Fairfield Pastoral Holdings Pty Ltd as trustee of the Piney Ridge Trust v Van Niekerk

order made by: KENNETT J DATE OF ORDER: 5 OCTOBER 2023

1. The originating application is dismissed.
2. Subject to order 3 below, the applicant is to pay the respondent's costs of the proceeding as agreed or assessed.
3. If any party wishes to seek a different order as to costs: (a) that party is to file written submissions of no more than five pages in support of the order that it seeks, together with any evidence on which it wishes to rely, by 19 October 2023; (b) the other party is to file written submissions in response of no more than five pages, together with any evidence on which it wishes to rely, by 2 November 2023; and (c) the question of costs will be dealt with on the papers unless it appears that an oral hearing is necessary. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background 1 Under a deed executed on or about 31 March 2016 (the trust deed), the present applicant, Fairfield Pastoral Holdings Pty Ltd (FPH) was appointed as the trustee of the Piney Ridge Trust (PRT). The appointor and primary beneficiary under the trust deed was Brenda Van Niekerk (Brenda). 2 On 17 February 2016 FPH, purportedly acting as trustee (although it had not yet been appointed as such), had entered into a contract to purchase a property known as Lot 2, Piney Ridge Road Brukunga (Lot 2). Lot 2 was adjacent to a property known as Lot 1, owned by Ridge Estate Pty Ltd (Ridge Estate), an entity associated with Steven Van Niekerk (Steven) (the son of Brenda). Steven had wished to purchase Lot 2 but was unable to do so; so he had asked his friend and business associate, Dr Andrew Hamilton (Dr Hamilton) to assist. Dr Hamilton was (and is still) the sole director of FPH. The formal appointment of FPH as trustee of the PRT took place between execution and settlement of the contract for the purchase of Lot 2. 3 The purchase price of Lot 2 was $750,000. FPH paid a deposit of $30,000 (which it borrowed from its subsidiary Fairfield Pastoral Holdings No 1 Pty Ltd (FPH No 1)), borrowed $525,000 from the National Australia Bank (NAB) secured by a mortgage over Lot 2 and a further $182,130 secured by a mortgage over equipment, and provided $59,500 from its own funds. Settlement occurred on 8 April 2016. 4 By October 2018 the relationship between Steven and Dr Hamilton had soured. On 4 October 2018, Brenda executed a document which purported to remove FPH as trustee of the PRT and appoint Ridge Estate in its place (the removal deed). 5 Dr Hamilton and Steven had entered into substantial joint business dealings since around 2014, principally involving attempts to acquire properties that might generate income from coal seam gas exploration. The falling out between the two men led to proceedings in this Court which were commenced in late 2018 and encompassed the dealings briefly described above, along with many other issues. The applicants were FPH and FPH No 1. The respondents were Ridge Estate, Steven, his father Philip van Niekerk, and Brenda. I refer to that proceeding as FPH v Ridge Estate. 6 After three interlocutory judgments and a trial spanning ten hearing days, White J delivered final judgment in that proceeding on 4 January 2022: Fairfield Pastoral Holdings Pty Ltd v Ridge Estate Pty Ltd (No 4) [2022] FCA 1. The issues in the present case arise out of that proceeding. 7 Among the relief granted by White J was a declaration that the removal deed is void. FPH therefore continues to be (and has been since March 2016) the trustee of the PRT. This proceeding concerns rights which it asserts it has in that capacity.

The Whale Beach loan 8 In June 2017, Steven identified a property in Whale Beach, on the Northern Beaches of Sydney (the Whale Beach property), which he wished to purchase (apparently with the intention of living there with his family). The purchase price was $3.05 million. He procured FPH, in its capacity as trustee of the PRT, to be the purchaser of this property. The contract of sale was executed on 7 July 2017. The deposit was $305,000, with $152,500 to be paid on exchange and the remainder either on completion or upon written demand by the vendor. The date for completion specified in the contract was 30 November 2017. The initial $152,500 was paid on FPH's behalf by its subsidiary FPH No 1. 9 Neither FPH nor Steven had ready access to anything approaching $3.05 million and efforts to raise the finance needed to complete the contract were unsuccessful. At some stage, Steven negotiated with the vendors for a later completion date in return for an increase in the purchase price to $3,200,000. In January 2018, FPH paid the second part of the deposit. For this purpose, it borrowed $122,000 from NAB (the Whale Beach loan), secured by a mortgage over Lot 2. 10 In June 2018, citing purchaser default, the vendors of the Whale Beach property terminated the contract and retained the deposit. FPH was left out of pocket and with a liability of $122,000 to NAB upon which it had to pay interest.

The Whale Beach loan in FPH v Ridge Estate 11 FPH's originating application and statement of claim in FPH v Ridge Estate made no mention of the Whale Beach loan. 12 On 20 March 2020 White J made orders, which appear to have been by consent, granting FPH leave to amend its originating application and statement of claim so as to include a claim for relief in relation to the Whale Beach loan. That leave was not exercised. 13 On 26 March 2021 White J made interlocutory orders in FPH v Ridge Estate including an order for the sale of Lot 2: Fairfield Pastoral Holdings Pty Ltd v Ridge Estate Pty Ltd (No 3) [2021] FCA 292. That order required the proceeds of sale to be distributed in the following manner: (i) first, all outstanding amounts owing on any mortgage secured on the Lot 2 Property and any amount secured by caveat; (ii) secondly, [FPH's] costs and expenses incurred in relation to the sale of the Lot 2 Property, such costs and expenses not to include its legal costs in making the application to this Court; and (iii) thirdly, any net surplus be paid into the Federal Court Litigants' Fund Account and held until further order of the Court following the resolution of the claims by the parties or any third parties to any proprietary interest in the Lot 2 Property and the priority thereof and any interest on the funds is to accrue to the benefit of the account in this Action. 14 Sale of Lot 2 was completed in July 2021. NAB as mortgagee required the Whale Beach loan (as well as the loan obtained to purchase Lot 2) to be paid out at settlement. FPH applied the sale proceeds to paying out the loans. There remained an amount of $375,178.36, which was deposited into the Court's Litigants' Fund. 15 The trial of the substantive proceeding was to commence on 14 September 2021. On 26 August 2021, the applicants filed an interlocutory application seeking leave to amend so as (among other things) to raise a claim in relation to the Whale Beach loan. White J refused that leave on 2 September 2021, delivering brief extempore reasons which have not been published (but which are in evidence). Those reasons are adequately summarised in the reasons for the final judgment, where his Honour said (at [422]): I heard that interlocutory application on 2 September 2021 and, for reasons which I gave at the time, refused the application with respect to the Whale Beach Loan. My reasons included the applicants' delay in making the application, the absence of explanation for the leave granted on 20 March 2020 not having been exercised, and the prejudice to the respondents if the late amendment was allowed. Dr Hamilton had not referred to the Whale Beach Loan in the body of either of his principal affidavit or in his reply affidavit. 16 In his final reasons White J noted that there were some documents indicating that FPH had purchased the Whale Beach property, that "the purchase price was $3.05 million, that a deposit of $305,000 was paid, and that settlement occurred on 1 March 2018" (this was partly incorrect, as in fact the purchase was never completed). He also noted that there were "some documents which indicate that FPH purchased the Whale Beach property in its capacity as trustee of the PRT". In any event, it was clear that FPH had borrowed $122,000 from NAB. 17 Having recounted the procedural history referred to earlier, White J noted that some issues in relation to the Whale Beach loan had arisen during the trial and "did not reflect well on Dr Hamilton and his reliability". These were described as follows (at [424]-[432]): First, it became apparent that the evidence which the applicants had provided to the Court in support of their application for the order for judicial sale which was made on 26 March 2021, had wrongly characterised the Whale Beach Loan as the Equipment Loan taken out in connection with the purchase of Lot 2, even though the latter had been wholly discharged on 8 April 2019. The Court was misled in that respect. Secondly, Dr Hamilton had in March 2019 purported to respond to the request of the respondents' then solicitors that he provide the bank statements for the accounts maintained by FPH as trustee of the PRT, but he did not provide any statements relating to the Whale Beach Loan. Moreover, the applicants' solicitor swore an affidavit on 15 March 2019, the details of which he deposed Dr Hamilton had confirmed to be correct, deposing to the bank accounts and bank statements in relation to the PRT and to the loans to be paid out on the sale of Lot 2, without any reference to the Whale Beach Loan. I observe that that affidavit was sworn in response to an affidavit