(1874) 43 LJ Ch 513
Beach Petroleum NL v Johnson (1993) 43 FCR 1
Briginshaw v Briginshaw [1938] HCA 34
(1938) 60 CLR 336
Clay v Clay [2001] HCA 9
(2007) 230 CLR 89
Gartside v Inland Revenue Commissioners [1968] AC 553
Gerard Cassegrain & Co Pty Ltd (in liq) v Cassegrain [2013] NSWCA 455
Chameleon Mining NL v Murchison Metals Ltd [2012] FCAFC 6
Source
Original judgment source is linked above.
Catchwords
(1874) 43 LJ Ch 513
Beach Petroleum NL v Johnson (1993) 43 FCR 1
Briginshaw v Briginshaw [1938] HCA 34(1938) 60 CLR 336
Clay v Clay [2001] HCA 9(2007) 230 CLR 89
Gartside v Inland Revenue Commissioners [1968] AC 553
Gerard Cassegrain & Co Pty Ltd (in liq) v Cassegrain [2013] NSWCA 455Chameleon Mining NL v Murchison Metals Ltd [2012] FCAFC 6(2012) 200 FCR 296
Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609
Ho v Powell [2001] NSWCA 168(1992) 110 ALR 449
Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346(2001) 53 NSWLR 116
Orr v Ford [1989] HCA 4(1989) 167 CLR 316
Pannell v Hurley (1845) 2 Coll 241, 24563 ER 716
Petrossi Bros. Contracting Corp v Town of Greece, 29 N.Y.S.2d 305 (Sup. Ct. 1941)
Plan B Trustees Ltd v Parker (No 2) [2013] WASC 216(2013) 11 ASTLR 242
Ramage v Waclaw (1988) 12 NSWLR 84
Robins v Incentive Dynamics Pty Ltd (in liq) [2003] NSWCA 71(2003) 175 FLR 286
Sheahan v Londish [2010] NSWCA 270(2010) 244 FLR 64
Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405
Spellson v George [1992] NSWCA 254(1992) 26 NSWLR 666
Strang v Owens (1925) 42 WN (NSW) 183
Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17
Judgment (23 paragraphs)
[1]
Metropolitan Gas Co v Federal Commissioner of Taxation (1932) 47 CLR 621
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 110 ALR 449
Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116
Orr v Ford [1989] HCA 4; (1989) 167 CLR 316
Pannell v Hurley (1845) 2 Coll 241, 245; 63 ER 716
Petrossi Bros. Contracting Corp v Town of Greece, 29 N.Y.S.2d 305 (Sup. Ct. 1941)
Plan B Trustees Ltd v Parker (No 2) [2013] WASC 216; (2013) 11 ASTLR 242
Ramage v Waclaw (1988) 12 NSWLR 84
Robins v Incentive Dynamics Pty Ltd (in liq) [2003] NSWCA 71; (2003) 175 FLR 286
Sheahan v Londish [2010] NSWCA 270; (2010) 244 FLR 64
Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405
Spellson v George [1992] NSWCA 254; (1992) 26 NSWLR 666
Strang v Owens (1925) 42 WN (NSW) 183
Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; (2011) 82 ACSR 1
Tara Shire Council v Garner [2003] 1 Qd R 556
Tesco Supermarkets Ltd v Nattrass [1972] AC 153
Timan v Leland, 6 Hill 237 (N.Y. 1843)
Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; (1995) 184 CLR 102
Valofo Pty Ltd (Administrators Appointed) v PILT Nominees Pty Ltd [2011] NSWSC 134
Walker v Stones [2001] QB 902
Welch v Mandeville, 14 U.S. (1 Wheat.) 233 (1816), 18 U.S. (5 Wheat.) 277(1820)
White v Overland [2001] FCA 1333
Wilson v Metro Goldwyn Mayer (1980) 18 NSWLR 730
Yeshiva Properties No 1 Pty Ltd v Marshall [2005] NSWCA 23; (2005) 219 ALR 112
Texts Cited: JD Heydon and MJ Leeming (eds) Jacobs' Law of Trusts in Australia (7th ed 2006, Lexis Nexis)
JD Heydon, MJ Leeming and PG Turner (eds), Meagher, Gummow and Lehane's Equity: Doctrines & Remedies (5th ed 2015, LexisNexis)
Austin Wakeman Scott, William Franklin Fratcher, Mark L Ascher, Scott and Ascher on Trusts (5th ed, 2008, Aspen Publishers)
Category: Principal judgment
Parties: John Sheahan (First Plaintiff)
Ian Lock (Second Plaintiff)
Valofo Pty Ltd (in liquidation) ACN 003 366 934 (Third Plaintiff)
Martin Thompson (First Defendant)
Michael Silas Chan (Second Defendant)
Phillip Crossman (Third Defendant)
Seniors Provident Pty Limited (Fourth Defendant)
Metro Finance Pty Limited (Fifth Defendant)
Pilt Nominees Pty Limited (Sixth Defendant)
Ross Seller (Seventh Defendant)
Peter Londish (Eighth Defendant)
Metro Finance NZ Pty Limited (Ninth Defendant)
Representation: Counsel:
J.E Marshall SC with D. Sulan (First, Second and Third Plaintiffs)
A.S Bell SC with D.F.C Thomas (Third, Fourth, Fifth and Ninth Defendants)
No appearance for the First, Second, Sixth, Seventh and Eight Defendants)
[2]
Solicitors:
Clayton Utz (First, Second and Third Plaintiffs)
Corrs Chambers Westgarth (Third, Fourth, Fifth and Ninth Defendants)
File Number(s): 2013/127413
Publication restriction: nil
[3]
JUDGMENT
These proceedings concern two trusts known as the PILT Trust and the Baltarna Trust. The current trustees of those trusts, Mr John Sheahan and Mr Ian Lock, were appointed on 25 February 2011 by an order of the Court made by me: see Valofo Pty Ltd (Administrators Appointed) v PILT Nominees Pty Ltd [2011] NSWSC 134 and see John Sheahan v Martin Thompson [2015] NSWSC 535 in which the matter is further canvassed in relation to these proceedings. I shall refer to Mr Sheahan and Mr Lock as the "New Trustees". They replaced PILT Nominees Pty Ltd ("Nominees") as the trustee of the PILT Trust and Baltarna Pty Ltd ("Baltarna") as the trustee of the Baltarna Trust.
These proceedings are brought by the New Trustees against Mr Phillip Crossman ("Crossman"), and three corporations owned or controlled by him- Seniors Provident Pty Limited ("Seniors Provident"), Metro Finance Pty Limited ("Metro Finance") and Metro Finance NZ Pty Limited ("Metro NZ") ("the Crossman corporations"). Valofo Pty Ltd ("Valofo") which is the third plaintiff was joined as such because of claims made against the first and second defendants. Those claims have been resolved. Although Valofo brings no claims against Crossman or the Crossman corporations, its involvement is still relevant to the claims that the New Trustees bring as I shall endeavour to explain.
The proceedings arise out of the settlement by Crossman of earlier proceedings commenced in 2008 by him against Nominees, Baltarna, Mr Ross Edward Seller ("Seller") and Sanabu Pty Ltd ("Sanabu") and to which I shall refer as "the Crossman proceedings". Crossman was at all times represented by Allens Arthur Robinson ("Allens"). On 8 July 2009 Crossman entered into two settlement deeds, one of which is known as the Settlement Deed- Contempt Motion (which I shall refer to as the "Contempt Deed") and the other which is known as the Settlement Deed- Main Proceedings (and which I shall refer to as "the Main Deed"). The parties to the Main Deed in addition to Crossman were Nominees, Baltarna, Sanabu, Seller, Davlon Management Pty Ltd ("Davlon") and Mr Peter Gregory Londish ("Londish"). The company search of Nominees at CB 1263 shows Seller as the sole director (and secretary) of Nominees and a company controlled by Seller as its only shareholder. Londish became a director of Nominees on 30 May 2008 (see CB 53). Sanabu and Baltarna were both companies controlled by Seller. Davlon is a company with which Londish was involved although I will need to say more about that involvement later. The parties to the Contempt Deed were Crossman, Nominees, Seller and Londish.
[4]
The PILT Trust Deed: Important Provisions
Australian Gilt Securities Ltd was originally the manager of the Trust but was later replaced. Australian Securitisation Corporation Holdings Limited was the trustee but it was later replaced by Nominees. The following clauses of the PILT Trust Deed (found at CB 1102) were said by the parties to be important:
"13.1 General Power
Subject to the provisions of this Deed, the Trustee shall have all the rights, powers and discretions over and in respect of the Assets of the Trust which it could exercise if it were the absolute and beneficial owner of such Assets.
13.2 Specific Powers
Without in any way affecting the generality of the foregoing or the other provisions of this Deed, but subject to the Trustee's obligations under, and the provisions of, this Deed, the Trustee shall have the following powers (which shall be construed as separate and independent powers of the Trustee):…..
(n) (Execute Instruments): to execute all such proxies, powers of attorney and other instruments as may be necessary or desirable to enable the Trustee, or any officer, delegate or agent of the Trustee to exercise any power, discretion or right of the Trustee as the Trustee shall in its absolute discretion see fit;
(o) (Proceedings): to institute, prosecute, defend, settle and compromise legal or administrative proceedings of any nature whatsoever and generally to enforce and pursue its rights pursuant to and in respect of Assets;
…..
(v) (Incidental Powers): to do all such things incidental to any of the foregoing powers or necessary or convenient to be done for or in connection with the Trust or the Trustee's functions under this Deed.
….
23.9 Powers, Authorities and Discretions
Except insofar as herein otherwise expressly provided and in the absence of fraud, negligence or wilful default, the Trustee and the Manager shall not be in any way responsible for any loss (whether consequential or otherwise), costs, damages or inconvenience that may result from the exercise or non-exercise of any powers, authorities and discretions vested in it…..
23.13 No Liability except for Negligence etc.
In the absence of fraud, negligence or wilful default, the Trustee and the Manager shall not be liable personally in the event of failure to pay moneys on the due date for payment to any Bondholder, any Unitholder, the Manager (in the case of the Trustee), the Trustee (in the case of the Manager) or any other person or for any loss howsoever caused in respect of the Trust or to any Bondholder, any Unitholder, the Manager (in the case of the Trustee), the Trustee (in the case of the Manager) or other person.
23.14 Further Limitations on Trustee's Liability
Subject to clause 23.3, the Trustee shall not be liable:
(a) (For Loss on its Discretions): for any losses, costs, liabilities or expenses arising out of the exercise or non-exercise of its discretion or for any other act or omission on its part under this Deed, any other Transaction Document or any other document except where the exercise or non-exercise of any discretion, or any act or omission, by the Trustee, or any of its officers, employees, agents or delegates, constitutes fraud, negligence or wilful default……
23.19 Conflicts
Nothing in this Deed shall prevent the Trustee, the Manager or any Related Body Corporate or Associate of either of them or the directors or other officers thereof or any other person (all being included unless the context otherwise requires in the expression the "Trustee and the Manager" where hereafter used in this clause) fromsubscribing for purchasing, holding, dealing in or disposing of any Units or Bonds or from otherwise at any time contracting or acting in any capacity as representative or agent or otherwise or entering into any financial, banking, development, insurance, agency, broking or other transaction with, or providing any advice or services for theTrust or from being interested in any such contract or transaction or otherwise and the Trustee and the Manager shall not be in any way liable to account to any Unitholder or Bondholder or any other person or any of them for any profits or benefits (including but without limiting the generality thereof any profit, bank charges, commission, exchange, brokerage and fees) made or derived thereby or in connection therewith and the Trustee and the Manager shall not by reason of any fiduciary relationship be in any way precluded from making any contracts or entering into any transactions with any such person in the ordinary course of the business or from undertaking any banking, financial, development, agency or other services and without prejudice to the generality of these provisions it is expressly declared that such contract and transactions may include any contract or Transaction in relation to the placing of or dealing with any investment and the acceptance of any office of profit or any contract of loan or deposits or other contract or transaction which any person or company not being a party to this Deed could or might have lawfully entered into if not a party to this Deed and the Trustee and the Manager shall not be accountable to Unitholders, Bondholders or any other person for any profits arising from any such contracts, transactions or offices."
[5]
The Baltarna Trust Deed: Important Provisions
The Baltarna Trust Deed contained the following provisions to which the parties have referred (CB 203):
"1. DEFINITIONS AND INTERPRETATION…....
"General Beneficiaries" means the persons who from time to time until the Vesting Day who are named in or come within those categories as defined in Items 2 and 4 respectively and "beneficiary" means any person absolutely or contingently entitled to any interest in the Trust Fund or the income of the Trust Fund (even though in the case of each expression those persons may not be alive or in existence or may not have come into the defined category at the date of this Deed)……
"Unit" means any unit of any class issued by the Trustee and includes Ordinary units…..
["Vesting Day" was defined as the 79th anniversary date of the deed "or such earlier date as the Trustee may with the consent of the Appointer appoint"]
3.5 PAYMENTS
Order of Payment of Outgoings of the Trust
Subject to the other provisions of this Deed all receipts of income or capital of the Trust shall be applied in the following order:
(a) (Taxes): first, in payment of, or in allowance to the extent that the Trustee considers necessary for, all Taxes due or which may become due in respect of the Trust;
(b) (Trustee's Fees and Expenses): secondly, in payment of, or in allowance to the extent that the Trustee considers necessary for, the Trustee's Fee and any Expenses due or which may become due in respect of the Trust;
(c) (Borrowings): thirdly, in payment to Lenders of all amounts due or which may become due relating to their respective Borrowings;
(d) (Unitholders): fourthly in payment to the Ordinary Unitholders of the New Taxable Income of the Trust in each Financial Year in accordance with Clause 3.6; and
(e) (Others) sixthly, to other beneficiaries entitled pursuant to this deed.
3.6 Payments to Unitholders
(a) (Payment of Income to Ordinary Unitholders): The entitlement of the Ordinary Units to the Net Taxable Income of the Trust for a Financial Year pursuant to this Deed shall be paid to the Ordinary Unitholders no later than the last Banking Day of the Financial Year provided that if the balance of the Available Distributable Amount in relation to the end of that Financial Year, is less than such entitlement of the Ordinary Unitholders:
(i) an amount equal to such balance shall be paid to the Ordinary Unitholders in accordance with their entitlements pursuant to this Deed; and
(ii) the Trustee shall apply the amount of the shortfall as payment in full in respect of bonus Ordinary Units issued by the Trustee to the Ordinary Unitholders so entitled at the rate of one bonus Ordinary Unit for each Dollar of the amount of shortfall. Such an issue of bonus Ordinary Units shall be binding upon the Ordinary Unitholders and shall be in satisfaction of so much of their absolute vested interest of the Net Taxable Income of the Trust for that Financial Year that cannot be satisfied from the balance of the Available Distributable Amount in relation to the end of that Financial Year paid or payable pursuant to this Deed.
……
4. APPLICATION OF TRUST FUND ON VESTING DAY
4.1 Subject to Clause 4.2 as from the Vesting Day the Trustee will stand possessed of that part of the capital of the Trust Fund including the amount of capital paid on Units by Registered Holders, in trust for the Registered Holders in proportion as between themselves to the number of Units held by them and in trust for those of the General Beneficiaries living or in existence at that date for those interests and in those proportions and for one to the exclusion of the other as the Trustee may in its absolute discretion appoint on or before the Vesting Day revocable at any time earlier than the Vesting Day unless expressed to be otherwise.
4.2 Distribution Upon Vesting
Notwithstanding any other provisions in this deed other then Clause 4.4 the application of the Trust Fund on the Vesting Day shall be in the following order;-
(a) Taxes
(b) Trustees Fees and Expenses
(c) Amounts that are due to lenders in relation to any Borrowings
(d) Undistributed income including unitholders income, pursuant to Clause 2.3 or 3
(e) A repayment of Unit Holders capital paid on the Ordinary Units to the greater of:
(i) $7,500,000; or
(ii) 55% of the total Capital paid up (whether as bonus Ordinary Units or otherwise) on all Ordinary Units ever issues, less any amounts already paid pursuant to Clause 8 as a Redemption of such Units. No premium is payable on these Units.
(f) An amount determined by the Trustee pursuant to his discretion and or power of appointment as contained in this deed, to be paid or payable pursuant to any General Beneficiary out of the Trust Fund, provided that such amount is not to exceed the sum of the amounts determined under 4.2(e) plus any amount paid or payable to the Ordinary Unitholders upon redemption pursuant to Clause 8.
(g) The balance of the capital on the Ordinary Units in existence at the vesting date without any premium payable
(h) Any remaining balance of the Trust Fund in trust for those of any remaining Unitholders, General Beneficiaries for those interests and in those proportions and for one to the exclusion of the other as the Trustee may in its absolute discretion appoint on or before the Vesting Day revocable at any time earlier than the Vesting Day unless expressed to be otherwise.
4.3 Remainder
In default of the Trust Fund or part of it vesting absolutely pursuant to clause 4.1 and 4.2 the Trustee will stand possessed of the Trust Fund or part thereof for the Unitholders and General Beneficiaries jointly living or in existence on the Vesting Day in equal shares absolutely and if there will be no such persons upon trust for those charitable purposes as the Trustee may determine, any resulting trust to the Settlor being expressly negatived.
