is a non-circulating asset. We have received similar advice from our lawyers.

In reliance on the advice received, it appears to us that you can disburse the proceeds without the need for any court proceeding. I do not wish to incur, and to the extent required I do not authorise the incurrence of, any further costs in this regard.

I would be grateful if you could arrange for the transfer of the current available proceeds to Cornwalls as soon as possible today. I understand that you have been provided with their account details.

Please let me know today as soon as the transfer is complete so I can address with Cornwalls.

1. No application for directions was made.
2. Mr Howell caused the amount of $1,251,730 to be transferred to the trust account of Cornwalls later that day. On 27 November 2020, Mr Shumba forwarded to Mr Howell a copy of his legal advice as then received. In summary, the advice noted the concern of Mr Howell as to whether the Commonwealth enjoyed priority over the Judgment Proceeds of the compromise by reason of the payments that it had made pursuant to the FEG Scheme. The advice was to the effect that it was "unlikely" that the Judgment Proceeds were a circulating asset within the meaning of the PPSA, but nonetheless as there was no direct authority on the point there was a risk, which was assessed as low. For that reason, the solicitor did not give "conclusive advice on the issue".
3. In the period 25 January 2020 to 24 January 2021, the defendants caused the following amounts to be paid from the Judgment Proceeds: $244,528.46 for remuneration; $1,944.06, $251.42 for disbursements and $204,551.03 and $9,548.41 for legal fees. No part of the Judgment Proceeds was applied by the defendants towards or in repayment of the FEG Advance as required by s 433 of the Corporations Act. On 22 November 2021, Mr Howell retired as receiver and manager of Castel.
4. On 17 August 2022, the Commonwealth commenced this proceeding against the defendants. On 28 May 2024, I made orders answering the separate questions as follows:
   1. Castel Electronics Pty Ltd (ACN 074 561 087) is removed as a party to the proceedings.

2. The separate questions are answered as follows:

(a) Was the benefit of the Federal Court orders [the Judgment] as defined in paragraph 9 of the Amended Statement of Claim a circulating asset as at 25 January 2018?

Answer: Yes.

(b) Was the sum of $1,750,000 recovered by the Defendants (as described in paragraph 16 of the Statement of Agreed Facts) a circulating asset?

Answer: Yes.

(c) Were the stock and inventory on hand (as described in paragraph 22(a) of the Amended Statement of Claim) circulating assets?

Answer: Yes.

(d) Were the Inventory Proceeds (as described in paragraph 14 of the Statement of Agreed Facts) circulating assets?

Answer: Yes.

1. The parties are to confer in order to provide an agreed form of any consequential orders, including costs, by 4pm on 7 June 2024.
2. If the parties are unable to agree on a form of orders, they shall each provide their proposed orders by 4 pm on 7 June 2024 accompanied by any written submissions not exceeding three pages, and in that event, subject to any further order of the Court, any consequential orders will be determined on the papers.

1. In addition to these agreed facts, I find as follows in accordance with the evidence of Mr Howell. As an experienced insolvency practitioner, he was well-aware at the time of his obligation to make priority payments for FEG Scheme payments and, further, was aware of his obligations pursuant to s 433 of the Corporations Act which is to the effect that where a receiver is appointed by a secured creditor that is secured by a circulating security interest at a time when a company is not the subject of a voluntary or compulsory winding up then, as required by subsection (3) he was obliged to pay out of the property of the company coming into his hands certain priority debts, including debts referred to at ss 556 (1)(e), (g),561 of the Corporations Act and 31 of the FEG Act.
2. When Mr Howell paid over the Inventory Proceeds in April 2018, he did so despite those obligations. He accepted that he knew the Inventory Proceeds were a circulating asset and that there were outstanding employee claims that enjoyed priority. In cross-examination he gave as an explanation that he anticipated there would be sufficient funds to make the payments from the Judgment Proceeds. However, what that evidence fails to grapple with is that he was aware that there were outstanding employee entitlements, which enjoyed priority and which he failed to pay. Ultimately, he correctly conceded that he paid away the Inventory Proceeds in breach of his statutory duty. This occurred well before he had raised the circulating asset issue as a matter of concern with Mr Shumba.
3. Dealing next with the Award Proceeds, Mr Howell's unchallenged evidence in chief is:

I remember that, in about August 2020, Emmanuel was calling me almost every day to ask when the money would be paid. I also remember him telling me that he was getting pressure from the board and, once the money was paid, it needed to be transferred to Thorn straightaway.

I also remember explaining to Emmanuel that:

(a) I could not transfer the money straight away because I had to do proper accounting;

(b) I needed to check what our expenses were and to work out whether I needed to hold back some funds for FEG.

By that time, I had obtained a quote from counsel for further advice about whether the judgment debt was a circulating or non-circulating asset. I remember that the quote was about $20,000. I also remember telling Emmanuel at about this time that I wanted to use some of the settlement funds to get that advice before I paid any money to Thorn. Emmanuel did not tell me that he agreed with that course. I remember him telling me repeatedly that the indemnity would cover me for any claims made against those funds later, if I paid them across.

1. The defendants disavow that their estoppel or mistake claims turn upon the content of any oral representation made by Mr Shumba. This evidence is limited to the separate question of whether Mr Howell acted negligently. During the trial, I ruled that this evidence would be received on that limited basis and deferred for later consideration whether it would also be received relevant to an admission by Thorn Australia that it was bound to indemnify the defendants. Ultimately, it is not necessary to determine that question.
2. Returning to the evidence of Mr Howell, he accepted in cross-examination that upon receipt of counsel's advice of 30 June 2020, he understood that if the Award Proceeds comprised a circulating asset, he was bound not to account to Thorn Australia before first making the priority payments and that the advice was not definitive in respect of that question. He understood that the legal advice that he had received was "highly qualified", as was the advice that Thorn Australia had received. As of November 2020, despite his significant experience as an insolvency practitioner, Mr Howell had not utilised the statutory procedures that are available to seek judicial advice from this, or another court with jurisdiction, on matters arising under the Corporations Act: s 424. He accepted that he had power to obtain further legal advice, despite the statement of Mr Shumba that Thorn Australia would not approve of that course. He understood that even if Mr Shumba made good on his threat to terminate the appointment, he could nonetheless have paid the proceeds into court. He further accepted that he could have resisted the pressure that was being applied by Mr Shumba, and if Thorn Australia had terminated the appointment and had commenced proceedings against the defendants to recover the sum, he could then have sought advice from the Court as to who was entitled to the Judgment Proceeds.

1. The first claim is for contractual indemnity against 1stCash or Thorn Australia. The defendants are indifferent as to which carries the liability. The real dispute on this aspect is between 1stCash and Thorn Australia.
2. The claim has separate components commencing with indemnity for the Settlement Sum on the basis that the amount paid to the Commonwealth was a reasonable compromise and is within the scope of the contractual indemnity.
3. The second claim is for indemnity for a Superannuation Guarantee Charge of $37,793.98. This claim is for an anticipated liability. The contention is that Castel was liable to the Commissioner of Taxation for the charge which has not been met. By reason of their appointment as receivers and managers, they were liable to pay the charge as a priority payment by operation of s 433 of the Corporations Act. They did not pay it prior to their resignation. They remain liable for not discharging this liability and it is within the scope of the indemnity.
4. The third claim is for indemnity for all their costs and expenses of the proceeding as between solicitor and client.
5. 1stCash contends that it is not the contractual indemnifier. Rather, Thorn Australia is by operation of the Deed of Novation. If that is incorrect, it is entitled to indemnity from Thorn Australia for any liability it has to the defendants by reason of a separate indemnity in its favour contained in the Share Sale Agreement.
6. Thorn Australia contends that on a proper construction of the Deed of Novation it did not accept the obligations of 1stCash pursuant to the Deed of Indemnity. Further, on a proper construction of the indemnity in the Share Sale Agreement, it does not cover any liability of 1stCash to indemnify the defendants pursuant to the Deed of Indemnity.