from the applicants' then solicitor of 13 March 2019 in which that solicitor had sought from the applicants a copy of all loan agreements entered into by FPH in its capacity as trustee of the PRT, as well as details of the debt proposed to be discharged on the sale of the Lot 2. In responding to that affidavit, the applicants' solicitor made no reference to the Whale Beach Loan even though it was secured over Lot 2. It is difficult to understand how Dr Hamilton could have given instructions to that effect, especially given his acknowledgement that he had known at the time that the Whale Beach Loan was to be discharged when Lot 2 was sold. Thirdly, Dr Hamilton swore his own affidavit on 3 September 2020 in support of the application for an order for judicial sale of Lot 2. Although Dr Hamilton annexed bank statements relating to FPH's debt to NAB in respect of Lot 2, he did not include any relating to the Whale Beach Loan. This was despite his acknowledgement in the cross-examination at trial that he had thought at the time that the Whale Beach Loan was recoverable from the trust assets and that the proceeds from the sale of Lot 2 would be used to discharge the Whale Beach Loan. Dr Hamilton attributed his omission to refer to the Whale Beach Loan and his omission to provide the Whale Beach Loan bank statements to "oversight". Fourthly, an affidavit of Philip [Van Niekerk (Steven's father)] of 7 April 2021 made plain the concern of the respondents that the loan of $122,000 secured over Lot 2 and the assets of the PRT had not been properly incurred. Fifthly, although my reasons on the Judicial Sale Judgment made plain my reliance on the statements of the applicants' solicitor that the loan of $122,000 was the Equipment Loan taken out in connection with the purchase of Lot 2, Dr Hamilton took no steps after judgment delivery to correct the position or the Court's misapprehension. Lastly, the documents relating to the Whale Beach Loan were produced by Dr Hamilton only during the trial and in response to a call for production. Dr Hamilton's attempts to explain why the documents had not been discovered earlier were confused, incoherent, and unconvincing. The respondents submitted that these matters indicated that Dr Hamilton had manipulated the information provided to the respondents and to the Court so as to be able to use proceeds from the sale of Lot 2 to discharge the Whale Beach Loan without having to prove an entitlement to do so. There was undoubtedly a proper basis on which the respondents could make that serious allegation. I have decided, however, that this is not the correct explanation. Instead, I consider that it is just another manifestation of the muddled headedness and foolishness of Dr Hamilton evident in so much of his conduct which is the subject of these proceedings. Had I made a higher estimation of Dr Hamilton's astuteness, my conclusion may have been different. I have reached my conclusion having regard in particular to the fact that the Whale Beach Loan had not been kept wholly concealed, as the solicitors must have discussed it at least in part when providing the consent minutes for the orders made on 20 March 2020. Moreover, Steven's involvement in the purchase of the Whale Beach property makes it probable that he was aware of the financing arrangements for the purchase. Further again, I consider that Dr Hamilton could not reasonably have considered that there was a prospect of keeping concealed the use of the sale proceeds to discharge the Whale Beach Loan on the sale of Lot 2 pursuant to the judicial sale order. Nevertheless, my assessment of Dr Hamilton's conduct and evidence in relation to the Whale Beach Loan is one of the matters which I have taken into account in my assessment of his reliability as a witness more generally. 18 In his final judgment, White J found that FPH was entitled to be indemnified in the sum of $314,741.95 from the assets of the PRT (at [654(h)]). However, his Honour added that: account must be made of the $122,000 applied by FPH in discharging the Whale Beach Loan when it has not proved in these proceedings that that was a liability which it incurred in its capacity as trustee of the PRT. 19 His Honour went on (at [656]-[661]): The circumstance that FPH has discharged the Whale Beach Loan from the proceeds of sale of an asset of the PRT without establishing that the Whale Beach Loan was a liability it incurred in its capacity as trustee of the PRT creates a difficulty. If it be the case that the $122,000 was not a liability of FPH incurred in its capacity as trustee of the PRT, FPH should not be able to retain the benefit of that payment. However, there is some indication in the documents which the respondents obtained by notice to produce during the trial, and to which Steven was a party, that FPH did take out the Whale Beach Loan in its capacity as trustee for the PRT. There would be injustice in that event if FPH is not entitled to the benefit of the $122,000 paid to discharge the Whale Beach Loan. As I will make a declaration that the Removal Deed was void, FPH will continue for the time being as the trustee of the PRT. This means that there is no other entity to which the Court could presently order payment of the sum of $122,000. Counsel for the applicants has hinted at further litigation by FPH with a view to vindicating a claim that the Whale Beach Loan was incurred by FPH in its capacity as trustee of the PRT. The Court is not presently in a position to determine the merit of any claim to that effect nor the viability of any proceedings which FPH may bring to that effect. In all these circumstances, I take the view that the Court should not now prejudice the means by which FPH may recover the sum of $122,000 if it is able to vindicate its entitlement to that sum. A practical way in which to proceed is as follows. The deduction of $122,000 from the sum of $395,178.36 (the amount paid in the Court) leaves a balance of $273,178.36. That sum can be taken as the aggregate of FPH's entitlement to indemnity and for reimbursement of the additional costs of the judicial sale of Lot 2 ($6,564.80). It is less than the sum of $314,741.36 which on my findings is FPH's entitlement to indemnity. Accordingly, the sum of $273,178.36, plus the interest accrued on that amount, should be paid out of the funds held in Court to FPH. … The remaining $122,000, plus the interest accrued on that portion of the monies held in Court, should, subject to further order of the Court, continue to be held in the Court's Litigants' Fund to the credit of this action. My intention is to give FPH the opportunity in other proceedings to vindicate its entitlement to that sum. As I have said, I am making no comment as to the viability of such an action, given FPH did not pursue the claim in these proceedings. If no proceedings are current as at 4 April 2022, any other person with an interest in the monies may apply for an order for payment out. If proceedings are current, FPH or the respondents may seek an extension of the time in which the monies are to continue to be held, pending the determination of those proceedings. At the conclusion of those proceedings, the same persons or entities may apply for an order for payment out in accordance with the determination of the issue in those proceedings. 20 Orders 4 and 5 of the final orders made in FPH v Ridge Estate reflected these conclusions, though two matters require elaboration. (a) The parties agreed that the amount of $395,178.36 referred to at [660] is an error and should be $397,178.36. The total amount paid into Court was the net surplus of the sale of Lot 2 after loans and expenses had been paid (the $375,178.36 referred to at [14] above) plus an additional $22,000 that was paid into Court pursuant to orders made on 31 August 2021 in relation to another aspect of the case. (b) The decision is the subject of an appeal on which judgment is currently reserved (File No SAD15/2022). Relevantly for this proceeding, the appellants (Ridge Estate, Steven, Philip and Brenda) contended that White J erred in the method he used to calculate the sum to be paid out to FPH in part satisfaction of its claim to indemnity. In summary their position was that his Honour should have subtracted the value of the Whale Beach loan not from the total amount paid into Court, but from $314,741.36 (which was the amount White J had assessed was FPH's total entitlement to indemnity). (c) Regardless of whether it involved error, one result of the method adopted by his Honour is that the applicant in this proceeding seeks that $41,563 be paid out of the Litigants' Fund in satisfaction of its claim to indemnity in respect of the Whale Beach loan (because the Whale Beach loan has already been discharged and the applicant has already received $273,178.36 of the $314,741 it was found otherwise to be entitled to under the indemnity clause). A second result, which the applicant accepts, is that any payment out of Court as a result of this proceeding should wait until the Full Court delivers its judgment. If the Full Court finds that White J erred in the way the appellants contended, and I find that FPH is entitled to be indemnified in respect of the Whale Beach loan, then it may be that FPH is required to pay back into Court a sum of approximately $80,000 (pursuant to orders of the Full Court), and then will seek to amend its originating application in this proceeding to claim $122,000 rather than $41,563. This procedure (which was outlined by senior counsel for the applicant during the hearing) is regrettable, but preferable to disturbing the issues on which the Full Court is reserved.