4.4 Action on Vesting
Upon Vesting, the Trustee shall wind up the Trust and, subject to clause 4.5
(a) (Wind up the Trust): sell and realise the Assets of the Trust and such sale (so far as reasonably practicable and reasonably viable commercially) shall .be completed within 180 days after the commencement of the termination of the Trust; and
(b) (Distribute Proceeds): distribute all cash proceeds from the realisation of the Assets of the Trust in the order of priority set out in Clause 4.2……
20. TRUSTEE MAY NOMINATE ADDITIONAL OR EXCLUDE BENEFICIARIES
20.1 The Trustee may with the consent of the Appointer in writing at any time or times before the Vesting Day nominate one or more individuals, corporations, trusts or entities having separate legal identity (not being otherwise excluded from benefit hereunder) to be a member or members of the class of General Beneficiaries and no beneficiary may prevent the nomination of new beneficiaries. The nomination of additional beneficiaries may be by resolution (whether oral or in writing), deed, or deed poll……
20.4 The Trustee may with the consent of the Appointor at any time or times before the Vesting Day declare any individual or entity to be removed as a beneficiary or to be ineligible to become a beneficiary and such person or entity shall thereupon be excluded from any benefit under the trusts hereby created (but without prejudice to the beneficial entitlement to any amount set aside for any excluded beneficiary prior to the date of such declaration). Any such declaration shall be revocable unless expressed to be otherwise. The removal of beneficiaries may be by resolution, (whether oral or in writing) deed, or deed poll."
[6]
The Main Deed
The Main Deed contained the following provisions said by the parties to be of significance:
1. "1.2 Interpretation…..
(d) A reference to a party to this Deed or another agreement or document includes the party's successors, permitted substitutes and permitted assigns (and, where applicable, the party's legal personal representatives).
1. in consideration of the payment to Crossman of $1 by Nominees, Crossman agreed to discontinue the Contempt Motion, and have all orders vacated and undertakings discharged. Crossman also agreed to give written notice to the trustees of the BCT consenting to the vesting of the BCT
2. a release of Crossman in the following terms:
"3.2 Release by PILT Nominees, Baltarna, Sanabu, Mr Seller, Davlon and Mr Peter Londish
On and from the Second Payment Date, each of PILT Nominees, Baltarna, Sanabu, Mr Seller, Davlon and Mr Peter Londish releases Mr Crossman and each of Mr Crossman's Related Entities from:
(a) any Claim arising from or connected with:
(i) the Proceeding;
(ii) the circumstances or allegations giving rise to or referred to in the Proceeding; and
(b) any other Claim which is or could reasonably have been known to a party as at the date of this Deed, whether or not the Claim is or could be known to a party, and, whether or not the Claim arises from or is connected with the Proceeding."
There was a confidentiality clause which prevented the parties from disclosing the existence and terms of the Main Deed to anyone except in specified circumstances. That clause was inserted at the request of the Nominees/Seller interests and replaced a requirement contained in the without prejudice proposal from Nominees' solicitors requiring Valofo's consent: see CB 1093, 1094 and 1112. An identical clause was inserted in the Contempt Deed: see below. There was a release given by Crossman as well which was to take effect only "on and from the Second Payment Date" ie the date of payment of the $1.6 million to which I have earlier referred, and which was payable under the Contempt Deed.
[7]
The Contempt Deed
By the Contempt Deed Nominees agreed to pay Crossman the two payments: one of $600,000 and one of $1.6 million.
By Clause 2.4 Nominees agreed to cause mortgages over the five properties to be granted to Crossman to secure the second payment.
Clause 2.6 was in the following terms:
"Consent and acknowledgment
(a) For the purpose of the undertakings given by PILT Nominees and Mr Seller noted in the orders made on 23 April 2009, Mr Crossman consents to PILT Nominees and Mr Seller dealing with, or diminishing the value of, any of the assets of PILT Nominees for the purposes of:
(i) making the First Payment; and
(ii) causing the registered mortgages referred to in clause 2.4(a) above to be granted.
(b) The parties acknowledge that the payments contemplated by this deed are not, and the granting of the registered mortgages to Mr Crossman in accordance with clause 2.4(a) is not, prevented by the orders made by Justice Hamilton on 27 May 2008."
The releases were in the following terms:
"4.1 Release by Mr Crossman
On and from the Second Payment Date, Mr Crossman releases PILT Nominees, Mr Seller and Mr Peter Londish and each of their Related Entities from:
(a) any Claim arising from or connected with:
(i) the Contempt Motion;
(ii) the circumstances or allegations giving rise to or referred to in the Contempt Motion.
4.2 Release by PILT Nominees, Baltarna, Sanabu, Mr Seller, Davlon and Mr Peter Londish
On and from the Second Payment Date, each of PILT Nominees, Mr Seller, and Mr Peter Londish releases Mr Crossman and each of Mr Crossman's Related Entities from:
(a) any Claim arising from or connected with:
(i) the Contempt Motion;
(ii) the circumstances or allegations giving rise to or referred to in the Contempt Motion."
The confidentiality clause in the Contempt Deed was in the following terms:
"7.1 Confidentiality
Subject to clause 7.2, a party must not disclose the existence of and terms of this Deed.
7.2 Permitted disclosure
A party may disclose the existence of and terms of this Deed:
(a) under corresponding obligations of confidence as imposed by this clause, to any of its professional advisers, auditors, bankers, insurers or insurance brokers;
(b) in enforcing this Deed or in a proceeding arising out of or in connection with this Deed;
(c) if required under any law or any administrative guideline, directive, request or policy; or
(d) with the prior written consent of each other party."
[8]
The Claims in the Crossman proceedings
In the Crossman proceedings, Crossman's standing to bring those proceedings was put in issue since he was not a beneficiary of the PILT Trust or even the Baltarna Trust. Hamilton J dealt with this point in an interlocutory judgment (see Crossman v PILT Nominees Pty Ltd [2008] NSWSC 557) saying that Crossman had an arguable case for standing and for the relief he was seeking particularly at [5]- [8] and referring to Spellson v George [1992] NSWCA 254, (1992) 26 NSWLR 666. Spellson itself cites Gartside v Inland Revenue Commissioners [1968] AC 553 at pp 617- 618; see also Ramage v Waclaw (1988) 12 NSWLR 84.
In the Crossman proceedings Crossman claimed inter alia that (these are taken from the Amended Statement of Claim CB 1126B- AY dated 25 June 2009 which was verified by Crossman see CB 1126AV):
1. Nominees had paid out $9.5 million of trust assets from the PILT Trust, in breach of trust and with the intention of benefiting Seller and Londish or the companies they controlled
2. Baltarna had received $3.5 million of trust assets from the PILT Trust, in breach of trust and for purposes unconnected with the PILT Trust or the Baltarna Trust
3. Davlon had obtained the benefit of $5.2 million from trust assets and was liable to repay it to the trust
4. Radio Nominees had obtained $3.4 million of trust assets and was liable to repay it to the trust
Crossman sought:
1. the taking of accounts for the purpose of tracing payments made out of trust assets- amounts totalling $11.5 million
2. an equitable charge in favour of the trustees of the PILT Trust of those monies
3. and alternatively a charge in favour of the trustees of the PILT Trust or Baltarna Trust re $3.5 million held over such property into which the $3.5 million may be traced by Radio Nominees
Crossman
1. relied on the terms of the PILT Trust Deed and the Baltarna Trust Deed
2. asserted that 'Trustee duties' were imposed on Nominees and Baltarna including the duty (CB 1126S)
"to pay and transfer the property of the relevant trust only to the relevant beneficiaries or objects of the relevant trust"
1. claimed that Seller and Londish (CB 1126T)
"took steps causing PILT Nominees as trustee of the PILT [Trust] to borrow approximately $11.5 million secured over the Designated Properties, wholly or partly for the purpose of making a significant payment to an entity or entities controlled by Seller and/or Peter Londish".
1. claimed that the entry into the borrowings and payment out to Davlon and Radio Nominees by Nominees for purposes "unconnected with the underlying intention of the PILT Trust" and for the predominant purpose of
"making significant payments or distributions to an entity or entities controlled by Seller and/or Peter Londish which was a purpose alien to the PILT"
and involved breach of trust by Nominees
1. claimed that the payments made by Baltarna were similarly a breach of the Baltarna Trust Deed
2. claimed that the breaches involved a dishonest and fraudulent design on the part of Nominees and Baltarna in which Seller and Londish were complicit
3. in the Amended Statement of Claim also attacked the removal of the BCT as a General Beneficiary of the Baltarna Trust and the appointment of Sanabu as trustee (CB 1126V- W [44])
[9]
The Issues
There was disagreement between the parties concerning the issues, and as to what was the appropriate starting point. I have had regard to the competing issues and leaving aside the question of whether any particular matter could, on the pleadings, be raised, the questions which need to be addressed are:
1. was the settlement with Crossman a breach of trust by Nominees and Baltarna? This involves the subsidiary question of whether the provisions of the Trust Deeds permitted what otherwise would not be permitted (Issue 1)
2. did the beneficiaries of the PILT Trust and the Baltarna Trust consent to the breach so as to preclude the New Trustees from relying on the breach of trust? This involves the further question of whether if there was consent whether that consent was fully informed (Issue 2)
3. if the Crossman settlement was a breach of trust by Nominees did Crossman receive payments by virtue of the breach of trust? (Issue 3)
4. if the answer to (3) is yes, did Crossman have knowledge of the breach of trust? (Issue 4)
5. if the answer to (4) is yes, did the Crossman corporations have knowledge of the breach of trust? (Issue 5)
6. was Crossman a volunteer? (Issue 6)
7. if Crossman and the Crossman corporations were otherwise liable to repay the money received by them from the PILT Trust assets do the release clauses of the Contempt Deed and the Main Deed preclude the New Trustees from being able to recover these monies from Crossman or the Crossman corporations? This issue has a number of sub-issues:
1. the nature of relief that can be granted
2. are the New Trustees bound by the terms of the Main Deed and the Contempt Deed?
3. is the answer to whether relief can be grated dependant on whether the New Trustees have set aside the Contempt Deed and the Main Deed? This is tied to the defendants' assertions that since the New Trustees have not sought to rescind the Main Deed they cannot rescind only the Contempt Deed. The defendants also contend that the New Trustees cannot obtain an order for rescission of the Contempt Deed for various reasons, even assuming that the rescission of the Main Deed is not required
4. if the releases of either the Main Deed or the Contempt Deed are binding on the New Trustees are they in terms sufficiently wide to preclude the New Trustees' claims:
1. against Crossman
2. against the Crossman corporations
(Issue 7)
1. can the defendants rely on acquiescence, delay or laches? (Issue 8)
2. can the defendants run what has been called "the Baltarna Consent is determinative" point and if so is it an answer to the plaintiffs' claims? (Issue 9)
[10]
Mr Crossman's credit
It was put to Crossman in cross examination that having identified very real misconduct on the part of Nominees, Seller and Londish in the Crossman proceedings he was now seeking to downplay the significance of that misconduct and his views about it since by the Contempt Deed he obtained the benefit of a transaction that bore no relationship to what was provided for in the PILT, Baltarana and BCT Trust Deeds. Crossman sought to explain his position by pointing out that:
1. what he wanted was a settlement of his claims in the trust structure
2. that what he was asserting in the Crossman proceedings and the position paper at the mediation was a means to obtain the settlement (T222.30- 35) and he had no confidence that he would be successful against Nominees, Seller and Londish (T224.10- 38)
3. that Nominees had obtained approval from the Court to resist the Crossman proceedings and to fund the defence out of trust assets
4. that there was an ongoing family dispute within the Londish family to which he was not privy and wished to avoid
5. that since Bowman as well as Londish were fully aware of what was occurring in relation to his settlement he had no belief that there was anything untoward in his obtaining payment of his interest in the BCT out of PILT Trust assets
6. that because there was a valuation of the five properties for $16.2 million he could be confident that there would be sufficient funds left to pay Valofo $7.5 million even if he received the $2.2 million and even if the payment to Radio Nominees was not recoverable so that in effect a settlement which saw him receive $2.2 million ahead of Valofo would not involve Nominees/ Baltarna in a breach of trust (see T245- 246)
7. that the payment to Davlon of $5.5 million out of the $11.5 million fund borrowed from ANZ could have been a partial payment by Baltarna to Valofo of Valofo's interest in the Baltarna Trust
A number of points are made in the Plaintiffs' Points Arising from the Crossman Cross Examination concerning Crossman's credit, namely:
1. that although he states in his first affidavit para 57 that the "order of the waterfall" on vesting required Valofo to receive $7.5 million before he could receive anything he was initially evasive at T198.43- T199.20 about this but admitted that his only economic interest on vesting of the PILT Trust was to the extent that he had an interest in the BCT and to the extent that BCT had an interest in the Baltarna Trust. However at T234.25- 30 he asserted that he did have a beneficial interest in the PILT Trust, which, say the plaintiffs, was untrue
2. he first agreed that he and Bowman had a common interest in the Baltarna Trust vesting and that he thought it was a good idea for them to cooperate (see T196.25 and T 202.6.30), again agreed at T220.45- 50 but later asserted to the contrary (see T222.25- 35)
3. that notwithstanding that Bowman's file note of 11 May 2009 CB 987A states that Crossman had said he "wanted it vested and distribution" Crossman asserted he did not tell Bowman that he wanted the trust vested and a distribution: T222.25 and she also Crossman's position paper at paras 62- 68
4. that Crossman's evidence in an affidavit one week before the hearing was that he had read Nominees' position paper several times between mediation and 8 July but when cross examined he said he could not recall whether he read it more than once. It was submitted that his evidence was "bizarre"
5. although in paragraph 25 of his position paper at the mediation (CB 1020) Crossman pointed out that there were no powers in the PILT Trust Deed which authorised the payment made of which complaint was made in the Crossman proceedings- Crossman sought to move away from that (see T224-26.15) but was forced to concede that the payments out of the PILT Trust assets to companies controlled by Seller and Londish were made for the private purposes of Seller and or Londish
6. he tried to assert that there was a difference between what the Deed provided on vesting and a settlement of the proceedings and that there was a tactical element involved in the Crossman proceedings to bring about a settlement: see T 230.29
7. on the question of whether Bowman and Linda where present at the final session of the mediation at which, on his evidence, there was discussion of payment out of trust assets, his diary note of the conversation after the mediation with Bowman indicated that Bowman (and Linda) had not been present at that final session
8. Crossman asserted that what happened at the mediation was consistent with para 68 of his position paper (see T242.40) but the plaintiffs submitted it could not be
9. Crossman denied that he understood that it was highly unlikely that Valofo would have consented to what was in the Contempt Deed if it had known of its contents. Not only is that inconsistent with Sid and Bowman's earlier refusal to accept a proposal to change the priorities (see CB 839 and T209.35- 41 and T210.11) but he asserted that there were sufficient funds to pay Valofo: T245.40. He asserted that the $5.5 million which went to Davlon, went to Valofo or went to Londish: T245.45, whereas in his mediation position paper CB 1019- 1020 he did not assert that any monies had been paid in effect to Valofo and see T226.30; T227.49. His pleadings were verified see CB 1126AV and he had not pleaded that the money which went to Davlon was a payment to Valofo- his position paper asserted that the payments made to Davlon were payments "made for the private purposes and enjoyment of Mr Seller and Mr Peter Londish" paras 24 and 25 CB 1019 (and see also CB 975-984). Crossman knew that Bowman did not accept that Valofo had authorised payments by Nominees to Davlon: see T225.10- 30 but he tried to say he was not sure about this at T224.20
10. the Bowman file note is of a conversation with Bowman in which Crossman told him it was possible that all of the PILT Trust assets had 'gone' and were not traceable: CB 829A. Crossman did not admit that he had said this to Bowman saying he very much doubted he would have said it and very much doubted that Allens would have told him that
11. Crossman told Bowman that he had not as yet received an acceptable offer at a time when he had accepted Nominees' offer
12. his assertion at T277.20- 27 that the letter from Purcells CB 1183 (and see also CB 1178) was only dealing with whether Allens would furnish information so that was not an opportunity for him to have Allens assert that Valofo had consented to the settlement
13. his assertion in cross examination that he did not comply with the confidentiality aspect of the Deeds (at T270.4- T271.2) should not be accepted. It was incorporated into the Deeds at clauses 7.1 and 6.1 respectively and when information was sought by Purcells the answer given by his solicitor was that Crossman was unable to answer the questions because of "certain obligations of confidentiality owed by him"
14. Crossman denies that the contempt motion gave him a lever against Seller and Londish- but it is put that it is clear it did and that he appreciated that
15. Crossman denied that he was aware that Seller and Londish were in a position of conflict and the conflict is a matter so patent that his denial affects his credibility
16. examples were given of what was said to demonstrate that Crossman was evasive: see T193.98; T194.7; T196.43; T199.30; T199.38; T202; see T200.33 in comparison to para 57(f) of his affidavit (T253.16- 31; T254.26- 45)
17. his assertion that he believed that Davlon payments were likely to be recovered as a debt when there was no evidence supporting that alleged belief
[11]
Breach of Trust (Issue 1)
Under the PILT Trust Deed the only beneficiary was Baltarna (as trustee for the Baltarna Trust). Leaving aside any exculpatory terms of the PILT Trust Deed, Nominees could not use assets of the trust to pay monies to a prospective beneficiary of the Baltarna Trust. Nor do I think that Nominees could, without court approval, settle a claim against it for breach of trust by using assets of the PILT Trust.
Under the Baltarna Trust Deed there were only two beneficiaries or potential beneficiaries:
1. Valofo
2. the BCT of whom the only potential beneficiary was Crossman
Baltarna was required by the Trust Deed to pay $7.5 million to Valofo before any other payment could be made. The only person to whom payment could be made other than Valofo (assuming that the resolution removing BCT as a nominee was rescinded or invalid) was a person determined at the discretion of the Trustee with the consent of the Appointer (whose identity was to be determined by the Trustee) to be a member. Baltarna or, if its appointment was valid Sanabu, had the power to exercise the discretion both being controlled by Seller. There is no evidence that the discretion was in fact exercised. Even if the discretion was exercised it could not be exercised to advance Crossman over Valofo.
Baltarna is not a party to the Contempt Deed but the fact of payment to Crossman of $2.2 million is recognised in the Main Deed to which Baltarna is a party and Seller, a director of Baltarna (and Sanabu), was clearly aware of the fact that payments were to be made by Nominees out of assets of the PILT Trust or by monies secured over property forming part of the trust assets (ie the specified properties being service station properties).