1. The list of issues for determination comprised 27 at the commencement of the trial, but some quickly fell away when Thorn Australia did not press certain defences. Ultimately, the resolution of four issues is determinative of the proceeding. I have refined the wording. The issues are:

(1) Does 1stCash or Thorn Australia carry the indemnity obligation pursuant to the Deed of Indemnity?

(2) Are the defendants entitled to contractual indemnity for the Settlement Sum and the other particularised claims?

(3) If the answer to (2) is no, is Thorn Australia estopped from indemnifying the defendants for the Settlement Sum?

(4) Depending on the answer to (3), may the defendants recover for the balance of the particularised claims?

1. Before construing the Deed of Novation, an understanding of the broader transaction which led to it is helpful. The Share Sale Agreement between Thorn Australia Group and CML carved out several "Excluded Accounts" of which Castel was one including all assets related to that account. By cl 6.1 the parties required a future novation of the Excluded Accounts, providing in part:

For up to 12 months after Completion, the parties must use best endeavours to novate each of the Excluded Accounts to the Seller or its nominee (Seller Entity) and substantially in the same terms as the Novation Deed (unless the Seller agrees otherwise in writing in its absolute discretion).

1. The reference to the Seller is to Thorn Group and the Novation Deed is the document at Annexure D, which is a pro forma document nominating 1stCash as the first party, each debtor as the second and a nominated Thorn Australia Group entity as the third party. For the Castel excluded account, Thorn Australia was nominated.
2. Clause 6.4 then provides for the Excluded Account Indemnities:

6.4 Excluded Account Indemnities

Notwithstanding clause 6.2 of the Excluded Account Power of Attorney and notwithstanding any indemnities or releases that the Company or the Purchaser is required to give under the terms of any Novation Deed, the Seller indemnifies and keeps the Company and the Purchaser indemnified from and against any Claim suffered, paid or incurred by the Company or the Purchaser arising out of or in relation to any breach, non-performance or non-observance of any obligation under or in connection with an Excluded Account (or without limitation the Loan and Security Documents in respect of an Excluded Account) in connection with or arising from:

(1) any transaction, matter or event occurring or existing prior to the Completion Date, and the Seller will not make (and will ensure its Related Bodies Corporate do not make) any Claim against the Company or the Purchaser in respect of any matter or event in respect of an Excluded Account occurring prior to the Completion Date; or

(2) the Company or the Purchaser doing any act or other thing (including refraining from doing an act or thing) in respect of an Excluded Account as directed by the Seller or to give effect to clause 6.2; or

(3) the Seller failing to give a direction in writing to the Company or the Purchaser in respect of an Excluded Account within a reasonable period, a direction given by the Seller to the Purchaser in respect of an Excluded Account being defective (including by being affected by negligence or fraud), or the Seller expressly doing or causing to be done any act or other thing (including refraining from doing or failing to do an act or thing) pursuant to or purportedly pursuant to the Excluded Account Power of Attorney,

(4) such indemnity shall not apply to the extent that the loss is caused or contributed to by the Company, the Purchaser or their Personnel:

(a) acting (including refraining from doing an act or thing) in a manner other than as directed by the Seller;

(b) acting in a manner contrary to this clause 6 or contrary to the terms of the Excluded Account Power of Attorney.

(5) in no circumstances shall the aggregate liability of the Seller in respect of any Excluded Account under this clause exceed the outstanding balance of that Excluded Account as at the Completion Date.

1. In the Share Sale Agreement, the Company is defined as 1stCash.
2. I turn next to the Deed of Novation. The parties are specified as 1stCash, Castel, Thorn Australia and the defendants "solely in their capacity as joint and several receivers and managers" of Castel. The deed further provides (where the Company is 1stCash, Castel is the Debtor, Thorn Australia is the Incoming Party, and the defendants are the Receivers and Managers) commencing with the recitals:

INTRODUCTION

1. The Company was (at the time of entry into the Transaction Documents), and the Incoming Party is a Related Body Corporate of the same Holding Company.

B The Company and the Debtor are parties to the Transaction Documents.

1. The Company has agreed to novate its rights under the Transaction Documents to the Incoming Party and the Incoming Party and Debtor have, as between them, agreed that the Incoming Party will assume all of the obligations of the Company under the Transaction Documents from the Novation Date, in accordance with the terms and conditions contained in this Deed.

1. Clause 1 contains several definitions, relevantly including:

Claim means any allegation, debt, cause of action, liability, claim, proceeding, suit or demand of any nature howsoever arising and whether present or future, fixed or unascertained, actual or contingent, whether at law, in equity, under statute or otherwise.

...

Company Security Deed means any company security deed entered into between the Company and the Debtor.

...

Guarantor/ Guarantee, Indemnity and Charge means any guarantor/ guarantee, indemnity and charge entered into between any one or more of the Company and the Debtor.

...

Party means the Debtor, the Company or the Incoming Party (as applicable), and Parties means all of them.

...

Transaction Documents means

(a) each Guarantor/ Guarantee, Indemnity and Charge;

(b) each Trade Finance Deed;

(c) each Facilities Deed;

(d) each Deed of Cross Collateralisation and Set Off;

(e) each Deed of Covenant;

(f) each Mortgage of Land;

(g) each Invoice Finance Deed;

(h) each Company Security Deed;

(i) each Priority Agreement

(j) each Letter of Limitation;

(k) each Deed of Subordination and Right of Entry Agreement; and

(i) any ancillary transaction documents and securities (including the Existing Security) between any one or more of the Company, the Debtor and any others.

Novation

The Parties agree that with effect on and from the Novation Date:

(1) the Company absolutely novates to the Incoming Party all of the Company's legal and beneficial rights, title, interest, benefit and enjoyment in and under the Transaction Documents;

(2) the Incoming Party assumes all of the obligations of the Company under the Transaction Documents and any liability for Claims under or in respect of the Transaction Documents whether arising on or before the Novation Date;

(3) the Incoming Party is substituted for the Company in the Transaction Documents as if the Incoming Party is the original party under the Transaction Documents;

(4) all references in the Transaction Documents to the Company are to be read as references to the Incoming Party; and

(5) any notices to be provided to the Incoming Party under the Transaction Documents must be provided using the Incoming Party's details specified in this Deed.

1. The security documents are defined at cl 3, including cl 3.1 which provides:

The Debtor has provided security to the company for its obligations under the Transaction Documents (Existing Security).

(1) Incoming Party indemnifies and keeps the Company indemnified from and against any Claim suffered, paid or incurred by the Company arising out of or in relation to any breach, non-performance or non-observance of any obligation under or in connection with the Transaction Documents on and from the Novation Date. This indemnity does not apply to the extent of any residual indebtedness or obligations of the Debtor under the Transaction Documents which is novated to the Incoming Party under this Deed; and

(2) Company indemnifies and keeps the Incoming Party indemnified from and against any Claim suffered, paid or incurred by the Incoming Party arising out of or in relation to any breach, non-performance or non-observance of any obligation under or in connection with the Transaction Documents prior to the Novation Date. This indemnity does not apply to the extent of any residual indebtedness or obligations of the Debtor under the Transaction Documents which is novated to the Incoming Party under this Deed.

1. The meaning and effect of cl 6 with the title "Receivers and Managers" is obscure:

(1) The Receivers and Managers are agents of the Debtor, and are parties to this document for the sole purpose of personally receiving the benefit of all provisions, indemnities and releases given by the Debtor in favour of the Incoming Party under this document and for no other purpose.

