ANGELO TESORIERO (as the Executor of the Estate of PETER THOMAS EVAN RAND, deceased)

[2013] VSCA 209 (2nd revision, 22 August 2013, page 33, [79])

Harpur v Levy & Ors [2011] VSC 653

EQUITY - Owner of properties established discretionary trust of properties subject to mortgages - trustee was object of discretionary trust during lifetime - whether successor trustee entitled to claim indemnity on behalf of beneficiaries for loan repayments from estate of deceased original trustee - importance of intention of original trustee - whether appropriate to apply recoupment principles - whether Waring v Ward [1802] EngR 288; (1802) 7 Ves Jun 332 applies to a voluntary transfer of property subject to a mortgage - Simpson v Forrester [1973] HCA 4; (1975) 132 CLR 499 - Gadsen v Commissioner for Probate Duties[1978] VicRp 60; [1978] VR 653 - Appeal dismissed.

1 The issue which arises in this appeal is whether Paul Henry Harpur, ('Harpur') who issued proceedings in his capacity as trustee of the Claiborne Trust,[1] is entitled to be indemnified from the estate of Mr Peter Rand, ('Rand')[2] for amounts paid out of trust property to discharge loans which were made to Rand. The loans were secured on five apartment properties in Hawaii which Rand (and later Harpur) held on trust for various beneficiaries. Harpur also claims the expenses of sales of three of the apartments and the expenses of foreclosure proceedings relating to two of the apartments, following default in the repayment of the loans.[3]

2 Harpur appeals from the decision of a trial division judge that Harpur was not entitled to such an indemnity.[4] The respondents to the appeal are the executors of Rand's will and administrators of his estate.

3 Over a period of about 12 months, beginning in January 1989, Rand purchased long term leasehold interests in three apartments, numbered 2301, 2205 and 1405 at Aloha Towers at 1, 430 Lewers Street, Honolulu and freehold interests[5] in two other condominium apartments - Apartment 1815 at Aloha Lani, 2211 Alawai Boulevard, Honolulu, and Apartment 1810 at 444 Nahua Street, Honolulu.[6]

4 The total purchase price of these apartments was $1.189 million.[7] The purchases were partly financed by loans made by the Bank of Hawaii or, in the case of Apartment 1810, the Hawaiian National Bank, (each described as 'the Bank') amounting to US$482,000. Four of the five loans to purchase apartments were evidenced by transferable promissory notes described as Adjustable Rate Notes and all were secured by mortgages over the apartments.[8] Rand provided approximately $707,000 of his own funds towards the purchases.[9] The apartments were managed by an estate agent, Terry Hand. Rand used Apartment 2301 from time to time, and his close personal friend Douglas Claiborne, lived in that apartment. The other apartments were rented out.

5 On 31 August 1992, Rand made a declaration of trust[10] ('the original declaration') under which he transferred the sum of $10 and any other property added to the trust, to himself, in the capacity of trustee. Under the terms of the trust, the net income and principal were to be applied for his benefit (even to the extent of exhausting the principal) or otherwise as he directed during his life. Any undistributed net income was to be accumulated and added to principal 'as from time to time determined by the trustee'.[11] After his death, subject to payment of various other amounts, the principal sum was to be held on trust for Douglas Joseph Claiborne for his life and after his death for Claiborne's children.[12] It was common ground that Rand was concerned for Claiborne's wellbeing,[13] and wanted to provide for him after Rand died.

6 Article III of the Declaration of Trust provided that after the death of Rand the trustee was required to pay out of the principal among other things:

(a) my legally enforceable debts, including debts owed by me to a trustee individually, except debts which are an encumbrance on real property.[14]

7 Article IV gave Claiborne a right of residence in Apartment 2301. It provided that:

said DOUGLAS JOSEPH CLAIBORNE shall be permitted to full, free and undisturbed possession of Apartment 23-A [2301] in the Aloha Towers situated at 430 Lewers Avenue, Honolulu, Hawaii which is included in the trust estate used as his residence, with the right to occupy and use said apartment and to receive and retain all rents and income therefrom to the fullest extent incident to ownership thereof, without any rental or accounting therefore to the trustee as long as he resides therein.

1. It is my intention that all responsibilities toward the apartment shall, during the aforesaid period, rest solely and exclusively on him and not on the trustee. The trustee shall not be required to procure or maintain any insurance on said apartment, to pay and secure the payment of any rents, liens, maintenance and encumbrances, taxes or other charges against the apartment, except for capital repairs or capital improvements, disburse any rentals therefor or to protect or preserve the property or the improvements thereon or any title the trustee may have thereto.

8 Article VI, which set out the powers of the trustee, provided among other things that:

I direct that the trust estate be invested in real estate. I suggest and recommend that the trustee sell all apartment properties at a favourable time, except the apartment used by DOUGLAS JOSEPH CLAIBORNE, the beneficiary, while he resides there, and invest the proceeds in fee simple commercial property, with or without a mortgage, with strong longterm tenants, in the Pearl City area.

sell...any real or personal property of the trust

borrow money at interest rates then prevailing from any individual, bank, or other source, irrespective of whether any such individual or bank is then acting as trustee, and to create security interests in the trust property by mortgage, pledge, or otherwise.[15]

10 On the day that the declaration of trust was made Rand transferred Apartments 2205, 2301, 1815 and 1810 from himself, in his capacity as owner of an interest in them, to himself in the capacity of trustee.[16] The assignments recited that the transfer was made for 'valuable consideration paid by the assignee'.[17] Apartment 1405 was transferred to him 'in his capacity as trustee under a Declaration of Trust dated August 31, 1992'.[18]

11 A Torrens system of title registration operates in Hawaii. The transfers to Rand, in his capacity as trustee, were each expressed to be subject to the relevant mortgage[19] and were registered with the Land Court of Hawaii.[20] All of the assignments, except that of Apartment 1405, contained a provision under which Rand accepted the property 'in his capacity solely as trustee' and without assuming any liability in his personal capacity. At the time of the transfers the Bank did not release Rand from his obligation to repay the loans evidenced by the Notes or the personal covenants in the mortgages, although the Bank was aware that the transfers had occurred. Rand had an account with the Bank of Hawaii, which from August 1992 was only used for the deposit and withdrawal of amounts pertaining to the Trust.

12 In October 1993 Rand obtained further loans totalling about $135,000 on the security of Apartments 2205, 2301 and 1405, in his capacity as trustee. His Honour made the following findings relating to these loans.

In respect of each of these apartments, the Bank of Hawaii made a further advance to Rand, as trustee of the trust, secured by a mortgage. These further advances, totalling about $135,000, were not explained by Mr Harpur or any witness called by him. The evidence did not reveal the application of the funds received by the trust. The contemporaneous documents tendered concerning these further advances were limited to a Bank of Hawaii 'Home Owner Mortgage, Security Agreement and Financing Statement', apparently obtained by search of the Hawaii Land Court for each apartment. This instrument is between the Bank of Hawaii and Rand, as trustee of the trust. However, the documents recite the original Notes, between Rand personally and the Bank of Hawaii on initial purchase of the apartment, which were secured by the original mortgage dated 4 January 1989. The mortgage is identified as the first mortgage. The assignment of the apartment by Rand to Rand as trustee of the trust is also recited. Rand, as trustee, is referred to in this document as 'you' and the prior Notes are described as 'your loans'.[21]

13 The further advances were made around the same time that Rand acquired the reversions on the leases on Apartments 2205, 2301 and 1405, in his capacity as trustee. Although Harpur ultimately abandoned any claim for recoupment from the estate for the further advances made to Rand as trustee and applied for the purposes of the trust,[22] ground of appeal 6, which is set out below, raises questions about whether repayments of the loan and the proceeds of the sale of the apartments were applied to discharge the original loans or the further advances.

14 While Rand was alive he used the income of the trust property to pay outgoings and maintenance relating to the apartments and to service the loans. The management of the Trust was described by his Honour as follows.

Rand did not keep financial records for the trust. There were no tax returns. There were no minutes of trustee's directions. There was no file or separate collection of correspondence or other papers evidencing the conduct of the trust's affairs....

Rand set up an operating account with the Bank of Hawaii. He had a relationship manager at the bank, one Heidi Emory. There were some statements of account in evidence, but there was not a complete picture of the transactions passing through it. This account was the only account operated by Rand in Hawaii. The account was in his name personally, not as trustee. However, from August 1992 the account was only used for the trust. All transactions related to the apartments or, occasionally, small payments made to Mr Claiborne. Mr Hand collected the rents of the tenanted apartments. Except for loan repayments, Mr Hand paid all outgoings, including outgoings incurred on the apartments that were not tenanted, and deposited the net proceeds into the account. Mr Hand no longer had records of the transactions through his trust account, having disposed of the records after seven years. The funds that accumulated in the bank account in this way were insufficient to meet the monthly repayments to the Bank of Hawaii secured on the five apartments. Rand regularly sent funds, by deposit into the bank account, to meet the shortfall in income. He also supported Mr Claiborne financially. It was unclear whether Rand regularly provided that financial support through the bank account or by direct payment to Mr Claiborne.[23]

15 The terms of the trust were amended on 21 June 1993 and again on 4 December 1996. The Third Amendment and Complete Re-Statement of the Peter Rand Declaration of Trust (the 'third amendment') made on 27 August 1997 is the only amendment which is significant for the purposes of this appeal. In that amendment, Harpur was appointed successor trustee on the death, disability or removal of Rand,[24] who resigned on the same day. The terms of the third amendment provided that during Rand's life, the income and principal should be disposed of as the settlor directed or in the absence of any direction as the trustee determined to be in the settlor's best interests.[25] After the death of the settlor the trustee was to pay or hold the net income for the benefit of Douglas Claiborne, during his life. On the death of Mr Claiborne, the property was to be distributed free of trust to the sons of Harpur, Adam Paul Rand Harpur, Ryan Henry Rand Harpur and Guy Edward Peter Rand Harpur.[26]

16 As well as being entitled to the benefit of the income of the trust during his lifetime, Mr Claiborne was given the right to live rent free in Apartment 2301, or such other substitute apartment as Harpur in his sole discretion determined.[27] Unlike the provision in the first declaration of trust, which did not require the trustee to pay expenses related to that apartment, Article 1.7.1 of the third amendment deed provided that:

The trustee shall be responsible for paying out of the trust estate all expenses incurred in connection with such residence, including but not limited to real property taxes, maintenance fees, insurance and utilities.