Standing back from the matter for a moment the broad picture appears to be this:
1. Baltarna, which was to receive the assets of the PILT Trust on vesting has not been shown to have received any amount from the PILT Trust as trustee of the Baltarna Trust
2. Valofo, which was to receive a minimum of $7.5 million as a unitholder in the Baltarna Trust, has not been shown to have received any amount from the Baltarna Trust
3. Crossman who, by the terms of the Baltarna Trust Deed and BCT, was entitled, at best, to an amount after payment of the $7.5 million to Valofo received $2.2 million of which at least $1.6 million, it is agreed, came out of PILT Trust assets and both of which payments were secured by trust assets
4. Crossman received the amount of $2.2 million in settlement of the Contempt Proceedings. In neither of the Crossman proceedings or the Contempt Proceeding, if he had been successful, would Crossman have been entitled to any payment whatsoever since if entitled to relief the only relief sought and which could have been ordered required Seller, Londish, Nominees, Sanabu and or Davlon to pay monies back to the PILT Trust and a declaration that the BCT had been wrongly removed as a general beneficiary of the Baltarna Trust or to be punished for contempt by fine or otherwise
5. Crossman who, by the Crossman Proceedings, sought to prevent erosion of PILT Trust assets settled those proceedings not by Nominees and Seller, Londish and the companies they controlled agreeing to make payment of money back to the trust but by payment of $2.2 million of trust monies to him
[12]
Did Valofo know about the Settlement and did it Consent to the Settlement (Issue 2)
If a plaintiff has established a breach of trust and the defendant's answer to it is that all relevant beneficiaries were aware of the breach then the onus lies on the party asserting consent to establish that consent was given: see Maguire v Makaronis (1997) 188 CLR 449 at p 466 per Brennan CJ, Gaudron, McHugh and Gummow JJ and Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 at [135] per Leeming JA. Not only that, but the consent must have been given with a full appreciation of the relevant facts: see Maguire p 466, Spellson at 669- 670 and 673- 675 and Hasler at [134]- [141]. The submissions on behalf of the defendants concerning consent seemed to ignore both these important points.
The evidence of what Bowman was told (or not told) consists of the following:
1. Bowman's diary notes which are in evidence
2. Crossman's diary notes which are in evidence
3. Crossman's evidence in his affidavit
4. Crossman's evidence in cross examination
5. the Contempt Deed and the Main Deed and the correspondence which followed the execution of the Deeds
ClarkeKann were appointed to advise Bowman, Sid and Valofo and there is no dispute that Bowman on behalf of Valofo wanted ClarkeKann to maintain a watching brief in relation to the Crossman proceedings (see CB 975) and Crossman knew that Valofo, through Bowman, was considering whether to join with Crossman in the proceedings against Nominees (with the possibility of Allens acting for Valofo as well as Crossman) or alternatively for Valofo to commence its own proceedings. Bowman told Crossman that he would like to attend the mediation and Crossman indicated he would be happy for Valofo to attend: CB 985 and 987. At least one reason for Valofo not seeking to be joined to the proceedings was explained by ClarkeKann as being the fact that the relief sought by Crossman was the same relief that Valofo would seek. Valofo anticipated that if the mediation did not provide a satisfactory outcome Valofo would commence proceedings against Nominees and the other defendants and seek to have those fresh proceedings joined to the Crossman proceedings: see CB 989. In Crossman's position paper he contended that if he were successful in the proceedings and obtained sale of the properties and a vesting order (see paras 62 and 68 of the position paper) he would be entitled to $7.5 million from the assets of the PILT Trust- see DCFS 74. That 'entitlement', however, depended on a minimum of $7.5 million being paid by Nominees to Baltarna and then to Valofo and then Baltarna determining, in its discretion, what amount, if any, was to be paid to the BCT. One can infer that there were taxation considerations for the use of discretionary objects in the Baltarna Trust, but the consequence is that the amount, if any, to be paid to Crossman after Valofo had received its $7.5 million was in fact in Seller's hands which the plaintiff's position paper did not acknowledge. In cross examination Crossman did not accept that there was any discretion to be exercised: T201.10.
[13]
If the Crossman settlement was a breach of trust by Nominees did Crossman receive the payments by virtue of the breach of trust? (Issue 3)
Crossman accepts that the second payment of $1.6 million was made out of trust assets but in DCS 91 the assertion of the New Trustees that the payment was made out of trust funds was challenged. Crossman did, in his Amended Commercial List Response ("ACLR"), admit that the $600,000 was paid by Nominees out of funds lent to it by Davlon and Radio Nominees which funds were later repaid out of trust assets by Nominees to Davlon and Radio Nominees: see FACLS at 133 and ACLR at 63 and it was Crossman's case in the Crossman proceedings that Nominees had wrongly paid trust assets to Davlon and Radio Nominees (and Baltarna). Crossman's evidence was that he was told at the mediation that the money he was being offered was to be paid out of trust assets and later that he knew that the payments totalling $2.2 million to him were to come out of PILT Trust property (see para 73 of his first affidavit) and see T183.31- 36 and he also knew that the promise to make the second payment was to be secured over trust assets.
Mr Thomas made the point that the Contempt Deed did not mandate the payment of the $2.2 million out of trust assets. That is true as is the fact that neither the Contempt Deed (nor the Main Deed) is expressed to have been entered into by Nominees as trustee for the PILT Trust. As Mr Marshall pointed out this raises two possibilities, either:
1. Nominees entered into the Contempt Deed on its own behalf and any obligation it had to pay money to Crossman was personal to it
2. the Contempt Deed was entered into by Nominees on behalf of the PILT Trust or at least purportedly on behalf of the PILT Trust
If the former alternative is correct the Contempt Deed did not involve a breach of trust per se, and any releases given would not therefore affect the Trust even assuming that they otherwise might be effective. That, however, would mean that trust monies were used to pay out personal obligations of Nominees, Seller and Londish for which there could be no warrant.
If the second alternative is correct the entry into the Contempt Deed was itself a breach of trust for the reasons I have articulated because the payments which Nominees was agreeing to make to Crossman were for a purpose that produced no benefit to the trust (and were not authorised by the Trust Deed) but only to Nominees, Londish and Seller personally as a means of avoiding the continuation of the proceedings in which it was claimed they had breached their duties to the trust and acted in Contempt of Court and being proceedings in which nothing was claimed by Crossman from Nominees.
[14]
Did Crossman have knowledge of the breach of trust? (Issue 4)
In paragraph [172] (d)- (p) of their FACLS the New Trustees detail as facts matters and circumstances as follows:
"d. pursuant to the terms of each of the PILT Trust deed and the Baltarna Trust deed, PILT Nominees could not lawfully make or authorise any payment to Crossman or Metro Finance NZ from the PILT Trust assets or by using the PILT Trust assets as security to procure funds to make payments to Crossman or Metro Finance NZ;
e. any legal or other entitlement to the assets of the PILT Trust was the entitlement of Baltarna the sole unitholder of the PILT Trust;
f. Valofo as the sole beneficiary or as a beneficiary of the Baltarna Trust had not received any payment or distribution from the PILT Trust assets;
g. by PILT Nominees, Seller and Peter Londish entering into the ANZ facility and the ANZ charge and causing, procuring or allowing PILT Nominees to make the payments of $3.9 m to Radio Nominees and $5 m to Davlon, PILT Nominees, Seller and Londish exposed themselves to allegations that they had breached the injunction granted by Justice Hamilton by the 27 May 2008 Orders;
h. the Contempt Motion exposed Seller and Peter Londish to sanctions which involved sequestration of assets and punishment for contempt;
i. by reason of the Contempt Motion, Seller and Peter Londish had a conflict between their respective individual interests as defendants to the Contempt Motion and their respective duties as directors of PILT Nominees, the then trustee of the PILT Trust, to protect the PILT Trust assets and to ensure that those assets were used for a proper purpose and in accordance with the PILT Trust deed;
j. there was a dispute between Peter Londish on the one hand and David Bowman and Sid Londish on the other hand as to the control of Valofo;
k. Peter Londish had received or otherwise had the benefit of the Davlon payments from the PILT Trust assets;
l. PILT Nominees, Seller and Peter Londish did not intend for Valofo to be a party to the Settlement Deed - main proceedings and / or the Settlement Deed - Contempt Motion;
m. PILT Nominees, Seller and Peter Londish had not sought the consent of Valofo to the entry into the Settlement Deed - main proceedings and / or the Settlement Deed - Contempt Motion and / or the making of the first Crossman payment and / or the second Crossman payment;
n. Valofo was not a party to and did not otherwise consent to the October 2009 Deed extending the date for the second Crossman payment which was entered into after Purcell Solicitors (acting for Sheahan and Lock as administrators of Valofo) letter of 27 July 2009 had been sent to Allens Arthur Robinson (acting for Crossman) notifying Crossman of Valofo's interest in the trust assets and the fact that Valofo consider funds from the ANZ loan to be impressed with a trust in favour of PILT;
o. Valofo did not consent to the making of the first Crossman payment or the second Crossman payment; and
p.Peter Londish had a conflict between his own personal interest in wishing to resolve the Crossman proceedings 2847/08 and the Contempt Motion to avoid investigation by Valofo and others as to the Davlon payments and his duty as a director of PILT Nominees, the then trustee of the PILT Trust, to protect the PILT Trust assets and to ensure that those assets were used for a proper purpose and in accordance with the PILT Trust deed, including by way of distribution to Baltarna and the onward distribution to Valofo."
[15]
Did the Crossman corporations have knowledge of the breach of trust? (Issue 5)
Crossman is the sole director of the Crossman companies and he is therefore the directing mind of each. His knowledge is that of the three companies: see Grimaldi v Chameleon Mining NL (No 2); Chameleon Mining NL v Murchison Metals Ltd [2012] FCAFC 6; (2012) 200 FCR 296 at [244] and [282] and see John v Dodwell & Company Ltd [1918] AC 563 at 569, Tesco Supermarkets Ltd v Nattrass [1972] AC 153, Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 and Entwells Pty Ltd v National & General Insurance Co Ltd (1991) 5 ACSR 424 at 427- 429. In my view the Crossman corporations must be taken to have knowledge of the breach of trust by Nominees in paying out the $2.2 million when the Contempt Deed was entered into and even more so in making the second payment having regard to Purcell's letters.
[16]
Was Crossman a volunteer? (Issue 6)
The New Trustees contended that Crossman was a volunteer and hence that knowledge of breach of trust was not in any event relevant: relying on Strang v Owens (1925) 42 WN (NSW) 183, Addstead Pty Ltd (in liq) v Liddan Pty Ltd [1997] SASC 6369 being the judgment delivered on 7 October 1997; (1997) 70 SASR 21.
The argument is founded on the assertion that at most what the defendants' opening written submissions described as a chose in action- that being to reinstate the BCT as a general beneficiary of the Baltarna Trust and to reinstate Crossman as an object of a discretion which might never be exercised- and yet the Contempt Deed provided for Crossman to be paid $2.2 million out of the PILT Trust- thus Crossman was a volunteer and received monies that involved Nominees in breach of trust "for no consideration or no good consideration".
The defendants' response is that
1. the chose in action had value
2. he gave up the benefit of a costs order obtained in the proceedings before White J in late April 2009
3. not only was Crossman giving up the benefit of the costs order he had obtained he was giving up the benefit of costs orders he was entitled to seek and might obtain
Given that the issue is relevant only if I am satisfied that Crossman had no knowledge of the breach of trust and my conclusion is that he did have that knowledge, it is not necessary to resolve this question, although I will say more about the chose in action below.
[17]
The nature of relief that can be granted (Issue 7)
Since I am of the opinion that the entry into the Contempt Deed was a breach of trust and accepting for present purposes the contention of the defendants that the Contempt Deed and the Main Deed are to be viewed as part of the same transaction, I am satisfied that entry into both deeds constituted a breach of trust by Nominees with the knowledge of Crossman and I do not think that any provision of either deed can be relied upon by Crossman or any of the other parties to it to block a claim by the New Trustees that the monies paid under it are recoverable, even if the deeds are not set aside.
A trustee having agreed for its own benefit to pay out trust money to a third party and in breach of trust ought not be able to give an effective release to the third party to whom the money has been paid since the release is itself a breach of trust if it were otherwise binding on the trustee and by implication a burden on the trust fund. That seems to me to be a matter of fundamental principle. There is surprisingly little treatment of this problem in the case law or in the Australian texts and no case was cited on the question but the US text Scott and Ascher on Trusts (5th ed, 2008, Aspen Publishers) puts it this way:
"though an obligor gives value [for a release], the obligor is not protected from further liability if the obligor has notice that the trustee is committing a breach of trust in giving the release. The latter situation sometimes arises when a trustee gives a release in consideration of the cancellation of a debt owing to the obligor from the trustee individually, as when a trustee pays the trustee's own indebtedness to a bank by a check drawn on trust funds on deposit with the bank. Vice-Chancellor Knight Bruce well described this situation as follows: "Money is due from A to B, in trust for C. B is indebted to A on his own account. A, with knowledge of the trust, concurs with B in setting one debt against the other, which is done without C's consent. Can it be a question in equity whether such a transaction can stand?""
citing Hunting v Safford, 66 N.E 642 (Mass.1903), Timan v Leland, 6 Hill 237 (N.Y. 1843), Petrossi Bros. Contracting Corp v Town of Greece, 29 N.Y.S.2d 305 (Sup. Ct. 1941), McClaughry v McClaughry, 15 A. 613 (Pa. 1888), Welch v Mandeville, 14 U.S. (1 Wheat.) 233 (1816), 18 U.S. (5 Wheat.) 277(1820). The relevant passage from Welch is at 14 U.S 233 at 236 per Story J:
"Admitting a dismissal of a suit, by agreement, to be a good bar to a subsequent suit, (on which we give no opinion,) it can be so only when it is bona fide, and not for the purpose of defeating the rights of third persons. It would be strange indeed, if parties could be allowed, under the protection of its forms, to defeat the whole objects and purposes of the law itself."
[18]
Rescission
The topic of rescission is most helpfully dealt with in Meagher, Gummow and Lehane (op cit) chapter 25. What follows summarises the relevant parts of that exposition of the law including as drawn from the two High Court cases of Alati v Kruger (1955) 94 CLR 216 and Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; (1995) 184 CLR 102:
1. at common law a contract can be rescinded in the sense of terminated ab initio by an act of the innocent party for fraudulent misrepresentation and duress
2. in equity there can be termination ab initio but it is the Court's order which actually rescinds the contract not the act of the party and the circumstances in which rescission will be ordered by a Court in its equitable jurisdiction are more extensive than at common law. At [25-025] the learned authors state:
"Rescission in equity describes the setting aside of dispositions and transactions (it is not limited to contracts) which equity regards as being improperly procured by innocent but material misrepresentation, equitable fraud, undue influence, breach of fiduciary duty or other unconscionable conduct even though the disposition or transaction is neither void nor voidable at law."
1. when the Court exercises its equitable jurisdiction it is required to consider what, if any, restitution is required, and to give relief "whenever, by the exercise of its powers, it can do what is practically just, though it cannot restore the parties to precisely the state they were in before the contract" and to "do what is practically just between the parties, and by so doing restore them substantially to the status quo": see Alati v Kruger at pp 223- 224 and Vadasz at pp 113- 114
It follows that I accept the defendants' contention that the letter of rescission sent by the New Trustees in 2012 is not effective to constitute rescission of the Contempt Deed. Since the New Trustees do not allege fraud or duress or misrepresentation by Crossman in obtaining the consent of Nominees or Seller and Londish to the Contempt Deed the matter is one wholly for the equitable jurisdiction of this Court not the confirmation of a common law rescission.
I accept that if Nominees (or Baltarna) would have had a defence to a claim by Valofo for breach of trust then Crossman ought not be held liable either. Nominees and Baltarna however could not, in the light of their request that Crossman not tell Valofo about the settlement, possibly have asserted that they acted with the encouragement and knowledge of the beneficiary.
[19]
Other reasons to deny the New Trustees relief (Issue 8)
[20]
Laches, Acquiescence and Delay
The defendants assert that the New Trustees should not be permitted to maintain claims in respect of deeds entered into in July 2008 and payments made in July 2009 and April 2010. The 'delay' relates particularly to the claim for rescission, but the laches defence applies to the entire claim.
It needs to be borne in mind that although the events occurred in 2009 and 2010, Nominees and Baltarna remained in control of the PILT Trust and Baltarna Trust until February 2011.
These proceedings were commenced by the New Trustees in May 2013, well within the limitation period specified in the Limitation Act 1969 (NSW).
Prior to the commencement of the proceedings a letter was sent on 27 July 2012 by solicitors acting on behalf of the New Trustees advising that they were rescinding the Contempt Deed: CB 1245.
Further, in July 2009 solicitors acting for Valofo advised Crossman that Valofo contended that the payments to Crossman constituted a breach of trust (see CB 1178).
Laches is described in Meagher, Gummow and Lehane 38-005 as
"an equitable defence to an equitable claim… In its primary sense, laches requires a defendant to establish that a plaintiff has so delayed the institution or prosecution of an equitable claim that the defendant has altered his position in reasonable reliance upon the plaintiff's acceptance of the status quo, or otherwise permitted a situation to arise which it would be unjust to disturb. Mere delay, of itself, is not sufficient to establish the defence."
see also Orr v Ford [1989] HCA 4; (1989) 167 CLR 316 at 341 per Deane J in which his Honour refers to the creation of a situation in which it would be "inequitable and unreasonable" to place the trustee in if the remedy were afterwards to be asserted.
The defendants also contend as a separate point that rescission is not available because cases of rescission call for 'special promptitude' (Meagher, Gummow and Lehane (4th ed 2002) [36-030] p 1038 adopted in Streeter at [640]).