(2) The Receivers and Managers execute this document solely and exclusively in their capacity as an appointee of the Debtor and not in their personal capacities.

6.2 Limited liability

Despite anything to the contrary in this document, the Receivers and Managers and each of their representatives are not personally liable for:

(1) failing to perform any obligations conferred on them under this document;

(2) any breach of this document;

(3) any breach of any document contemplated by this document;

(4) any misrepresentation in connection with this document or any transactions contemplated by it; or

(5) any negligence or liability (on any basis) of the Debtor in connection with the Transaction Document.

1. Thorn Australia submits that it is not the indemnifying party. Why is unclear on its arguments. In written submissions it contends that the commercial purpose and object of the Deed of Novation was to novate the Castel account as one of the Excluded Accounts in the Share Sale Agreement. That is so. The next submission is that the definition of Transaction Documents in the Deed of Novation is limited to 12 classes of documents "each being a specific loan transaction document in relation to an 'Excluded Account" and where the Transaction Documents do not include the Deed of Indemnity.
2. In oral submissions, the last point was developed by Mr Coles KC by reference to cl 6 of the Deed of Novation which was said to cut down the broad operation of cl 2 because the defendants accepted they were parties for the limited (sole) purpose of personally receiving the benefit of the indemnities and releases given by Castel to Thorn Australia. That submission if correct has the effect that Thorn Australia took the benefit of the novated rights but accepted none of the obligations. That is an extraordinary outcome for a commercial transaction where the clear objective purpose was to novate Thorn Australia for 1stCash for all purposes. Ultimately, Mr Coles acknowledged as much in his oral closing submissions, that he could not explain the meaning of cl 6, but nonetheless maintained the submission that cl 2, which at one point in the argument he characterised as a recital, does not extend in its objective meaning to the Deed of Novation.
3. I reject the arguments of Thorn Australia. Clause 2 is the operative provision; it cannot be swept aside as a recital of facts. The Deed of Novation was entered into to transfer the benefit of the Castel account to Thorn Australia as one of the Excluded Transactions of the Share Sale Agreement. And with the benefit, the parties intended to and did pass the burden. The construction principles are well-settled: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at [46]- [52], French CJ, Nettle and Gordon JJ. A reasonable businessperson would conclude that the text of the Deed of Novation is not ambiguous. Castel and 1stCash were parties, in accordance with recital B, to the Company Security Deed and the Invoice Finance Deed each dated 29 October 2015, each of which is a Transaction Document. Recital C sets the critical context: 1stCash had agreed to novate its rights under the Transaction Documents to Thorn Australia which agreed to assume all liabilities thereunder. The Transaction Documents are defined as meaning each Guarantor/Guarantee, Indemnity and Charge, which is further defined as meaning inter alia, any indemnity. That clearly includes the Deed of Indemnity. The definition also includes each Company Security Deed, which captures the Company Security Deed between Castel and 1stCash dated 29 October 2015, pursuant to which the defendants were appointed as receivers and managers.
4. Further, the Transaction Documents extend to any ancillary transaction document between any one or more of 1stCash and any others. The Deed of Novation is an ancillary transaction document of that character. It is also ancillary to the Company Security Deed within the third ordinary meaning of ancillary: auxiliary or accessory to (Oxford Australian Concise Dictionary. 5th ed).
5. The context and evident purpose of the Deed of Novation do not suggest otherwise. Indeed, they confirm the textual meaning. These commercial parties excluded the Castel account from the Share Sale Agreement then provided for Thorn Australia to succeed to the rights and to assume the obligations of 1stCash in respect of it and all documents relating thereto. Thorn Australia took the benefit, and the quid pro quo was acceptance of the burdens. As correctly submitted by Mr Gibson for 1stCash, it makes no commercial sense for 1stCash to divest itself of the benefit of the Company Security Deed whilst retaining the burden to indemnify the defendants as appointees pursuant to it in undertaking the task of realising the assets of Castel for the benefit of Thorn Australia.
6. The result is that Thorn Australia is the party bound to honour the contractual indemnity of the defendants on their claim and to the extent that the defendants claim indemnity from 1stCash, the claim fails. It also follows that it is unnecessary to determine the cross-claim of 1stCash against Thorn Australia.

