John Sheahan v Martin Thompson

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)

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

JUDGMENT

1. 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.
2. 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.
3. 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.

The PILT Trust Deed: Important Provisions

1. 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."

The Baltarna Trust Deed: Important Provisions

1. 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."

The Main Deed

1. 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."
2. 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.

The Contempt Deed

1. By the Contempt Deed Nominees agreed to pay Crossman the two payments: one of $600,000 and one of $1.6 million.
2. By Clause 2.4 Nominees agreed to cause mortgages over the five properties to be granted to Crossman to secure the second payment.
3. 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."
4. 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."
5. 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."

The Claims in the Crossman proceedings

1. 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.
2. 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])

The Issues

1. 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)

Mr Crossman's credit

1. 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
2. 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

Breach of Trust (Issue 1)

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.
2. 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.
3. 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).
4. 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

Did Valofo know about the Settlement and did it Consent to the Settlement (Issue 2)

1. 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.
2. 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
3. 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.

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)

1. 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.
2. 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.
3. 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.

Did Crossman have knowledge of the breach of trust? (Issue 4)

1. 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."

Did the Crossman corporations have knowledge of the breach of trust? (Issue 5)

1. 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.

Was Crossman a volunteer? (Issue 6)

1. 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.
2. 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".
3. 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
4. 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.

The nature of relief that can be granted (Issue 7)

1. 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.
2. 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."

Rescission

1. 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
2. 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.
3. 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.

Other reasons to deny the New Trustees relief (Issue 8)

Laches, Acquiescence and Delay

1. 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.
2. 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.
3. These proceedings were commenced by the New Trustees in May 2013, well within the limitation period specified in the Limitation Act 1969 (NSW).
4. 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.
5. 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).
6. 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.
7. 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]).
8. 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.

The Baltarna consent is determinative point (Issue 9)

1. 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)
2. 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.
3. 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].
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.
5. 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.
6. 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.
7. 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].
8. 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.

Conclusion

1. 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.

Orders and Costs

1. 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