The delay of the New Trustees in bringing these proceedings (ie from February 2011 till May 2013) is a long one and it has not been explained. In February 2011 when they applied to be appointed as trustee of the PILT Trust and the Baltarna Trust the plaintiffs were, as liquidator of Valofo, well aware of the facts that have led to this litigation. The defendants contend that by their inaction (DCS [107])
"the Trustees have permitted Mr Crossman and Metro Finance NZ to suffer prejudice including by organising their affairs on the basis that the Settlement Deeds were valid and binding, including by discontinuing the Crossman Proceedings and consenting to the vesting of the BC Trust."
Each of these matters although known to Nominees were not known to the New Trustees qua trustees of the PILT Trust and the Baltarna Trust until they were appointed and these steps upon which Crossman relies had all been taken long before that appointment. Further Crossman was on notice of Valofo's assertion as early as July 2009 that the payments were a breach of trust. I am not persuaded that any prejudice has been established by reason of the delay since February 2011 till May 2013.
[21]
The Baltarna consent is determinative point (Issue 9)
In oral submissions in reply Mr Thomas asserted that the plaintiffs had not addressed the fact that the only person with a beneficial interest in the PILT Trust was Baltarna, and it (through its sole director Seller) consented to the payment out of Nominees: see T399.1- 25. Since it had consented and it was the only beneficiary of the PILT Trust that was determinative and Valofo's consent was irrelevant. He submitted that the New Trustees had completely ignored
"the fact that a consent was given by the only person with a beneficial interest in the PILT Trust to the payments out from that Trust" (T399.20)
Mr Marshall objected to this point being made in reply by the defendants- nothing having been said at any time during the course of the hearing in opening submissions of the defendants, in the DCFS and DCS or in the oral closing submissions of Dr Bell and Mr Thomas. Mr Marshall contended that it ought not be permitted to be raised in reply.
The Courts have in recent times been critical of trial by ambush: see for example Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 at page 128 approving White v Overland [2001] FCA 1333 at [4].
The Baltarna consent is determinative point was, I am satisfied, raised as such for the first time in the reply by Mr Thomas. All of the defendants' prior submissions, written and oral, dealing with consent focused on Valofo's position and not Baltarna's position.
I accept Mr Marshall's submission however that in any event para 83(c)(ii) and (iii) do not make it obvious that the defendants would be relying on this point.
I think the Court should discourage such conduct by refusing to permit new contentions to be raised in reply in this fashion whether pleaded or not.
Against the possibility that to exclude argument on this point is not permissible I shall however deal with the substantive point. The submissions seemed to focus on the question of whether the knowledge of Seller concerning the Contempt Deed and Main Deed was to be attributed to Baltarna a question of a type considered in detail in Beach Petroleum NL v Johnson (1993) 43 FCR 1 and Duke Group Ltd (in liq) v Pilmer (1999) 73 SASR 64 [607]- [649].
I am inclined to the view that because Seller was not seeking to defraud or take advantage of Baltarna: see Duke [629] and [630], his knowledge is to be attributed to Baltarna. However if the knowledge of Seller can be attributed to Baltarna, as Mr Thomas contended, Baltarna was, as trustee, in breach of its fiduciary duty owed to the beneficiaries of the Baltarna Trust by permitting assets to be dissipated from the PILT Trust and without ensuring that the assets were available for distribution to the Baltarna Trust unitholder (namely Valofo). That was a clear breach of trust by both Nominees and Baltarna. In the case of Nominees, Seller and Londish were the human agents of the trustee and in the case of Baltarna (and if it be relevant as it might of Sanabu as well) Seller was the human agent. The conduct of Baltarna and Nominees through Seller (and Londish) was conduct which constituted a breach of trust and establishing that Baltarna knew that Nominees was acting in breach of trust is not a defence available to Crossman and the Crossman corporations as against the New Trustees.
[22]
Conclusion
It follows in my view that Crossman and the Crossman corporations are required to pay the New Trustees as trustees of the PILT Trust the amount of $2.2 million plus interest. Interest to be calculated to the date of the orders to be made.
[23]
Orders and Costs
I will hear the parties on the form of orders to be made and on the question of costs.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 03 July 2015
The Contempt Deed and the Main Deed brought to an end the Crossman proceedings. By the Contempt Deed Nominees agreed to pay a sum of $600,000 to Crossman in July 2009 and another $1.6 million by a later date. By a later amendment the date for payment of the second instalment was extended until April 2009. Both payments totalling $2.2 million were in fact made to Crossman or the Crossman corporations and they are the subject of these proceedings. Pursuant to the Main Deed Crossman was to be paid $1 by Nominees.
In the Crossman proceedings Crossman had complained that trust monies had been wrongly taken by Nominees from the PILT Trust and applied to the benefit of Londish or his companies and that Baltarna, through Seller, had wrongly removed as a General Beneficiary of the Baltarna Trust the Baltarna Class Trust ("BCT"). Crossman was one of the objects of the BCT and the BCT had, by resolution of Baltarna on 31 July 1996, been declared as a General Beneficiary: see CB 343. Baltarna was also the trustee of the BCT: see CB 235 but in March 2008 at the same time that the BCT was removed as an object of the Baltarna Trust Baltarna was replaced as trustee by Sanabu.
In the course of the Crossman proceedings orders had been made by Hamilton J injuncting Nominees from entering into any borrowing otherwise than to finance the acquisition of specified property, or using any of trust property as security for borrowings otherwise then in connection with the purchase of specified property. Baltarna and Nominees were injuncted from taking any steps in relation to the structure and assets of Baltarna Trust and the PILT Trust (see CB 916).
In resisting the injunctive relief sought by Crossman, counsel for Nominees Mr D.K Raphael, had foreshadowed the possibility that Nominees would wish to explore another means of financing and for that reason the requirement that Crossman's consent to such financing be sought prior to any application to amend the prohibitions had been included in the orders made by Hamilton J. The day after the injunction was ordered the ANZ Bank issued a facility letter to Nominees offering a variable commercial rate bill facility for $11.3 million, secured against the five service station properties of the PILT Trust which were at that point unencumbered. The solicitors for Nominees wrote to Crossman (through his solicitors) on 16 June 2008 seeking his consent to Nominees obtaining funds of $1.3 million by way of a bill discount facility to pay for "holding costs" which consent Crossman refused to give (see CB 477- 481). Notwithstanding the refusal and the injunction Nominees proceeded to take up the facility which was for $11.3 million secured over the service station properties being the PILT Trust assets. Funds of approximately $10.5 million were obtained by Nominees by virtue of the ANZ Bank facility.
On learning that Nominees had obtained funds from the ANZ Bank Crossman filed and served a Notice of Motion seeking the repayment of monies paid out of the PILT Trust, and orders that required Seller and Londish to file affidavits identifying the recipients and other details concerning the payments made out of the facility obtained from ANZ and said by Crossman to have been entered into in breach of the Court's orders. On 23 April 2009, White J made freezing orders against Nominees, Seller and Baltarna and made orders requiring disclosure, and the motions were stood over for a period of time. His Honour White J noted that Nominees and Seller had acted "surreptitiously" by its solicitors not mentioning in the correspondence that Nominees had sought a facility of $11.3 million. On that occasion White J recorded that the defendants had proposed that new independent trustees be appointed on an interim basis until the completion of the Crossman proceedings which his Honour determined was an appropriate course (see [40] of the judgment CB 916). His Honour also drew attention to the fact that there was a serious question as to whether the ANZ facility was a breach of trust by Nominees even if not it was a not 'borrowing' within the meaning of the orders made by Hamilton J at [47], as Nominees contended.
Affidavits were filed by Seller and Londish as required by the orders made by White J, which disclosed that Seller and Londish had caused Nominees to make payments from funds of the PILT Trust to Radio Nominees Pty Ltd ("Radio Nominees") ($3.9 million) and Davlon ($5.5 million) being entities associated with Seller and Londish. Later the amount of payments made out of trust assets by Nominees said by Crossman to be for purposes unconnected with the trust exceeded the $9.4 million to Radio Nominees and Davlon. Radio Nominees was a company controlled by Seller and the shares in which were owned by Mr Alfred Seller.
Following receipt of the affidavits of Seller and Londish, Crossman's solicitor wrote to the solicitors for Nominees and Seller asserting that Nominees and Seller had dissipated assets of the PILT Trust and breached the orders made by Hamilton J.
Crossman subsequently filed and served a Motion to have those defendants dealt with for contempt by reason of the alleged breach of orders made by Hamilton J.
A mediation in the Crossman proceedings was conducted in November 2008 but it did not lead to resolution. A subsequent mediation conducted by the Honourable Mr J Clarke QC as mediator was held between Crossman, Nominees, Baltarna, Londish and Seller on 15 May 2009 but the Crossman proceedings did not then resolve. After the mediation on 3 June 2009 Seller's solicitors made a settlement proposal, which after discussion and variations ended up as terms of the settlement deeds. The position papers which were served by Crossman and the defendants at the mediation were tendered in evidence in the proceedings before me. Also present at the mediation (for at least part of the time) were Londish's brother in law Mr David Bowman ("Bowman") and Londish's mother Mrs Linda Londish ("Linda") as representative of Mr Sid Londish whose interest I shall describe below.
The case of the New Trustees can be summarised thus:
1. Nominees, Seller and Londish, having been accused by Crossman of wrongly dissipating trust assets and of breaching Court orders made by Hamilton J, resolved the Crossman main proceedings and the Crossman contempt proceedings against them by paying to Crossman monies taken from PILT Trust assets which could not legitimately have been used for that purpose
2. Crossman was fully aware that the funds for payment to him came out of the PILT Trust assets in breach of Nominees' obligations as trustee and he received the funds from Nominees, in accordance with the Settlement Deed, impressed with that breach of trust
3. Crossman arranged for most of the funds paid by Nominees to him to be paid out to the Crossman companies. His knowledge is the knowledge of the Crossman companies which he controlled
4. it is part of the New Trustees' contention that the payment of the two instalments was a breach of trust by Nominees because
1. the only beneficiary of the PILT Trust was the Baltarna Trust and the only unitholder of the Baltarna Trust was Valofo and Valofo did not consent to the use of PILT Trust assets to pay out Crossman
2. Crossman not only was not a beneficiary of the PILT Trust but was not a direct beneficiary of the Baltarna Trust. His interest was as a member of the class of the BCT beneficiaries, and he would only obtain payment if Baltarna, in the exercise of its unfettered discretion, chose to pay money to the BCT
3. that Baltarna could only receive funds from the PILT Trust if the PILT Trust had paid money to Baltarna upon the PILT Trust vesting
4. that the BCT could only receive funds from the Baltarna Trust if the Baltarna Trust received funds from the PILT Trust and the BCT and hence Crossman could only receive funds if Valofo received an amount of $7.5 million from the sale of 5 properties held by the PILT Trust
There were, however, posited by Crossman in opening and final written submissions a number of answers to that case:
1. that the New Trustees are bound by the acts of the previous trustees, and in particular the entry into the Main Deed and Contempt Deed by which monies were to be paid to Crossman and that these Deeds cannot be rescinded by the New Trustees
2. that the Main Deed and Contempt Deed in terms preclude claims by the New Trustees against Crossman and his companies and that since at least one of those deeds, the Main Deed, is not sought to be set aside by the New Trustees, the New Trustees are precluded from bringing the proceedings by reason of the releases given to Crossman
3. that Valofo knew of the terms of the settlement
4. that Crossman owed no fiduciary duty to Valofo or the other beneficiaries of the PILT Trust or Baltarna Trust and was entitled, in his own interest, to reach a resolution of all of his claims (that is, not just the claims in the Crossman proceedings, but his claim to an entitlement on vesting under the Baltarna Trust)
5. as part of (4) that he believed that there were sufficient assets in the PILT Trust as would enable Valofo to be paid $7.5 million even after receipt by him of his $2.2 million
6. that there has been laches, delay and acquiescence on the part of the New Trustees and of Valofo
To understand better these claims and Crossman's response to them it is necessary to describe the background to the trust structure which was put in place, and the key clauses of the trust documentation and the Settlement Deeds to which the parties have referred.
The idea behind the trust scheme was apparently that if an investor was willing to provide substantial capital a trust could be established out of which properties suitable for use as petrol service stations operating under the Shell banner could be purchased, leased to Shell for a period of approximately twelve years and then sold to Shell pursuant to an option or on the open market with profit being returned to the investor. The scheme was supposed to have some significant tax benefit by the imposition of a company with significant tax losses to be offset against income. The idea for this scheme emanated from Crossman or the company by whom he was employed at the time as a senior executive, Australian Gilt Securities Ltd. Crossman's evidence is that he helped put the whole scheme in place and in return he was to receive one third of the ultimately distributed net sales proceeds as a "free-carried promoter's equity" (see Defendants' Closing Submissions "DCS" 6). The second third was to go to the investor and the remaining third to go to Seller who apparently had a role in relation to the tax aspects of the project- being at the time a lawyer and partner of Gadens solicitors.
The investor who was found was Mr Sid Londish ("Sid") who is Londish's father.
Five properties were purchased and all were leased for a twelve year period to Shell. Those properties were of substantial value. One valuation, dated 2008, put a total value on the five properties at $16.2 million: see CB 503- 668. It is accepted by the parties that the valuation has been received not as expert evidence of the value of the properties but rather evidence of the fact that Nominees had obtained that valuation.
Nominees was later appointed trustee of the PILT Trust.
The PILT Trust had only one unitholder- Baltarna as trustee of the Baltarna Trust. The Baltarna Trust had as its sole unitholder Valofo. The only person or entity with an interest in the PILT Trust was Baltarna as trustee for the Baltarna Trust and the only persons or entities with an interest in the Baltarna Trust were therefore Valofo and the BCT if the BCT had not been validly removed as a General Beneficiary. There was a period in which Seller had an interest in the BCT but it is agreed he relinquished that interest in March 2008 (see CB 393). Baltarna as the trustee of the Baltarna Trust had power in its discretion to determine the amount to be paid to the BCT (see clause 4.2(f) of the Baltarna Trust Deed set out below). The Baltarna Trust Deed did not actually guarantee payment of any account to Crossman- notwithstanding the agreement that he says he had reached with Seller and Sid that he was to receive one-third of the net proceeds after Valofo had received its $7.5 million, and his understanding that there was no discretion (see T201.10) was incorrect.
Clauses 3.1(a) and 5(c) of the Baltarna Trust Deed gave wide discretion to the trustees as to the payment of income (prior to vesting date) to the beneficiaries.
The BCT Deed is in evidence at CB 235- 344.
Clause 4.2(e) of the Baltarna Trust Deed set out above has two alternatives but it was agreed that 4.2(e)(i) was the only relevant sub clause.
Clause 9 provided:
"9. Entire Agreement
This Deed contains the entire agreement between the parties with respect to its subject matter. It sets out the only conduct relied on by the parties and supersedes all earlier conduct and prior agreements and understandings between the parties in connection with its subject matter."
and there was a similar clause (clause 8) in the Main Deed.
Neither the PILT Trust Deed or the Baltarna Trust Deed alone or taken together make any reference to Crossman being entitled to a one-third share of net profits or indeed to any particular amount.
I have made reference to Valofo. As at 2008- 2009 Valofo had two directors- Bowman and Londish. The shareholder of Valofo at the relevant time was Londish Nominees Queensland Pty Ltd (having as its address the same address as Londish- CB 17) although it appears, and the parties in these proceedings have accepted, that it too was a trustee under other trusts and that the beneficiaries of the relevant underlying trusts were Londish, Bowman and Sid. In December 2008 Bowman wrote to Seller indicating that he regarded Londish as having acted against the interests of Valofo and its beneficiaries and that matters relating to Valofo and Sellers' role as trustee of the PILT and Baltarna Trusts should be directed to Bowman as well as Londish who did not have authority to represent Valofo: see CB 672, 676A, 712A, 714, 718, 975. Crossman was well aware of the dispute between Bowman and Sid on the one hand, and Londish on the other and sought to involve Valofo as plaintiff in the proceedings against Nominees: see for example T203.25 and T216.25.
In February 2009 Sid and Bowman purported to remove Londish as a director of Valofo and replace him with Sid and steps were taken by Sid on behalf of Valofo including instructing the firm of ClarkeKann in relation to the Crossman proceedings. Crossman was aware of Londish's removal: see CB 858 and he took the view that Bowman was a director of Valofo and the suitable person with whom to deal on behalf of Valofo (see DCFS 55). Valofo was placed in administration by Bowman in July 2009 but this was set aside on the application of Londish: see Londish v Sheahan [2009] NSWSC 1175. That decision was overturned on appeal: see Sheahan v Londish [2010] NSWCA 270; (2010) 244 FLR 64 and administrators were again appointed on 26 November 2009. Valofo went into liquidation on 5 January 2010: see CB 14.
On 27 July 2009 shortly after Valofo was placed in administration the first time, solicitors acting on behalf of Valofo and its administrators wrote to Allens on behalf of Crossman advising that they wished to participate in the Crossman proceedings "to protect its beneficial interest in the Trust's assets". The letter proceeded (CB 1178):
"It has been reported to the administrators that your client may have recently negotiated with Mr Ross Seller to resolve his claims concerning the PILT Trust. The administrators have no information about the terms of any settlement or settlement discussion entered into, however they hold concerns that any agreement may involve improper application or charging of PILT's trust property.
The assets of the PILT Trust were encumbered by the ANZ loan and approximately $11.5 million has been disbursed to either Mr Seller, or Mr Peter Londish or companies they control. Valofo has received no benefit from the proceeds of the ANZ Bank loan and until those funds have been properly accounted for and recovered by PILT Valofo's position is that the monies continue to be impressed with a trust in favour of PILT.
The purpose of this letter is to notify that administrators have been appointed to Valofo. The administrators would like a meeting with your client and respective advisors to determine the current state of the Proceedings and understand your client's position as claimant.
My clients believe the prior conduct of Mr Seller and Peter Londish have displayed self interest in the extreme and therefore the administrators are worried that any peace offering made to you will involve either payment to your client of the Trust's funds raised from the ANZ loan, or provision ofsecurity over the Trust's properties.
Could you please advise if a meeting can be arranged in the next 24 hours."
Allens replied to an email sent two days later indicating their client is "unable to provide answers to the questions you have asked because of certain obligations of confidentiality owed by him" (see CB 1183).
On 15 December 2009 Chang, Pistilli & Simmons, the lawyers for Nominees, wrote to Mr Purcell at O'Neill Partners advising that Nominees intended to make various payments out of the PILT Trust including the second payment to Crossman: CB 1213. They wanted to know whether Valofo would be seeking Court orders to prevent those payments and in a further letter of 17 December 2009 warned O'Neill Partners that they would insist on an undertaking as to damages from Valofo should such relief be sought by Valofo: see CB 1217.
By letter of 17 December 2009 O'Neill Partners responded reiterating Valofo's position and challenging the validity of the distribution to Crossman. The letter indicated that the administrators would not be proceeding with an application for interlocutory relief at that time but referred to their expectation that they would be notified of an intention to distribute funds from the sale of the fifth property "in accordance with orders entered in the Proceedings on 16 December 2009": see CB 1220. They did note that
"your clients are on notice of our client's concerns and our client reserves all rights in relation to any payments made from the assets of the PILT Trust and/or the Baltarna Trust"
No steps were taken by the administrators of Valofo to stop the second payment to Crossman.
In relation to Davlon, Londish was at all relevant times a director of Davlon according to the ASIC search: see CB 40. Bowman was a director from 1/12/1995 to 15/4/2002: see CB 41. The shareholders were at all relevant times Londish and Bowman according to the ASIC search. Davlon had a liquidator appointed on 11 May 2011: CB 42. The New Trustees contend that Bowman ceased to have any involvement with Davlon in 2002 and Crossman said that Bowman and Sid had told him that Valofo had not authorised any payment to Davlon: T225.20- 50. Bowman had resigned as a director of Davlon by letter of 15 April 2002 and see the transfer of shares at CB 984 and letter CB 975- 976.The Main Deed it should be noted was executed on behalf of Davlon by Londish as 'sole director and sole secretary of Davlon'.
Although joined as defendants to these proceedings, neither of Londish or Seller, the controlling minds of Nominees and Baltarna (and it appears Davlon and Radio Nominees), appeared in the case. Londish contacted the Court registry on Friday 1 May 2015 stating that he would not be attending on Monday 4 May and he did not do so then or at all. There is evidence before the Court that each of these defendants were served and indeed Londish had on several occasions appeared in person at pre-trial directions.
Exh B contains a calculation of interest at 1 January 2015 a total of approximately $884,000 to be added to the $2.2 million received by Crossman if the New Trustees are entitled to recover the $2.2 million.
At the date of the hearing of these proceedings the only asset of the PILT Trust is $64,000 (see T103- 104) and Baltarna has no assets: T104.
I should record that I received very detailed and helpful submissions from counsel in this matter.
Mr Crossman's evidence in chief was found in two affidavits: 11 July 2014 ("the 2014 affidavit") and 30 April 2015 ("the 2015 affidavit"). He was extensively cross examined. Although an affidavit of Bowman was filed and served it was not read. No affidavits of the New Trustees were read.
I summarise the key points of Crossman's evidence contained in his two affidavits:
1. he sets out the commercial background to the trusts to which I have earlier referred and which he describes as "the Funding Structure"
2. he describes Valofo as Sid's private company: 2014 affidavit para 15
3. the Class A Beneficiaries of the BCT were Seller and interests with which he was connected and the Class B Beneficiaries were Crossman and his interests: 2014 affidavit para 18
4. at the end of the 12 year term when all borrowings had been or were about to be repaid he started communicating with Seller about Shell's option to purchase the service stations and became aware that Seller did not wish to see the properties sold and a distribution made, although this was presented by Seller as the Londish family's wishes: para 22 2014 affidavit and see CB 369, 372. Further to this Crossman learnt in May 2008 (see 2015 affidavit para 7) that on 6 March 2008 Baltarna passed a resolution removing BCT as a General Beneficiary of the Baltarna Trust, and that a company controlled by Seller (Sanabu) had been appointed as trustee to replace Baltarna (see CB 383)
5. that he learnt that Seller had raised $11.5 million of borrowings using properties forming part of PILT Trust assets as security: 2014 affidavit para 24
6. having commenced the Crossman proceedings and following the failed mediation in late November 2008 he spoke to Sid who told him that
"we are having a family dispute with my son, Peter Londish, who with Ross Seller is running the PILT Trust. We acknowledge your legitimate interest in the PILT Trust structure and may be able to help you with your Court case" (para 32)
and there is an email from Sid to Bowman (CB 491) in which Sid said:
"I too agree it was always understood that it would be sold and we were to receive a minimum of $7,500,000 or 55% and that was to be distributed between the three of us with Crossman and sellers receiving the balance"
1. in paras 34- 37, 43- 58, 64- 68 Crossman details his discussions with Bowman, Londish and Linda, and the presence of Bowman and Linda at the mediation conducted by Mr Clarke. A number of matters come out of that evidence if accepted:
1. that Crossman told Bowman that White J had given judicial advice that Nominees and Baltarna could defend the Main Proceedings and could use PILT Trust assets to pay for Nominees' defence
2. that Crossman informed Bowman of the offers received including the offer of $2.2 million
3. that Bowman and Linda were made aware of Nominees' intention to pay the proposed settlement monies ($1.8 million at that time) out of PILT Trust assets: see 2014 affidavit paras 46- 49
4. Crossman states:
"It was, therefore, my understanding and belief that all of the persons who stood to benefit from PILT knew of and consented to a payment to me from PILT's assets." (para 49)
1. That although Valofo, Sid and Bowman were aware that all of Crossman's claims
"arising from [his] entitlement under the PILT and Baltarna Trust and the litigation were to be settled by way of payment to me from the funds of PILT" (para 73)
they never indicated to Crossman that they were opposed to him receiving the money
1. that Sid had told him in Bowman's presence that Londish would probably start the negotiations to settle at $1 million: see 2014 affidavit at [36]
1. when he executed the Contempt Deed and the Main Deed he was aware that:
1. the PILT Trust Deed conferred a power on the trustee of the PILT Trust to settle and compromise legal proceedings and administrative proceedings of any nature- cl 13.2(o)
2. contained a clause permitting the trustees of the PILT Trust to deal with the property of the PILT Trust even in circumstances of conflict- 23.19
3. he read several times the position paper of Nominees and Baltarna (and Seller/Londish) at the mediation: para 9 of the 2015 affidavit
Para 36 of Crossman's 2014 affidavit is in the following terms:
"On or around 12 March 2009, I met with Mr Sidney Londish, Mrs Londish and Mr Bowman. The initial purpose of this meeting was to discuss the charge over PILTs assets held by PILT Nominees. My recollection is that Mr Bowman suggested this meeting. During the course of this meeting, I recall the following conversation taking place, in words to the following effect:
Me: "What do you think Peter's strategy is in dealing with me?"
Mr Londish: "Peter usually plays hard-ball and was not afraid to use litigation to get his way. He needs to settle with you first, so that you remove the injunction and then he will negotiate and settle with us. He will probably start at about $1,000,000 with you. Personally, I do not care what he does with the PILT Trust as long as we get our money."
Mrs Londish: "Peter always plays it tough like this."
Mr Bowman: "Yes, I think what Sid said about Peter is right. I do not have an interest in running the PILT Trust. I just want my entitlement."
Me: "Well, if you are serious in helping me, why don't you join in the court proceedings that I have started?"
Mr Londish: "I am hesitant because it will cost a lot in legal fees. Can Allens run it as well and you can help us with the legal fees?"
Mr Bowman: I am also hesitant but I agree with the approach that Sid suggested."
Mr Londish: "OK, I will think about this and investigate this with Allens and get back to both of you.""
Of these matters 51,(3),(4),(5) and (7)(f) are not disputed by the New Trustees. The assertion that Valofo was "Sid's company" is not consistent with other evidence including Crossman's own evidence that Valofo was ultimately owned by Londish and Bowman as well as Sid.
It appears to be accepted that no money was ever paid to Baltarna as trustee for the Baltarna Trust (other than for supposed fees) and that no money was ever paid by Nominees or Baltarna to Valofo, and in any event there was no evidence tendered before me of any monies having been paid to Valofo, before, or after, the Contempt Deed and the Main Deed were entered into. Bowman told Crossman, and Crossman implicitly accepted in his Amended Statement of Claim and position paper (see CB 1016- 1036) that the payment to Davlon by Nominees was not made with the authority of Valofo. That it was not made with the authority of Valofo was also implicit in Crossman's offer to Sid and Bowman found at CB 839 (which offer was not accepted). Valofo was not and had never been a shareholder of Davlon.
The defendants' submissions responded to the attack on Crossman with a number of points:
1. the answer he gave concerning his conversation with Bowman on 15 May 2009 and his diary note ought be accepted and even if not accepted should not lead to his credit being impugned and the mediation was conducted by a retired Supreme Court Judge
2. that there were very little factual matters in dispute
3. that he explained why he believed he did have an interest in the PILT Trust and he is not a lawyer
4. that he was at all times represented by a reputable firm of lawyers who prepared the document which is impugned
5. that he was a careful, clear witness (T316.4) and one "of honesty and integrity": see T316.40- 42
6. that he was "absolutely legitimately trying to protect his economic interest": see T316.45
On the face of matters there could be no warrant for Nominees and Baltarna (and Sanabu as trustee of the BCT) agreeing to pay out any money to Crossman until Valofo was paid the $7.5 million due to it or at the very least consented to the payment of the $2.2 million in priority to it.
Crossman submitted that Nominees and Baltarna are entitled to the protection of clause 23.9 in the PILT Trust Deed which provides that the Trustee will not be:
"in any way responsible for any loss (whether consequential or otherwise), costs, damages or inconvenience that may result from the exercise or non-exercise of any powers, authorities and discretions vested in it….."
This protection is subject to exceptions within cl 23.9 ie:
1. "except insofar as herein otherwise expressly provided"
2. "and in the absence of fraud, negligence or wilful default" of the Trustee
In my view clause 23.19 of the PILT Trust Deed has no application to the facts of this matter and for two reasons. The first being as a matter of construction that clause permits the Trustee to purchase and hold and deal in units or bonds, and provide advice and services for the trust, or entering into contracts or transactions of that kind. The words
"any other contract or transaction which any person or company not being a party to this Deed could or might have lawfully entered into if not a party to this Deed"
are, taken alone, extremely wide but those words follow the words "such contract" and therefore must be of the kind referred to as 'such' contract ie "contracts" or "transactions" with any "such person in the ordinary course of the business or from undertaking any banking, financial, development, agency or services". The Main Deed and the Contempt Deed do not fall into that category. Clauses permitting conflict are to be strictly construed and read down if they purport to avoid the core obligations of a trustee: see McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623 at 641 and [1619] of JD Heydon and MJ Leeming (eds) Jacobs' Law of Trusts in Australia (7th ed 2006, Lexis Nexis), and Armitage v Nurse [1998] Ch 241, Walker v Stones [2001] QB 902 at p 943 and see Plan B Trustees Ltd v Parker (No 2) [2013] WASC 216; (2013) 11 ASTLR 242 Edelman J at [232]- [233]. It is true that the scope of fiduciary duties can be narrowed by express terms and that they are moulded to the character of the particular relationship: see Clay v Clay [2001] HCA 9; (2001) 202 CLR 410 at [46] and Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; (2011) 82 ACSR 1 at [70] but not so as to avoid the core obligations of a trustee.
The core obligations of a trustee are as set out at [162] of the FACLS:
"a. adhere to the terms of the PILT Trust as set out in the PILT Trust deed;
b. to pay and transfer trust property to the persons entitled thereto;
c. not to deal with the trust property for personal benefit, or otherwise to profit by the trust;
d. to exercise its powers under the PILT Trust deed for a proper purpose;
e. to exercise reasonable care and skill in carrying out the management and business of the PILT Trust;
f. in addition to the duties as trustee as set out in paragraphs (a) to (e) expressly under the PILT Trust deed to:
i. act honestly and in good faith in the performance of its duties and in the exercise of its discretions; and
ii. exercise such diligence and prudence as a prudent man of business would exercise in performing its express functions and in exercising its discretions, having regard to the interests of the Unitholders."
and see [1704]- [1706], [1711], [1718], [1720], [1735] and [1620] of Jacobs.
To the extent that Nominees used PILT Trust assets to pay money to Crossman the payments were in breach of trust because the payments were not made to the beneficiaries of the PILT Trust and not made for a purpose of the PILT Trust but made solely for the benefit of Crossman, Nominees, Seller and Londish. Dr Bell contended that although there was a trust structure it was still a commercial matter (T316.50). I do not view that as offering any assistance to Crossman. If those engaged in commerce utilise trusts structures within which to carry out their dealings then the obligations imposed on trustees and those dealing with them are carried with that structure.
Whilst it is true that there was a power given to Nominees to settle and compromise legal proceedings and execute documents in respect thereto (see clauses 13.2(n), (o) and (v)) that power and the protection of clause 23.19 was subject to the trustee's obligations and the provisions of the Deed, and was not to be used for an ulterior purpose: Cowan v Scargill [1985] Ch 270 at 288 and see Jacobs op cit [1606]- [1607]; Metropolitan Gas Co v Federal Commissioner of Taxation (1932) 47 CLR 621 at p 633; and Wilson v Metro Goldwyn Mayer (1980) 18 NSWLR 730 at 736E-G. The same applies to the payment of trustee's fees and expenses in clause 20(e). The expenses must be expenses properly incurred by the trustee in the carrying out of its trust duties. I might add that the borrowing of funds and the securing of any borrowing over trust assets in favour of Crossman was itself, and to the extent those orders were not varied, also a breach of the orders made by Hamilton J notwithstanding the agreement of the parties to the Contempt Deed that it was not.
Further in connection with the reliance on exoneration clauses by the defendants were it necessary to express a view on the exceptions, which in my view it is not, the agreement to pay monies to Crossman by Nominees out of trust assets was a clear case of negligence since there was no benefit to the trust in it so doing. Contrary to the contentions of the defendants I do not think that the Court needs expert evidence to conclude that the payment of trust monies to a person who was not entitled to the payment of trust monies was negligent.
Much of the DCS and Mr Thomas's oral submissions were predicated on clauses 29.1 and 13 being available to Nominees which I do not accept for the reasons given.
The defendants' submissions at various points sought to place reliance on the fact that the mediator was a retired Supreme Court Judge and that reputable lawyers were acting for Mr Crossman. I shall refer later to the 'Allens' point but in relation to Mr Clarke's involvement it should be said that even assuming Mr Clarke was made aware that "PILT will pay $1.8 million" was a reference to the trust (which I am not inclined to accept for reasons explained below) the argument assumes that Mr Clarke was informed that Valofo's consent would not be sought. As at the date of mediation the parties did not appear to have that in contemplation because Valofo's consent was referred to in the settlement proposal forwarded by Seller's solicitors (see CB 1093) and only later removed (see CB 1112).
The failure by the trustees to seek judicial advice in respect of the settlement with Crossman is itself significant since Nominees did seek judicial advice about defending the Crossman proceedings, as Crossman well knew.
Where the entry into a deed is itself a breach of trust I do not think that the Trustee can rely on any terms of the deed to sanitise the breach of trust. I accept of course that a party to a deed who is not a trustee may not appreciate that the trustee's entry into an agreement was a breach of trust and that payment made to him apparently legitimately may not be received with knowledge of breach of trust, and I shall deal with that point below.
There was some controversy between the parties as to whether in respect of questions of breach of trust the Contempt Deed should be viewed in isolation from the Main Deed. Crossman and Nominees determined to structure their agreement by the use of the two deeds. The combined effect of the deeds was to bring an end to all aspects of the Crossman proceedings and the design was to produce a mechanism by which monies could be paid out of trust assets without adherence to and compliance with the necessary requirements for vesting and distribution for both the PILT Trust and the Baltarna Trust. Although there was in a sense an artificiality in separating out the key elements of the transaction that is what Nominees (and Seller and Londish) wanted and Crossman chose to accept and I do not think it is open to him to insist that the Main Deed be rescinded as a condition to the plaintiffs' relief of rescission of the Contempt Deed, particularly since both deeds contain a whole agreement clause and what was agreed in the Contempt Deed was that Crossman was to be paid $2.2 million for abandoning the Contempt Motion. That agreement was different to what had, on Crossman's evidence, been proposed at the final session of the mediation.
Crossman in his position paper at the mediation in May 2009 described the conduct of Nominees as "gross misconduct" and "a thorough, systematic and cynical stripping of assets". Whilst I think there is available a powerful argument that Nominees (and Baltarna) were involved in a serious breach of trust by entering into the facility with ANZ and by payment out of monies by Nominees to Davlon and Radio Nominees it is not necessary to determine that question. It is enough that Crossman was alleging that that was so by the Crossman proceedings and the Court had injuncted Nominees in response to his claims. Rather, the question is was the payment to Crossman a breach of trust and I accept that the onus of establishing that it was is on the New Trustees. It could not, in my view, be a legitimate purpose of the Trust for the Trustee accused of wrongfully removing trust assets and accused of breaching a freezing order made by the Court to pay $2.2 million to the person asserting those breaches in order for those claims to be terminated, which is how the Contempt Deed is framed. This is even more obvious since Crossman had made no claim in the proceedings that Nominees was obliged, either in law or equity, to make any payment to him. Even looking beyond the Contempt Deed does not assist Crossman since he was not even a beneficiary of the PILT Trust but a potential beneficiary of another trust ranking behind the unitholder in that second trust (namely Valofo).
It follows, in my view, that the Contempt Deed was entered into in breach of Nominees' obligations. Similar considerations apply to Baltarna as trustee of the Baltarna Trust since it was clearly acquiescing in the arrangements in breach of its duty to protect the assets to which it as unitholder of the PILT Trust was entitled for the benefit of its unitholder Valofo.
I am satisfied that Nominees was, by entering into the settlement with Crossman, in breach of its fiduciary obligations as trustee, preferring its own interest and those of its directors Seller and Londish to those of the Baltarna Trust and the unitholders of the Baltarna Trust. Although it may be open to conclude that the breach was fraudulent or dishonest it is not necessary to do so with the consequence that the test in Briginshaw v Briginshaw [1938] HCA 34, (1938) 60 CLR 336 is not relevant and Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66, (1992) 110 ALR 449 does not assist the defendants. I am satisfied, however, that the breach was a very obvious one. Whilst I do not need rely on it for the conclusion which I have reached, the absence from the witness box of Seller and Londish to explain and seek to justify their conduct and that of the companies which they controlled only strengthens the view to which I have come.
DCFS 76 claims that it was plain from Crossman's position paper and the fact of the mediation itself that Crossman was seeking payment and Crossman referred to discussions earlier with Londish, Bowman and Linda: T242. Crossman's solicitors had provided a copy of Crossman's position paper to Valofo's solicitors: see CB 992. The position paper, however, speaks in terms of an entitlement of Crossman to receive money through the trust structure and on the making of orders by the Court for vesting and does not claim any entitlement to be paid absent a vesting of the PILT and Baltarna Trusts or Court orders, or to be paid in advance of Valofo receiving $7.5 million.
In his 2014 affidavit at para 46 Crossman deposed to the following:
"At the conclusion of the mediation, there was a joint session involving the mediator and all of the parties in attendance. Each party's final offer was discussed during this joint session. Whilst I cannot recollect the precise words used by the mediator, I recall the mediator saying words to the following effect:
"So the final position of the mediation is that Phillip will accept a sum in the vicinity of $2.5 million in settlement of ail of his claims as a beneficiary under the PILT, Baltarna Trust and BC Trust structure as well as the proceedings";
and that
"PILT has made an offer of $1.8 million but needs to seek tax advice on the structure of any settlement payment before increasing the offer. PILT will revert to Phillip once this advice is received.""
In cross examination at T231.25- 32 he recalled that "PILT Nominees" had been referred to rather than "PILT" which is not surprising. What he added in that passage however were the words "out of the assets of the trust", words which had not appeared in the affidavit. Crossman in his affidavit and in cross examination deposed to his recollection being that Bowman and Linda were present at that final session of the mediation when the two offers were summarised. He said he had no recollection of Bowman and Linda having left the mediation before it had concluded: T231.10 and see T240.30.
Crossman told Bowman on 18 May 2008 that he had not received an offer and was still waiting: CB 1083E.
Crossman told Bowman on 2 June 2009 that
"standing is still the issue. Anticipating offer v soon"
On 3 June 2009 Allens on behalf of Crossman received an offer from Chang, Pistilli & Simmons who were acting on behalf of Nominees: CB 1091. On 16 June 2008 Crossman told Bowman that
"First offer was crap! Rejected. Still waiting for revised offer." (CB 1108)
Crossman says (2014 affidavit para 58) that he had a conversation with Bowman on 23 June 2008 in which he told Bowman that he still had not received the revised offer and that Bowman told him
"we [David Bowman and Sid Londish] are talking with Seller and Peter Londish through our lawyers and we are hopeful to resolve our dispute soon."
When Crossman received the offer of $2.2 million on 23 June 2009 from Nominees for all his claims he was told that the terms were "strictly confidential" and "must not be disclosed to third parties including Valofo": see CB 1112.
Nowhere does Bowman record that Crossman told him that he (Crossman) was to be paid out of PILT Trust assets and nowhere in his affidavits does Crossman say that he did tell Bowman that fact or that security over the trust assets was to be provided to him. Nothing in Bowman's notes even suggests that he was in fact told the amount by Crossman. The defendants accepted that Crossman did not tell Bowman that the payments were to come out of PILT Trust assets.
The only means by which on Crossman's evidence Bowman was made aware of the fact that Nominees might pay an amount of $1.8 million or more out of trust assets comes from the assertion by Crossman that Bowman and Linda were present at the mediation in its closing session and hence heard what the mediator said.
There is no independent corroboration of the fact that Bowman and Linda were present at the closing session and there are several matters which undermined Crossman's assertion that Bowman and Linda were present and heard what Crossman says was said by the mediator in summarising the positions of Crossman and Nominees.
Crossman rang Bowman after the mediation on 15 May 2009 (CB 1015A) and his note says:
"spoke to DB- mediation went well RS needs to resolve tax issues then come back
Quantum acceptable range- depends on terms!
DB/LL separate discussion with PL in mediation. Will keep up proceedings until we get a firm offer".
It was put to Crossman that the note of 15 May 2009 which, in contrast to some other notes, was not annexed to his affidavit is not consistent with Bowman (and Linda) having been at the mediation till the end and hence at the time that the mediator, on Crossman's evidence, summarised the respective positions of Crossman and Nominees. Crossman asserts that it was entirely consistent and gave an explanation to the effect that he and Bowman were discussing the day's events- see T240- 241 as a recap. I found Crossman's explanation unconvincing and do not accept it. It is highly unlikely too that Bowman would not have had something to say about an arrangement that was far worse from his (and Sid's) point of view than the one Sid (and Bowman) had rejected a few months before (see CB 839 and T208.25- 210.11). I do not accept the defendants' submission that it did not make sense for Bowman and Linda to have left the mediation before the closing session particularly since it was clear at the final session that no agreement had been reached. His explanation in respect of the note is relevant to his credit and coupled with a number of other matters to which I shall refer lead me to approach his evidence with a significant degree of caution.
I should also remark that no notes were produced of the mediation from any source and I am by no means confident that Crossman's account of what was said in whose presence is accurate after the passage of more than five years, and even more so in relation to the reference to payment "out of trust assets" which is not found even in Crossman's affidavit.
The impression I obtained from the documentary evidence was that Crossman saw Bowman (and Sid), and hence Valofo, as valuable allies in his case against Nominees, Londish and Seller and that there was a deal of cooperation between Crossman and Bowman for as long as Crossman was intending to press ahead with the attempt to force the return of trust assets following which there could be a vesting and a 'divvying up' of the net proceeds of sale: CB 869 and Defendants Closing Factual Submissions "DCFS" 61. However once Nominees, Londish and Seller offered to settle by paying a significant amount to Crossman ahead of, and even without, any payment to Valofo the position had altered and Crossman saw no particular benefit to himself in Bowman knowing all of the details.
On the other hand Bowman was not called to contradict Crossman's assertion that Bowman was present. The defendants assert that it was incumbent on the New Trustees to call Bowman to say that he was not present at the closing session of the mediation. Bowman was a person that the New Trustees were in a position to call (Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572 at [16]) but the consequence is that I should proceed on the basis that Bowman and Linda's evidence would not have assisted the New Trustees. If Crossman's evidence concerning their presence was compelling or aided by a note of Crossman (or his then solicitors for example) and the Crossman note of his conversation with Bowman later that day was supportive of his contention (which in my view it is not) Bowman's absence from the witness box would be more significant. I have taken Bowman's absence from the witness box as a matter relevant to the consideration of whether Crossman's evidence should be accepted.
Crossman sought to rely on information that he had from Bowman that Bowman on behalf of Valofo was negotiating a settlement with Nominees, Londish and Seller. There is evidence that Bowman told him that his (and Sid's) dispute was close to resolution (see CB 1111). There is no evidence however that it was in fact resolved and no evidence that before his entry into the Contempt Deed and the Main Deed Crossman was told that the Sid/ Londish dispute had in fact settled. A note of Bowman's (see CB 1133) records that on 7 July 2009 (ie after the settlement with Nominees had been agreed but before the execution of the Deeds) Allens
"have been told that until Trustee of Pilt knows what it is up for in resolving with PC it can't resolve with Valofo".
The contention that removal of the injunction would permit resolution of the Londish dispute is at odds with the fact that pursuant to the Contempt Deed the injunction was not to be removed until the mortgage charging PILT Trust assets had been registered.
At CB 1160 there is a Bowman note of 13 July 2009 that records what Crossman said to Bowman on 13 July 2009 (ie a week after the Contempt Deed and the Main Deed had been executed) that he had late Friday reached a settlement, that it would have cost $1 million to finish the Crossman proceedings which would take up to two years and that he had decided to resolve them. He told Bowman that Allens had said that the defendants to the Crossman proceedings had to resolve the Crossman proceedings first and that Bowman told Crossman "we may still want to join" (the Crossman proceedings I infer) and that Crossman told him that "They" (Nominees, Seller and Londish I infer) "would now try and settle with us" (Bowman and Sid I infer); see also CB 1167 where Bowman records that Crossman told him on 16 July 2009 he had
"agreed something. If they don't do something soon then back to Court. Say they have to get PC out of way then deal with Valofo
Executed deal but need to yet deliver."
I have set out at [52] above the conversation of 12 March 2009 between Crossman, Bowman, Sid and Linda to which Crossman deposed in his 2014 affidavit. The conversation was held at a time when the fact of the ANZ facility and the use of those funds by Nominees to the advantage of Seller and Londish or companies which they controlled was not known by Crossman or Sid.
The conversation deposed to is more extensive than the file note made (CB 813) more than five years before the date of the affidavit. On the basis of the file note, the authenticity of which there is no reason to doubt, I think it does indicate that Sid thought his son would want to settle with Crossman so that the injunction could be removed and that this would lead to a settlement with Sid and Bowman. The note does refer to "probably start at $1 m!" and treating that as being a reference to Sid and the negotiations as being a reference to negotiations with Crossman, records Sid's view that Londish would start negotiations with Crossman at a figure of $1 million dollars.
If the balance of the conversation set out in Crossman's affidavit and not reflected in the note is correctly stated by Crossman it contains statements by Sid that he had no interest in what happened to the trust as long as he received his share of the $7.5 million due to Valofo and Bowman indicated that he did not want to be involved in the trust if he could exit with his share of the $7.5 million due to Valofo as well.
It was suggested in submissions that these comments on 12 March 2009 support the proposition that Sid and Bowman knew when they learnt that Crossman was awaiting a settlement offer in late June that the monies would be paid from the PILT Trust assets.
Even putting aside my concerns as to Crossman's reliability I am not persuaded that what was said on 12 March 2009 as deposed to by Crossman clearly establishes knowledge of from where the $1 million was to come. Even accepting that it should be so regarded, I do not think that it establishes knowledge that the $2.2 million which Crossman was later offered would be paid out of trust assets particularly since:
1. it was said at a much earlier time in a quite different context and when the fact that payments had been made out of assets by Nominees was not known
2. Crossman did not tell Bowman (or Sid) that the $2.2 million was to be paid out of trust assets when this had been agreed with Seller
3. when Thompson told Bowman about the $2.2 million he said only that the $600,000 would be paid by Seller shortly (albeit with security to be provided over trust assets to secure payment of the balance) and did not say that the balance would be paid by anyone other than Seller
Attention was drawn by Dr Bell to paragraphs 46, 49, 58, 64- 66 and 73 of Crossman's affidavit. I accept that the matters referred to establish that Bowman was told that there was going to be a settlement of the proceedings Crossman had brought. The note made by Crossman (see CB 1111) records that he told Bowman "finally received further offer. Looks acceptable needs fine tuning. Push for settlement asap" (CB 1127). The note does record that Crossman told Bowman that he had received a further offer which looked 'acceptable' but needed fine tuning, but does not record the amount of the offer but in his affidavit Crossman said he told Bowman the amount. Once again given the recreation of the conversation of the note more than five years after the note was made and having regard to issues concerning Crossman's reliability, the absence of any contemporaneous note of Crossman or Bowman recording that Crossman advised Bowman of the amount and the fact that on 7 July Crossman, according to Bowman's note (CB 1133), did not tell Bowman that he had accepted Seller's offer when he had done so conditionally on 24 June 2009 and unconditionally on 6 July (see CB 1112 and CB 1115), I am not persuaded that Bowman was told the amount. Even if Bowman was told the amount Bowman was not told by Crossman that the $2.2 million was to be paid out of trust assets as the defendants accepted: T314.15. Bowman was told on 13 July and after execution of the Deeds by Mr Thompson that the amount of $600,000 was to be paid by Seller and that it was to be secured over trust assets- that of itself would constitute a breach of trust but that is not the breach of which the plaintiffs are complaining in this case- which is the payment to Crossman of monies that belonged not to Seller but to the PILT Trust.
There is other evidence tending to undermine Crossman's claim that Valofo was ever informed that any of the monies to be paid to Crossman would be paid out of trust assets:
1. the fact that Valofo was specifically not to be told about the settlement deed: see CB 1112 and the requirement for inclusion of the confidentiality clause being a departure from what had been proposed: CB 1093- 1094
2. the fact that Crossman told Bowman on 7 July 2009 that Nominees, Seller and Londish had put something to him which "is not there but close" (CB 1133) when in fact he had, on 24 June 2009, indicated through his lawyers that the amount of the offer of $2.2 million was acceptable and on 6 July 2009 had accepted the offer unconditionally (CB 1114)
3. the fact that Valofo's solicitors wrote in July 2009 seeking information about the settlement: see CB 1178, 1183 which is consistent with Valofo having no, or insufficient, knowledge of the terms of settlement
4. the answer given by Allens (CB 1184) was that Crossman was precluded by reason of confidentiality undertakings. It was not asserted in response to the request for information that Valofo knew of the terms of the settlement or knew and consented to use of PILT Trust assets
5. the inclusion of confidentiality clauses and the specific requirement that Valofo not be told about the terms of the settlement are inconsistent with Bowman knowing about the settlement and is also a recognition from Londish and Crossman that Londish's knowledge was not that of Valofo
I am therefore not persuaded that Bowman or Linda were present at the closing session of the mediation or that Bowman knew before the settlement took place that Crossman was to be paid $2.2 million out of trust assets.
In the DCFS it is contended that Valofo's conduct suggested it did consent, and there were reasons why Valofo would have consented, those reasons, it being asserted:
1. Valofo had an understanding that the value of the assets were in excess of $16 million
2. Sid and Bowman were anxious for the trust to vest and their economic interest was in substance $5 million ie two thirds of the $7.5 million Valofo was to receive
3. they perceived that the injunction Crossman had obtained was an obstacle to their achieving immediate monetary settlement, and
4. they themselves were in negotiations with Londish
It will be noted that the points made in the DCFS above are made on the premise (shared by the plaintiffs) that it is Sid and Bowman's knowledge that is relevant to Valofo for the purposes of this issue. Even accepting that Sid and Bowman thought that the five properties were worth $16.2 million that does not mean that the PILT Trust as at July 2009 had net assets of $16.2 million. Since Nominees owed approximately $10.5 million plus interest to the ANZ Bank and it had paid out $9.4 million to Davlon and Radio Nominees plus significant amounts to others the net position of the PILT Trust was problematic and not at all clear. By July Bowman (and I infer Sid) knew that those payments had been made and that Crossman's assertion (which I infer they supported) was that those monies had been wrongfully dissipated, with a risk that they could not be recovered from the recipients. I find, based on Bowman's note, that Crossman told Bowman that Allens had warned him in March 2009 that there may be no assets left in the PILT Trust and that the payments made in breach of trust may not be traceable.
I accept that Sid and Bowman wanted Valofo to obtain $7.5 million so that they could each obtain one-third of that amount and were endeavouring to negotiate with Seller and Londish to that end but that does not mean that they knew that Crossman's injunction would be lifted by the payment of trust monies and even less so that it would be paid out to Crossman with the potential of reducing the payment to Valofo to less than $7.5 million or even to zero. They could have had no interest in Crossman receiving any amount in priority to Valofo and would be entirely unlikely to agree to such a step unless there was at least $7.5 million available to be paid to Valofo.
It is clear that the Contempt Deed and Main Deed were not provided to Bowman or Sid and there is no document recording Valofo's consent to the Deed or minute of any meeting of the board of Valofo or the directors considering the deeds and noting Valofo's consent or agreement to give its consent.
In short it has not been established that Bowman was informed of the fact that Crossman was to be paid $2.2 million out of PILT Trust assets or that Valofo did consent to Nominees' entry into the deeds and agreeing to make payment to Crossman out of PILT Trust assets. Further, even if Bowman did know of that fact contrary to my conclusion, I am not satisfied that Valofo gave fully informed consent, as required by the authorities to which I have earlier referred at [78] above, to the use of PILT Trust assets which should have been paid to Baltarna on vesting of the PILT Trust. For consent to have been fully informed it would have required advice to have been given to Valofo concerning the precise state of the PILT Trust's net assets and the risk of non-payment of the full amount to Baltarna and hence to it and to which it was entitled on vesting of the Baltarna Trust. It would also have required Valofo through Bowman to have been provided with a copy of both deeds which would have revealed that the payments were being made to Crossman in return for him abandoning the Contempt Motion, and that the only trust which would be treated as vesting would be the BCT and further that payments to Crossman was in no way linked to or subject to any payment to Valofo.
If the transaction to obtain the $600,000 from Radio Nominees involved Nominees on behalf of the PILT Trust incurring a liability to repay to Radio Nominees funds from trust assets, as it is agreed they were, the first payment, in my view, ought be treated as a use and receipt of trust assets by Crossman as well, that is leaving to one side the fact that prima facie and in accordance with Crossman's claims in the Crossman proceedings Radio Nominees had received trust assets in breach of trust in the first place and was required to return them.