1. Thorn Australia in any event denies liability to indemnify, relying on the default exception at cl 1.1 and the proviso at cl 1.2 of the Deed of Indemnity. The defendants claim indemnity for the Settlement Sum, the Superannuation Guarantee Charge and all their costs and expenses incurred in the proceeding on an indemnity basis. The latter claim extends to the amount of their excess paid on their professional indemnity insurance policy when the Commonwealth's claim was compromised.
2. Dealing first with cl 1.1, and focusing only on the Settlement Sum, there is no doubt that the Commonwealth's claim and the resolution of it falls within the broad obligation of the Secured Party to indemnify and keep the defendants indemnified against "any and all losses, charges and expenses, claims, actions and proceedings whatsoever... sustained, suffered, brought against or incurred by [them] and all liability for all debts incurred by [them] arising on or after the date of this deed and out of their acceptance of appointment as receivers and managers".
3. I reject the Thorn Australia submission that, it being common ground that the professional indemnity insurer of the defendants paid the Settlement Sum, therefore the indemnity is not engaged as there is no personal loss. The submission cuts across the settled insurance law principles of subrogation_: State Government Insurance Office_ (Qld) v Brisbane Stevedoring Pty Ltd [1969] HCA 59; (1969) 123 CLR 228 at 240 - 243; Bradburn v The Great Western Railway Company (1874) LR10Exch 1.
4. As to the Superannuation Guarantee Charge, Mr Howell's evidence is that on 22 January 2019, the Deputy Commissioner of Taxation lodged a proof of debt with the liquidators of Castel. The proof claimed an amount of $365,046.08 being the combined total of the running balance account deficits in respect of BAS amounts and the Superannuation Guarantee Charge. The Superannuation Guarantee Charge is specified as the amounts owing for the period 1 October 2017 to 31 December 2017 of $37,793.98. There is no direct evidence about payment or non-payment of the charge, although the plain inference which is open, and which I draw from the liquidators ASIC return dated 18 April 2019 and the agreed fact that Castel was deregistered on 21 April 2024, is that there were no assets available for the payment of a dividend, and on that basis the amount of the Superannuation Guarantee Charge was not paid as a priority debt in the liquidation.
5. Mr Howell does not give evidence that demand has been made upon the defendants for payment of the Superannuation Guarantee Charge. There is no evidence that the Commonwealth has taken any step, or intends to take any step, to recover the charge from the defendants. The pleaded claim is that Castel was liable to the Deputy Commissioner of Taxation for the charge and that by reason of acceptance of appointment as the receivers and managers (and the operation of s 433 of the Corporations Act) the defendants are liable to pay the charge. Despite the paucity of the evidence, the defendants maintain a claim for a declaration that they are entitled to indemnity for this prospective liability together with an order that the amount be paid to them.
6. The difficulty with this claim is that there is no evidence that the defendants have suffered a liability in the form of (at least) a claim or demand from the Deputy Commissioner of Taxation. It follows that they are not entitled to an order $37,793.98 be paid to them. However, it does not follow that they are disentitled to a declaration that, if demand is made for payment, that they be indemnified if the indemnity otherwise applies (that is if the exception or proviso is not engaged). Section 433 of the Corporations Act obliged the defendants, once they took possession of the property of Castel, to pay out of the property coming into their hands, inter alia, any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to 556(1)(e), which is concerned with wages, superannuation contributions and Superannuation Guarantee Charges. Thus, the defendants are potentially liable for payment if the Commissioner of Taxation commences an action or a proceeding or makes a claim or a demand for payment upon them. Thus, subject to determination of the exception and proviso, a future liability to pay the charge is within the indemnity and is a basis for declaratory relief.
7. As to the insurance excess, there is no pleaded fact about it and no evidence from Mr Howell. The defendants submit in their written outline of opening submissions that "under the relevant insurance policy" (which is not in evidence) they were required to pay a costs-inclusive excess of $100,000. No attempt has been made to establish that as a fact and this aspect of the claim fails accordingly.
8. I defer for later consideration the costs and disbursement claims of the proceeding.
9. I next address a construction submission of 1stCash which, at least implicitly, Thorn Australia adopted. It concerns the words "with the consent of the Secured Party" in cl 1.1. It is to the effect that the indemnity is structured by division into two parts for losses, claims, charges and expenses etc arising on or after 25 January 2018 out of: (1) acceptance of appointment as receivers and managers; and (2) for all and any acts performed by them in that capacity with the consent of the Secured Party. The first limb, so the argument goes, is limited to claims directly arising from the fact of acceptance of appointment and the second applies to any acts performed as receivers and managers but only with the consent of the Secured Party. I reject the submission. It requires one to unjustifiably parse and divide the clause to produce an outcome that is untethered from commercial reality. The syntactical division that is required ignores that the indemnity is against all losses, claims etc whatsoever sustained, suffered, brought against or incurred by the receivers and managers and all liability for debts incurred by them. Out of an abundance of caution the indemnity is then conjunctively joined to and extended to capture any act they perform with the consent of the Secured Party. The extension reflects the invariable practice of providing in the security documents that when a receiver and manager is appointed, they are agents of the mortgagor. Despite provisions of that type, the reality is that a receiver will consult his or her appointor as reflected by what occurred in this case. Where that occurs, and a decision is made which results in an act by the appointee, the indemnity is engaged.
10. I next address the exception to the indemnity at cl 1.1. Thorn Australia submits that it operates to disentitle the claims for indemnity because primarily, each arises from (or in the language of the indemnity clause are the result of) personal default, or neglect or negligent omission of the defendants, their partners, employees or agents
11. As a matter of general principle an agent is entitled to indemnity for liabilities incurred in the course of the appointment, except for those caused by illegal conduct or default, including negligence: Thacker v Hardy [1878] UKLawRpKQB 87; (1879) 4 QBD 685 at 687, Lindley J; New Zealand Farmers' Co-operative Distributing Company Ltd v National Mortgage and Agency Company of New Zealand Ltd [1961] NZLR 969 at 971, Barrowclough CJ. It is unsurprising therefore that cl 1.1 carves out liabilities the result of default, neglect or negligence.
12. Nonetheless, Mr Möller KC for the defendants submits that the wording "personal default or neglect or negligent omission" though appears unique, is properly understood as requiring a finding of carelessness or negligence. The defendants were not careless or negligent because they sought and acted on the advice of counsel and were not required, in the circumstances, to seek judicial advice.
13. I do not accept the submission. The commencing point is the general proposition that an indemnity is to be construed, where the meaning is uncertain, in favour of the indemnifier: Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269 at [53]. It must also be construed conformably with the principles applicable to all contracts as noted above: Mount Bruce. If the exception is limited to carelessness or negligence (assuming there is a difference) then personal default and default are otiose, at least for omissions. Why is explained in some detail in F & D Normoyle Pty Ltd v Transfield Pty Ltd [2005] NSWCA 193; (2005) 63 NSWLR 502. A labourer suffered personal injury at a worksite. He recovered damages against the principal contractors for breach of the statutory duty to provide and maintain a safe system of work. The principal contractors claimed indemnity from Chadwick Building Systems Pty Ltd, a sub-contractor pursuant to the indemnity provisions of the sub-contract, which claim the primary judge dismissed. One of the issues on appeal to the Court of Appeal concerned the indemnity claim.
14. The indemnity clause in issue provided:

The sub-contractor shall indemnify and keep indemnified [the Joint Venture] and their respective officers, employees and agents against all claims, demands, proceedings, liabilities, costs, charges and expenses arising as a result of any act, neglect or default of the sub-contractor, its employees or agents relating to its execution of the Works.

1. Ipp JA (with whom McColl JA agreed, Bryson JA dissented) resorted to standard dictionary meanings of neglect and default and concluded that each involves "omissions of some kind and none involves the performing of a positive act": [49]. His Honour continued from [51] that in a legal context each connotes "some concept of breach of a legal duty". He explained in detail why at [52]-[53]:

While both the Oxford English Dictionary and the Macquarie Australian Dictionary give several alternative definitions for both "neglect" and "default" that involve omissions not having a breach of duty as an element, they do provide support for the construction I have suggested. According to the Oxford English Dictionary, the meanings of the noun "neglect" include "negligence" and "an instance of negligence". The Macquarie Australian Dictionary defines "neglect", inter alia, as "to omit (doing something), through ... carelessness", "to fail to carry out or perform (orders or duties, etc.)", and "negligence". The Oxford English Dictionary defines "default", inter alia, as "spec. in Law, failure to perform some legal requirement or obligation...", "[f]ailure in duty, care, etc.; as the cause of some untoward event; culpable neglect of some duty or obligation", and "[a] failure in duty; a wrong act or deed; a fault, misdeed, offence". It defines the phrase "to be in default" as "to fail in one's duty". One of the meanings given by the Macquarie Australian Dictionary for "default" is "Law failure to perform an act or obligation legally required ...".

The canons of construction require a different meaning to be given to each of the two words, "neglect" and "default", used in the same phrase. In my view, in context, the meaning of each is indeed different. The word "neglect" - in cl 12 - means an omission that constitutes negligence, that is, the breach of a common law duty of care. The word "default", on the other hand, means a failure to fulfil a duty imposed by contract or statute (it is not a word that is commonly used to describe a breach of a common law duty of care).

1. There is a notable point of distinction. Here cl 1.1 includes "negligent omission", which overlaps with his Honour's construction of neglect. However, I do not consider that as a reason to disregard the ordinary meanings of default and neglect that were applied by his Honour as inapplicable to cl 1.1. Each word in the phrase must have work to do.
2. Next there is the decision of Gummow J in James v Commonwealth Bank of Australia (1992) 37 FCR 445, where his Honour was concerned with the construction of two indemnities given by different banks. In the first, the bank undertook to indemnify the receiver against all losses, claims, actions and proceedings sustained or suffered and all liability for debts incurred and for all and any acts performed as receiver "except to the extent that the same are the result of personal default or neglect of the Receiver or his employees or agents or any of them", which is very close to the wording of cl 1.1.
3. At page 453, albeit on a preliminary question based on the assumed facts, his Honour concluded that the personal default or neglect of which the "indemnity speaks, in my view, is directed to the personal default or neglect of the applicant in the discharge of the office, the appointment to which by CBA he accepted". Based on the assumed facts, including that the receiver had failed to create and maintain adequate accounting records for the efficient control of the business, his Honour determined there to be personal default or neglect in the conduct of the receivership such as to displace the indemnity obligation.
4. The second indemnity was expressed subject to the proviso that the receiver "shall not be entitled to any indemnity... in respect of any costs, charges or expenses arising out of or in relation to any fraudulent or negligent act or omission in the exercise of performance of his duties, powers or authorities as receiver and manager". Once again, his Honour held that the receiver was not entitled to indemnity, reasoning at page 455:

In particular, the receiver, in exercising the powers given him by his appointment was obliged to meet certain standards of conduct. I have referred to the position at general law. As I have indicated, if the debts were incurred in consequence of negligence, default or breach of duty in improper performance of the applicant's duties as receiver, the debts would not attract obligation to indemnify by the applicant. The debts would not have been properly incurred.