17 Article 3.7 defined the powers of the trustee, which included the following:

GRANT: The settlor grants to the trustee discretion and complete power to administer the trust estate. It is the settlor's desire that the trust estate be invested in real estate. The settlor, therefore, suggests and recommends that the trustee sell all apartment properties at a favorable time, except the apartment used by DOUGLAS JOSEPH CLAIBORNE while he resides there, and invest the proceeds in fee simple commercial property, with or without a mortgage, with strong longterm tenants, in the area of Pearl City, Hawaii, though the trustee has the discretion to invest the trust estate as he or she determines is in the best interest of the beneficiaries, taking into consideration the real estate market and prevailing economic conditions.[28]

DEAL WITH REAL AND PERSONAL PROPERTY: With respect to real and personal property or any interest in real and personal property owned by the trust:

...

[C] To encumber the same;[29]

...

3-7.9 PERFORM AGREEMENTS: To carry out the terms of any valid agreement that the settlor may have entered into during the settlor's lifetime concerning property owned by the trust;[30]

...

3-7.15 BORROW: To borrow money from any source, including an individual trustee, with any such indebtedness being repayable solely from the trust estate, or a part of it, and to pledge or encumber the trust estate, or a part of it, as security for such loans;[31]

...

3-7.30 TERMINATE TRUSTS: To terminate any trust established by this Agreement when the fair market value of its assets has declined below $50,000 and the trustee decides that it would be uneconomical, imprudent, or unwise to continue to retain the trust; provided, that no trustee who is a beneficiary of such trust shall participate in the exercise of this power to terminate and provided that if the power to terminate is exercised, the remaining principal of the trust be distributed to the beneficiary or beneficiaries then entitled to mandatory or discretionary income distributions as the trustee in the trustee's absolute discretion shall decide; provided, further, that this power shall not be effective to the extent that it would result in greater estate or inheritance taxation to the settlor's estate.[32]

18 Rand became seriously ill in 1994. In May 1997, after receiving legal advice from US lawyers about his potential tax liability, and having been told by his doctor that he had only a short time to live, he decided to sell the properties,[33] despite Mr Hand's advice that the property market was depressed. Mr Hand obtained the mortgage balances from the Bank of Hawaii and made suggestions about the appropriate list prices in US dollars. Rand agreed that the sales should go ahead at the suggested prices. The information faxed to him by Hand and annotated by him with the word 'Agreed!' was as follows:

19 The judge said that on the basis of this information Rand probably believed that the net amounts realised from the sales, coupled with the proceeds of sale of other property which Rand then owned in Thailand[34] would amount to about $750,000, less expenses. His Honour was satisfied that Rand intended to repay the mortgage balance out of the proceeds of the sale of the apartments.[35]

20 On 23 June 1997, Rand gave Harpur power of attorney over his Hawaiian affairs and other matters.[36] Rand himself negotiated the sale of apartment 1810, and the sale was completed by Harpur after Rand resigned. The purchaser took over the mortgage liability on that apartment. The claim for recoupment of the loan used to finance the purchase of that apartment was abandoned during the trial.[37]

21 After the death of Rand, Harpur wrote to Mr Claiborne, informing him that it was Rand's express wish that all of the apartments should be sold.[38]

22 The appellant sold Apartments 2205 and 2203 in 1998. Apartment 2205 was sold for $220,000 (below the 'list price' indicated by Mr Hand) and the mortgage over this property was discharged leaving a balance of US$108,688 in an escrow account for the benefit of the trust.

23 Apartment 2301 was sold for US$260,000, (also below the list price) which after the discharge of the mortgage left a balance of US$224,008. The application of the proceeds of these sales is described in more detail below.

24 His Honour described the other events which occurred after Harpur took over management of the Trust as follows:

Mr Claiborne was dissatisfied with Mr Harpur's management of the trust and complained. Mr Harpur told Mr Claiborne that Rand left the trust in a dreadful state because it was negatively geared and the bank was insisting upon repayment of its loans. Mr Harpur contemporaneously stated:

When Peter passed away the ongoing funding of the negative gearing ceased. Until apartments other than the one you live in are sold the trust has no income to pay you an annual distribution....

Mr Claiborne appears to have found this explanation unsatisfactory. He petitioned the court in Hawaii for Mr Harpur's removal as trustee, an accounting, and damages. The court dismissed two of the petitions and the third petition has been inactive for more than nine years. However, there were consequences from the existence of these proceedings. A lis pendens prevented the sale of Apartment 1405 for US$185,000. Mr Harpur negotiated with Mr Claiborne for its release in return for a payment of US$25,000. Mr Harpur made that payment but Mr Claiborne did not honour the bargain by lifting his lis pendens. Mr Harpur also incurred legal expenses defending these proceedings, which he paid out of trust assets. A third matter was that Mr Harpur became concerned that he might need to call on the trustee's right of indemnity from the trust fund and that right appeared to him to be under threat from inadequate solvency. ...

The sale of Apartment 2301 resulted in net proceeds of US$224,008, disbursed directly to Mr Harpur in Australia. He opened a bank account in Australia for the trust with those funds. Mr Harpur lent the funds in the Australian bank account on an unsecured loan to Flemalle Pty Ltd, a private company controlled by Mr Harpur, at an interest rate of 7% per annum.

In October 1998, the amount secured to the Bank of Hawaii on the two remaining unsold apartments was $177,386. The trust had available to it $274,464 arising from the sale of Apartments 2301, 2205 and 1810 (less the amounts paid in expenses, taxes and servicing mortgages). By the first anniversary of Rand's death, Mr Harpur could have paid out all mortgages. The trust could have held unencumbered title to Apartments 1405 and 1815, and cash reserves of US$97,000. ...

By August 2000, the maintenance fees that are payable in multiple dwelling structures were in arrears and the mortgages were in default. In July 2001, foreclosure proceedings commenced. There was no defence other than to remedy the default, and Mr Taylor, then representing Mr Harpur, advised that course. Mr Harpur told Mr Taylor there were no funds.

25 The Bank foreclosed on the amounts which remained owing and sold Apartments 1815 and 1405. Apartment 1405 was sold by the mortgagee in 2002, for $130,000. The amount then owing on the Note was reduced by about $37,000.[39] Apartment 1815 was sold for $96,000 in 2003, resulting in repayment of the loan balance at that time.[40]

26 On 19 December 2003 Harpur's solicitors wrote to the executors of the Rand estate, claiming that the executors had failed to pay amounts owing by Rand personally under debts incurred to the Hawaiian Banks and that

[F]rom the proceeds of the realisation of these properties and other Trust revenue, the amount of USD $426,630.48 was paid to the mortgagees to discharge the liability of Peter Rand under the Adjustable Rate Notes.

Under these circumstances, and pursuant to ordinary restitutionary principles our client is entitled to recoup the amount paid to the mortgagees together with interest from the date of payment and the expenses incurred in selling the properties.

27 By an amended statement of claim dated 6 May 2011 Harpur commenced proceedings on behalf of the Claiborne trust, claiming recoupment of the amount paid to discharge the Notes from the sale proceeds and foreclosure processes, together with interest and expenses.

28 The only remaining asset of the Claiborne Trust is the debt of about $400,000 owed by Harpur's company.[41]

29 The central issue in this case concerned Rand's intention in establishing the trust. When he declared himself trustee of the Apartments, did he intend to settle the properties subject to the registered mortgages, or free from those mortgages? Or, to put the question another way, did he intend that he would be indemnified for amounts paid to meet his obligations to the Bank from the income and capital of the trust when the properties were sold, or did he intend to meet that liability out of his own pocket, without any recourse to the proceeds of sale of the trust property? If he did not intend to meet the liability out of his own resources, without recourse to the trust property, did he make any arrangement with Harpur altering that original intention when Harpur became trustee? Unfortunately these issues were obscured by the manner in which Harpur's case was argued.

30 In the proceedings below Harpur argued that he had paid amounts which Rand owed under the Adjustment Notes from the assets of the Claiborne Trust, under compulsion of law. He submitted that by analogy to the situation where a guarantor repays a loan incurred by the primary debtor,[42] the trustee, on behalf of the beneficiaries,[43] had a right in equity to an indemnity out of Rand's estate for the amounts paid to discharge the loan. That liability arose because Rand was ultimately liable to repay the debt to the Bank and Harpur's liability as trustee of the mortgaged property was only a secondary liability.[44]

31 Harpur did not claim that he was entitled to a contribution[45] from Rand's estate, because Rand's personal liability to the Bank under the Adjustment Rate Notes and the personal covenants in the mortgages was co-ordinate with the Bank's entitlement to recoup the loans by selling the properties which were subject to the mortgage.[46] Instead he claimed an entitlement to recoup all the loan repayments discharged from the assets of the trust.

Was there a right of recoupment when the Trust was created

32 The trial judge's reasons necessarily reflected the artificial basis of Harpur's claim. His Honour correctly said that it was necessary to consider the constitution of the trust in 1992 and the effect of any changes made on 27th August 1997, when Rand executed the third declaration of trust. In addition, such a right could arise as the result of an agreement made, or an estoppel arising, between Rand and Harpur prior to Harpur becoming the trustee of the Claiborne Trust.