In DCFS 97 these subparagraphs are the subject of a detailed response. I shall use the enumeration that both parties have adopted:
(d) there can be no dispute that what is said in (d) is correct. The defendants contend that knowledge of this on the part of Crossman was not established. They also assert that it was put to Crossman repeatedly that he had no beneficial interest in the PILT Trust and that this was repeatedly denied: see for example T233.50. Crossman did agree at T198.7- T199.20 that he knew that the PILT Trust was required, on vesting, to pay money to Baltarna and then for Baltarna on vesting of the Baltarna Trust to pay $7.5 million to Valofo and that the only economic interest he had on vesting was to the extent he had an interest in the BCT which was as a General Beneficiary of the Baltarna Trust (see CB 830). The later cross examination was directed to the question of whether that interest so described made Crossman a beneficiary of the PILT Trust, as Crossman sought to assert. It is clear that Crossman contended in the 2008 proceedings that he had an interest to ensure that Nominees did not dissipate assets of the PILT Trust because he was a beneficiary or potential beneficiary of the BCT (which was accepted by Hamilton J as arguable) but the precise categorisation of that interest does not matter. The New Trustees conceded that Crossman did have at least an arguable case that he had sufficient standing to bring the 2008 proceedings and I proceed on the basis that he did. That interest did not make him a beneficiary of the PILT Trust but rather a potential beneficiary of the Baltarna Trust indirectly through the BCT and I am satisfied that he did not at any time believe he was a beneficiary of the PILT Trust. I accept the submissions of the plaintiffs at 56,(2),(5),(8) above. In relation to 56 I do not think that is a separate matter going against Crossman's credit per se but I accept that it supports the conclusion that he did not believe he was a beneficiary of the PILT Trust. I also find on the basis of Bowman's note that Crossman did tell Bowman that he wanted the trusts to vest. This particular is made out
(e) the same as (d)
(f) the same as (d)
(g) and (h) by the DCFS Crossman accepts the contention that Seller and Londish were exposed to sanctions by the contempt proceedings and had a conflict of interest is made out. The DCFS asserts that it can be inferred that Valofo, Nominees, Seller, Londish, Bowman and Sid knew this as well. I think it is clear from the verified Amended Statement of Claim and his position paper that Crossman believed that the payments to Davlon and to Radio Nominees were not authorised by the trust deed. The position paper also included a strong rebuttal of any suggestion that Nominees had, in entering into the ANZ facility, advice that it was permitted to enter into the facility notwithstanding the Court's orders or that the advice later received by Nominees from Mr Raphael was correct. I do not accept Crossman's evidence at T224 that he thought or accepted as a possibility as at mid 2009 that the payment to Davlon was at the direction of Valofo since Londish's assertions and correspondence in 2008 were, to Crossman's knowledge, strongly disputed by Valofo and Allens had received correspondence from ClarkeKann acting on behalf of Valofo which advised that Bowman had ceased to have any involvement with Davlon in 2002 and had transferred his share to Londish (although Londish had not advised ASIC) and a copy of which transfer was provided to Allens. I might add that there was a tension in Crossman's position between asserting that the payment to Davlon might have been a payment at Valofo's direction and that the payment to Davlon was a debt recoverable from Davlon. It is relevant in the latter regard that Crossman asserted in his position paper that Davlon had no funds (para 25). Crossman's pleadings were based on the contention that the payments to Davlon and Radio Nominees were not authorised, and his alliance with Valofo in connection with the proceedings and his offer to Bowman and Sid would have been quite inconsistent with any concern that Valofo had in fact received funds already by a payment to Davlon. I accept the plaintiff's submission in 56. If Sid and Londish were not aware of the terms of the Contempt Deed or the fact that payment was being made out of PILT Trust funds they could not have been aware of the conflict, and further even if they were aware their awareness does not, without more, constitute consent
(i) the DCFS asserts that there is no evidence that Crossman was aware of the conflict but do not dispute that Seller and Londish had a conflict. I shall deal with Crossman's knowledge at (p)
(j) the DCFS accept that Crossman was aware of a dispute between Londish on the one hand and Bowman and Sid on the other. The defendants contend however that the point assists them because Crossman believed that the dispute could only be resolved if the Crossman proceedings were settled and the interim relief were removed. This is connected to Crossman's assertion that Bowman and Sid (through Linda) knew of the terms of the settlement and implicitly were happy with them. If Bowman and Sid did not know that Nominees was using trust funds to pay Crossman and were not aware that there were or may be insufficient funds available to pay Valofo the $7.5 million the implicit notion that they would welcome a settlement of the Main Proceedings or the Contempt Proceedings whereby trust funds were used to pay Crossman in priority to Valofo is not plausible. I note Bowman's note of his conversation with Mr Thompson of 13 July 2009 (CB 1163) in which Mr Thompson informed him:
"Payment by RS to PC now + security over balance of properties $2.1- $2.2 mil……
$600,000 this week from RS - PC"
I infer that RS means Seller and that it is recording advice from Mr Thompson that Seller was to pay Crossman $600,000 that week. That statement undermines the contention that Bowman knew trust assets were being used to pay Crossman. The note does support the proposition that Bowman was made aware (after the Deeds were executed however) that PILT Trust assets were to be security for the payment, ostensibly from what Bowman was told, by Seller
(k) the DCFS accept that Londish had received or otherwise had the benefit of the payment of $5.5 million to Davlon from PILT Trust assets (see CB 1020 [25]). The DCFS contend that Crossman believed that sufficient assets existed even if the Davlon payment was put to one side. I shall refer to that issue later but the fact asserted by the New Trustees is made out
(l) the DCFS accept that Crossman knew that Seller and Londish did not intend that Valofo be a party to the Contempt Deed or the Main Deed. The defendants assert it that is a 'nonsense' to suggest that Valofo (which was not a party to the proceedings) should have been a party to the Deeds. I note that the solicitors for the Seller and Londish interests thought that it was appropriate for Valofo to be a party to the settlement because they initially included it in the proposed settlement terms notwithstanding the fact that Valofo was not a party to the proceedings. In my view it was entirely appropriate to ensure that Valofo was cognisant of the terms of the Deeds since it was the only party with an interest in the Baltarna Trust or the PILT Trust which was not involved in the Crossman proceedings and its consent to the course proposed would have been well evidenced by its execution of the Deeds. The failure to ensure that Valofo consented to the Deeds is, in my view, a most significant matter. The fact alleged is made out
(m) the DCFS do not accept that Valofo's consent was not obtained. In my view it is clear that Nominees, Seller and Londish had not sought Valofo's consent. The express statement that Valofo was not to be informed and the insertion of the confidentiality clauses supports that conclusion. I think it is also relevant in determining whether Valofo, through Bowman, was in fact told of the settlement terms since if he had been there was no point in including such a term. In relation to the second payment the letter from Purcell made it clear to Crossman that Valofo did not agree to the payment yet to be made or to the one previously made. As I have noted Crossman did not give evidence that he had told Bowman that the $2.2 million to be paid to him by Nominees was coming from the PILT Trust assets. His common interest with Bowman (and Sid) had by this stage ended and he wanted to avoid and did avoid providing details to Bowman because, I infer, it would not assist him if Valofo took action to prevent the payments. That explains why he did not tell Bowman that he had accepted the offer made to him by Seller when he spoke to Bowman on 7 July 2009. The DCFS assert that Crossman communicated with Bowman and that fact "is inconsistent with any attempt to keep those payments secret." I have already dealt with the question of what Crossman told (or did not tell) Bowman and do not accept the defendant's contention for the period as and from 15 May 2009
(n) DCFS accept that Valofo was not a party to any of the Deeds
(o) DCFS assert that it has not been affirmatively demonstrated that Valofo did not consent but accept that it can be inferred from the confidentiality provisions that it did not. I might add that this formulation actually reverses the onus of proof where consent is asserted (see [78] above)
(p) the DCFS dispute that Crossman knew that Londish had a conflict in that Londish and Seller wished to resolve the Crossman proceedings and the Contempt Motion to avoid investigation by the Court as to the payment made by Nominees and their duties as directors of Nominees and possible criminal sanctions by virtue of the statements of charges. DCS also assert that this was not put to Crossman in cross examination but that is incorrect; see T283.38. Crossman denied that he was aware of the conflict of interest. I think it is obvious that there was a conflict- the proceedings that Crossman brought were founded on a conflict of that type which was discussed on 9 December 2008 at the meeting between himself, Sid, Linda and Bowman: see CB 714 and see also paras 25 and 28 of Crossman's position paper CB 1020. I think it is also obvious, notwithstanding Crossman's denial of this in cross examination (T282.5- 17), that the threat of sanctions for contempt of Court and the requirement that Nominees, Londish and Seller might have to refund all of the money removed from the trust was an effective 'lever' on Nominees, Seller and Londish which I infer played a very significant part in their decision to have Nominees and Baltarna enter into the deeds. I accept the submissions of the plaintiffs set out in 56 above. I also think that it is clear not only that what the Deeds entailed was a complete departure from the requirements of the trust deeds but that Crossman, notwithstanding his denial at T266.25, was fully aware of this fact
There are a number of factors here which point to sufficient knowledge on the part of Crossman that the entry into the Deed and the payments made to him under it constituted a breach of trust:
1. it was his opinion and belief that Nominees had used trust assets for purposes unconnected with the trust: see T227.49 and T228.26 and that view was the basis of the Crossman proceedings and his position paper: paras 23, 25, 27, 28, 29 and 35
2. he knew that insofar as it was suggested that the payment to Davlon of $5.5 million was made with Valofo's approval that contention was denied by Bowman as equal shareholder and director of Valofo who also denied that he had any continuing connection with Davlon: see paras 24 and 25 of his position paper: CB 1019- 1020, T227.49 and T228.26. That Valofo was cooperating with Crossman in the Crossman proceedings, and the offer that he made to Sid and Bowman (at CB 839), were inconsistent with Valofo having received the benefit of any payment to Davlon and see 115 above
3. he knew that it was his claim of contempt of Court by Nominees, Seller and Londish that was being resolved by the Contempt Deed
4. he knew that under the PILT Trust Deed he was not a beneficiary and hence that he was not entitled to any payment by Nominees and knew that under the Baltarna Trust Deed whatever entitlement he had, it ranked after Valofo which was entitled to payment of the first $7.5 million out of the net proceeds paid out of the PILT Trust to Baltarna
5. he did not have any accurate information as to the actual financial position of the PILT Trust and its ability to pay Baltarna but did know that $10.5 million had been paid out of the assets of the PILT Trust (in breach of trust on his verified pleading)
6. he was told by Seller's solicitors (CB 1112) that Valofo's consent to the terms of the agreement was no longer required and that a confidential clause was to be included
7. he was informed, before receipt of the second payment, that Valofo did not consent to the payments: see the Purcell letter of 27 July 2008 (CB 1178)
I have referred to Crossman's evidence that he believed that there were sufficient funds to pay out to Valofo $7.5 million even if the $5.5 million payment to Davlon was not set aside and with the payment of $2.2 million to him. Accepting that he believed the five properties were worth $16.2 million because of the valuation obtained by ANZ and provided to Nominees the belief there was sufficient funds to pay Valofo $7.5 million was not supported by any evidence of the true financial position of the PILT Trusts- not only that but
1. there had been a payment of $3.9 million to Radio Nominees
2. there had been other payments out of the PILT Trust assets of which he complained in the Crossman proceedings and in his position paper (see paras 24 and 28 of his position paper) and see paras 71- 87 of the Amended Statement of Claim in the Crossman proceedings (CB 1126AB- 1126AF)
As I have mentioned Crossman had told Bowman that Allens had informed him at the end of March 2009 (see CB 829A) that there may be no funds left in the trust and that what had been paid out was not traceable and I infer that he told Bowman that because he had been so informed by Allens. Crossman produced no evidence that established that what Allens had warned him was possible was not in fact the case.
Once it is established that Crossman knew that the payments made to him could not be paid by Nominees out of the PILT Trust assets in accordance with the trust deed's terms and its obligations he cannot resist the claim against him by asserting that he believed the breach of trust implicit in his being paid out by Nominees would have as its antidote the payment of money to Valofo (whether by a possible settlement or otherwise) particularly in circumstances where no evidence has been produced which demonstrates that in fact Nominees ever had the means to pay Baltarna all of what it was entitled and hence for Baltarna to pay out of that all to which Valofo was entitled.
I further do not accept the defendants' assertion that the PILT Trust was worth $16.2 million as the DCFS contended. At most there is evidence that a valuation of property had been received by Nominees and that Crossman believed that that was the value of the properties, but it was not received as evidence of the value of the properties (T147) and in any event no attempt was made by the defendants to demonstrate the true position of the PILT Trust at the date of the deeds. This would include establishing that the money paid out to Davlon and Radio Nominees was in fact recoverable. As mentioned in his position paper Crossman asserted that Davlon had no assets: see para 29 CB 1020. If the ANZ Bank was owed $10.5 million, a fact not disputed, and Davlon and Radio Nominees payments could not be recovered, the PILT Trust assets were very likely insufficient to pay Crossman $2.2 million and $7.5 million to Valofo.
Crossman appeared to me to be an obviously intelligent man with considerable business acumen. He was of course entitled to look after his own interests but he was not entitled to do so by receiving funds paid to him, with his knowledge, out of PILT Trust assets in breach of Nominees' obligations as trustee. I think that a fundamental problem in his case is that he is faced with the reality (and force) of the claims that he himself advanced in the proceedings that he brought against Nominees, Seller, Londish and Baltarna.
There are three possible reasons for Nominees, Seller and Londish agreeing to settle the proceedings brought by Crossman:
1. to end the risk that they faced for being found liable to reimburse the trust fund for the monies paid out to Radio Nominees, Davlon and themselves or their alter egos, and of being punished for contempt of Court (I shall refer to these as "the wrongful conduct claims")
2. to pay out Crossman an amount in respect of his entitlement as an object of the BCT ("the entitlement claim")
3. both (1) and (2)
If the first reason was the reason for the settlement then it would be obvious that Crossman was being paid money for reasons that had nothing to do with the interests of any of the trusts. If the reason for payment was to resolve the entitlement claim the receipt of money by Crossman would not be for the personal benefit of Nominees, Seller and Londish.
I think that what Crossman was seeking to do in his evidence in this case was to downplay the significance of the allegations he had made in the Crossman proceedings and in his position paper, ie the wrongful conduct claims, and bolster the entitlement claim as the reason for the settlement.
I have referred to the fact that the Plaintiffs' Closing Factual Submissions claimed that Crossman's evidence about his rereading the position paper told against his credit and was bizarre. I think the explanation for his evidence is that he was seeking to present the wrongful conduct claim as weaker than it appeared from the pleadings and his position paper.
For reasons which I have explained the Crossman entitlement claim did not appear to be a strong one and it certainly did not support payment out of the PILT Trust assets or payment of any amount in advance of Valofo whereas the wrongful conduct claim appeared to have much merit, but could not be productive of any payment to Crossman.
I am unable to accept that Crossman had any genuine belief that Valofo would be paid $7.5 million out of the assets of the Baltarna Trust or that Baltarna would receive $7.5 million as the unit holder in the PILT Trust but, in any event, even if he did that belief is not strictly relevant if he knew, as I hold he did, that he was not entitled to be paid any amount out of the PILT Trust, and not entitled to be paid ahead of Valofo without Valofo's consent. I do not accept that Bowman or Sid were made aware that Crossman would, by the settlement receive $2.2 million out of PILT Trust assets, and I find that Crossman was aware that Bowman and Sid and hence Valofo were not informed of that fact but also that they had not been provided with all the information necessary to make a fully informed decision on behalf of Valofo to accept payment to Crossman out of trust funds in advance of Valofo. There was in the submissions made on Crossman's behalf a suggestion that the fact that he had reputable solicitors acting for him on the settlement somehow made a difference. The advice which Allens gave him concerning the transaction, if any, was not tendered by him and it is not possible to discern what advice he was in fact given as to the risk to him in entering into such an arrangement or the propriety of such an arrangement. I am not prepared to infer from the fact that Allens drafted the deeds that they had advised him that the transactions were not liable to be impugned, and in any event it is difficult to discern how that would assist him.
The case referred to in which Sir Knight Bruce V-C's dictum is found is Pannell v Hurley (1845) 2 Coll 241, 245; 63 ER 716, a banking case in which little more is found in the report of the judgment then the principle extracted in Scott and Ascher.
In my view therefore the Contempt Deed and the Main Deed cannot be relied upon by Crossman or the Crossman corporations to resist claims by the New Trustees.
Much has been written on the subject of liability of non fiduciaries who have benefited from a breach of trust by a trustee (or other fiduciary): see the discussion in Grimaldi at [249]- [281].
Lord Selborne LC said in Barnes v Addy (1874) LR 9 Ch App 244; (1874) 43 LJ Ch 513 that
"strangers are not to be made constructive trustees … unless [they] receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees" (at pp 251- 252)
The two "limbs" of Barnes v Addy as they have been described have been categorised as the 'knowing receipt' limb and the 'knowing assistance' limb. Detailed consideration was given to the second limb and its differentiation from the first limb in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89. We are concerned here with only the former, since the settlement was with Crossman and the promise was to pay him. The fact that he directed the funds to be paid to Metro NZ in the case of the first payment, and out of his solicitor's trust account to one or other of the Crossman corporations (see Exh D) in regards to the second payment is not strictly relevant other than in relation to a tracing exercise and see T183.30- 36 and T190.39- 50 where he admitted that he had received the payments.
In Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405 in a judgment concurred in by Beazley P and Barrett JA, Gleeson JA helpfully set out the principles at [86]- [92]:
"[86] In Farah at [112] the High Court defined the first limb of Barnes v Addy in this way:
"Persons who receive trust property become chargeable if it is established that they have received it with notice of the trust."
[87] The High Court also accepted, in the absence of any argument to the contrary, that a claim under the first limb of Barnes v Addy may be made against not only a trustee who misapplies trust property, but also a fiduciary who deals with property, in respect of which he or she owes fiduciary obligations, in breach of such obligations: Farah at [113].
[88] The elements of a claim under the first limb of Barnes v Addy may be taken to be:
(1) the existence of a trust, or a fiduciary duty, with respect to property (trust property);
(2) the misapplication of trust property by the trustee or fiduciary;
(3) the receipt of trust property by the third party;
(4) knowledge by the third party, at the time he or she received the relevant property, that it was trust property and that it was being misapplied or, in the case of breach by a fiduciary, that the trust property was transferred pursuant to a breach of fiduciary duty.
[89] The authorities which may be taken to establish element (4) above, include: Hancock Family Memorial Foundation Ltd v Porteous [1999] WASC 55; 32 ACSR 124 at 142 (Anderson J); Spangaro v Corporate Investment Australia Funds Management Ltd [2003] FCA 1025; 47 ACSR 285 at [55] (Finkelstein J); Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; 200 FCR 296 at [20], [249]-[254]; Imobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920 at [15]; and Bell Group Ltd (In Liq) v Westpac Banking Corporation (No 9) (Bell Group (No 9)) [2008] WASC 239; 70 ACSR 1 at [4748] (Owen J).
[90] Although Farah did not consider the categories of knowledge sufficient to attract liability under element (4) of the first limb of Barnes v Addy, it may be accepted that the knowledge required is:
(1) actual knowledge of the trust, or the existence of the fiduciary duty, and of the misapplication of trust property or transfer pursuant of to a breach of fiduciary duty; or
(2) willfully shutting one's eyes to those things; or
(3) abstaining in a calculated way from making such inquiries, as an honest and reasonable person would make, about the trust and the application of the trust property; or
(4) knowledge of facts which to an honest and reasonable person would indicate the existence of the trust and the fact of misapplication.
[91] The authorities which have accepted that the above categories of knowledge are sufficient include: Kalls Enterprises Pty Ltd (in liq) v Balaglow [2007] NSWCA 191; 63 ACSR 557 at [176] (Giles JA; Ipp and Basten JJA agreeing); Hancock Family Memorial Foundation Ltd v Porteous at 142; Grimaldi v Chameleon Mining NL (No 2) at [268]-[270]. See also Westpac Banking Corporation v Bell Group Ltd (In Liq) (No 3) [2012] WASCA 157; 44 WAR 1 at [2130], when approving the view to which Owen J came at first instance in Bell Group Ltd (No 9) at [4748].
[92] On the other hand, those authorities also establish that mere knowledge of circumstances which would put an honest and reasonable person on inquiry is not sufficient to establish liability for knowing receipt."
A third party who has notice (by means of any of the routes described in [90] in Simmons) is liable to disgorge trust property received by him but is also exposed to in personam liabilities: see [253] and [254] of Grimaldi:
"[253] This exposes what has long been recognised as the essential characteristic of the Barnes v Addy liabilities: they expose the persons to whom they apply to personal, to in personam, liabilities: see eg Lewin, Law of Trusts, 1026-1029 (9th ed, 1891); Ashburner, Principles of Equity, 187-200 (1901) where the difference between the proprietary and the personal remedy is emphasised; Snell, Principles of Equity, 141-142 (15th ed, 1908); for contemporary views, see eg Ford and Lee, Principles of the Law of Trusts, [22.10440) ff; Jacobs' Law of Trusts in Australia, [1333]-[1334] (7th ed, 2006); and see generally Dietrich and Ridge "'The Receipt of What?': Questions Concerning Third Party Recipient Liability in Equity and Unjust Enrichment", (2007) 31 Melb UL Rev 47 at 51-55; Harpum, "The Stranger as Constructive Trustee" (1986) 102 LQR 114 at 118 ff. In knowing receipt cases, the recipient can be required to pay compensation for loss arising from the misapplication of the trust property, or to account for gains made from it. These liabilities do not depend upon the third party retaining any part of the property received (or its traceable proceeds) in his or her hands although, if such property is retained, it must be accounted for specifically: see Mitchell and Watterson, "Remedies for Knowing Receipt" in Mitchell (ed), Constructive and Resulting Trusts, 132 ff (2010); see also Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (1999) 96 FCR 217 at [75]-[76]. But in the usual case, as Lewison J observed in Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) ("Ultraframe (UK)"), the personal remedy "is needed precisely where the recipient has not retained the property."
[254] Distinctly while the proprietary liability referred to depends upon the existence of trust property in the strict sense, "trust property" for Barnes v Addy purposes extends beyond it to property held or controlled subject to a fiduciary obligation. Most importantly for present purposes, it extends to corporate property, ie property subject to the control and the fiduciary responsibilities of a company's directors. If the directors dispose of corporate property in a dealing which is beyond their authority, whether actual, ostensible or usual, the dealing ordinarily is void and no interest passes to the third party donee, purchaser, etc. However, if the dealing occurs in a transaction which is within the directors' authority but which is not in the company's interests (ie is an abuse of power) or is otherwise in breach of fiduciary duty, the transaction will only be voidable: Richard Brady Franks Ltd v Price (1937) 58 CLR 112 at 142. As Australian law now stands, even if the third party recipient falls within the knowing receipt limb of Barnes v Addy, the company will not ordinarily be able to bring a proprietary claim against the recipient as distinct from a personal one, unless and until the transaction itself has been avoided: see Daly v Sydney Stock Exchange (1986) 160 CLR 371 ("Daly"); Hancock Family Memorial Foundation Ltd v Porteus (2000) 22 WAR 193 ("Hancock Family Memorial Foundation") at [173]-[206]. Though we later question the correctness of this particular requirement, what needs to be emphasised is that it still allows that a knowing recipient can be held accountable in rem for such of that property (or its traceable proceeds) as remains extant in that person's hands."
A question which has arisen in this case is whether, to obtain a return of trust money that has been paid to a third party by the trustee (or other fiduciary) under contract or to claim equitable compensation the party asserting breach of trust must seek to rescind the contract as a precondition to relief. That is a matter which is considered in Grimaldi: see [254]-[255]. The Full Court questioned the correctness of the requirement that a third party recipient will not ordinarily be able to bring a proprietary claim against the recipient as distinct from a personal one "unless and until the transaction itself has been avoided" citing Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 and see [275]- [281] of Grimaldi, but proceeded on the basis that that position was currently the law. The Full Court then referred to the fact, however, that there is authority for the proposition that rescission is not essential for the relief of equitable compensation: see Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 cited with approval in Grimaldi (at [277]) and see JD Heydon, MJ Leeming and PG Turner (eds), Meagher, Gummow and Lehane's Equity: Doctrines & Remedies (5th ed 2015, LexisNexis) at 23- 555 and Grimaldi's liability to pay equitable compensation as found on an alternate basis by the trial judge (see [588]) was confirmed although it appears that on appeal the form of relief was not of itself challenged: see [599]. That approach is reflected in the recent decision of Gerard Cassegrain & Co Pty Ltd (in liq) v Cassegrain [2013] NSWCA 455; (2013) 305 ALR 687 at [177] per Emmett JA, with whom Meagher and Ward JJA agreed:
"[177] Notwithstanding the claims made in the Statement of Claim, the plaintiffs did not press for the avoidance of the Transfers. The appropriate relief, if the Transfers are not to be avoided, would be an enquiry for the purposes of determining the equitable or statutory compensation that should be awarded to the Company in respect of the loss it suffered by reason of the Transfers. The primary judge made no error in directing an enquiry as to the compensation that should be paid as a consequence of the breaches of fiduciary and statutory duty. It is undesirable to constrain, by practical rulings, the conduct of that enquiry."
The passages from Grimaldi and Gerard Cassegrain which I have set out above establish that a claim for equitable compensation can be made against a third party who has received trust property, although that is of course subject to the claimant establishing knowledge of the breach in one of the four categories identified in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373. It is not necessary for a plaintiff to establish that the knowing recipient acted dishonestly: see Robins v Incentive Dynamics Pty Ltd (in liq) [2003] NSWCA 71; (2003) 175 FLR 286 at [60]- [63] per Mason P with whom Stein JA and Giles JA agreed and see also Tara Shire Council v Garner [2003] 1 Qd R 556 at [63].
The New Trustees put their claims as claims in personam and do not seek proprietary relief: see PCS [21]- [22] and they contend that since they do not seek the imposition of a constructive trust they do not need to seek rescission of the Contempt Deed or the Main Deed.
I accept the New Trustees' contention in this regard supported as it is by Grimaldi and more recently Gerard Cassegrain.
Were it necessary to set aside the Contempt Deed in order to permit the New Trustees to obtain equitable compensation from Crossman I think it would be appropriate to do so because for reasons I have explained the Contempt Deed involved Nominees in a clear breach of trust.
An argument advanced by the defendants is that even for equitable relief the benefits obtained by the trust through the Main Deed would need to be taken into account. By the Main Deed, say the defendants, Crossman gave up a valuable right, namely a chose in action to have the PILT and Baltarna Trusts properly administered with, as an outcome, a benefit to be available to him as an object of the BCT.
The reality is that there is no practical value in Crossman being restored to the position he would have been in in 2009 since today no monies can be paid out of the PILT (or Baltarna) Trust to Crossman, even if he validly remains a discretionary beneficiary of the BCT through the Baltarna Trust. If Nominees has no money the Baltarna Trust can receive no money and Crossman has no prospect of recovering any money. According to Greater Pacific Investments it is appropriate to examine the position as at the time of the hearing with the benefit of knowledge of what has transpired for the purposes of determining equitable compensation and it is clear that the chose in action which Crossman had is of no value.
Looking at the position now it is clear that the chose in action is worthless- even were the Main Deed to be rescinded Crossman could not obtain any money from the Baltarna Trust because neither it nor the PILT Trust have any assets. If he were to pay back $2.2 million plus interest to the New Trustees that would not produce a surplus over the $7.5 million required to pay to Valofo. Were it relevant to examine the position as at February 2011 when the New Trustees were appointed or even as at the date that Crossman received the two payments there is no evidence which would permit the conclusion that he would have, or been likely to have, received any amount from the Baltarna Trust because it has not been established that Nominees could have paid Baltarna and hence Baltarna paid Valofo $7.5 million at any of these times.
It is also suggested that Crossman incurred considerable legal fees in pursuing Nominees and Baltarna. I accept that he did incur substantial fees ($395,000) and gave up the possibility of recovery of these fees and any costs order he had or might yet obtain as against Nominees and the other defendants to the Crossman proceedings. Had he obtained the orders that he sought in the Crossman proceedings he would have had very strong grounds to have his costs paid out of the trust assets because what he would have achieved would have benefited all beneficiaries of both Trusts and the BCT and not just himself. What he achieved by the Deed, however, was a very different outcome from the point of view of the PILT Trust- an outcome entirely detrimental to that trust's assets. His loss of the right to claim reimbursement for bringing the proceedings which proceedings he did not pursue produced no benefit to the PILT Trust, and therefore does not require any adjustment to the amount that he is required to repay.
DCS 61 made reference to Yeshiva Properties No 1 Pty Ltd v Marshall [2005] NSWCA 23; (2005) 219 ALR 112 at [80] in which Bryson JA (with whom Mason P and Beazley JA concurred) made reference to the fact that the beneficiaries who were suing a third party said to have assisted in the breach of trust by a trustee had given a release to the trustees and others involved in breach of trust and observed that it is doubtful if an equitable remedy against an alleged 'accessory' should be granted. One can well understand why that is so but the New Trustees (in right of the trust) have given no release to the third party (Crossman) it was given by the defaulting trustee itself. The only significance of the observation might be that there was an argument advanced by the New Trustees that even if no claim was available against the trustee because of an exoneration clause in the Trust Deed that does not assist the third party. I think it would be a somewhat odd result if a trustee could be exonerated from suit by virtue of the trust deed and yet a third party could be held liable for knowledge of breach by the trustee but given my view that the trustee was not exonerated by the Trust Deed the point does not arise.
The question then is whether if the Contempt Deed was to be set aside with the consequent requirement for return of the $2.2 million paid what step would be required to put Crossman in the position he was in before the Contempt Deed was entered. I think that would involve him being freed from any restriction imposed by the orders made in the Crossman proceedings from not proceeding against Nominees, Seller and Londish in respect of their dissipation of trust assets. Orders setting aside orders made in the earlier proceedings could be considered but realistically they would be of no practical value to Crossman. This point links also to the question of the Main Deed.
I accept that the two Deeds were intended to be put into operation together but they are expressed to be separate agreements and as I have earlier explained I am not persuaded that the New Trustees cannot seek to have only the Contempt Deed, by which Crossman received $2.2 million, set aside without seeking to have the Main Deed set aside as well.
I am of the view therefore that setting aside the Contempt Deed is not conditional upon setting aside the Main Deed.
The defendants claim that Crossman lost the opportunity to have receivers and replacement trustees appointed to stop the dissipation of assets. Replacement trustees were in fact appointed and they have now taken action to recover the monies paid out under the Contempt Deed. There is considerable irony in that submission, since Crossman himself benefited by to the wrongful dissipation of assets. I do not think that the lost opportunity is of any assistance to Crossman in resisting the relief sought by the New Trustees.
There were detailed submissions concerning the ambit of the releases in the Deeds. I do not think that the present claims are claims "arising from or connected" with the Crossman proceedings which were concerned with the dissipation of the other assets, not the $2.2 million paid to Crossman or the contempt proceedings but I am of the view that the claim that the payments to Crossman involved a breach of trust was known to Nominees and Baltarna at the time of the deeds. The question would then be whether that knowledge is to be imputed to the trusts in the sense of binding any future trustees. For the reasons already given I do not think that the New Trustees, as successors to Nominees as trustees of the PILT Trust, are bound by the deeds when those deeds have been entered into by Nominees in breach of trust.
I accept the New Trustees' contention that even if the release applied as a matter of construction to Crossman (contrary to their contentions), it does not apply to the Crossman corporations because the parties to whom the release was expressed to extend were "related entities" defined by a chance of definitional references to mean holding companies and subsidiaries of the relevant party ie Crossman.
Similar considerations apply to the New Trustees in seeking rescission of the Contempt Deed.
I am not persuaded that the circumstances of this case support the notion that there would be any inequity or unreasonableness in permitting the New Trustees to propound the claims which they do propound.
Failure by a beneficiary to take steps to stop a transaction entered into by a trustee does not of itself establish approval or acquiescence to the breach. The failure of Sheahan and Lock as Valofo's administrators to take Court action to prevent the second payment to Crossman is not explained but it cannot be said, in my view, that the failure to take action to prevent the second payment can be equated to acquiescence particularly given the Purcell letter and Valofo's reservation of rights in relation to the payments to Crossman.
In Orr v Ford Deane J (in a minority judgment in which Mason CJ concurred) at p 337- 338 described the different uses of acquiescence to be
1. "[s]trictly used… the contemporaneous and informed ("knowing") acceptance or standing by which is treated by equity as "assent" (ie consent) to what would otherwise be an infringement of rights"
2. "a representation by silence of a type which may found an estoppel by conduct"
3. "acceptance of a past wrongful act in circumstances which give rise to an active waiver of rights or a release of liability"
4. "mere delay or delay with knowledge, to refer to conduct by a person, with knowledge of the acts of another person, which encourages that other person reasonably to believe that his acts are accepted (if past) or not opposed (if contemporaneous)"
His Honour regarded a further usage (inaction in the face of the assertion of adverse rights) as really a species of laches.
There was no acceptance of the past acts, no representation that might have led Nominees to believe that its past action in entering into the Deeds or its present intention to pay Crossman the Second Payment was accepted and no scope for inferral of consent. Crossman gave no evidence of having done something or abstained from doing something because of the failure of the New Trustees to take against him earlier.
At paras 109 to 111 of the DCS a number of submissions are made to support the contention that relief should not be granted to the plaintiffs on other grounds:
1. the conduct of Valofo in encouraging a mediated settlement between Crossman, Nominees etc
2. that Crossman "is entirely innocent and no contrary position has been alleged by the [New] Trustees"
3. that
"He reached a settlement of which Valofo was aware and which represented a very significant compromising of what he was likely to have received in view of what he understood to be the Trust's asset position. What he received was in substance less than the headline figure of $2.2 million in any event because of the very considerable costs incurred by him in bringing the proceedings. The wealth of correspondence and interaction with Mr Bowman showed he never sought to hide anything from Valofo and indeed was proactive in assisting them in the protection of its rights."
1. That the New Trustees have been unwilling to do equity, that is not willing to rescind the Main Deed:
"to grant the relief sought by the [New] Trustees would result in the Crossman defendants returning $2.2 million in consideration for absolutely nothing. That circumstance would constitute a manifest windfall gain to the Trustees and, on the evidence, Valofo."
As I have indicated Valofo may have been content for Crossman to reach a settlement but the settlement which followed the mediation was based on Crossman receiving $2.2 million out of trust assets in return for abandonment of the Contempt Motion to which Valofo has not been shown to have consented or to have known of, in circumstances where no consideration was given to what amount would be available for Valofo let alone the $7.5 million required by the Baltarna Trust to be paid to Valofo as unitholder.
The New Trustees have made clear their contention that Nominees in breach of trust dishonestly utilised trust assets to pay out the $2.2 million, and that Crossman had knowledge of all matters relevant to that breach of trust including the source of the $2.2 million. Whilst I accept that he owed no fiduciary duty to the other beneficiaries or in respect of the trust I am unable to accept that Crossman was 'entirely innocent' as the DCS assert for the reasons already given.
It is of course true that before the payment of the second payment no steps were taken by the Trustees of the PILT or Baltarna Trust but at all times up until February 2011 the trustees were Nominees and Baltarna who had, in breach of trust, entered into the transactions. Their continued control of the Trusts precluded any proper protection of the PILT Trust's (and Baltarna Trust's) assets by them as trustees until then.