The present proceeding 21 This is the further proceeding for which White J made allowance in his orders. The only respondent is Brenda, who it will be recalled is the appointor and primary beneficiary under the terms of the trust deed. The principal relief that FPH seeks comprises declarations that: (a) the liability that it incurred pursuant to the Whale Beach loan was incurred in its capacity as trustee of the PRT; and (b) it was and is entitled to apply the proceeds from the sale of Lot 2 in discharge of the Whale Beach loan, pursuant to its right of indemnity as trustee. 22 FPH also seeks the following related relief: (a) a variation of the orders made on 26 March 2021 to make it clear that the sale proceeds of Lot 2 were to be used to discharge the Whale Beach loan; (b) judicial advice, pursuant to s 69 of the Administration and Probate Act 1919 (SA) and s 91 of the Trustee Act 1936 (SA) (Trustee Act), as to the extent that it is justified in not reimbursing the PRT's assets for the amount that it had been indemnified from the sale proceeds of Lot 2 in discharge of the Whale Beach loan; (c) payment out of the Litigants' Fund of a further amount of $21,175.82 (plus interest) in part satisfaction of its claim to be indemnified for interest that it paid on the Whale Beach loan; (d) payment out of the Litigants' Fund of $41,563 (plus interest) in further satisfaction of its claim to indemnity as trustee of PRT (for the reasons explained at [20], although less than the Whale Beach loan, this gives practical effect to the two declarations); and (e) an order for the payment of its costs out of the Litigants' Fund. 23 FPH submits, and it is not disputed, that the parties are bound by the findings made in FPH v Ridge Estate. In addition to the ground related to the calculation of the amount to be paid out of Court addressed above, the appeal seeks to set aside the orders made in respect of the removal deed. 24 Although a possible outcome of the appeal would undermine part of the basis on which argument proceeded before me (ie that FPH is still the trustee of the PRT), the parties were content for me to hear and determine the proceeding without awaiting the outcome of the appeal. This is on the basis that, regardless of the outcome of the appeal, it remains the case that FPH was the trustee of the PRT at the time it entered into the Whale Beach loan. If FPH can establish that it was entitled to be indemnified as trustee for the liability that it incurred in entering into that loan, that entitlement would survive its removal as trustee late in 2018. The appeal does not call into question the orders made on 26 March 2021 permitting the sale of Lot 2 and directing the disposition of the sale proceeds. 25 The principal issues that arise in the present proceeding are as follows: (a) whether FPH incurred the liability under the Whale Beach loan as trustee of the PRT; (b) whether it was therefore entitled to be indemnified in respect of that liability (and for interest that it paid on that liability) out of the trust assets (including whether indemnity was not available because the liability was incurred in breach of trust and/or circumstances of gross negligence); and (c) whether FPH's claim (either in its entirety, or the part concerning interest on the liability) is precluded by res judicata or Anshun estoppel.

res judicata and anshun estoppel 26 Logically, the first question that should be dealt with is whether FPH is able to advance its claim in the light of how FPH v Ridge Estate was conducted and the judgment in that case. Some of the history of that proceeding has been recounted above. 27 It is as well to begin by identifying the potentially relevant legal doctrines. In Tomlinson v Ramsay Food Processing Pty Ltd [2015] HCA 28; 256 CLR 507 French CJ, Bell, Gageler and Keane JJ said (at [20]-[22]) (Tomlinson): An exercise of judicial power, it has been held, involves "as a general rule, a decision settling for the future, as between defined persons or classes of persons, a question as to the existence of a right or obligation, so that an exercise of the power creates a new charter by reference to which that question is in future to be decided as between those persons or classes of persons". The rendering of a final judgment in that way "quells" the controversy between those persons. The rights and obligations in controversy, as between those persons, cease to have an independent existence: they "merge" in that final judgment. That merger has long been treated in Australia as equating to "res judicata" in the strict sense. Estoppel in relation to judicial determinations is of a different nature. It is a common law doctrine informed, in its relevant application, by similar considerations of finality and fairness. Yet its operation is not confined to an exercise of judicial power; it also operates in the context of a final judgment having been rendered in other adversarial proceedings. It operates in such a context as estoppel operates in other contexts: as a rule of law, to preclude the assertion of a right or obligation or the raising of an issue of fact or law. Three forms of estoppel have now been recognised by the common law of Australia as having the potential to result from the rendering of a final judgment in an adversarial proceeding. The first is sometimes referred to as "cause of action estoppel". Estoppel in that form operates to preclude assertion in a subsequent proceeding of a claim to a right or obligation which was asserted in the proceeding and which was determined by the judgment. It is largely redundant where the final judgment was rendered in the exercise of judicial power, and where res judicata in the strict sense therefore applies to result in the merger of the right or obligation in the judgment. The second form of estoppel is almost always now referred to as "issue estoppel". Estoppel in that form operates to preclude the raising in a subsequent proceeding of an ultimate issue of fact or law which was necessarily resolved as a step in reaching the determination made in the judgment. The classic expression of the primary consequence of its operation is that a "judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies". The third form of estoppel is now most often referred to as "Anshun estoppel" [After Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 (Anshun)] although it is still sometimes referred to as the "extended principle" in Henderson v Henderson [(1843) 3 Hare 100 [67 ER 313]]. That third form of estoppel is an extension of the first and of the second. Estoppel in that extended form operates to preclude the assertion of a claim, or the raising of an issue of fact or law, if that claim or issue was so connected with the subject matter of the first proceeding as to have made it unreasonable in the context of that first proceeding for the claim not to have been made or the issue not to have been raised in that proceeding. The extended form has been treated in Australia as a "true estoppel" and not as a form of res judicata in the strict sense. Considerations similar to those which underpin this form of estoppel may support a preclusive abuse of process argument. (Emphasis added; citations omitted.) 28 Brenda's submissions invoke res judicata and Anshun estoppel.

Res judicata 29 The reliance on res judicata is misplaced, in so far as it relates to the $122,000 principal of the Whale Beach loan. FPH's asserted right to indemnity in respect of the Whale Beach loan was not part of the "rights and obligations in controversy" in FPH v Ridge Estate. That is clear from the absence of any specific claim for relief to vindicate that right; the absence of reliance on that right in the statement of claim; the interlocutory judgment which expressly refused leave to include a claim based on the Whale Beach loan in the statement of claim (and thus in the issues for determination at the final hearing); and the observations of White J at [658] and [661] which I have set out above. His Honour made it clear that the evidence did not enable any finding to be made about the capacity in which FPH had undertaken the Whale Beach loan and he was not deciding that issue. His Honour made orders that left room for the issue to be decided in separate litigation on the express basis that it had not been determined one way or the other in FPH v Ridge Estate. 30 The position is more complicated in relation to the interest that FPH paid on the Whale Beach loan, which it is agreed amounts to $21,175.82. 31 The reasons of White J refer at [416] to a "total amount ultimately claimed by FPH by way of indemnity" of $479,295.45, and to the need to make some "deductions" from that sum. The origin of this figure needs explanation. In his Honour's interlocutory judgment on 2 September 2021, in which he refused leave to FPH to include a claim relating to the Whale Beach loan in its pleading, White J had granted leave to amend in certain other respects and expressly reserved consideration of whether to grant leave to add to the pleading a document referred to as Annexure J. The orders his Honour made on that occasion included an order that: The leave granted by Order 2 is to be exercised by 12 noon on 3 September 2021, with the amended document entitled "Fourth Statement of Claim" and to include Annexure J in its current form despite leave with respect to the content of that annexure being reserved. 32 Annexure J, in the form initially sought to be added, included various expenses in relation to the Whale Beach property, including interest payments on the Whale Beach loan. The total of the expenses it listed was $806,200.50. 33 A final version of FPH's statement of claim (entitled the Fifth Statement of Claim) was filed on 17 September 2021, apparently by consent. It included a new version of Annexure J, which divided the expenses in respect of which indemnity was claimed into five categories (set out in separate columns) in an attempt to assist the process of working out which of those expenses would be allowed to be included. Evidently, also, some expenses were omitted. The total claimed in the revised Annexure J was $479,295.45, which is the amount referred to by White J at [416] as being claimed by FPH. 34 The trial of FPH v Ridge Estate therefore began with Annexure J before the Court on the basis that no decision had yet been made as to which of the expenses listed in that document were allowed to be included by FPH in its claim for indemnity. Discussions continued between the parties with a view to narrowing the scope of the dispute. A document tendered without objection in these proceedings was an annexure to the final submissions of the respondents which apparently represented the agreed position of the parties as to what was in issue. The total of the amounts listed in this document was also $479,295.45. However, the document still included amounts of interest on the Whale Beach loan, even though these entries were annotated "Interest on $122K Whale Beach Loan. Claim not pleaded or proved". 35 Having identified the scope of the indemnity claim, White J turned to the circumstances of the Whale Beach loan which were (as his Honour said at [417]) "unclear". That lack of clarity clearly reflected the fact that FPH had not been given leave to advance a claim in relation to the loan and important documents had therefore not been tendered. Some of his Honour's observations at [417]-[432] have been set out above. 36 Then, under the heading "Initial deductions from the starting point of $479,295.45", and above the heading "The respondents' contentions for further deductions", his Honour said (at [433]-[434]): The applicants agree that there should be two deductions from the starting point of $479,295.45: (a) the interest claimed on the Whale Beach Loan of $21,175.82. Given that FPH did not seek (apart from its late and unsuccessful application to amend) to establish that the Whale Beach Loan was a proper expense incurred by FPH as trustee of the PRT, this amount must be deducted; and (b) amounts recognised as incorrectly claimed: $13,600. Accordingly, the applicants' revised starting point is $444,519.57. 37 This part of his Honour's reasons needs to be read in the context of the issue of leave to include Annexure J having been expressly reserved. While his Honour had been provided with what was apparently an agreed document identifying the scope of FPH's claim for indemnity, that document itself annotated the entries that are relevant here with a statement that the underlying claim had not been pleaded or proved. No order seems to have been made, prior to the final judgment, granting or refusing leave to include these amounts. It was in this context that his Honour noted the agreement of FPH that the interest on the Whale Beach loan needed to be "deducted" from the total in Annexure J, so as to arrive at "the applicants' revised starting point", and before addressing the arguments of the respondents. 38 The interest on the Whale Beach loan should therefore be regarded as expenses in relation to which FPH ultimately did not press its application for leave to amend, or alternatively that leave was refused with FPH's acquiescence. Unsurprisingly, FPH did not attempt to argue that it should be indemnified in respect of the interest in circumstances where it had not been permitted to advance a claim for indemnity in respect of the underlying loan; so that the "starting point" from which White J proceeded to consider the parties' arguments did not include the interest. I therefore do not regard FPH's claim to the interest on the Whale Beach loan as having merged in the final judgment.