1. The general law reference is to page 453 and the principle that a contractual agent is entitled to indemnity from the principal but not extending to "losses and liabilities incurred in consequence of the agent's negligence, default or breach of duty".
2. In this case I am not concerned with hypothetical assumed facts. I have mentioned the effect of s 433 of the Corporations Act. It now requires closer analysis. Relevantly it provides:

Property subject to circulating security interest--payment of certain debts to have priority

(2) This section applies where:

(a) a receiver is appointed on behalf of the holders of any debentures of a company or registered body that are secured by a circulating security interest, or possession is taken or control is assumed, by or on behalf of the holders of any debentures of a company or registered body, of any property comprised in or subject to a circulating security interest; and

(b) at the date of the appointment or of the taking of possession or assumption of control (in this section called the relevant date):

(i) the company or registered body has not commenced to be wound up voluntarily; and

(ii) the company or registered body has not been ordered to be wound up by the Court.

(3) In the case of a company, the receiver or other person taking possession or assuming control of property of the company must pay, out of the property coming into his, her or its hands, the following debts or amounts in priority to any claim for principal or interest in respect of the debentures:

(a) first, any amount that in a winding up is payable in priority to unsecured debts pursuant to section 562;

(b) next, if an auditor of the company had applied to ASIC under subsection 329(6) for consent to his, her or its resignation as auditor and ASIC had refused that consent before the relevant date--the reasonable fees and expenses of the auditor incurred during the period beginning on the day of the refusal and ending on the relevant date;

(c) subject to subsections (6) and (7), next, any debt or amount that in a winding up is payable in priority to other unsecured debts pursuant to paragraph 556(1)(e),(g) or (h) or section 560.

.....

(5) The receiver or other person taking possession or assuming control of property must pay debts and amounts payable pursuant to paragraph (3)(c) or (4)(b) in the same order of priority as is prescribed by Division 6 of Part 5.6 in respect of those debts and amounts.

.....

(9) For the purposes of this section, the references in Division 6 of Part 5.6 to the relevant date are to be read as references to the date of the appointment of the receiver, or of possession being taken or control being assumed, as the case may be.