33 But because of the way that the case was argued, his Honour went on to consider the equitable principles of recoupment and contribution. His Honour said that where a person is required to pay an amount to a creditor because of the legal default of another the payer may have an equitable right[47] to contribution[48] or indemnity, from the person whose default required it to be paid.[49] After discussing the authorities dealing with rights of contribution and recoupment his Honour observed that:

In the context of a common burden, to determine the remedy equity inquires whether obligations can be characterised as 'of the same nature and to the same extent'.[50] The same question arises when courts examine whether the liabilities of two obligors are hierarchical, that is, the liability of one obligee is primary, or ultimate, and that of the other obligee is secondary. The plurality observed in HIH Claims Support Ltd v Insurance Australia Ltd:[51]

As the requirement of coordinate liabilities is essential for the operation of the doctrine of equitable contribution between obligors, the duty to contribute is not based on 'some general principle of justice, that a man ought not to get an advantage unless he pays for it'.[52]

Where the liability is hierarchical, and the secondary obligor relieves the common exposure of the obligors, that obligor is entitled in equity from the ultimate obligor, not contribution, but indemnity or recoupment.[53]

34 His Honour held that Harpur's indemnity claim should be rejected because when Rand transferred the properties to himself as trustee, he had no intention of remaining liable to repay the loans[54] as between himself and 'the trust.' ( Of course the trust itself was not a legal entity. However his Honour appears to have described the issue in this way to differentiate between the liability which Rand had to the Bank as a

result of having entered into the loans and his liability in his capacity as trustee of the mortgaged properties)

35 Essentially his Honour reached that conclusion for four reasons. First, the creation of the trust by Rand and the terms of that trust did not indicate that he intended to repay the loans out of his personal resources. In the case of Apartment 2301, the assignment of the lease from Rand in his personal capacity to Rand in his capacity as trustee was:

absolute 'with all the powers set forth in the said trust declaration including ... full powers and authority to ... mortgage ... the said lease according to the sole judgment and discretion of the trustee. Peter Rand accepts said leases in his capacity solely as trustee and is not assuming any personal liability in his individual capacity'. That statement is to be properly attributed to a personal liability to pay the rents reserved by the leases. The estate, right, title and interest of Peter Rand as assignee in the properties is described in exhibit 'A' to the assignment. Exhibit 'A' identifies the lease by its title particulars including its reference number in the Office of the Assistant Registrar of the Land Court of the State of Hawaii and its transfer certificate of title number. It further records that the lease is subject to the terms and provisions of the mortgage dated 17 January 1991, in favour of the Bank of Hawaii.

36 The other assignments of lease and the two quitclaim deeds used to transfer Apartments 1810 and 1815 were of similar effect.

37 His Honour acknowledged that although the mortgage documents required the Bank to consent to transfers of the mortgaged property and the Bank had not explicitly consented to the transfers from Rand in his personal capacity to Rand as trustee, its consent could be inferred.

The first [reason] is that the Bank of Hawaii made further advances to Rand as trustee of the trust, secured by mortgage and the documents in respect of the further advances acknowledge the assignment. The second is that, after the assignment, Rand continued to service the Notes in his capacity as trustee and not personally. Rand continued to operate the Bank of Hawaii account as a management account, servicing the management of all properties. That is to say that from the settlement of the properties on the trust, it took both the benefit and the burden of the properties.[55]

38 In parenthesis I note that the Bank's implied consent to the repayments being made out of trust property would not, of itself, be sufficient to relieve Rand from his liability to the Bank under the terms of the loan agreements, given that Rand was both the original borrower and the trustee of the property.

the documents recite the original Notes, between Rand personally and the Bank of Hawaii on initial purchase of the apartment, which were secured by the original mortgage dated 4 January 1989. The mortgage is identified as the first mortgage. The assignment of the apartment by Rand to Rand as trustee of the trust is also recited. Rand, as trustee, is referred to in this document as 'you' and the prior Notes are described as 'your loans'.

The evidence suggests an ongoing harmonious relationship between the Bank of Hawaii and Rand until his death, characterised by open acknowledgement of the trust as the owner of the properties and the primary entity responsible for the debt to the Bank of Hawaii. That relationship operated consistently with the three categories of transactional documents, the declaration of trust, the assignments that effected the transfer of the properties into the trust and the further mortgage advances.[56]

40 Secondly, the assignments of the properties to the trust fund, were subject to the mortgages. This meant that as between the transfer and the transferee, the transferee took subject[57] to the burden as well as the benefit of the transfer.[58]

41 Thirdly, the obligations of Rand in his personal capacity and as trustee had a common origin in a liability to the Bank. Although Rand was initially liable under the personal covenant to repay the loan in the Notes and under the personal covenant in the mortgage, two separate obligations to repay the loan arose when he 'severed the covenant to pay as borrower from the covenant to pay as mortgagor' by the act of settling or giving the property by the declaration of trust.[59]

42 Although Rand did not obtain any discharge from the Bank of his personal liability as the borrower under the Notes, that liability was secondary to the obligation imposed on Rand as trustee/mortgagor under the Trust. In other words the primary,

or ultimate obligation[60] to repay rested on Rand as a trustee who was liable under the mortgages. As his Honour observed:

Once the claim by Mr Harpur to recoup the further advances by the Bank of Hawaii to Rand as trustee are abandoned, I am satisfied that Rand personally and the trust were each liable to the Bank of Hawaii for the same debts. Those debts are the repayment of the sums advanced, interest and other expenses incurred according to the terms of the facility documents for each apartment. As between Rand personally and the trust, the obligations were hierarchical. Ultimate responsibility for the debts was borne by the trust. When solvency became an issue, Rand as trustee decided to sell the properties and repay the mortgages from the proceeds of sale. Rand did not fully implement his decision before his death.

When Rand first transacted with the bank and created the Notes and the mortgage security, Rand personally bore sole responsibility for any default in repayment of the debts, a responsibility secured for the benefit of the bank by the mortgages. As settlor of the trust, Rand divided this obligation. He transferred the apartments and the mortgages to the trust and in so doing, I am satisfied that he intended to and did transfer to the trust the ultimate responsibility, as between himself and the trust, for repayment of the Notes. He did not obtain a discharge from the Bank of Hawaii of his liability as the borrower under the Notes. Nevertheless, that liability was secondary to the obligation accepted, and discharged, by the trust. There is no commercial imperative, ..., which creates a context where the remaining obligation of a settlor of a trust, as a borrower who has parted with the benefit of the security, must be taken to be the ultimate obligation to repay the Notes reserved to him.[61] [Emphasis added]

43 As I have said, the capital owing on the mortgages was reduced from time to time, but inadequacies in the accounts of the Trust made it difficult to determine the sources of the funds which enabled this to be done. His Honour accepted that rental from the apartments which was collected by Mr Hand had probably been used to reduce mortgage balances. Rand transmitted moneys to Hawaii on various occasions and these amounts may also have been used to service the mortgage debt, when there was a shortfall in the rents received from the apartments. His Honour was not satisfied that these intermittent payments indicated that Rand had assumed ultimate liability for the debts in his personal capacity, rather than as trustee. Indeed his Honour observed that:

the manner in which Rand conducted the mortgage accounts as trustee is consistent with the ultimate obligation for the mortgage debts, as between Rand personally as settlor and Rand as trustee, lying with the trust from the time of the settlement of the trust.[62]

44 Fourthly, his Honour held that the 'good and valuable consideration' acknowledged in the assignments of the properties referred to the acceptance of the obligation to satisfy the debt obligation secured by the mortgages over the apartments.[63] In these circumstances there was no unfairness in requiring the trustee to bear the ultimate obligation of repaying the loans from the property given to the trust.

The trust was solvent in a balance sheet sense and the trustee had an unfettered discretion to manage the assets and liabilities of the trust estate. It is the contrary proposition that the necessary inference is that Rand retained that obligation that strikes me as absurd.

As Luxmoore LJ, with Lord Greene MR and MacKinnon J agreeing observed in Cunningham-Reid v Public Trustee:[64]

The substantial point in this case, however, on which the plaintiff is bound to fail, is that he has acquired, by reason of the death of Sir Ernest Sanger, the full beneficial interest in the lease. In those circumstances, it could hardly be suggested that he, having the full benefit of the lease, could be equitably entitled to call on the executors of his co-covenantor, whose estate has no beneficial interest in it, to pay half the rent. It seems to me that in equity the claim to contribution in these circumstances must, of necessity, fail.[65]

When the trust paid the debts, it discharged the obligation of the estate of Rand to the Bank of Hawaii for the Notes. Because the obligor with ultimate responsibility satisfied the Notes, no right arises, whether by subrogation or other equitable principle, to recoupment from a secondary obligor. That is not because the Bank of Hawaii was entitled at law to recover from either obligor or because the estate (Rand) was first liable chronologically. A 'community of interest' between obligors is not a sufficient condition for an equity of recoupment. The circumstances in which Rand divested himself of the apartments and the trust acquired the mortgage obligations are determinative because Rand as settlor was both entitled to and able to structure the obligations to the Bank of Hawaii as he did, determining priority or hierarchy between the obligors. For the reasons I have given, on analysis, those circumstances show that the obligations to the bank were intended to be hierarchical with the trust bearing the ultimate obligation. Payment by the trust as the ultimate obligor discharged the estate as the secondary obligor from the obligation. No occasion arises for equity to intervene.[66]

46 Finally, his Honour concluded that the debt to the Bank was not paid out of trust assets under compulsion of law.[67]

Did a right of indemnity arise when Harpur became trustee?

47 His Honour went on to consider, and reject, the claim that when Harpur became trustee he acquired a right to be indemnified by Rand on behalf of the Trust, because he was told by Rand that if he assumed the trusteeship Rand would pay out the Notes to ensure that the trust property was not subject to any mortgages.