Issue estoppel 39 Brenda's res judicata argument is described in the written submissions as based on what was "necessarily determined" by the judgment in FPH v Ridge Estate. In so far as the argument relates to the Whale Beach loan, it may well be better understood as raising questions of issue estoppel rather than (or as well as) res judicata. If I had come to the conclusion that the claim for indemnity in relation to the interest was decided on a final basis and rejected, there would be force in the argument that the underlying issue - as to whether the Whale Beach loan was a liability incurred in FPH's capacity as trustee - had been "necessarily determined" in FPH v Ridge Estate and was therefore the subject of an issue estoppel. 40 That argument falls away in the light of what I regard as the correct understanding of how the claim in respect of the interest was dealt with. If (as I have concluded) no claim to indemnity in relation to either the loan itself or the interest was determined in FPH v Ridge Estate, it follows that no issue in relation to the status of the Whale Beach loan is to be regarded as having been settled by that proceeding. 41 Indeed, the consequence of accepting Brenda's submission suggests a further reason why the conclusion to which I have come is correct. The submission involves a small tail wagging a large dog, and attributes a surprising reasoning process to White J. It entails that, having refused leave for the late inclusion of a claim for indemnity in relation to the Whale Beach loan, his Honour then decided a consequential point against FPH (on the basis that, with the anterior claim not proved, it was hopeless); and that this had the effect of determining, for the purpose of res judicata or issue estoppel, the very issue which his Honour had not permitted to be raised. Not only that, but his Honour carefully made orders preserving the ability of the parties to agitate the issue concerning the Whale Beach loan in later proceedings, even though he had actually decided the issue. I would be slow to infer that an experienced judge of this Court had proceeded in that way. His Honour's observation at [658] that he was not in a position to assess the "viability" of any future proceeding does not point to a different conclusion. Consciousness of the potential application of preclusionary doctrines would have led his Honour to state very clearly that he was dismissing any claim arising out of the Whale Beach loan on a final basis, if that was what he was doing.

Anshun estoppel 42 The relevant test was stated in Anshun itself, at 602 (Gibbs CJ, Mason and Aickin JJ), as follows: …we would prefer to say that there will be no estoppel unless it appears that the matter relied upon … in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. 43 In that formulation, the "unreasonableness" of having omitted to raise a claim in the first proceeding must flow, substantially if not wholly, from the closeness of its connection with the subject matter of that proceeding. Allsop P (as his Honour then was) made this point in Champerslife Pty Ltd v Manojlovski [2010] NSWCA 33; 75 NSWLR 245 at [3] (Champerslife). Thus, it is not sufficient that the claim could have been raised in the first proceeding or that the other party would prefer it to have been raised. The majority in Anshun went on to say (at 602-603): In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings: eg expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few. 44 The first question that arises is whether FPH can truly be said to have "refrained from litigating" its claim for indemnity in relation to the Whale Beach loan. As noted earlier, FPH sought leave to amend its statement of claim so as to raise the claim expressly. This was resisted by the respondents, including Brenda, and leave was refused. The application to amend was made very late, and the assessment that the claim could not fairly be dealt with in the impending trial was clearly understandable. However, that has the consequence that an Anshun estoppel is sought to be based not on the omission (for whatever reason) to raise a claim but on lateness in doing so. 45 There is limited direct authority on the question of whether Anshun estoppel is capable of arising in circumstances where leave to raise the omitted issue was refused. The conclusion that an estoppel does arise was reached by Biscoe J after a review of the authorities in Gold and Copper Resources Pty Limited v Newcrest Mining Limited [2014] NSWLEC 148 at [25], but without having heard argument (the existence of an Anshun estoppel was conceded) and with criticism on appeal (Minister for Resources and Energy v Gold and Copper Resources Pty Ltd [2015] NSWCA 113, [75] (Sackville AJA, Ward JA and Bergin CJ in Eq agreeing)). (It appears the criticism was limited to the applicability of the principles to the facts (the earlier proceedings said to give rise to the estoppel having involved a different administrative decision) rather than the principles themselves.) 46 In AON Risk Services Australia Limited v Australian National University [2009] HCA 27; 239 CLR 175 (AON) it was submitted for the respondent that a grant of leave to amend its pleadings was supported by the principle that a multiplicity of proceedings should be avoided (with reference to r 501(c) of the Court Procedures Rules 2006 (ACT)). That submission was unsuccessful, seemingly on the basis that multiplicity of proceedings was unlikely because the subsequent proceeding would face an Anshun issue and it was "not immediately obvious how ANU could have dealt with an Anshun point in the further proceedings to which it refers" (at [86] (Gummow, Hayne, Crennan, Kiefel and Bell JJ) and see [33] (French CJ)). 47 AON is cited in KR Handley, Spencer Bower and Handley: Res Judicata (LexisNexis, 5th ed, 2019) at [8.36] for the proposition that "[the] Henderson principle applies although leave to raise the omitted matter was refused". The learned author of that text also cites a Privy Council decision in an Indian appeal (Khan v Main AIR 1948 PC 78) to similar effect and rejects the contrary view of Powell JA who, in obiter in Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543, 618 considered that: … in a case in which a party has sought, but has been refused, leave to raise a matter in earlier proceedings, it can hardly be said that through negligence, inadvertence or even accident, he has allowed the point to pass by and ought not thereafter to be allowed to seek to raise the new matter; rather, as it seems to me, the fact that leave was sought but refused, would constitute special circumstances which would require the Court to permit the matter to be raised in the second proceedings. 48 I accept that the principles in Anshun can apply where a point was not litigated, not through negligence, inadvertence or accident (or for that matter a deliberate choice), but because a party successfully resisted it being raised. However, the circumstances surrounding the refusal of leave may well be relevant to whether an Anshun estoppel exists. Where, for example, a new issue comes to light shortly prior to trial through no fault of the party seeking to raise it, case management considerations may require that an application for leave to amend be refused, but an Anshun estoppel is unlikely to exist. 49 As noted in Tomlinson at [22], referring to Rogers v The Queen (1994) 181 CLR 251 at 275 (Deane and Gaudron JJ), Anshun estoppel is a "true estoppel" which should not be conflated with concepts of res judicata. It is a common law right which arises between parties to a proceeding as a consequence of how the proceeding was conducted, so as to affect the scope of future proceedings between them. The foundation of Anshun estoppel is therefore in concepts of what constitutes fair behaviour between the parties, rather than institutional considerations concerning the finality of judicial determinations. What is ultimately required is "a value judgment to be made referable to the proper conduct of modern litigation": Champerslife at [3] (Allsop P). 50 This coheres with the fact that, where "special circumstances" exist, a party may be permitted to raise an issue in subsequent proceedings despite it being unreasonable for it not to have been raised in earlier proceedings: Henderson v Henderson (1843) 67 ER 313, 319; Wong v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 242; 146 FCR 10, [38]. This is a flexibility not present in the operation of res judicata and issue estoppel, where an action or issue has been determined on a final basis and policies concerning the finality of judicial determinations are paramount (cf, in relation to issue estoppel, Cassegrain v Gerard Cassegrain & Co Pty Limited [2013] NSWCA 454; 305 ALR 648, [96]-[98]). 51 FPH submitted that it was not unreasonable not to advance a claim in relation to the Whale Beach loan in FPH v Ridge Estate because it had no need to do so. That need only arose when, in making final orders, White J withheld part of the funds to which FPH was entitled and required it to make out a claim for indemnity in order to obtain release of those funds. The basis for that submission is complicated but can be summarised relatively briefly. (a) On the basis of the documents referred to below, FPH understood with good reason that it had entered into the Whale Beach loan in its capacity as trustee of the PRT and was therefore entitled to be indemnified out of the assets of the PRT. (b) A trustee ordinarily has control over the assets of the trust and does not need an order from a court in order to exercise its right of reimbursement. (c) From around September 2020, FPH was seeking orders for the sale of Lot 2, which was an asset of the PRT (evidently on the understanding that, following the removal deed, it was a bare trustee with no power of sale). The proceeds of such sale would also be trust assets. (d) The orders made on 26 March 2021 required the proceeds of sale of Lot 2 to be applied first to discharging loans that were secured by mortgages over that property. There were two such loans, in respect of both of which FPH itself was the borrower: the original loan that financed the purchase of Lot 2, and the Whale Beach loan. Following the sale and the carrying out of that order, FPH had indemnified itself in relation to the principal of the Whale Beach loan. It had no need to seek any order in that respect and, therefore, no need to exercise the leave it had been granted to amend its statement of claim. 52 If matters rested there, this argument would have force as a reason why FPH should not be regarded as having failed to raise its claim with respect to the Whale Beach loan in the earlier proceeding (or a reason why it was not unreasonable to do so). However, there are three difficulties. (a) The argument does not work in respect of the interest on the Whale Beach loan. In these proceedings FPH seeks an order for payment out of the funds held in court to satisfy what it says is its right to be indemnified in that respect. In FPH v Ridge Estate, because the orders made on 26 March 2021 required the proceeds of sale of Lot 2 to be paid into court, FPH was also in the position of needing to obtain some form of curial relief if it was going to be indemnified in respect of the interest. It made, but had to abandon, that claim as noted above. The claim depends on establishing the capacity in which it entered into the Whale Beach loan. (b) The position that FPH was in following the sale of Lot 2 (in 2021) - having indemnified itself in respect of the principal amount owed to NAB - does not explain why FPH did not amend its pleading in order to raise the Whale Beach loan when it had specific leave to do so. (c) For reasons which are not clear, evidence and arguments concerning Whale Beach found their way into FPH v Ridge Estate as the parties' legal teams prepared for the trial. It is not necessary to refer to all of the correspondence or to try to understand the concerns of the parties except to note that, by May 2021, the respondents' solicitors were expressing concern about evidence that had been filed but did not seem to relate to the pleaded case and noting that Annexure J included expenses in relation to the Whale Beach property. FPH eventually came to the view that it should amend its pleading in order to articulate a claim for indemnity in respect of the Whale Beach loan. This makes it hard for it to maintain, in response to an Anshun argument, that it had no need to articulate such a claim. 53 I have come to the view that it was unreasonable for FPH not to raise the issue that it now seeks to raise concerning the Whale Beach loan in FPH v Ridge Estate, and that there are no special circumstances that prevent an Anshun estoppel from arising. My reasons are as follows. 54 FPH included the interest on the Whale Beach loan among the payments in respect of which it was seeking indemnification. At least by the beginning of the trial, it appears to have been clear to the legal representatives on both sides that these payments related to the Whale Beach loan and that they could not be successfully claimed unless the capacity in which FPH undertook the loan was established. It has not been established that FPH and its representatives were unaware of the problem earlier; and if they were, no reason is apparent (other than, possibly, the character of the interest payments being unclear because of deficient record keeping on its part). FPH put the respondents to the trouble of resisting a claim for the interest, only to abandon that claim when it was apparent that the necessary underpinning for it had not been pleaded or proved (and an eleventh-hour application for leave to amend had been refused). Indemnification for the interest on the Whale Beach loan is claimed again in this proceeding. FPH has mounted a claim in the first proceeding, given way at the trial when it was clearly untenable, and then sought to bring the claim again. 55 There is no reason why the point concerning the status of the Whale Beach loan could not have been pleaded earlier; indeed, FPH had the benefit of an express grant of leave in 2020 to do exactly that. The opportunity to be indemnified out of the proceeds of sale of Lot 2 was not in prospect at that point and, as noted above, does not explain the decision not to exercise the leave that had been extended. That must be understood as a deliberate forensic decision not to plead any issue concerning the Whale Beach loan. The fact that leave was sought and granted indicates the desirability of determining the issue concerning the Whale Beach loan at the same time as, and in the context of, the other issues arising from the falling out of Dr Hamilton and Steven. The issue properly belonged in FPH v Ridge Estate, both for that reason and because it necessarily underpinned the claim for the interest payments that FPH was maintaining. The issue was in my view "so closely related to" the issues in FPH v Ridge Estate that it was not reasonable to fail to raise it. 56 I have also considered whether there are "special circumstances" such that, despite my conclusion about unreasonableness, the applicant should be permitted to raise the Whale Beach loan in this proceeding. The special circumstances the applicant relied on were that there would be "no prejudice" to the respondent (in that she no longer faced the prejudice she would have had leave been granted to include the claim shortly before trial); that there is no risk of inconsistency between this judgment and FPH v Ridge Estate; and that this proceeding is being contested in bad faith, not in the "furtherance of any legitimately held legal rights" but out of "a desire to frustrate the right of [FPH] and [Dr] Hamilton to be repaid money that was lent for the benefit of Steven". 57 The allegation that this proceeding is being contested in bad faith is a serious one, and is not, in my view, established on the evidence. Before me the respondent had an arguable case on the merits against the applicant's claim. Absent that allegation being made out, the remaining circumstances do not rise to the exceptional level required. 58 The conclusion I have reached concerning Anshun estoppel makes it strictly unnecessary to determine the substantive issues. However, these issues were fully argued and it is desirable that I record my conclusions on them.

liability incurred in fph's capacity as trustee 59 In her defence, Brenda expressly denied that FPH was acting as trustee of the PRT when it entered into the contract to purchase the Whale Beach property and when it entered into the Whale Beach loan. However, her submissions did not maintain this position and did not (as I understood them) seek to contradict FPH's claim in this regard. In my view it is clear that FPH was acting in its capacity as trustee when it executed the contract of sale and paid the first part of the deposit, so that such rights as it then acquired under the contract were assets of the trust (and, had the sale been completed, the Whale Beach property would have become a trust asset). FPH was acting in the same capacity when, in an attempt to keep the contract on foot, it borrowed $122,000 from NAB and used that sum to pay the second part of the deposit. 60 The executed contract for the purchase of the Whale Beach property, dated 7 July 2017, records that the purchaser is FPH as trustee for the PRT. There was no suggestion that the document was executed in this way without the authority of FPH, or that it was a sham or a mistake. The understanding that FPH was entering into the transaction in its capacity as trustee is also evident in correspondence from NAB to Steven; correspondence between FPH and its conveyancer and between the conveyancer and Steven; the use of trust property (ie Lot 2) as security for the Whale Beach loan; and the terms of a guarantee and indemnity provided as security for the Whale Beach loan by Dr Hamilton. 61 Further, it was clearly within FPH's power as trustee to purchase Whale Beach and to borrow for that purpose, including to use Lot 2 as security. Pursuant to cl 7.1 of the trust deed it had all the powers in relation to the PRT and its fund that it was possible to give a trustee. It also had an express power under cl 7.2 and Schedule 1 to invest the funds of the trust in any kind of property anywhere in the world. Under cls 7.4 and 7.7 it had absolute discretion as to whether to exercise a power under the trust deed and how it should be exercised. Clause 7.15 contained an express power to borrow or raise money and offer "any parts of the Fund" as security.