1. The provision imposes a strict obligation. There is no knowledge or fault element. The receiver or other person assuming or taking control of company property must pay the priority debts out of the property coming into his or her hands.
2. Mr Howell accepted in evidence that he knew the Inventory Proceeds were circulating assets before he accounted for the Judgment Proceeds to Thorn Australia. He knew at the time that there were outstanding employee entitlements of Castel. Despite that knowledge he ignored his statutory duty. There can be no doubt that to the extent the Commonwealth's claim related to the Inventory Proceeds it was a liability caused by (the result of) his personal default or neglect or negligent omission and Thorn Australia has no contractual obligation to indemnify the defendants for the financial consequences.
3. As to the Judgment Proceeds, it is clear in my view (once the content of the statutory obligation is understood) that Mr Howell personally defaulted in or neglected his s 433 obligation within the meaning of the proviso and it is not to the point that he may not have been negligent in that he acted on legal advice at the time. The reference to negligent omissions does not qualify or limit the otherwise broad ambit of personal default or neglect. Personal default and neglect in cl 1.1 must mean, similarly with the approaches in Normoyle and James, a failure by the appointee to comply with a duty imposed by statute or contract or, put another way, improperly performing the appointee's duty. I do not say this is the limit of the meaning, but it is the one that covers this case. The fact is that Mr Howell accounted to Thorn Australia for the Judgment Proceeds without making the priority payments required by s 433. That he was mistaken as to the character of the Judgment Proceeds, that he took legal advice, that he felt reassured by Mr Shumba whilst relevant to an objective assessment of a failure to take reasonable care on a negligent omission assessment, are irrelevant to default or neglect in his s 433 obligation. Thorn Australia has no liability to indemnify pursuant to cl 1.1.
4. Which brings me to cl 1.2. The overlapping territory with cl 1.1 is extensive despite the chapeau which references "Claims" as apparently different from "Acts" at cl 1.1. Each provides indemnity for actions, proceedings and claims arising out the appointment. Putting aside the exemption at cl 1.1 and the proviso at cl 1.2, the perceived difference which the drafting seeks to address is that cl 1.2 specifically extends the indemnity to invalidity of, or irregularity in, the security documents which provide for the appointment, which is of no present relevance. For the reasons given for cl 1.1, and apart from the insurance excess, each claim is within the scope of the obligation to indemnify for all claims arising out of the appointment of the defendants as the receivers and managers subject to carve out of the proviso.
5. Mr Möller submits that on the pleaded case, Thorn Australia does not rely on the proviso at paragraph 4B(d)(viii) of the amended defence which only references the exception at cl 1.1. I do not accept that the proviso is not an issue to be determined on a fair reading of the pleadings. The defendants plead each of clauses 1.1 and 1.2 in the amended statement of cross-claim as establishing entitlement to the indemnity. Thorn Australia does not admit that the pleading accurately or fully sets out the terms of the Deed of Indemnity and gave notice that it would rely on the entire document for its full force and effect at trial. Thorn Australia further pleads at [4B(d)] a general denial of liability to indemnify, at [4B (iv)-(viii)] pleads detailed facts to support the contention that each of the claims were the result of default, personal neglect or negligent omission of the defendants and then generally denies any indemnity obligation pursuant to the Deed of Indemnity. Those facts apply equally to the exception at cl 1.1 and to the proviso at cl 1.2. Finally, in oral submissions, Mr Möller actively engaged with cl 1.2 as his clients "fall back" if indemnity is not available under cl 1.1. In doing so, he put several submissions to the effect that I should conclude that his clients acted bona fide in the performance of their functions to engage the exception to the proviso.
6. So, what does the proviso mean? The phrase "provided always that the provisions of this clause shall not entitle" is clear enough: it operates as a limitation upon each of the grounds for indemnity that precede it. The first proviso which operates to limit the indemnity is for acts or omissions before the date of the Deed of Novation, which is next followed by two disjunctive limitations. One being "in respect of or arising out of any negligent act or negligent omission" and the other "in respect of or arising out of any act or omission done or omitted by them or either of them otherwise than in the bona fide performance of their rights and powers as receivers and managers". I do not accept the submission that the bona fide performance qualification applies to each limitation. It forms a component of the third limitation as a matter of ordinary language and syntactical structure of the clause. It must also be read with cl 1.1 which does not qualify the exemption for negligence if the result of bona fide performance of rights and powers. Thus, its application is limited to an act or omission which is not negligent by the receivers and managers in the bona fide performance of their rights and powers as receivers and managers. This is not to deny that there is a fine distinction to be drawn in determining what is a non-negligent act or omission from what is. But that is a factual issue that does not control the meaning of the clause. It is common enough in professional negligence claims to conclude that an error of judgment, which is nonetheless a mistake or productive of an error, was not a failure to exercise a reasonable degree of skill, care and competence.
7. Thus, the issue is whether Mr Howell was negligent in the circumstances by application of the familiar Shirt calculus: Wyong Shire Council v Shirt [1980] HCA 12; (1980) 146 CLR 40 at 47-48, Mason J. I am in no doubt that he was concerning the Inventory Proceeds for the reasons I have given when considering cl 1.1. The Judgment Proceeds issue is more difficult.
8. Without the benefit of hindsight, Mr Howell knew of his statutory obligation to apply the Judgment Proceeds of a circulating asset security as required by s 433 of the Corporations Act when read with s 340 of the PPSA. He was uncertain whether the proceeds were a circulating security asset. He knew or must be taken to have known of the significant personal risk that he faced if the Judgment Proceeds as required to be applied by s 433, were not. Prudently, he decided to engage his solicitor to brief counsel for an opinion. There is no question that his solicitor, junior and senior counsel were each qualified and competent to give the type of advice he required. He knew that the Commonwealth's FEG claim was $631,169 by no later than 18 June 2020, as it is referenced in an email to Mr Shumba sent that day. The email references the making of a determination whether the proceeds were a circulating asset. He sought advice from his solicitor on the question on or before 18 June 2020. Mr Shumba in an email to Mr Howell of 22 June 2020, recorded that it was "arguable" that the judgment debt was in non-circulating asset, the law was not settled and that Mr Howell should obtain a quote from counsel for an opinion. He received approval from Mr Shumba to obtain the opinion on 23 June 2020.
9. He received written advice on 30 June 2020. It was qualified in several respects. Counsel had limited time to consider the point, no authorities were identified, the advice was provided urgently in the context of facilitating commercial negotiations to resolve payment from the Chinese corporation judgment debtor, a comprehensive or conclusive answer could not be given, however, "the better view" was that the judgment debt was a non-circulating asset not subject to the requirements of s 433. Some reasons were given for the opinion followed by several caveats which emphasised the limited timeframe for the opinion and that it was primarily given in the context of facilitating the settlement negotiations with the judgment debtor, which were not affected by the s 433 priority payment requirements. Then, in the penultimate sentence, counsel advised that "it may be wise for you, as receiver, to seek the court's directions on the point in due course".
10. The urgent settlement negotiations continued. By early August 2020, Mr Shumba was pressuring Mr Howell to resolve the Judgment Sum claim. Settlement agreement in principle had been reached by 4 August 2020. There were delays in finalising the deed of settlement, its execution and the requirement for notarial certification. The funds were received on 10 November 2020. Mr Howell remained uncertain whether the Judgment Proceeds were a non-circulating asset. On 12 November 2020, having calculated the anticipated distribution to Thorn Australia, he wrongly contended in his email to Mr Shumba that counsel's opinion of 30 June 2020 "confirms" that the "claim against TCL is a non-circulating asset". The advice said no such thing. It was highly qualified and, in the time available opined no more than the better view was that the proceeds were a non-circulating asset. Counsel further opined that it may be wise for Mr Howell to seek directions from a court, for the obvious purpose of obtaining the protection afforded by judicial advice and directions pursuant to s 424 of the Corporations Act.
11. In cross-examination, Mr Howell accepted that despite the statements by Mr Shumba in his telephone discussion of 30 June 2020 (to the effect that Thorn Australia would not fund an application for directions, that Mr Howell was not authorised to seek court directions and that if the Judgment Proceeds were not paid to Thorn Australia his appointment would be withdrawn) and his email of 13 November 2020 (that he would not authorise incurring further costs) he was aware that as receiver and manager he had the statutory right to apply to a court for directions and did not require Thorn Australia's permission to do so. Mr Howell accepted that a reason he did not take that course was because Thorn Australia would not fund the application and he was aware of the effect of the legal advice provided to Thorn Australia.
12. After the Judgment Proceeds had been received by his firm, Mr Howell insisted that he wanted further legal advice before disbursing the proceeds. He accepted that he regarded the Judgment Proceeds as trust money for which he was bound to account for correctly. He further accepted that it was "important before [he] made the payment" that he understood whether the Judgment Proceeds were a circulating asset or not and the advice received by him thus far had not been definitive. Despite Mr Howell's many years of experience in insolvency matters (he has been a registered liquidator since 21 March 2009 and a trustee in bankruptcy since December 2013, and with over 30 years' experience in the insolvency industry, including regular appointments as a liquidator, receiver and manager, voluntary administrator, deed administrator and trustee in bankruptcy) in answer to my question on how many occasions prior to November 2020 he had ever utilised the procedures available to seek judicial advice in the course of an insolvency administration, his answer was that he had not, though he was aware of the procedure.
13. Mr Howell at the time was subject to the general duty to exercise a reasonable degree of professional skill, care and competence in conducting the business of Castell as receiver and manager at law and as required by s 180 of the Corporations Act. The content of the duty is not difficult to determine prospectively on the evidence. He was bound by the statutory obligation at s 433 of the Corporations Act to make certain priority payments out of assets secured by a circulating security interest. The obligation is one of strict liability, akin to the duties of a trustee to obey the terms of a trust "in all things great and small, important and seemingly unimportant": Youyang Pty Ltd v Minter Ellison, Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 at [33]. As further there explained by the Court, statutory relief was afforded to trustees who could establish they had acted honestly and reasonably. Mr Howell was obliged to ensure as an objective fact that the Judgment Proceeds were not property subject to s 433 of the Corporations Act.
14. Mr Howell harboured doubts up to the time of transfer of the funds to Thorn Australia. True it is that he had the benefit of legal advice, but it was guarded, qualified and put him on notice that the question was difficult, and no guiding authority could be found. A reasonable receiver and manager in Mr Howell's position at the time would have foreseen that accounting to Thorn Australia for funds that were required to be accounted for as priority payments involved a reasonable risk of liability if he acted contrary to his statutory obligation. Indeed, on the facts of this case, that risk was considerable. Mr Howell was aware that the employees had received payments pursuant to the FEG Scheme. He was aware that the quantum of the payments was $631,169.42. He was aware that the Commonwealth was entitled to receive that amount from funds which he then held in priority to Thorn Australia if the personal property circulating asset provisions of s 340 of the PPSA applied.
15. Often it is a reasonable step for an insolvency practitioner to seek and rely on legal advice as a step that a reasonable practitioner would take by way of response to the identified risk. Interpolating from the explanation of Mason J in Shirt at 47, the perception of the response of the reasonable receiver and manager calls for an assessment of the magnitude of the risk, the degree of probability of occurrence and "the expense, difficulty and inconvenience of taking alleviating action and any other conflicting responsibilities" which the reasonable receiver and manager in the position of Mr Howell at the time may have. It would not have been difficult for Mr Howell to apply for directions pursuant to s 424 of the Corporations Act. As my primary reasons demonstrate the issue was not straightforward, at least so far as the Judgment Proceeds were concerned. A purpose of the procedure is to provide relief from potential personal liability where full disclosure is made.
16. There was more than sufficient time for Mr Howell to apply for directions between 30 June and 10 November 2020. That Mr Shumba was against an application, would not fund one and threatened to withdraw Mr Howell's appointment are not to the point. By cl 13.2 of the Company Security Deed, a receiver is the agent of Castel, and it alone is responsible for his acts and defaults. Clause 2 of the Deed of Appointment restates that legal relationship. The agency appointment was, however, limited. Clauses of this type operate to shift liability for the actions of the receiver and manager onto the mortgagor. In Visbord v Federal Commissioner of Taxation [1943] HCA 4; (1943) 68 CLR 354 at 381, Williams J referenced the "well-established legal device" whereby the mortgagee "obtains the benefits without being subject to the liabilities of a mortgagee in possession". See also R v Board of Trade; Ex parte St Martins Preserving Co Ltd [1965] 1 QB 603 at 617, Winn J. It does not follow that the mortgagee may direct and control the receiver and manager. All of this was neatly explained by Middleton J in South Johnstone Mill Ltd v Dennis [2007] FCA 1448; (2007) 163 FCR 343 at [109]- [112]:

The effect of rendering the Receivers the agents of the Company is to "relieve the mortgagee from the liabilities which the law casts upon a mortgagee going into possession and to place upon the mortgagor the liability for the acts and defaults of the receiver" (see State Bank of New South Wales Ltd v Chia [2000] NSWSC 552; [2000] 50 NSWLR 587 at [868] per Einstein J and the cases referred to).

A mortgagee has no power to direct a receiver in the performance of the receiver's task: Medforth v Blake [2000] Ch 86 at 94-95; Chia [2000] NSWSC 552; 50 NSWLR 587 at [881]. Nevertheless, communication between the receiver and the mortgagee is entirely proper. As was stated by Einstein J in Chia 50 NSWLR at [881]:

But there is no doubt that the law allows, and even requires, interaction between a receiver and his or her appointors. The receiver occupies a fiduciary relationship with his or her appointors, one aspect of which is the duty of the receiver to keep his or her appointors informed about the progress of the receivership.