48 His Honour's conclusions on that issue were based largely on his view that Harpur was not a reliable witness. The judge correctly said that because Rand was dead, evidence of his statements and intentions had to be carefully scrutinised.[68] The judge noted that Harpur had not commenced proceedings until almost 6 years after probate was granted and that he had a poor memory of events and tended to reconstruct them under cross-examination. His Honour also found that the rancour engendered by the litigation had affected the reliability of the executors of Rand's will, Mr Levy and Mr Tesoriero. His Honour concluded that none of these key witnesses had given reliable evidence and that :

In the result, the careful scrutiny of the claims in the proceeding has required reliance on the contemporaneous documents, the money trail when evident, and, drawn from these sources and the matters that are common ground, the apparent logical probability of events.[69]

49 Harpur's evidence was that in early May 1997, when Rand asked him to take over the trusteeship, he said he would do so if Rand paid out the loans secured on the Hawaiian apartments. He said that Rand had told him that he intended to discharge the Notes and contribute more money to the trust. He also relied on a second conversation in August 1997 in which he said he had told Rand that he would not take over as trustee unless 'we fix this liquidity problem' and Rand had undertaken to do so. His Honour did not accept this evidence, commenting that it was not supported by any contemporaneous documents or the logic of events.[70]

50 His Honour considered that Harpur's subsequent conduct was inconsistent with his account of these conversations. The judge observed that in 1997 when Harpur told Mr Claiborne that Rand had left the trust in a terrible state and there was no income for Mr Claiborne, he had not suggested that Rand's estate had any obligation to pay out the loans.[71] In 2003, when Harpur's solicitors first wrote to the executors, there was no mention of an arrangement that Rand would pay off the debts and it was not until 14 years after the alleged conversation took place that such an allegation was made in Harpur's amended reply.[72] His Honour commented that:

It is remarkable that no such demands had been made of the executors of Rand's estate at any earlier point in time, particularly as there were several occasions when the impact of the obligations of the Notes on the solvency of the trust was stark.[73]

51 After Rand died Harpur had continued to follow Rand's plan of selling off the apartments and made no demand that the estate indemnify him in his capacity as trustee against liability for the loans. His Honour said that:

I consider that Mr Harpur's evidence of these conversations recalls snatches of their discussions, mostly out of context. The context now put by Mr Harpur is unreliable reconstruction. I accept it is probable that the two men discussed the capacity of the trust estate to provide adequate support for Mr Claiborne. To the extent that the response of Rand to these concerns is evident from circumstances other than the conversations alleged by Mr Harpur, I am satisfied that Rand was motivated in what he did by two factors. Rand's prime concern was genuine - to provide adequately for Mr Claiborne - but his other concern was the regulatory and commercial reality for the trust on his death that his American attorneys identified.

I consider that what both Rand and Mr Harpur did later reveals Rand's probable response to Mr Harpur when balancing these factors in their conversations and his decisions as trustee in 1997. For his part, Rand decided to sell off the apartments and pay out the Notes/mortgages, converting the trust estate either wholly or partly into cash. He gave those instructions to Mr Hand and commenced that process, despite suggestions from Mr Hand that, in Hawaii, the timing was not ideal for selling the portfolio of apartments. This approach by Rand to his perceived problems was, it appears, not completely formulated. Probably Rand, had he not died, would have eventually decided whether to retain one or more of the apartments for Mr Claiborne's use and decided whether to reinvest the funds in commercial property or repatriate the balance of the trust estate out of Hawaii. I cannot make a finding about this, but it matters not for it is clear that Rand did not agree to contribute money from Australia into the trust to discharge the Notes.[74]

52 His Honour also found that the deterioration in the financial position of the Trust after Rand died could be attributed to Harpur's delay in discharging trust liabilities. Thus even if Rand's estate had initially had an obligation to pay out the Notes, his Honour rejected the argument that any loss suffered by the trustee on behalf of the trust was caused by its failure to do so. None of these factual findings were explicitly challenged in the grounds of appeal.

1. The judge erred in holding that the Claiborne Trust was primarily liable to repay Rand's personal loans from the Bank of Hawaii and/or the Hawaii National Bank.
2. The judge erred in holding that Rand intended to transfer to the Claiborne Trust the primary liability to repay his personal loans from the Bank of Hawaii and/or the Hawaii National Bank.
3. The judge erred in holding that the Claiborne Trust received funds from further advances made to Rand in October 1993 and should have held that Rand received those funds.
4. The judge erred in holding that payments made by the appellant to the mortgagee upon settlement of the sale of Apartments 2205 and 2301, to procure a discharge of the mortgage on those Apartments, were not paid under compulsion of law.
5. The judge erred in holding that the payments made by or on behalf of the appellant to the mortgagee upon settlement of the sale of Apartments 1815 and 1405 were not paid under compulsion of law.
6. The judge erred in holding that between 1993 and 1998 the sum owing under the Note:

(a) in the amount of $86,000 secured by a mortgage on Apartment 2205 was reduced by about $74,000. The judge should have held that the sum owing was reduced by amount $35,000.

(b) in the amount of $80,000 secured by a mortgage on Apartment 2301 was reduced by about $120,800. The judge should have held that the sum owing was reduced by about $65,000.

(c) in the amount of $123,000 secured by a mortgage on Apartment 1405 was reduced by about $37,000. The judge should have held that the sum owing had not been reduced.

...[Grounds 7-10 were abandoned]

1. The judge erred in finding or holding that, without novation, Rand as trustee, incurred any liability to the Bank of Hawaii and/or the Hawaii National Bank to repay Rand's personal loans from the aforementioned Banks.
2. The judge erred in finding or holding that Rand as trustee, covenanted, either expressly or by implication, to indemnify himself as mortgagor for liabilities incurred under his personal covenants in the mortgages.
3. The judge erred in finding or holding that Rand as trustee, gave any consideration to himself personally, constituted by 'the obligation to satisfy the debt obligation secured by the mortgages over the properties' or at all.

54 All of these grounds reflect the fact Harpur's claim was based on the principle of recoupment and in essence challenge his Honour's finding that Rand intended that the loans were to be discharged from the trust property, rather than from his personal assets. The appellant's submissions relied on the fact that Rand retained a personal obligation to repay the loans to the Bank, rather than on Rand's intentions in transferring the property to himself as trustee. The appellant submits that because Rand remained personally liable to repay the loans to the Bank under both the Adjustment Notes and the covenants in the mortgages and the loans were discharged by Harpur from the proceeds of trust property under compulsion of law, Harpur had a right of recoupment against Rand's estate in favour of the Trust.

55 The appellant submits that Rand remained liable to repay the loans under the Notes because there was no novation of the original contracts made between Rand and the Bank under which Rand as trustee took over Rand's personal liability to repay the loans, and the Bank did not release Rand from his personal covenants to repay the loans. The appellant argued that as a consequence, the assignment of the property subject to the mortgages did not relieve Rand of that personal liability. A trustee who takes as an assignee of the mortgaged land is not personally liable to the mortgagee under any covenant in a mortgage.[75] The appellant submits that a covenant in a mortgage to repay a loan does not run with the land[76] and a security interest over land can exist independently of liability under a covenant to pay.[77] Thus when Harpur became trustee he did not assume liability to the Bank under the mortgages. In effect Rand, as trustee, (and hence Harpur) became a guarantor in relation to Rand's personal liability and Rand retained ultimate responsibility to repay the debt.

56 The appellant argues that his Honour wrongly relied on Rand's subjective intentions, [78] rather than on the terms of the trust, in reaching the conclusion that the 'ultimate obligation' under the covenant rested with 'the Trust'. He submits that the judge wrongly held that the documents transferring the apartments to the trustee

showed that [Rand] intended to and did transfer to the trust the ultimate responsibility, as between himself and the trust for the repayment of the Notes. He did not obtain a discharge from the Bank of Hawaii of his liability as borrower under the Notes. Nevertheless that liability was secondary to the obligation accepted and discharged, by the Trust.[79]

57 The appellant also contends that his Honour should not have attached any significance to the fact that Rand paid interest on the debts from the rent received from the apartments or had contemplated repaying the loans from the capital of the trust.[80] This was simply a consequence of the fact that during his life-time he was both beneficiary and trustee and had the power to use the capital and interest for his own benefit.[81]

58 The appellant submits that the trial judge erred in finding that Rand's liability under the Adjustment Notes and his mortgage covenant to pay the secured debt:

gave rise to two separate obligations to repay the debt when Rand, as settlor, severed the covenant to pay as borrower from the covenant to pay as mortgagor by the act of settling or gifting the latter by declaration of trust.[82]

59 In the absence of novation and because the trustee was not liable under the personal covenants in the mortgages, Rand retained sole liability for repayment of the debts in his personal capacity. Thus the trial judge had wrongly held that the Trust was ultimately liable to repay Rand's personal loans from the Bank of Hawaii and/or the Hawaii National Bank.[83]

60 The appellant also argues that his Honour erred in holding that the effect of transfer of the properties subject to the mortgage was that the transferee took the burden as well as the benefit of the transfer. Although Waring v Ward[84] held that this principle applied in the case of a transfer for value of property subject to a mortgage, it did not apply where the property was transferred as a gift. Despite the fact that the transfers of the properties from Rand in his personal capacity to Rand in his capacity

as trustee purported to be made for 'valuable consideration', they were, in reality, voluntary transfers.

61 Under cover of grounds 12 and 13, the appellant submits that the trial judge erred in holding that the acceptance by the trust of the obligation to satisfy the debts owed by Rand in his personal capacity was part of the consideration for the assignments of lease. The transfers of the property were, in actuality, gifts, as his Honour himself had accepted in some parts of his reasons.

62 The respondents submit that the appellant's framing of the first two appeal grounds incorrectly 'roll up' the judge's reasoning. The ultimate question in the appeal was not whether Rand in his personal capacity or Rand in his capacity as trustee had ultimate or secondary liability to repay the loan, but rather whether, on the facts of the case, his Honour had properly held that when Rand established the trust, he did not intend that he would remain responsible to discharge the mortgage loan from his personal assets.