Entitlement to indemnity 62 Clause 11.2 of the trust deed provided as follows: Indemnity to the Trustee The Trustee shall be indemnified out of the Fund in respect of any Liability incurred in connection with acting as trustee of the Trust. There is no entitlement to this indemnity if the Liability arose from fraud, gross negligence or breach of trust on the part of the Trustee. This indemnity is in addition to any indemnities the Trustee is entitled to by law. 63 Brenda argues that FPH is not entitled to indemnity under this clause because, in so far as it became liable under the Whale Beach loan, the liability arose from "gross negligence" on its part. While there was some discussion of informed consent in the written submissions, Brenda ultimately did not rely on any conflict of interest (leading to a "breach of trust") as taking the Whale Beach loan outside cl 11.2. That was understandable in the light of cl 8.1 of the trust deed, which provided that any powers of the trustee might be exercised by it notwithstanding any direct or indirect interest in the manner or result of that exercise of the power or any potential benefit from it.

"Gross negligence" 64 The second Schedule to the trust deed nominated South Australia as "the State" for the purposes of its provisions; so that, by cl 16.16 of the deed, the Trustee Act was expressed to apply to FPH and to the deed generally. Section 7 of that Act therefore provides an appropriate starting point for construing the expression "gross negligence" in cl 11.2. Section 7(1) provides: (1) Subject to the instrument creating the trust, a trustee must, in exercising a power of investment - (a) if the trustee's profession, business or employment is or includes acting as a trustee or investing money on behalf of other persons - exercise the care, diligence and skill that a prudent person engaged in that profession, business or employment would exercise in managing the affairs of other persons; or (b) if the trustee is not engaged in such a profession, business or employment - exercise the care, diligence and skill that a prudent person of business would exercise in managing the affairs of other persons. 65 Two points should be noted. First, FPH was not remunerated in its capacity as trustee. It was a company controlled by Dr Hamilton and having business interests of its own, which he allowed to be appointed as trustee of a trust that operated for the benefit of his friend and business partner Steven, and Steven's family (originally, it would seem, for the purpose of purchasing Lot 2). Counsel for Brenda therefore accepted that the relevant provision of s 7(1) was para (b). Secondly, entering into the Whale Beach loan was not an "investment" in any ordinary sense; however, in entering into the contract to purchase the Whale Beach property, FPH was exercising a power that can aptly be described as a "power of investment". This anticipates a point on which the parties were at issue, concerning what the relevant decision was for the purposes of deciding whether the indemnity under cl 11.2 was excluded by "gross negligence". However "the care, diligence and skill that a prudent person of business would exercise in managing the affairs of other persons" can safely be adopted, at least as a starting point, as describing the standard of care by reference to which "negligence" is to be measured. 66 The parties were agreed that "gross negligence" in cl 11.2 must mean something more than simply "negligence". In CMG Equity Investments Pty Ltd v Australia and New Zealand Banking Group Ltd [2008] FCA 455; 65 ACSR 650 (CMG Equity Investments), which involved an application for rectification, Finkelstein J said (at [28]): There are circumstances in which a legal owner will forfeit the priority which his legal estate gives him. The principal circumstances are where the legal owner is guilty of actual fraud (Birch v Ellames (1794) 2 Anst 427 [145 ER 924]) or "gross" negligence. As to the latter point, Eve J explained in Hudston v Viney [1921] 1 Ch 98, 104 that the negligence "must at least be carelessness of so aggravated a nature as to amount to the neglect of precautions which the ordinarily reasonable man would have observed and to indicate an attitude of mental indifference to obvious risks." Obviously, fraud and negligence, even when it is gross negligence, are of a different character. In the one case the conduct is dishonest. In the other, the omission is due to carelessness. 67 Construing contracts in Red Sea Tankers Ltd v Papachristidis (The Hellespont Ardent) [1997] 2 Lloyd's Rep 547, 586, (The Hellespont Ardent) Mance J (as his Lordship then was) said: [The] concepts [sic] of "gross negligence" here appears to me to embrace serious negligence amounting to reckless disregard, without any necessary implication of consciousness of the high degree of risk or the likely consequences of the conduct on the part of the person acting or omitting to act. … "Gross" negligence is clearly intended to represent something more fundamental than failure to exercise proper skill and/or care constituting negligence. But, as a matter of ordinary language and general impression, the concept of gross negligence seems to me capable of embracing not only conduct undertaken with actual apprehension of the risks involved, but also serious disregard of or indifference to an obvious risk. 68 In Spread Trustee Co Ltd v Hutcheson [2011] UKPC 13; [2012] 2 AC 194 (Spread Trustee), the issue was whether a provision of a Guernsey law prevented a trust instrument from excluding liability for "gross negligence". At [50]-[51] Lord Clarke of Stone-cum-Ebony JSC referred to various contexts in which English law recognised gross negligence as a concept, and observed that "English law recognises the difference in legal principle between negligence and gross negligence and between those types of negligence and fraud". Lord Mance JSC agreed. 69 On the other hand Sir Robin Auld, who was also a member of the majority, said at [117] that "the terms 'negligence' and 'gross negligence' differ only in the degree or seriousness of the want of due care they describe. It is a difference of degree, not of kind". This echoes reasoning of Millett JA in Armitage v Nurse [1998] Ch 241, 254 (Armitage), where his Lordship (referring to Willes J in Grill v General Iron Screw Collier Co (1866) LR 1 CP 600, 612) observed that "gross negligence is ordinary negligence with a vituperative epithet". 70 Both Armitage and Spread Trustee involved questions as to whether it was possible for a contract or trust instrument to exclude liability for "gross negligence". Those issues do not arise here. Instead, a provision of a trust deed that excludes indemnity for "gross negligence" must be construed. In a contractual document, which must be interpreted and applied by the parties, the word "gross" should be construed as identifying a dividing line rather than as mere rhetoric or an expression of condemnation. With that in mind, "gross negligence" must connote more than a failure to take sensible precautions. I therefore understand the expression to mean a degree of carelessness that involves "an attitude of mental indifference to obvious risks" (cf CMG Equity Investments), "conduct undertaken with actual apprehension of the risks involved" or "serious disregard of or indifference to an obvious risk" (cf The Hellespont Ardent). "Gross" negligence needs to be pitched at that level in order to be distinct from common-or-garden negligence, even though the underlying standard of care may vary as between, for example, trustees and company directors (see, eg, Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504, 516-517 (Finn J) (AS Nominees)). 71 Where the trustee is a corporation, the requirements of care and caution have a "flow-on effect" on the duties of the directors of that corporation (AS Nominees at 517). Issues as to apprehension of, or indifference to, risk therefore focus on the director or directors of the corporate trustee - in this case, Dr Hamilton. 72 Dr Hamilton swore two affidavits in this proceeding, one of which annexed and adopted an affidavit that he swore in FPH v Ridge Estate. His evidence evolved somewhat over time. That is unsurprising in the light of the observations made by White J about Dr Hamilton's evidence in the earlier proceeding. When relying on his own memory, Dr Hamilton is not entirely reliable as a result of what his Honour described as "muddled headedness and foolishness". Dr Hamilton's most recent affidavit is evidently the product of having reviewed a reasonably comprehensive set of documents assembled by his solicitors. Those documents were annexed and the resulting account must be regarded as generally reliable. The essential elements (which are consistent with the documentary record and which I therefore accept, except where I indicate otherwise) are as follows: (a) In late May and early June 2017, Steven engaged solicitors to act for Ridge Estate on the proposed purchase of the Whale Beach property. (b) On 21 June 2017 Steven emailed the solicitors to the effect that FPH, rather than Ridge Estate, would be the purchaser "as trustee for the Whale Beach Trust". This was conveyed to the solicitors for the vendor the next day. (c) At some stage prior to 25 June 2017 there were one or more conversations in which Steven: (i) asked that FPH purchase the property in its capacity as trustee of the PRT; (ii) said that he and his family would live in the property "and improve it for a significant capital gain"; and (iii) said that he would arrange for Lot 1 to be offered as security for a loan to purchase the Whale Beach property. (d) From around 25 June to 5 July 2017, emails passed between Steven and an employee of NAB in relation to a potential deposit