I accept that if a mortgagee directs the exercise of the powers of a receiver, or interferes with his or her conduct in the realisation of assets, then the usual consequences of the agency relationship between the receiver and mortgagor may be displaced: Florgale 11 VR at [496]; Chia 50 NSWLR at [881]-[886]; American Express International Banking Corporation v Hurley (1985) 3 All ER 564 at 568 and 571.

However, more than mere consultation or the communication of preferences by the mortgagee would be required: Chia 50 NSWLR at [885].

1. Clause 4 of the Deed of Indemnity requires that if the receivers and managers require legal services, the prior consent of the Secured Party is required. In contrast, the defendants had extensive powers to commence legal proceedings and to engage lawyers pursuant to cl 13 of the Company Security Deed which confers various powers, including the rights and powers given by law to mortgagees in possession, receivers or receivers and managers, to employ solicitors and to take proceedings in the name of Castel "or otherwise". Mr Howell did not need the consent of Thorn Australia to make an application for directions. He could not have been directed by Mr Shumba not to make an application consistently with maintenance of his limited appointment as the agent of Castel. Whilst he maintained the appointment, Mr Howell was obliged to apply realised assets of Castel in part or complete satisfaction of priority claims: James at 452-453.
2. Moreover, and in any event, the failure by Mr Shumba to provide consent could not operate to exculpate Mr Howell from his statutory duty. If Mr Howell ignored Mr Shumba, with the consequence that his appointment was then withdrawn, the obvious course then open was to pay the Judgment Proceeds into court and to abide the result of any proceeding then commenced by Thorn Australia. If he had been sued for the funds as threatened by Mr Shumba, the obvious defence then open was to apply for directions, by cross-claim if necessary.
3. In my view, a reasonable receiver and manager in the position of Mr Howell at the time would have made an application for directions despite the view of Mr Shumba even at the risk of having his appointment revoked. He owed a higher duty to only distribute the Judgment Proceeds in accordance with s 433 of the Corporations Act if, as an objective fact, the proceeds were secured by a circulating security interest and were therefore a circulating asset within the meaning of s 340 of the PPSA. He was in doubt as to that. A reasonable receiver and manager would have taken steps to resolve the doubt by an application for directions or, upon revocation of the appointment, payment into court or defence of the threatened proceeding by framing the issue as the potential application of s 433.
4. Accordingly, Mr Howell negligently omitted to comply with his statutory duty with the consequence that the proviso at cl 1.2 of the Deed of Indemnity applies.

1. I commence by identifying with precision the estoppel relied on by the defendants. There are two aspects. The parties adopted as their common assumption that the Judgment Proceeds were a non-circulating asset and therefore Mr Howell could account to Thorn Australia for the balance, less his firm's fees and disbursements. In consequence it would be unconscionable, unjust or unfair for Thorn Australia to contend that the payment it received was the result of personal default, neglect or negligence by Mr Howell within the meaning of the indemnity clauses.
2. What species of estoppel is relied on? Mr Möller in submissions put the case as estoppel by representation or alternatively by convention. No reliance is placed on any oral representation made by Mr Shumba to Mr Howell. It is a document estoppel case. In my view, the correct analysis is estoppel by convention, despite the submissions of Mr Coles that this is not a case of estoppel at all: rather, one of unilateral mistake by Mr Howell.
3. Estoppel by convention is a common law estoppel: Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 at 430, Mason and Deane JJ. Identification of the elements of estoppel by convention begins with Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226 at 244, Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ:

Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying. The existence of an estoppel based on a convention between the parties has often been recognized: Thompson v. Palmer [1933] HCA 61; (1933) 49 CLR 507, at p 547; Grundt v. Great Boulder Pty Gold Mines Ltd [1937] HCA 58; (1937) 59 CLR 641, at pp 657, 675-677; Legione v. Hateley [1983] HCA 11; (1983) 152 CLR 406 at pp 430-431; Amalgamated Investment & Property Co. Ltd (in liq.) v. Texas Commerce International Bank Ltd [1982] QB 84, at pp 121, 126, 130-131; Spencer Bower and Turner, Estoppel by Representation (1977) 3rd ed., at pp.157-177. But in our opinion the doctrine has no application to the present case for two reasons. First, there is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship: Dabbs v. Seaman [1925] HCA 26; (1925) 36 CLR 538, at p 549. In the absence of proof of custom, there is no evidence that the parties adopted the alleged assumption. Secondly, just as estoppel by representation requires a representation of fact, so too estoppel by convention requires the assumed state of affairs to be an assumed state of fact: Greer v. Kettle [1938] AC 156, at p 170; Spencer Bower and Turner, Estoppel by Representation (1977) 3rd ed., at pp 167-168. The state of affairs relied on by Con-Stan is that the parties conducted their business relationship on the basis that the broker was alone liable to the insurer for the premiums. That is clearly an assumption as to the legal effect of their conduct, and not an assumption of fact. The submission with respect to estoppel accordingly fails.

1. Subsequently, there has been much judicial consideration whether the estoppel operates where the assumed state of affairs is a matter of law, or a mixed question of law and fact. The High Court left that question open in Bofinger at [75] and in Federal Commissioner of Taxation v Thomas [2018] HCA 31; (2018) 264 CLR 382 at [76] repeated by reference to Con-Stan that the estoppel "is founded on the conduct of relations between identified parties on an agreed or assumed state of facts which the parties are estopped from denying". The leading intermediate appellate and primary judge authorities were comprehensively analysed by Porter AJ (with whom Blow CJ agreed) in Rae & Partners v Shaw [2020] TASFC 14 at [48]- [86]. His Honour concluded at [82] that "there is a very considerable body of decisions of intermediate appellate courts that supports the proposition that an assumption for the purposes of estoppel by convention can include matters of law", but in the restricted manner that his Honour stated at [83] (citations omitted):

What is quite clear from an overall perspective however, is that the extension of the scope of relevant assumptions to include matters of law is restricted to the legal effect of the parties' conduct, arrangements or relationship, or the legal complexion of facts. The assumption of law must relate to the parties' private legal rights, as distinct from matters of "general" or public law

1. More recently, the Court of Appeal of Western Australia has accepted that to be the position: Wright v Lemon [2024] WASCA 19 at [908], Buss P (Vaughan and Hall JJA agreeing). The learned authors of Meagher, Gummow & Lehane's, Equity Doctrines and Remedies (5th ed, 2015) at [17-015] state that "it is widely thought that the doctrine now extends to assumptions of law".
2. In the United Kingdom, it has long been accepted that the estoppel by convention may operate on assumptions of mixed fact and law: Amalgamated Investment & Property Co Ltd (in liq) v Texas Commerce International Bank Ltd [1982] 1 QB 84 (Texas Bank) at 121-122, Denning MR; The Indian Grace (No 2) [1997] UKHL 40; [1998] AC 878 at 913, Lord Steyn. See also Estoppel by Conduct and Election (3rd ed Thomson Reuters, 2023) at [8-001], [8-014]. So too in New Zealand and Canada: National Westminster Finance NZ Ltd v National Bank of NZ Ltd [1996] 1 NZLR 548 at 550; Ryan v Moore [2005] 2 SCR 53 at [59].
3. In Moratic Pty Ltd v Gordon [2007] NSWSC 5 at [32], Brereton J identified five elements in a summary that has been widely referred to and endorsed since (for example Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 at [200], Rae & Partners at [27]-[28] and Minerology Pty Ltd v Sino Iron Pty Ltd [2017] FCAFC 55 at [332]. He said:

In common law conventional estoppel, it is necessary for a plaintiff to establish (1) that it has adopted an assumption as to the terms of its legal relationship with the defendant; (2) that the defendant has adopted the same assumption; (3) that both parties have conducted their relationship on the basis of that mutual assumption; (4) that each party knew or intended that the other act on that basis; and (5) that departure from the assumption will occasion detriment to the plaintiff.