63 The respondents argue that the judge correctly held that assignment of the apartments to the trust subject to the mortgages made Rand liable to repay the debts in his capacity as trustee. Rand had not obtained the loans for his own purposes but in order to finance the purchase of the very properties which he assigned to himself as trustee. He had established the trust on the basis that the loans would be discharged by sale of the trust property. The conduct of Harpur in paying interest on the mortgage loan out of the bank account used for the purposes of trust and in failing to assert a right to an indemnity against Rand's estate until many years after his death, amounted to an admission that the debts were intended to be paid out of trust assets. Further, the fact that the 1993 further advances on security of Apartments 2205, 2301 and 1465 were made to Rand in his capacity as trustee, supported the argument that Rand intended that mortgage repayments be borne by the trust assets.

64 The respondents submit that the argument made by the appellant amounts to a claim that there was an enforceable promise by Rand to increase the corpus of the trust, by discharging the mortgages. The properties were transferred in consideration of $10 or 'other good and valuable consideration' and the documents by which the assignments were made had identified that the properties were subject to mortgages. The judge had correctly held that the 'valuable consideration' recorded in the assignment must therefore have been the assumption of mortgage obligations. It follows that neither Rand, nor his estate, retained ultimate responsibility to repay the loans after the properties were transferred to Rand in his capacity as trustee or when Harpur became trustee.[85] The properties transferred to the trust were security for the loans and the proceeds of sale were used to discharge that liability, rather than any liability incurred by Rand personally. There was no analogy between such a case and the situation where a guarantor paid a loan for which a debtor was primarily liable.

65 Further, Rand had listed the properties for sale with the intention that the proceeds of sale would be used to repay the loans, with the balance to constitute the corpus of the Trust. The appellant assumed the trusteeship knowing that Rand had made the decision to sell the properties and pay out the mortgages from the proceeds of the trust before he died. The debts were not paid under compulsion of law because, if the appellant had complied with the instruction to sell the properties and had acted promptly to repay the loans the trust would have been in the same position as if Rand had lived.[86]

66 Finally, the respondents argued that at most Rand's personal liability was coordinate with Rand's liability as trustee under the mortgages, in which case the appellant should have claimed contribution from Rand's estate, rather than recoupment.

67 Mason, Carter and Tolhurst explain the basis of liability to indemnify a person for an obligation arising out of another person's default as follows.[87]

Rights of contribution and recoupment derive from a single source, namely the injustice of the defendant having had its burden relieved by the plaintiff.[88] But a right of recoupment differs in its application from contribution because there is no 'equality': rather the respective positions of P and D are such that it is just that P should throw the whole burden of P's liability to X upon D's shoulders. If it were otherwise, D would be seen to have received an unjust benefit (that is, the effective release of the burden to X) at the expense of P who bore it.[89] Thus, in the standard guarantee situation a guarantor (P), who is forced to meet the creditor's (X's) claim, is entitled as against the principal debtor (D) to recoupment in full for the outlay. This is one example of a broader principle, as Lord Wright MR demonstrated in Brook's Wharf and Bull Wharf Ltd v Goodman Bros:[90]

The essence of the rule is that there is a liability for the same debt resting on the plaintiff and the defendant, and the plaintiff has been legally compelled to pay, but the defendant gets the benefit of the payment, because his debt is discharged either entirely or pro tanto, whereas the defendant is primarily liable to pay as between himself and the plaintiff.

The classic statement of the general principle is given by Cockburn CJ in Moule v Garrett:[91]

Where the plaintiff has been compelled by law to pay, or being compellable by law, has paid money which the defendant was ultimately liable to pay, so that the latter obtains the benefit of the payment by the discharge of his liability; under such circumstances the defendant is held indebted to the plaintiff in the amount.[92] ...

Absent an express or implied promise to recoup or indemnify, the right of P to recoupment from D for moneys paid to X in relation to D's liability to X appears to depend on three requirements discussed below.[93] These are (1) the

need for P's payment to relate to a liability falling upon P and D; (2) P's payment benefited D; and (3) absence of officiousness on the part of P.[94]

68 The appellant argues that the judge should have held that Rand retained primary liability to the Bank in his personal capacity under the covenants in the Adjustment Notes and the covenants in the mortgage, and accordingly his estate was obliged to indemnify Harpur for amounts used to discharge the loans.

69 There is no doubt that Rand (and after his death his estate) was personally liable to the Bank to repay the loans under the Notes and the covenant in the mortgages. The central question in this case was whether, if he had done so, he would have been entitled to an indemnity from the trust property or vice versa. Unfortunately counsel for Harpur made the issue unnecessarily complicated, by submitting that the resolution of the issue depended on which party bore the ultimate and secondary liability to repay the loans.

70 It is artificial to apply the equitable principles which determine whether a person who spends money to discharge the liability of a third party has a right of recoupment, to the facts of this case, where Rand was both the borrower and the trustee of the property over which the loans obtained by him were secured. Such principles are inapposite where the owner of the property who is liable to repay debts secured by mortgages over property declares a trust and transfers that property to him or herself as trustee. In such circumstances it can readily be inferred that the trust property was the equity of redemption ( or in the case of Torrens system land the land subject to the statutory mortgage).

71 The inappropriateness of resort to recoupment principles in such a case is heightened by the fact that Rand was both the beneficiary of the trust during his lifetime and the trustee of that trust, with power to apply both the principal and interest of the trust property for his own benefit and to apply the proceeds of sale of the properties to repay loans. In these circumstances it would be entirely unrealistic to infer that Rand intended that he would be under an obligation to increase the corpus of the trust by repaying the mortgage loans out of his separate resources.

72 In Gadsen v Commissioner for Probate Duties[95] the question for determination was whether a donor of property who had paid gift duty had a right of contribution against donees, who were jointly and severally liable with the donor to pay the duty. Harris J said that it was unnecessary to undertake an elaborate analysis of the cases relating to rights of contribution, because 'the question of what the parties intended was the critical question'.[96] A similar but stronger observation is applicable here, where Rand was the borrower, the trustee of the properties on which the loans were secured and, during his life-time, a beneficiary of the discretionary trust.

73 As I explain below, there are some aspects of his Honour's reasons which are open to criticism. However they do not detract from the fact that there was no evidence which supported Harpur's claim to an indemnity, having regard to Rand's intentions in establishing the trust as evidenced by the terms of the original declaration of trust, the third amendment and the documents assigning the apartments from Rand in his personal capacity to himself as trustee.

74 In my view his Honour correctly held that Rand intended that the loans secured by mortgages over the trust property would be repaid from sales of that property rather than that those loans would be discharged from his personal resources. That intention was reflected in:

(a) Rand's transfer of the properties to himself as trustee, subject to the mortgages securing the loans which were in existence at that time and had been used to finance the purchase of those properties. The fact that Rand intended that the loans would be repaid from the sale of the properties is evidenced by a clause in all of the assignments, (except that of Apartment 1405) which provides that Rand accepts the assignment in his capacity 'solely as trustee and not assuming any liability in his individual capacity'.

(b) Article 10 of the original declaration and Articles 3-7 of the third amendment, which contemplated and authorised the sale of the properties and the re-investment of the proceeds of sale. This made it clear that the apartments (perhaps apart from Claiborne's residence) were regarded by Rand as an investment vehicle for the trust. In such circumstances it is implicit that the trust properties were to be treated as the asset from which the loans used to purchase them would be repaid. Although Article III of the original declaration, which authorised the trustee to pay Rand's debts out of the principal, except debts which are an encumbrance on real property, could indicate a contrary intention, this provision was not repeated in the third declaration. Further it is inconsistent with Article 3-7.15 of the third amendment.

(c) Article 1-7.1 of the third amendment, which made the trustee responsible for paying all outgoings (not excluding interest on the mortgage) on Claiborne's residence. This is inconsistent with the argument that the trustee was to be indemnified from other funds when discharging that obligation.

(d) Article VI A(3) of the original declaration and Article 3-17.15 of the third amendment which authorised the trustee to borrow money and to encumber the trust property as security for the loans. Again this supports the view that the trust was an investment vehicle, and that the trust property could be used to raise moneys (and repay loans) taken out for the purposes of the trust.

(e) Article 3-7.9 of the third amendment which authorised the trustee to carry out the terms of any valid agreement entered into by Rand.

(f) The fact that further advances were made to Rand in his capacity as trustee which also indicated his intention to treat the trust as an investment vehicle.

75 Rand's subsequent conduct was consistent with the intention demonstrated by the relevant documents that the loans would be repaid from trust assets. Both the use of the rents to pay interest on the loans and Rand's direction to Hand to sell the apartments and repay the mortgages support the existence of that intention.

76 Further, Harpur's abandonment of his claim to be indemnified for moneys used to repay the loans secured by mortgage on Apartment 1810 was inconsistent with a claim to an indemnity in relation to that loan and it is difficult to understand why the same analysis would not apply to the other loans as well.

77 Rand's intention (as made apparent in the trust documents and the assignments of the apartments) is determinative as to the absence of any right of recoupment. The fact that he remained liable to the Bank to repay the loan does not establish his position vis a vis the trust property. In my opinion, Rand would have been entitled to look to the trust property to indemnify himself against any amounts he had to repay, although he remained liable to the bank under his personal covenants.

78 Because Rand was both the transferor of the mortgaged property and the trustee, the principle in Waring v Ward,[97] has no direct application. However by analogy that case supports the same conclusion. The Waring v Ward principle appears to have developed independently of the rules governing rights of recoupment and contribution. In Simpson v Forrester[98] all members of the High Court held that the principle in Waring v Ward[99] was good law in Australia and applied to both general law and Torrens system land transferred subject to a mortgage.[100] Stephen J said that:

A sale by a mortgagor of his equity of redemption attracts an indemnity from the purchaser to the vendor mortgagor against all liability for the future arising under the mortgage.[101]

79 Gibbs J referred to Errington v Ward,[102] on which the appellant in this case relied. His Honour acknowledged that liability under the covenants in the mortgage did not run to the purchaser but said that 'the obligation of the purchaser, when it exists, is not to pay the mortgagee, but to indemnify the mortgagor'. Stephen J said that it would be against conscience for a purchaser of property subject to a mortgage 'to be permitted to profit from the mortgagor being compelled to pay under the personal covenant, thus discharging the encumbrance the existence of which operated to reduce the price the buyer had to pay'.[103] He considered that if the property was later sold and the proceeds applied to satisfy the mortgage debt, the person who had bought the property subject to the mortgage debt would be liable to indemnify the mortgagor for any balance remaining.[104]

80 The principle in Waring v Ward is not dependent on the purchaser having any contractual obligation to indemnify the mortgagor. Lord Eldon observed:

The same principle applies to the purchase of an equity of redemption; for the party means at the time of the contract to buy the estate subject to that mortgage; in relation to which mortgage the personal contract was entered into; and that was not his. If he enters into no obligation with the party, from whom he purchases, neither by bond nor covenant of indemnity to save him harmless from the mortgage, yet this Court, if he receives possession, and has the profits, would, independent of contract, raise upon his conscience an obligation to indemnify the vendor against the personal obligation to pay the money due upon the vendor's transaction of mortgage: for, being become owner of the estate, he must be supposed to intend to indemnify the vendor against the mortgage.[105]

81 It would be illogical to hold that Waring v Ward gave the mortgagor a right to an indemnity against liability arising from the personal covenants in the mortgage, but not under the separate liability arising under the Adjustment Rate Notes.

82 The appellant argues that his Honour wrongly held that the apartment transfers were made for valuable consideration. He further submits that Waring v Ward does not apply to voluntary transfers. In support of that argument he relies on the statement by Stephen J in Simpson v Forrester that:

The indemnity obligation arises to overcome what would otherwise be the unconscionable advantage gained by a purchaser, who, having bought the property at a discounted price reflecting the amount of the charge to which it is subject, thereafter benefits by the enforced payment of the charge by the mortgagor at the suit of the mortgagee.[106]

83 The appellant submits that it is not unfair for a donee to seek an indemnity from a donor to meet the liability imposed by the mortgage, although it would be unfair for a purchaser who has bought the property at a reduced price to do so.

84 Even if one accepts the argument that the assignments of the apartments by Rand in his personal capacity to Rand as trustee were, in reality, voluntary transfers, the principle in Waring v Ward should be applied by analogy, to the facts of this case.

85 The beneficiaries of the trust were in the same position as a donee. It is not unfair for a donee who receives the benefit of a gift to be subjected to any burdens associated with that gift. A donee can always reject a gift because that gift carries onerous obligations with it. To require a donor to indemnify the donee for moneys used to discharge a mortgage loan after property is transferred to the donee subject to the mortgage, in the absence of any intention on the part of the donor to do so, would in effect, require the donee to enlarge the gift. Similarly, a person who has established a trust of property subject to a mortgage should not be required to indemnify the beneficiaries against the obligations arising out of the mortgage.

86 Nor was authority cited in support of the argument that Waring v Ward does not apply to a volunteer to whom property is transferred subject to a mortgage. In Simpson v Forrester Gibbs J said that it was not necessary to imply a contract in order for the rule to apply and that:[107]

although it may be difficult to imply a contract where there has been a voluntary assignment, it appears that a person who takes the equity of redemption pursuant to a voluntary assignment will be obliged to indemnify the assignor provided that the assignment was subject to the mortgage debt: cf. In re Darby's Estate; Rendall v Darby,[108] and In re Mainwaring; Mainwaring v Verden.[109]

87 In In re Darby's Estate it was assumed that a voluntary assignee of property subject to a mortgage would have an obligation to indemnify the assignor. That decision was approved in Mainwaring.[110] In Mills v United Counties Bank Ltd Farwell LJ observed that the obligation which binds the transferee of property subject to a mortgage to indemnify the transferor against the mortgage debt 'as if it were a legal covenant,' has 'always been treated as one of those equities independent of contract, of which there are so many examples'.[111]

88 Because both Rand's intention and the principle in Waring v Ward support the trial judge's conclusion, it is only necessary to deal with ground of appeal 13 briefly.

89 His Honour spoke loosely when he said that Rand's transfer of the properties to the trust subject to the mortgage 'gave rise to two separate obligations to repay the debt'. Rand remained personally liable to the bank under both covenants. But in making this comment his Honour was simply recognising that Rand did not intend to repay the sums owing under the mortgage from his separate resources, but intended that those payments be borne by the trust property. For the reasons already given, that view was clearly correct.

90 The appellant also submitted that his Honour based his conclusions on Rand's subjective intentions, instead of determining the meaning of the original declaration of trust, the terms of the assignments and the third amended declaration of trust. I would reject that argument. In his reasons his Honour said the following:

I can make one further observation about my approach to the contemporaneous documents. One category of such documents is important transactional documents, such as the trust declarations, Notes, assignments and the like. As Gummow and Hayne JJ recently affirmed in Byrnes v Kendle,[112] the fundamental rule of interpretation of [a trust] Deed is that the expressed intention of the [settlor] is to be found in the answer to the question, 'What is the meaning of what the [settlor has] said?', not to the question, 'What did the [settlor] mean to say?'. Gummow and Hayne JJ added:[113]

There is good sense in such a rule. Issues of the construction to be placed upon the words or actions of alleged settlors are apt to arise long after the event. For example, the dispute in Kauter v Hilton [1953] HCA 95; (1953) 90 CLR 86 arose between the executors of the will of Mr Hickey (who had died in 1950) and his niece, and concerned the construction to be placed upon his words and acts respecting certain bank accounts in the last five years of his life. Further, trusts give rise to proprietary interests, dealings which may engage third parties who are strangers to the original actors.

There was, in the course of evidence, an attempt to bring a certain focus on what Rand meant to achieve, what he intended, particularly in relation to the welfare of the principal beneficiary of the trust, Doug Claiborne. Such evidence is irrelevant and inadmissible on the interpretation of the meaning of these transactional documents. However, I have had limited, carefully confined, regard to such considerations in other contexts, particularly the assessment of probabilities and the logical context of events.[114]

In the third amendment to and complete restatement of the Peter Rand Declaration of Trust on 27 August 1997, the settlor's intention is found. No inquiry into the subjective state of mind of Rand was necessary, despite Mr Harpur's invitation to explore Rand's intention or desire to provide adequately for Doug Claiborne.[115]

91 As I have said, the documents establishing the trust provide ample evidence that Rand intended that the loans secured on the apartments would be satisfied from the sale of the trust property.

92 The case was conducted by the parties on the basis that a right of equitable recoupment arises only if the payments are made the person seeking the indemnity under compulsion of law. Grounds 4 and 5 argue that the judge wrongly held that payments made by the appellant to the mortgagee upon settlement of the sales of Apartments 1815, 1405, 2205 and 2301, were not paid under compulsion of law, but because Rand had decided to sell the apartments and pay out the loans.

93 The appellant argues that although Rand did not breach the trust by using rent from the apartment to pay mortgage debts and incidental expenses, the appellant was not obliged to continue this practice under the terms of the trust. The trust required Claiborne to be provided with rent-free accommodation in one of the apartments and to receive the income of the Trust during his life-time. Because of the financial position of the trust Harpur could only comply with its terms if he could sell the apartments. Accordingly the apartments were sold under compulsion of law.

94 Because Harpur was not entitled to claim an indemnity for amount spent to repay the mortgage loan, it is unnecessary to decide grounds 4 and 5.

95 However, even if that view is incorrect, these grounds fail. When Rand asked Hand to value the apartments for sale, the amount required to discharge the mortgage loans was $354,511. His Honour found that 'by the first anniversary of Rand's death Mr Harpur could have paid out all the mortgages, leaving the trust with unencumbered title to two apartments and cash reserves of US$97,000.[116] There is no basis for setting aside his Honour's factual finding that the first four apartments were voluntarily placed on the market, under a plan made by Rand before he died and continued by Harpur, and that there would have been ample funds available to discharge the mortgages if the remaining two apartments had been sold in a timely manner. The sales following the foreclosure resulted from Harpur's administration of the trust, including his loan of the trust funds to his own company. Rand's estate cannot be held liable for any consequential losses to trust property.

96 Under ground 6 the appellant challenges the quantum of the repayments which the judge found were made by Rand and /or Harper before the apartments were sold. He argues that, as a consequence, the amounts required to discharge the loans were greater than the amount derived from his Honour's reasons. He submits that the repayments attributable to the loans (excluding the further advances) were, in some cases greater than those found to have been made by his Honour and that this affects the amount of the indemnity to which Harpur is entitled. Since the appellant has failed to establish that he has a right to be indemnified, ground 6 must fail. Nevertheless I will deal briefly with this ground in case the matter goes further.

97 His Honour summarised his findings about the mortgage repayments made before each apartment was sold as follows.

Between 1993 and 1998, the sum owing under the Note was reduced by about $74,000. When ultimately sold by Mr Harpur in January 1998, the proceeds available to the trust were US$108,688. These funds were retained in an escrow account. Of the funds held in escrow from this sale, $44,000 was paid out, mostly to the Bank of Hawaii to service remaining mortgages and $19,458 was paid into the escrow account on the sale of apartment 1810. A further $25,000 was paid to Mr Claiborne for the release of a lis pendens that prevented a sale of apartment 1405 for $185,000.

Apartment 2301

Between 1993 and 1998, the sum owing under the Note was reduced by about $120,800. When ultimately sold by Mr Harpur in October 1998, the proceeds available to the trust were US$224,008, paid directly to Mr Harpur in Australia and loaned to Flemalle Pty Ltd.

Apartment 1405

The amount owing under the Note was reduced by about $37,000 when it was repaid. There was no return to the trust following the mortgagee's sale in January 2002.

In respect of each of these apartments, the Bank of Hawaii made a further advance to Rand, as trustee of the trust, secured by a mortgage. These further advances, totalling about $135,000, were not explained by Mr Harpur or any witness called by him. The evidence did not reveal the application of the funds received by the trust. The contemporaneous documents tendered concerning these further advances were limited to a Bank of Hawaii 'Home Owner Mortgage, Security Agreement and Financing Statement', apparently obtained by search of the Hawaii Land Court for each apartment. This instrument is between the Bank of Hawaii and Rand, as trustee of the trust. However, the documents recite the original Notes, between Rand personally and the Bank of Hawaii on initial purchase of the apartment, which were secured by the original mortgage dated 4 January 1989. The mortgage is identified as the first mortgage. The assignment of the apartment by Rand to Rand as trustee of the trust is also recited. Rand, as trustee, is referred to in this document as 'you' and the prior Notes are described as 'your loans'.

Concerning the mortgages on all apartments, the evidence about the mortgage accounts generally is unrevealing. There were no statements of account. However, what can be gleaned from transactions affecting each mortgage account shows that, at least on the accounts for apartments 1810, 2205 and 2301, there must be other transactions, unexplained and incomprehensible without proper accounts, which reduced the debt owing to the Bank by the time of sale from the amount advanced plus interest to the payout sum.

Apartment 1810

The amount owing under the Note was reduced by about $12,000 when it was repaid. When ultimately sold by Mr Harpur in April 1998, the proceeds available to the trust were UD$5,227, the sum remaining after expenses of this sale were deducted from proceeds of $19,458 from the sale of apartment 2205, which were transferred into this escrow account.

Apartment 1815

The amount owing under the Note had increased by about $10,600 by the time it was repaid. Following the mortgagee's sale in May 2003, the proceeds available to the trust, US$3,586 were paid into court. Mr Harpur has only recently sought an order for payment of these moneys to the trust.

Between the initial loan and repayment, collectively about $232,400 was applied to the sums owing on the Notes. There are two possible sources identifiable for the funds that reduced the debts, the leasing of the apartments or contributions from Rand. The evidence of Rand transferring funds to Hawaii was sketchy. Mrs Pamela Faye Rand Harpur gave evidence that on seven or eight occasions she was either in Rand's presence when he made a transfer from a Western Union office or herself made transfer payments on Rand's behalf of amounts of about $4,500 to an unidentified Hawaiian account. It is likely Doug Claiborne received these funds or perhaps the transfers reflected Rand's responsibility as trustee to service the mortgage debts during times of shortfall in the rent receipts. Probably Rand, whether as trustee or settlor, was simply keeping the trust solvent. Without accounts, one cannot say whether these amounts were loans or capital contribution. I am not satisfied that these occasional payments indicate either that Rand was primarily liable on the Notes or that he contributed funds that reduced the debts.[117]

98 At trial the appellant abandoned his claim that Rand's estate was liable to indemnify him for advances made on security of the apartments after they became subject to the trust.

99 However on the assumption that the claim to be indemnified for the repayments made on the original loans succeeds, Harpur claims that his Honour erred, by combining the original loans with the further advances and attributing repayments to the combined figure instead. Somewhat curiously, this alleged error was relied on to argue that there was an incorrect calculation of the amount paid to discharge the mortgages when the apartments were sold, rather than as the basis for a claim to be indemnified for repayments made during the currency of the loans. Presumably this was because it was not possible to determine the amounts of repayment of the mortgage loans prior to the properties being sold, because of the inadequacy of the trust accounts.

100 In calculating the repayments which had been made on the loans on apartments 2205, 2301 and 1405 his Honour added the amount of the original loan to the further advance and determined the amounts which had been repaid from trust assets by subtracting the amount realised on sale. For example, in the case of Apartment 2205 his Honour said that 'between 1993 and 1998 the sum owing under the Note was reduced by about US$74,000'. This amount appears to have been arrived at by adding the original loan of $86,000 to the further advance of $39,153, making a total of $125,153 and deducting the amount of $51,698 owing at the date of sale, resulting in the calculation that approximately $74,000 had been paid off the combined amount of both loans.

101 The appellant argues that this is an error because the further advance was secured by a second mortgage, and the settlement statement for the sale of that apartment indicates that the proceeds of sale were applied to discharge the first mortgage, rather than the second mortgage. Thus the indemnity should be for $51,698, which should be treated as the amount remaining of Rand's personal loan.

102 Similarly he submits that the judge wrongly found that the sum owing on the loan secured on Apartment 2301, was reduced by repayments of about $120,800. The appellant relied on the fact that the settlement statement attributed $15,002.53 to 'payoff of first mortgage loan' and argued that he was entitled to recoupment of the whole of this amount.[118]

103 Because there was no settlement statement for the sale of Apartment 1405, the appellant submitted that the recoupment amount should be calculated by subtracting the further advance of US$39,153 made on the security of that apartment from the debt of $130,000 which was realised on sale. Thus the appellant's recoupment claim amounted to $90,847.

104 No further advances were made on the security of Apartment 1815, which was sold by the mortgagee. The appellant claimed $87,633, which was the loan balance secured on this apartment at the time the loan was repaid.

105 The above amount totalled US$245,180. The appellant also claimed penalty interest under s 58 of the Supreme Court Act 1986 amounting to $249,737.

106 The respondents did not make any submissions on ground 6.

107 Although settlement statements for Apartments 2205 and 2301 referred to the document number of the first mortgage, it appears that the Bank did not differentiate between the various amounts owing under the original mortgage and in consequence of the further advances. Because of the inadequacy of the trust accounts there was no other evidence about the allocation of the repayments on Apartments 2205, 2301 and 1405, between the original loans and the further advances. For that reason I am not prepared to find that his Honour erred in calculating the extent to which the loans relating to those apartments were repaid from trust property.

108 Since there were no further advances secured on Apartment 1815, any right to an indemnity to which the trustee, contrary to my view, would be entitled, would apply to the whole amount owing on the loan at the date of sale.

109 Ground 3 claims that the judge wrongly assumed that the further advances were received by the trust and not by Rand in his personal capacity. The trial judge found that as a result of poor accounting the further advances were not explained by Harpur and the evidence did not reveal how these funds were applied. There is no evidence that Rand used the funds for his personal benefit, rather than for the purposes of the trust and there is circumstantial evidence that the further advances were obtained to purchase reversions in Apartments 2205, 2301 and 1405. Moreover in Harpur's submissions in support of ground 6, it seems to have been accepted that this was the case. I assume that ground 3 has been implicitly abandoned. Even if that is not the case, it is not made out.

111 I agree that the appeal should be dismissed for the reasons set out by Neave JA.

112 At trial, the case appears to have been argued as if 'the trust' was an entity capable of being an obligor, or as having or bearing an obligation. Some fundamental principles need to be re-stated.[119] They are:

1. Trustees are personally liable for all debts they incur. There are no debts of 'the trust'.[120]

2. This is the case whether trustees purport to contract in their own names or 'as trustees'.[121]

3. Trustees have in equity, and by statute, rights of recoupment and exoneration, often referred to compendiously as rights of indemnity, whereby they may reimburse themselves from the trust assets for amounts paid as trustees, and they may pay liabilities incurred as trustees out of the trust assets.[122]

4. Trustees who retire or are removed from office before exercising rights of indemnity do not lose them. Retirement or removal does not prejudice those rights.[123]

113 In this case, as Neave JA has pointed out, there is no doubt that Rand was at all times the only person liable to the Bank on the relevant loans. Again, as Neave JA has said, the central question was whether Rand was entitled to a right of indemnity from the trust property in relation to those liabilities.

115 I agree that the appeal should be dismissed for the reasons set out by Neave and Whelan JJA.

[2] No disrespect is intended by describing the parties in this way.

[3] His Honour also held that there had been an incomplete gift of a condominium property in Thailand to Mr Harpur. No order was made for the transfer of that property (which had in any case been lost by adverse possession). The appeal against that aspect of the judgment was abandoned.

[4] Harpur v Levy [2011] VSC 653 ('Reasons').

[5] The fact that these were freeholds can be gathered from the terms of the assignment from Rand in his personal capacity to Rand as trustee; apartment 1815 was transferred by quitclaim deed; apartment 1810 was transferred by quitclaim deed.

[6] Harpur v Levy [2011] VSC 653 ('Reasons') [8]. Hereafter these are referred to simply by reference to apartment numbers.

[8] The mortgage was originally given by American Trust Co of Hawaii Inc, in its capacity as trustee and Rand was joined as a party to it under a 'Beneficiary's Joinder to Mortgage and Security Agreement. The purchase of apartment 2301 was financed by a Bankoh Home Equity Creditline Mortgage. The benefit of two of the loans and mortgages were later transferred to Homecomings Financial Network Inc.

[9] Reasons [9]. The trial judge noted that the precise source of the funds provided by Rand, other than the amounts borrowed from the Bank of Hawaii, is unclear. It is assumed they were his own.

[10] An effective trust might not have been established if these documents had been used in Victoria, but the parties did not challenge their effectiveness to create a trust under which Rand was the trustee. Otherwise the case was conducted on the basis that domestic law would apply in determining Harpur's claims.

[11] Article IIA. This was expressed as a discretionary trust, but as Rand was the trustee, he could apply the principal in any way he wished.

[16] The leases over Apartment 2301 and 2205 were assigned to Rand in his capacity as trustee; the assignments of Apartments 1815 and 1810 were made by quitclaim deed to Rand as trustee.

[17] In the case of the assignments by quitclaim deed the assignments were made 'in consideration of the sum of ten dollars and other good and valuable consideration'.

[18] This assignment was also made in consideration of the sum of ten dollars and other good and valuable consideration.

[23] Reasons, [12], [14]. The sums owing on Notes secured by mortgages over Apartments 2205, 2301, 1405 and 1810 had been reduced by unexplained payments before the time of the loans and repayment after sale. See Reasons [121]-[130].

[34] In the proceedings below Harpur claimed that the Thai property had been transferred to him. That claim failed and the appeal against the decision of the trial judge on that issue was abandoned.

[37] No claim was made by the appellant in relation to that property.

[40] The balance of US$3,586 was paid into court. His Honour noted that Harpur had only recently sought repayment of that amount.

[41] Reasons [5]. Presumably that is in addition to the sum of US$3,586 paid into Court.

[42] Brook's Wharf & Bull Wharf Ltd v Goodman Brothers [1937] 1 KB 534.

[43] Harpur had not personally incurred expenses in the administration of the trust, so that the case did not concern a trustee's right of indemnity to recover moneys expended by the trustee on behalf of the trust.

[46] Assuming that this analysis was correct a right of contribution could only have been established if Rand's personal liability and the liability of the trust arose from a common obligation and were 'of the same nature and extent'. HIH Claims Support Ltd v Insurance Australia Ltd [2010] VSCA 255, [24].

[47] In his reasons his Honour made reference to both legal principles and equitable principles requiring contribution, but relied primarily on equitable principles. For discussion of the significance of this difference see Meagher Gummow and Lehane's Equity Doctrines and Remedies (4th edition by Meager, Heydon and Leeming) (hereafter MHW) 387-391.

[48] An example is the right of a guarantor to recover a contribution from another co-surety; MHW 387, 10-005 and see Willis v Terapyl Pty Ltd [2010] VSCA 318.

[49] For example an original lessee who is held contractually liable for a breach of covenant committed by an assignee of the lease is entitled to an indemnity against that assignee; Moule v Garrett (1872) LR 7 Ex 101; Becton Dickinson v Zwebner [1989] 1 QB 208.

[50] BP Petroleum Development Ltd v Esso Petroleum Co Ltd (1987) SLT 345, 348 (Lord Ross), employing the expression of Lord Chelmsford in Caledonian Railway Co v Colt (1860) 3 Macq 833, 844.

[51] [2011] HCA 31; (2011) 244 CLR 72.

[52] Citing Ruabon Steamship Company v London Assurance [1900] AC 6, 12 (Earl of Halsbury LC) and Cockburn v GIO Finance Ltd (No 2) (2001) 51 NSWLR 624, 634 [42]-[43].

[58] This implicitly refers to the principle in Waring v Ward [1802] EngR 288; (1802) 7 Ves Jun 332; 32 ER 136.

[60] At reasons [84] his Honour pointed out that use of the term 'ultimate' rather than 'primary' had been approved by Mandie JA in Willis v Terapyl [2010] VSCA 318, quoting McNeil J in Becton Dickinson UK Ltd v Zwebner [1989] QB 208.

[64] [1944] KB 602, 605.

[68] Nolan v Nolan [2003] VSC 121; (2003) 10 VR 626.

[75] In Re Errington; ex parte Mason [1894] 1 QB 11.

[76] Although that proposition may be correct at common law, the terms of the Torrens legislation in force in particular States may have altered this principle. The appellant relied on Queensland Premier Mines Pty Ltd v French [2007] HCA 53; (2007) 235 CLR 81, 101 [55], which is not directly in point. It was held in that case that s 62 of the Land Title Act 1994 (Qld) did not give the assignee of a registered mortgage the right to recover money owed under a separate and independent loan agreement, even though the obligation was secured by the mortgage.

[77] English Scottish and Australia Bank Ltd v Phillips [1937] HCA 6; (1937) 57 CLR 302, 308.

[78] Reliance was placed on Byrnes and Anor v Kendle [2011] HCA 26; (2011) 243 CLR 253, 262 (French CJ), 273277 (Gummow and Hayne JJ), 282 (Heydon and Crennan JJ). Although see Waring v Ward [1794] EngR 2222; (1802) 2 Ves Jun 332, 32 ER 136.

[81] Reliance was placed on the powers set out in the Trusts, which are set out above.

[83] Appellant's amended notice of appeal, 27 March 2012, [1].

[84] [1802] EngR 288; (1802) 7 Ves Jun 332; 32 ER 136. See also In re Mainwaring; Mainwaring v Verden [1937] 1 Ch 96.

[85] Respondent's submissions [18]-[19].

[87] K Mason, JW Carter and GJ Tolhurst, Restitution Law in Australia ('Mason') (2nd ed 2008) 243244.

[88] This opening paragraph was quoted with approval by Giles JA (Handley JA and Stein JA concurring) in Karacominakis v Big Country Developments Pty Ltd (2000) 10 BPR 97843 at [239]; [2000] NSWCA 313.

[89] Cf Pavey v Matthews Pty Ltd v Paul [1987] HCA 5; (1987) 162 CLR 221 at 256-7; [1987] HCA 5; 69 ALR 577 at 604 per Deane J.

[90] [1937] 1 KB 534 at 544, cited with approval by Walsh JA in Armstrong v Commissioner of Stamp Duties (1967) 69 SR (NSW) 38 at 47. See also The Pindaros [1983] 2 Lloyd's Rep 635.

[91] (1872) LR 7 Ex 101 at 104 (quoting from Leake on Contracts, p 41).

[92] K Mason, JW Carter and GJ Tolhurst, Restitution Law in Australia ('Mason') (2nd ed 2008) 243244.

[93] As to the detailed rules regulating the manner and scope of recoupment claims, see [641][650].

[95] [1978] VicRp 60; [1978] VR 653.

[96] Gadsen v Commissioner of Probate Duties [1978] VicRp 60; [1978] VR 653, 658; see also Coulls v Bagot's Executor and Trustee Co Ltd [1967] HCA 3; (1967) 119 CLR 460, 480 (Barwick CJ), 488 (Taylor and Owen JJ).

[97] [1802] EngR 288; (1802) 7 Ves Jun 332; 32 ER 136.

[98] [1973] HCA 4; (1975) 132 CLR 499. The issue in that case was whether the mortgagee or the mortgagor was entitled to $20,000, which had been bid by the mortgagee to purchase the mortgaged property at a Sheriff's sale at which no other person had bid. The majority, (Gibbs and Stephen JJ, Barwick CJ dissenting) held that the mortgagee was entitled to that amount. For discussion see C Croft (Croft J) and R Hay, The Mortgagee's Power of Sale (3rd ed 2013) 200, [9.10].

[99] [1802] EngR 288; (1802) 7 Ves Jun 332; 32 ER 136.

[100] Ibid 506-7 (Barwick CJ, who dissented on the main issue in the case), 514-515 (Gibbs J) 521 (Stephen J).

[101] At 506; see also 514-515 (Gibbs J), 521 (Stephen J).

[102] At 517. [1894] 1 QB 11 cited at 517.

[105] Waring v Ward [1802] EngR 288; (1802) 7 Ves Jun 332; 337[1802] EngR 288; , 32 ER 136, 137-8. See also Mills v United Counties Bank Ltd [1921] 1 Ch 231, where Farwell LJ disapproved of the view in Dodson v Downey [1901] 2 Ch 620 and said that the purchaser's obligation to indemnify did not rest upon contract, but upon conscience.

[106] Simpson v Forrester [1973] HCA 4; (1973) 132 CLR 499, 523 (Stephen J).

[107] [1973] HCA 4; (1975) 132 CLR 499, 515.

[108] [1907] 2 Ch. 465, 470.

[109] [1937] Ch. 96, 101, 104-105.

[110] Ibid, 101 (Lord Wright MR), 107 (Greene LJ). In Mainwaring it was held that the purchasers of the property subject to a mortgage were only obliged to contribute rateably to the repayment of the loan, because it was also secured over other property which the vendor had retained.

[111] [1921] 1 Ch 231, 242 A.

[112] [2011] HCA 26; (2011) 243 CLR 253, 273 [53], 263 [18] (French CJ), 286 [105], 289 [113] (Heydon & Crennan JJ).

[117] Reasons [121]-[124] and [127]-[130].

[118] If the $15,002.53 owing at sale were deducted from the original loan of $80,000 the appellant would be entitled to a larger amount than actually claimed.

[119] The principles were set out and explained by R. P. Meagher in his article 'Insolvency of Trustees' (1979) 53 ALJ 648 and by Professor Ford in his article 'Trading Trusts and Creditors' Rights' [1981] MelbULawRw 1; (1981) 13 MULR 1. A more recent compilation of them may be found in the judgement of Owen J in Custom Credit Co v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 52-53.

[120] Labouchere v Tupper (1857_)_ [1857] EngR 685; 11 Moo PC 198, 221; [1857] EngR 685; 14 ER 670, 679; Ex parte Garland [1804] EngR 336; (1804) 10 Ves 100, 32 ER 786. They may of course limit their liability by contract.

[121] Watling v Lewis [1911] 1 Ch 414, 424; Producers and General Finance Corp Ltd v Dickson [1938] WALawRp 16; (1938) 40 WALR 34.

[122] Worrall v Harford [1802] EngR 342; (1802) 8 Ves 4, 8; [1802] EngR 342; 32 ER 250, 252; Vacuum Oil Co Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319, 324, 335-6. These rights can be altered or excluded by the trust instrument: RWG v Commissioner for Corporate Affairs [1985] VicRp 42; [1985] VR 385, 395.

[123] Meagher, 'Insolvency of Trustees', (1979) 53 ALJ 648, 653; Global Funds Management (NSW) Ltd v Burns Philp Trustee Co Ltd (1990) 3 ACSR 183, 186.