bond. These do not appear to have led anywhere, as the deposit was paid by FPH. (e) On 7 July 2017, at Steven's request, Dr Hamilton arranged for FPH No 1 to lend $152,500 to FPH and for that sum to be paid into the account nominated for the deposit. (It appears from a bank statement put to Dr Hamilton in cross-examination that the amount was directly transferred from FPH No 1's bank account to that of the vendor's agent.) (f) Contracts were exchanged that day. Prior to execution, the capacity in which FPH was acting was changed, on the front page of the contract, from trustee of the "Whale Beach Trust" to trustee of the PRT. (g) Steven had told Dr Hamilton that Lot 1 would be available as security; he would lease the Whale Beach property and pay rent sufficient to cover the costs of the property including interest payments; and Lot 2, a trust asset, could also be used as security. (h) On 3 August 2017 FPH's solicitor asked Dr Hamilton and Steven for details of FPH's financier so that she could liaise with it in relation to arrangements for settlement. However, nothing concrete appears to have been done in relation to raising finance until around November. (i) On 20 November 2017 (a mere 10 days before settlement) FPH's solicitor emailed another NAB employee, noting that she understood NAB was providing finance and asking for certain details. NAB responded the next day saying that it would consider providing finance but was unlikely to have a facility ready to settle by 30 November. (j) On 27 November 2017, the solicitor advised Dr Hamilton and Steven of what NAB had said and the consequences for FPH if it did not settle by 30 November. The next day at around 10:00pm, Steven asked the solicitor whether FPH could request an extension until 15 December. On 30 November the solicitor advised that she had made this request. (k) In December 2017 there was an email exchange between Dr Hamilton and Steven concerning how to "get Whale beach over the line". Dr Hamilton proposed an arrangement designed to protect FPH's position and provide it with a share (in its own right) of any "upside". There is no evidence of a response by Steven and it seems that no arrangement of this kind was ever agreed. (l) On 15 January 2018 NAB sought information for a "preliminary assessment" of a loan for the purchase of the Whale Beach property. Dr Hamilton had discussions with Ms Cursaru of NAB, in which he learned that his personal guarantee would not meet NAB's serviceability requirements. Another source of income was required from an entity that had a commercial interest in the property being purchased. (m) The next day Dr Hamilton sent Steven a draft "heads of agreement", apparently designed to create a structure that might meet NAB's requirements. A copy was provided to Ms Cursaru by email. (n) On 18 January 2018 Dr Hamilton became aware that Steven had contacted the Bank of Queensland regarding finance for the purchase of the Whale Beach property. He exchanged emails with Steven, who confirmed his view that they should use NAB but "just need $600K in equity or cash". (o) On the same day the vendors' conveyancer proposed to FPH's solicitor that there be a deed of variation to the contract on the basis that the balance of the deposit was to be paid within five business days and completion take place on 1 March 2018. This was followed by a letter on 22 January stating that the vendors would not provide possession of the property prior to settlement. This letter also put the vendors' position that the balance of the deposit was to be paid by 31 January (along with additional conveyancers' costs of $660) and completion was to take place by 1 March. In between, on 19 January, Dr Hamilton received an email from Steven saying that he was "still trying to do a deal". (p) It appears that at some stage Steven discussed with FPH's solicitors the possibility of changing the identity of the purchasing entity (which presumably, by this stage, would have required novation of the contract). On 24 January 2018 the solicitors sent an email confirming his instructions that this was not to occur. (q) Later that day FPH's solicitors sought urgent instructions to agree to the terms proposed by the vendor. At Steven's request the solicitors sought a longer time for settlement, which the vendors refused. At 3:56 pm the solicitors sent an email to Steven (copied to Dr Hamilton) confirming his instructions to agree to the vendors' terms. The documents do not record whether Dr Hamilton was involved in the provision of those instructions. Dr Hamilton's affidavit evidence was that "Steven negotiated amendments to the contract for the purchase of Whale Beach". (r) FPH's solicitors followed up the next day with an email seeking confirmation that the balance of the deposit and the vendors' additional costs would be paid by 31 January 2018. The email also advised Steven and Dr Hamilton that, if the balance of the deposit was not paid on time, the vendors would be entitled to terminate the contract (and that, in that event, the $152,500 already paid would be lost and FPH would remain liable to pay the remaining $152,500). (s) On 31 January 2018 Ms Cursaru of NAB wrote to FPH confirming the availability of a loan of $122,000. It seems to be common ground that the Whale Beach loan was drawn down and the second instalment of the deposit was paid on 31 January. (t) The sale was not completed by 1 March 2018. (u) Dr Hamilton's affidavit refers to the amendments to the sale contract, negotiated by Steven, being recorded in deeds dated 6 April and 22 May 2018 that he signed on behalf of FPH as trustee of the PRT. These were not in evidence. However, it is apparent that in one of these negotiations the sale price was increased to $3,200,000 and the vendors were persuaded to extend the time for settlement again. (Dr Hamilton's affidavit evidence also suggests that the need for FPH to pay $152,500 in January 2018 arose from these amendments. This statement is correct only in so far as it records the timing of the payment. The sum was payable under the contract and due to be paid either on completion (originally due in November 2017) or earlier if demanded by the vendors.) (v) Dr Hamilton gave evidence that, at the time of signing the deeds referred to above (ie April-May 2018), he was assured by Steven that finance could be obtained to complete the purchase of the Whale Beach property. He was told that Steven would provide Lot 1 as security, that he would lease the property (and thus, I infer, provide an income stream that would persuade a bank to lend), and he was speaking with other contacts that could provide access to funds. (w) Various documents dated in May 2018 indicate that Dr Hamilton had not persuaded NAB to provide finance for the purchase of the Whale Beach property, and that Steven was involved in discussions with several people (including Ms Cursaru of NAB) seeking to restructure his various interests and their financing. (x) The vendors' patience ran out and on 12 June 2018 they terminated the contract. 73 Dr Hamilton was cross-examined. He confirmed that he understood at the time of executing the contract that it was unconditional, and that if FPH defaulted it would forfeit its deposit and might be liable for further damages. He agreed that, at the time of the contract and thereafter, FPH did not have $3 million at its disposal with which it could complete the purchase of the Whale Beach property. At the end of the 2017 financial year it had a deficiency of assets to liabilities of around $140,000, and there was no sudden windfall in the first week of July 2017. He also accepted that, before signing the contract, he had not taken any steps to obtain external finance in order to be able to complete it. 74 Asked whether he had taken steps to ascertain whether finance would be available, Dr Hamilton said that he had. What he was referring to in giving this answer was the assurances he said he had received from Steven before executing the contract (see [72(g)] above). He added: So Steven was my property expert and so he was - I took advice from Steven. He was sourcing the finance and he had engaged with financiers at that stage, and I had a conversation with him about what his plans were with regards to finance. 75 There were a number of further things that might sensibly have been done, that Dr Hamilton agreed he had not done. (a) He had earlier been asking Steven to commit in writing to make Lot 1 available to the PRT but that had not happened. He relied on Steven's verbal commitment that it would happen. (b) He knew that there was a loan secured by a mortgage over Lot 1 (according to Steven, a debt of around $1 million on a property with an estimated value of between 3 and 4 million dollars). He did not seek an independent valuation to confirm that. (c) He did not make contact directly with any potential lenders, based on his understanding that Steven had done so. (d) He apparently took at face value Steven's statement that he would lease the property, while knowing that Steven's main source of income was working for FPH and that company, at the time, had no income-producing assets. (e) He might also have questioned the utility of using Lot 2 as security to finance the acquisition of the Whale Beach property, as it was (to his knowledge) significantly encumbered. 76 Dr Hamilton then confirmed that "efforts were made" to obtain finance after the contract was signed, "including" the exchanges he had had with Ms Corsaru of NAB. It was not directly put to him that that was the only thing he personally had done to obtain finance. 77 He was also asked some questions about the draft heads of agreement he had proposed to Steven in January 2018. The point of those questions appeared to be that Dr Hamilton was seeking to obtain a benefit for FPH in its own right from the transaction. Had that arrangement ever been put into effect, it might have led to equitable remedies being available against FPH at the suit of the beneficiaries of the PRT. However, I do not think this casts any doubt on the proposition that FPH was acting in its capacity as trustee of the PRT when it executed the contract to purchase the Whale Beach property and when it made payments required by that contract. In any event, the arrangement was not put into effect. What the draft heads of agreement does show, for present purposes, is an appreciation on the part of Dr Hamilton of the position that FPH was in, and some effort by him to come up with a plan that would overcome NAB's objections to lending to FPH. That effort persisted until May 2018 but came to nothing, apparently (at least in part) because another person was proposed to be included in the plan with whom NAB did not want to deal. 78 It was then put to Dr Hamilton that the things he learned about NAB's attitude to lending money were things he could have found out before signing the contract. His response was that Steven, upon whom he relied as a "successful property developer" who "put himself out as a property expert", had made inquiries of NAB. He said: Steven's advice on this, he had contracted the property. He said he has got a - negotiated a very good price based on the properties that - based on the contract that he had negotiated, and he - because he had negotiated an unconditional contract, he stated that that was the only way to do property and this was - his advice was this would enable an upside. So his advice to me as my property advisor was this was a good deal. He was going to put Lot 1 up. He was going to lease the property. He was going to cover the costs. He was going to get his contacts involved with regards to the financing. He was - I - I trusted him. He was my friend. He - he - he had gained my confidence. He had - he - he placed himself out there as a successful property developer who was an expert in property, and I took his - I took his advice on - that he gave me because I trusted him. 79 FPH submitted that the liability in respect of which it claims a right of indemnity - ie the debt of $122,000 that it incurred by way of the Whale Beach loan - arose, not from the decision in July 2017 to purchase the Whale Beach property, but from the later attempts to keep the contract on foot. The decision that FPH faced in late January 2018 was whether to see the contract terminated and lose the $152,500 it had already paid (leaving in place an obligation to pay the second $152,500 which the vendors could enforce), or to pay the second part of the deposit by the end of the month and hold on to some prospect of the contract being completed. Although there were substantial impediments to obtaining finance to complete the contract, it was not out of the question that they could be overcome. Paying the second part of the deposit at that time (and raising a loan in order to do so) might not have been the best decision FPH could have made, but it was clearly not an act of "gross negligence". 80 However, I do not think this is the correct approach. FPH committed itself to paying the second instalment of the deposit, either upon completion or when demanded by the vendors, when it executed the contract. It did not have a choice to make, in January 2018, as to whether to agree to pay that amount or not. The options available to it were to pay the amount by 31 January (which the vendors insisted upon as a condition of not exercising their power to terminate the contract) or to let that date pass and be pursued for payment by the vendors at some later stage. Nothing in the evidence suggests that the vendors would have waived their rights in that respect. The liability (and the practical need) to pay the second instalment of the deposit arose directly from the contract. 81 Executing the contract was, no doubt, a courageous decision. FPH clearly could not find $3 million from its own resources and had to borrow from a subsidiary to pay the first instalment of the deposit. It did not have in place any finance to complete the transaction and its sole director, Dr Hamilton, had not been involved in or been informed about any discussions with potential lenders. On the facts known to Dr Hamilton, there were good reasons to be very sceptical about the usefulness of the sources of funding or security that Steven assured him would be available. In any case, none of these sources of funding or security had been put in place or (so far as Dr Hamilton knew) discussed with any potential lender. Ultimately, it would seem, Dr Hamilton trusted his friend (whom he regarded as a "property expert") to come up with something. Steven was obviously a person within the class of beneficiaries of the PRT, but that clearly did not excuse conduct that would otherwise be in breach of FPH's obligations under the trust deed. Rather, Steven's close interest in the transaction - he was not only a beneficiary of the PRT, but was proposing to live in the property once the PRT acquired it - emphasised his unsuitability to be FPH's sole source of advice on the transaction. FPH's decision to execute the contract fell a long way short of the "care, diligence and skill that a prudent person of business would exercise in managing the affairs of other persons", referred to in s 7 of the Trustee Act, particularly if that phrase is understood in the light of the "requirement of caution" usually understood to apply to trustees (discussed in AS Nominees at 516-517). 82 However, I have come to the view that the decision to execute the contract was not an instance of "gross negligence" in the sense in which that term is used in the trust deed. The evidence does not establish that Dr Hamilton, as the controlling mind of FPH, disregarded or was indifferent to obvious risks. He was aware of the risk to the position of the PRT if it could not obtain finance, turned his mind to how that might be done, and listened to the advice of a person whom he regarded as competent. His consideration of the issue was seriously deficient, and might well be said to be negligent, but did not in my view have the quality of indifference that is required in order to describe such negligence as "gross". It follows that, but for my conclusion that an Anshun estoppel arises, I would hold that FPH was entitled pursuant to cl 11.2 of the trust deed to be indemnified out of the assets of the PRT in respect of its liability under the Whale Beach loan. 83 This makes it unnecessary to consider whether FPH was entitled to indemnity under s 35(2) of the Trustee Act. Clause 11.2 is expressed to operate in addition to any indemnity to which FPH is entitled pursuant to law. Section 35(2) provides: A trustee may reimburse himself, or pay or discharge out of the trust premises, all expenses incurred in or about the execution of his trusts or powers. 84 In referring to expenses "incurred in or about the execution" of the trustee's powers, s 35(2) is similar to the Trustee Acts of other Australian jurisdictions (see, eg, s 59(4) of the Trustee Act 1925 (NSW)). The scope of the indemnity afforded by such provisions have been said to do no more than give effect to equitable principle: RWG Management Ltd v Commissioner for Corporate Affairs (Vic) [1984] VR 385, 399. 85 There is venerable authority that a right of indemnity exists in equity for expenses that are "properly" - ie "reasonably as well as honestly" incurred: Re Beddoe (1893) 1 Ch 547, 562 (Re Beddoe). The Full Court of this Court in Adsett v Berlouis (1992) 37 FCR 201 at 212 (Adsett) expressed itself in terms that reflected Re Beddoe. However, the New South Wales Court of Appeal expressed reservations about such terminology in Gatsios Holdings Pty Ltd v Nick Kritharis Holdings Pty Ltd [2002] NSWCA 29; ATPR 41-864 at [11]-[17] (Spigelman CJ) (Gatsios) (where the liability in question arose from a judgment in tort against the trustee). The traditional approach was re-asserted in Nolan v Collie [2003] VSCA 39; 7 VR 287 at [43]-[53] (Ormiston JA, Batt and Vincent JJA agreeing) (Nolan v Collie). 86 There are more recent decisions that cite Nolan v Collie for a proposition that expenses must be honestly and reasonably incurred (eg Anderson v Canaccord Genuity Financial Ltd [2022] NSWSC 58 at [1568] (Ward CJ in Eq)). Recently, in QB4 Capital Pty Ltd v Guardian Securities Ltd [2023] FCAFC 72 at [90], the Full Court of this Court (Moshinsky, Stewart and Jackman JJ) followed the traditional approach on the basis that it was supported by the authority of Adsett and the criticisms of Gatsios by Ormiston JA were "well made". That is the approach that I will adopt. 87 In the light of the findings I have set out above, I do not think the liability that FPH undertook under the contract meets the test of having been incurred "reasonably". It was undertaken without sufficient regard to whether FPH would be able to complete the contract (failing which it - and therefore the PRT - would be out of pocket to the tune of $305,000) let alone whether the acquisition of the Whale Beach property, heavily encumbered as it would have been, represented a sensible investment for the PRT. Accordingly, if my conclusion on the application of cl 11.2 of the trust deed had been different, I would hold that the statutory right of indemnity did not assist FPH.

disposition 88 The originating application must be dismissed. Prima facie, costs should follow the event. However, my orders will make provision for the parties to file written submissions seeking a different order as to costs. I certify that the preceding eighty-eight (88) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Kennett.