1. Mr Möller in oral submissions accepted that the conventional estoppel relied on concerns a mixed question of law and fact. It was partly legal in that the parties wrongly assumed that pursuant to s 340 of the PPSA the Judgment Proceeds were not a circulating asset and therefore s 433 of the Corporations Act did not apply. It was partly factual in that on the facts as they were known it was assumed that the Judgment Proceeds did not have the character of a personal property circulating asset.
2. I proceed accordingly and conformably with the conclusion of Porter AJ in Rae & Partners that the assumption of law must relate to the legal effect of the parties conduct or their legal complexion of the facts.
3. I find that each of Mr Howell and Mr Shumba held the belief that the Judgment Proceeds were not a personal property circulating asset based on their respective legal advice. That each belief was subject to qualifications or doubts matters not, as explained in National Westminster by Tipping J at 550:

Knowledge of the falsity in fact of the assumption does not prevent the estoppel, if for their purposes the parties have nevertheless accepted the assumption as being true. A fortiori therefore the fact that one or both parties may have doubts about the correctness of the assumption will not of itself prevent an estoppel, provided always, of course that the parties have clearly accepted the assumption, for their purposes, as being true.

1. Their mutual assumption is manifest from the email exchanges of 18 and 22 June, 1 July, 12 and 13 November 2020. The assumption that each made and communicated to the other was that whilst the legal position was unclear, the better view was that the Judgment Proceeds were a non-circulating asset with the consequence that Mr Howell could account for the balance to Thorn Australia and was not required to first make priority payments in accordance with s 433 of the Corporations Act.
2. Mr Shumba assured Mr Howell in his email of 13 November 2020 that "in reliance on the advice received, it appears to us" that he could disburse the funds without applying for directions from a court. Mr Howell's evidence which I accept, was that at the time he believed that the Judgment Proceeds were a non-circulating asset and that Mr Shumba had received legal advice to the same effect. The non-circulating asset assumption was mutually adopted as the basis for Mr Howell to account for the Judgment Proceeds to Thorn Australia. Clearly, Mr Howell and Mr Shumba knew they were proceeding on that assumption. Having received the financial benefit of it, Thorn Australia subsequently sought to resile from the mutual assumption and now contends in this proceeding that Mr Howell was duty-bound by s 433 of the Corporations Act to pay the FEG Advance amount to the Commonwealth. It makes no offer to refund to Mr Howell the benefit it received from the wrong assumption. It goes further and contends that it is not obliged to indemnify the defendant's because, in breach of the statutory obligation, they (or more precisely, Mr Howell) acted with neglect or were negligent to engage the exemption at cl 1.1 and the proviso at cl 1.2 of the Deed of Indemnity. On that outcome, the defendants must suffer the loss.
3. I need not essay in detail why I am of the firm view that Thorn Australia is bound by the conventional estoppel which operated upon the dealings between it and the defendants. It is unjust and unfair for Thorn Australia to resile from the mutual assumption as the basis to deny the contractual indemnity. Mr Howell acted to his detriment based on the mutual assumption and Thorn Australia must be held to it. As Lord Denning in his inimitable style put it in Texas Bank at 121:

They are bound by the "conventional basis" on which they conducted their affairs. The reason is because it would be altogether unjust to allow either party to insist on the strict interpretation of the original terms of the contract-when it would be inequitable to do so, having regard to dealings which have taken place between the parties.

1. Before I address what follows in terms of the claimed relief, something must be said about Mr Howell's anterior error when he accounted for the Inventory Proceeds to Thorn Australia on 18 April 2018. There was no mutual assumption at that time that the Inventory Proceeds were not the subject of a circulating security interest. Mr Howell unilaterally accounted to Thorn Australia despite his statutory obligation to make priority payments as required by s 433 of the Corporations Act. The question then is whether the $100,000 he paid to Thorn Australia must be excised from any relief which is based on the estoppel claim?
2. I conclude that it matters not. The question is not whether Mr Howell should be entitled to the benefit of the contractual indemnity for his earlier error. What occurred is that thereafter he faced a claim by the Commonwealth for payments made pursuant to the FEG Scheme. The amount was quantified and known to Mr Howell by no later than 18 October 2018. Mr Howell had more than sufficient funds in his firm trust account on 10 November 2020 to make the required payment to the Commonwealth and then to account, less his fees and disbursements, for the balance to Thorn Australia. The conventional estoppel operates in respect of the Judgment Proceeds with the effect that Thorn Australia is precluded from contending that when Mr Howell paid the balance of the Judgment Proceeds to it, he neglected to comply with his statutory obligation and/or was negligent to engage the exemption and proviso to the contractual indemnity. So understood, it operates to preclude Thorn Australia from denying indemnity for the full amount payable to the Commonwealth as a priority creditor.
3. The consequence is that the defendants should have declaratory relief to the effect that Thorn Australia must indemnify them for the Settlement Sum paid to the Commonwealth. Given the past conduct of Thorn Australia, there should also be judgment entered for the defendants in the amount of $900,000. There is a further claim for interest, which has not been calculated.

1. The residual claims may be shortly addressed. Without elaboration Thorn Australia submits that the claim for professional fees is not within the scope of the indemnity or the pleaded claims. The claim is pleaded at 1(c) of the Further Amended Notice of cross-claim. There are two aspects to the claim. First, the defendants' legal costs and disbursements of defending the claim of the Commonwealth. The Commonwealth's claim was brought and defended because the defendants breached their duty to make the priority payments required and were negligent. Hence, the exception at cl 1.1 and the proviso at cl 1.2 apply and the contractual entitlement claim fails.
2. However, Thorn Australia is estopped from relying on the exception and the proviso. In my view, the solicitor and client costs and disbursements incurred in defence of the Commonwealth's claim are within the scope of cl 1.2 as the indemnity extends to all actions arising out of the appointment and embraces "all reasonable costs charges and expenses incurred by the Receivers and Managers in respect thereof". They are entitled to indemnity costs. The quantum has not been particularised, but that is no reason to refuse declaratory relief, nor to refuse a costs order on an indemnity basis.
3. The final claim is for the defendants' legal costs and disbursements of the cross-claims. I do not consider that either indemnity clause is engaged. Mr Bellamy retired as joint receiver and manager on 11 July 2019, and Mr Howell retired on 22 November 2021. The Commonwealth commenced this proceeding on 17 August 2022. Clause 1.1 provides indemnity for loss, charges and expenses arising out of acceptance of the appointment and other acts performed in that capacity with the consent of the Secured Creditor. The expenses incurred in prosecution of cross-claims against 1stCash and Thorn Australia do not arise out of acceptance of the appointment, and no question of consent arises. Similarly, cl 1.2 provides indemnity for claims, actions and proceedings "which may be made on" the defendants and "all reasonable costs, charges and expenses incurred....in respect thereof". In contrast, the cross-claims were proceedings brought by the defendants to establish an entitlement to indemnity for the Commonwealth's claim. Thus, the usual discretion to make a costs order will require future consideration after publication of these reasons, unless the parties reach agreement. If not, it is likely that there will be applications for Sanderson or Bullock orders.

1. I will require the parties to file agreed minutes containing a form of declaratory relief and orders to give effect to these reasons, including as to interest and costs. In the event there is not agreement, in whole or in part, I will set a timetable for written submissions and competing draft declarations and orders.

I certify that the preceding one hundred and nineteen (119) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine.