One. Tel (In Liq) v David Watson and Anor

Relevant Provisions 23 Section 187(1) of the Bankruptcy Act includes the following definitions: " debtor means a person who is insolvent. deed of arrangement means a deed (not being a deed of assignment, a deed in respect of a composition or a deed executed for the purposes of a proclaimed law) providing for the arrangement of the affairs of a debtor with a view to the payment, in whole or in part, of his or her debts." 24 A debtor who desired that his or her affairs be dealt with under the unamended Part X of the Bankruptcy Act without his or her estate being sequestered, could sign an authority authorising a registered trustee (among others) to call a meeting of the debtor's creditors and to take control of the debtor's property: s 188. Within 14 days of the authority under s 188 becoming effective, the debtor had to give the controlling trustee a statement of the debtor's affairs and a proposal for dealing with them under Part X: s 188A. The controlling trustee was required to prepare a report for creditors on the debtor's affairs and on the special resolutions that could reasonably be expected to be passed at a creditors' meeting: ss 189A, 189B. The controlling trustee was also obliged to call a creditors' meeting: s 190(1). The debtor was required to attend the meeting unless prevented by sufficient cause: s 195(1). 25 Section 204 of the Bankruptcy Act dealt with the powers of the creditors at a meeting: "(1) the creditors may, at a meeting called in pursuance of an authority under section 188, by special resolution: (a) … (b) require the debtor to execute a deed of assignment or a deed of arrangement under this Part; (c) accept a composition; or (d) require the debtor to present a debtor's petition within 7 days from the day on which the resolution was passed.

(2) A special resolution requiring the debtor to execute a deed of arrangement under this Part may, subject to this Act, specify provisions to be included in the deed.

(4) Where a special resolution requiring the debtor to execute a deed of assignment or a deed of arrangement under this Part or accepting a composition has been passed, the creditors shall, by resolution, nominate a trustee or trustees to be trustee or trustees of the deed or composition." 26 Section 213(1) of the Bankruptcy Act imposed two requirements for the validity of a deed of arrangement: "Subject to this Part a deed or arrangement executed by a debtor after the commencement of this Act is void unless:

(a) it is entered into in accordance with this Part; and

(b) it complies with the requirements of this Part." 27 Only a registered trustee or the Official Trustee could be a trustee of a deed under Part X: s 215. The debtor and the trustee had to execute the deed within 21 days of the passing of the special resolution at the creditors' meeting: s 216(1). The trustee of a deed of arrangement under Part X was required to notify each creditor of the debtor as soon as practicable after the deed was executed and file a copy with the Official Receiver: s 218(1). 28 Section 219 played a significant part in the primary Judge's reasoning. It provided as follows: "(1) The trustee of a deed of assignment or a deed of arrangement entered into in pursuance of this Part may sue and be sued by the prescribed official name and may, by that name, hold, dispose of or acquire property of every description, make contracts, enter into engagements binding on the trustee and his or her successors in office and do all other acts and things necessary or expedient to be done in the execution of the office of trustee. (2) For the purposes of subsection (1), the prescribed official name is 'The Trustee ( or Trustees) of the Property of ( name of debtor ), a Debtor." 29 The Court had power to declare a deed of arrangement void if it was entered into otherwise than in substantial compliance with Part X (s 222(1), (3)) or if the creditor had given false or misleading information: s 222(4). The Court could not exercise the power unless it was satisfied that it was in the interests of creditors to do so (s 222(5)) and unless the application was made "before the terms of the deed have been carried out": s 222(6)(b). 30 Division 5 of Part X of the Bankruptcy Act contained special provisions relating to deeds of arrangement. These included the following: " 233 Deed of arrangement to bind all creditors (1) A deed of arrangement that is entered into in accordance with this Part and complies with the requirements of this Part is, upon being duly executed by the debtor and the trustee, binding on all the creditors of the debtor.

(2) Subject to subsections (3) and (4), where a deed of arrangement has become binding on the debtor's creditors, it is not competent for a creditor, so long as the deed remains in force: (a) to present a creditor's petition against the debtor, or to proceed with such a petition presented before the deed became so binding, in respect of a provable debt; or (b) except with the leave of the Court and on such terms as the Court imposes: (i) to enforce any remedy against the property or person of the debtor in respect of a provable debt; or (ii) to commence any legal proceeding in respect of a provable debt or take any fresh step in such a proceeding. … 234 Deed or arrangement not to release debts unless otherwise provided (1) Except in so far as the deed provides for the release of the debtor from his or her debts, a deed of arrangement does not operate to release the debtor from any of his or her debts. (2) Where a deed of arrangement provides that the debtor is to be released from one or more of his or her debts, the release is binding on the creditor or creditors to whom that debt or those debts was or were owing. … (5) For the purposes of this section, the debtor is in default , if, and only if: (a) the debtor has failed to carry out or comply with a provision of the deed; or … 234A Variation of deed of arrangement Variation by special resolution of creditors (1) The creditors, with the written consent of the debtor, may vary a deed of arrangement by special resolution at a meeting called for the purpose. … 234B Termination of deed of arrangement by trustee (1) The trustee may, in writing, propose the termination of a deed of arrangement if the trustee is satisfied that the debtor is in default. … (3) The notice must: (a) include a statement of the reasons for the termination and the likely impact it will have on creditors (if it takes effect); and

(b) specify a date (at least 14 days after the notice is given) from which it is proposed that the termination will take effect; and

(c) … 235 Termination of deed of arrangement A deed of arrangement is terminated by: (b) the passing of a special resolution to that effect by a meeting of creditors called for the purpose;

(c) an order of the Court to that effect under section 236; or

(d) the occurrence of any circumstances or event on the occurrence of which the deed provides that it is to terminate. 236 Court may terminate deed (1) The Court may, upon application by the trustee, a creditor or the debtor, or, if the debtor has died, the person administering the estate of the debtor, if it is satisfied:

(a) that the debtor, or, if the debtor has died, the debtor or the person administering the estate of the debtor has failed to carry out or comply with a provision of the deed of arrangement;

(b) that the deed of arrangement cannot be proceeded with without injustice or undue delay to the creditors, the debtor or, if the debtor has died, the estate of the debtor; or

(c) that for any other reason the deed of arrangement ought to be terminated; make an order terminating the deed. … 237AA Right of debtor to remaining property (1) the debtor is entitled to any property remaining after payment in full of: (a) the costs, charges and expenses of the administration of the deed of arrangement; and

(c) interest on interest-bearing provable debts. …" 31 Section 224 of the Bankruptcy Act (which was within Division 3 of Part X) provided, inter alia, that where a deed of arrangement was declared to be void by the Court under s 222 or was terminated by an occurrence specified in s 235(b) or (d): "all payments made, acts and things done and transactions entered into in good faith under, or for the purposes of, the deed … by the trustee or any other person before he or she had notice of the order of the Court or of the termination of the deed … are valid and effectual and are not liable to be set aside by the trustee of a subsequent … deed of arrangement or in a subsequent bankruptcy."

PROCEDURAL ISSUES 32 The proceedings ultimately determined by the primary Judge were commenced by the Trustee in the Federal Court. On 28 November 2006, the Federal Court ordered that the proceedings be transferred to the Supreme Court. A notice under s 6(4) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW) ("Cross-Vesting Act") was served on the Commonwealth and State Attorneys-General. On 9 October 2008, the primary Judge made an order pursuant to s 6(3) of the Cross-Vesting Act that the Supreme Court determine any "special federal matter" (a defined term) which might arise in the proceedings. The consequence of the order is that no difficulty arises by reason of what otherwise is the exclusive jurisdiction of the Federal Court and the Federal Magistrates Court "in bankruptcy": cf Bankruptcy Act, s 27(1). 33 In the summons filed on his behalf in the Commercial Division of the Supreme Court on 8 January 2007, the Trustee was described in the title as "David Patrick Watson, as trustee of the Deed of Arrangement in respect of the [Debtor]". The only defendant named in the summons was CGU. The Trustee filed an amended summons on 11 August 2008 in which he was described simply by name, eliminating the reference in the title to his position as trustee under the Deed of Arrangement. The amended Summons joined One.Tel, ASIC and the Debtor as defendants. 34 By the amended summons the Trustee sought an order that CGU pay him the sum of $20 million plus interest. The Trustee also sought the following relief: "1A A declaration that, in the events that have happened, the [Trustee] was entitled to commence and is entitled to continue these proceedings.

1B. A declaration that, following the termination on or about 30 November 2007 of the Deed of [A]rrangement executed by [the Debtor] and the plaintiff on 30 November 2004, and in the events that have happened, the [Trustee]: (a) holds all of the rights formerly held by [the Debtor] under or in relation to the [Policy], including any rights to damages in respect thereof ('the Rights'), and will hold any proceeds of the realization of the Rights, on trust for One.Tel … and [ASIC]; or alternatively

(b) holds the Rights and any proceeds of the realization of the Rights on trust for [the Debtor]; or alternatively (c) holds the Rights and any proceeds of the realization of [the] Rights on trust for such other person or persons as the Court determines; or alternatively (d) holds the Rights absolutely but will hold any proceeds of the realization of the Rights on trust for: (i) One.Tel … and [ASIC]; or alternatively (ii) [the Debtor]; or alternatively (iii) such other person or persons as the Court determines." 35 The Trustee pleaded (in effect) that, by virtue of cl 2 of the Deed of Arrangement, the Debtor had assigned to him the rights under the Policy and that notice had been given on 16 October 2006 to CGU for the purposes of s 12 of the Conveyancing Act. The Trustee further alleged that, following termination of the Deed on 30 November 2007, the Trustee was entitled to continue the proceedings and that he held the rights and any proceeds of realisation of the rights on trust for One.Tel and ASIC or, alternatively, for the Debtor. 36 At the hearing before the primary Judge, the Trustee made detailed submissions on the questions identified for separate determination. One.Tel's submissions essentially supported the Trustee's position as did the brief submissions put on behalf of ASIC. CGU presented arguments in opposition to those advanced by the Trustee and One.Tel. The Debtor did not appear. The separate questions addressed by the parties are set out below under the heading "The Primary Judgment". 37 As I have noted, the notice of appeal was filed by One.Tel. The respondents to the appeal are the Trustee, CGU, ASIC and the Debtor. Both the Trustee and ASIC filed submitting appearances on the appeal. The Debtor, although served, took no part in the appeal. 38 On the commencement of the appeal, Mr Harrison announced an appearance on behalf of the Trustee and informed the Court that, unfortunately, the Trustee (Mr Watson) had passed away a short time previously. Mr Coles QC, who appeared with Mr Kulevski for One.Tel and Mr Bathurst QC, who appeared with Mr Street SC and Mr Silver, for CGU, accepted that Mr Watson's death required at least some reconstitution of parties, since he had been the plaintiff in the proceedings. However, both Mr Coles and Mr Bathurst invited the Court, in order to avoid delay and expense, to proceed with the hearing and deliver judgment on the issues in dispute. They suggested that the Court defer making any orders until the parties have an opportunity to address any issues arising by reason of Mr Watson's death. The Court indicated that it would adopt the suggested approach.

THE PRIMARY JUDGMENT 39 The primary Judge addressed each of the nine questions in turn. All the questions were prefaced with the following preamble: "Upon: a. the proper construction of the Bankruptcy Act 1966 (Cth); and b. the proper construction of the deed; and c. the termination of the deed; and d. in the events that have happened."

Question 1 Can the [Trustee] named in the amended summons maintain these proceedings to seek recovery from the [CGU] of the alleged property identified in paragraph v of Schedule A to the deed (' the Property ")?

The primary Judge considered that ss 213 and 219(1) of the Bankruptcy Act were critical to the resolution of this question. In his view: "[s] 219 is directed to equipping a trustee with powers that are necessary or desirable for the execution of the trusts created by a deed of arrangement. Once those trusts have terminated (because the deed has terminated) there is no reason for the statutory powers to continue to be available to such a trustee. It follows that, on its proper construction, s 219 did not authorize someone who was a trustee of a deed of arrangement to exercise the powers set out in the sub-section once that deed of arrangement has terminated." 40 His Honour considered that if the Trustee were able to maintain the proceedings notwithstanding termination of the Deed of Arrangement: "it would amount to the execution of some private arrangement outside the scheme authorised by Pt X. That would be inconsistent with the clear underlying purpose of Pt [X] - that arrangements and the like should be public, not private - and would be avoided by s 213." 41 His Honour accepted that cl 4 of the Deed of Arrangement, which authorised the Trustee to get in and realise the assigned property, was an independent power to institute and maintain the proceedings. But that power, being one given by the Deed of Arrangement did not survive its termination. After termination, there was no trust instrument authorising a continuation a continuation of proceedings and no other source of power to do so (s 219 being unavailable). 42 The primary Judge therefore answered Question 1: "No".

Question 2 Upon the termination of the Deed, did any alleged interests or rights of [the Debtor] in respect of the alleged Property cease to be held by the plaintiff as trustee or otherwise identifying the same? 43 The primary Judge said this in relation to Question 2: "On the assumption that property assigned to [the Trustee] pursuant to the deed remained vested in him on termination of the deed, he would hold it as a trustee. However, he would hold it in substance as a bare trustee for the benefit of whomsoever would be entitled to it in that circumstance, not as a trustee having the powers conferred by Pt X or for that matter the powers conferred by the deed." 44 His Honour therefore answered Question 2 as follows: " On the assumption that property assigned to him remained vested, the [Trustee] holds it as bare trustee for whomsoever is entitled to it ."

Question 3 a. In what capacity does the plaintiff hold any alleged interests or rights of [the Trustee] in respect of the alleged Property?

b. In what capacity would the plaintiff hold any proceeds of the realization of any interests or rights of [the Trustee] in respect of the alleged Property? 45 The primary Judge answered Question 3(a) "conformably" with his answer to Question 2: " On the assumption that property assigned to him remained vested, the plaintiff holds it as bare trustee for whomsoever is entitled to it ." 46 Having regard to the answer to Question 1, his Honour answered Question 3(b): "does not arise".

Question 4 Which of the parties (including [the Debtor]), if any, hold any alleged interests or rights of [The Debtor] in respect of the alleged Property, and in what capacity? 47 The primary Judge observed that ASIC and One.Tel had no interest in the asset comprising the trust property. They had a right, analogous to that of a beneficiary under a will, to have the Trustee's obligations properly performed. That was not the same as a beneficial interest in the right to be realised. It followed that if the Trustee held the Debtor's rights under the Policy, then, in the events that had happened, the Trustee held the rights on trust for the Debtor. 48 The primary Judge thought that there was nothing irrational or absurd in the result: "… The parties used the mechanism of a deed of arrangement, not that of a deed or assignment. The creditors - specifically, ASIC and One.Tel (between them creditors for $20,350,000) - did not extend the operation of the deed as permitted by clause 17(c)). Why should [the Trustee] be able to hold on to the residue (if any) of the property assigned following termination of the deed? I see no reason why he should." 49 Any vesting of property in the Trustee occurred by reason of the making of the Deed of Management. Vesting was not a continuous process and termination of the Deed did not divest the Trustee of the property vested in him. At most, termination was relevant to the identification of those for whom, thereafter, the Trustee held property on trust.

His Honour answered Question 4: " For [the Debtor] beneficially ".

Question 5 Upon termination of the Deed: a. was [the Debtor] released and discharged from all liability at law and/or in equity in respect of the orders made on 6 September 2004? and/or

b. did [the Debtor] obtain the accrued benefit of a covenant not to enforce in respect of the compensation and costs order made on 6 September 2004 in the ASIC proceedings? 50 According to the primary Judge, the answer to Question 5 turned on the construction of cls 10 and 11 of the Deed of Arrangement. The release for which cl 10 provided was conditional upon the execution by the Trustee of the certificate under cl 9. The Trustee had not executed any such certificate nor, given the termination of the Deed, could he do so. Question 5(a) therefore had to be answered: "No". 51 In relation to Question 5(b), his Honour considered that, on the parties construction of cl 11, the "stay" for which it provided had to ensure until, through the execution of a cl 9 certificate, the release granted by cl 10 became operative. In his Honour's view, cl 11 was intended to survive termination of the Deed of Arrangement. Otherwise the Debtor would be deprived of the protection which was the consideration for his entry into the Deed and his promises contained therein. The primary Judge continued: "Clearly, the clause 10 release was intended to survive termination. The clause 11 stay was intended to provide protection to [the Debtor] until the clause 10 release became effective. Why should the clause 11 stay be limited to the lifetime of the deed? I do not think that it should, particularly in circumstances where it was open to [the Trustee], supported by ASIC and One.Tel, to seek to extend the operation of the deed to enable him to finalise recovery action. [The Trustee] submitted that to give clause 11 operation beyond termination of the deed might deprive creditors of the effective benefit of the assignment of the rights under the policy. But that situation arises only (if it does arise at all) because [the Trustee] and the creditors did not extend the operation of the deed. At all times during the terms of the deed, they had it in their power to do so, and thereby to preserve the benefit of the assignment. Thus, the possible loss of that benefit is not a commercial absurdity flowing from the construction of clause 11 that gives it continuing operation after termination of the deed. The parties (by which I mean [the Trustee], ASIC and One.Tel) had the power and the means to avoid that consequence."

Accordingly, his Honour answered Question 5(b): " Yes ".

Question 6 Does CGU have accrued or binding rights under the Deed such that the [Trustee] and/or [the Debtor] have no further rights to seek recovery of the alleged Property? 52 The primary Judge said that even after hearing submissions, he did not understand the question. In any event, having regard to the answers to Questions 4 and 5(b), the appropriate course was to answer Question 6: "Does not arise".

Question 7 Are any or all of the [Trustee] and the second to fourth defendants [ASIC, One.Tel and the Debtor] precluded from bringing any claim, including the present proceedings, against CGU in respect of the alleged Property in relation to the orders made on 6 September 2004 by reason of any or all of the following matters:

(a) There being no relevant "Loss" (at the time of entry into the Deed or upon termination of the Deed) within the meaning of the Policy;

(b) [The Debtor] having no existing Loss within the meaning of the Policy for which he may be legally indemnified arising out of any Claim by reason of any Wrongful Act for the purpose of Insuring Agreement A of the Policy in relation to the compensation and costs order made on 6 September 2004 in the ASIC proceedings?

(c) There being no subject matter for indemnity as provided in the opening words of the Policy? 53 His Honour said that the answer to Question 7 turned on the answers to Question 1 to 5: "Undoubtedly, the orders for compensation and for costs made against [the Debtor] are each capable of being a 'loss' as defined. But the policy is one of indemnity. If and for so long as the orders are not enforceable against [the Debtor], there is nothing in respect of which he has any entitlement to be indemnified." 54 His Honour answered Question 7 as follows: " If and for so long as the orders for compensation and costs made against [the Debtor] are not enforceable, there is nothing in respect of which he has any entitlement to be indemnified ".

Question 8 Is the covenant in the deed to assign to the plaintiff effective in the events that have occurred? 55 The primary Judge did not consider it necessary to address an argument advanced by CGU that cl 2 of the Deed of Arrangement was not an effective assignment at law because it was a future and not a present assignment. However, his Honour's "tentative view" was that cl 2 should be construed as effecting a present assignment of such of the property described in schedule to the Deed as was capable of assignment without formality and an agreement to assign (on equitable assignment of the other property). On that view, the Debtor's rights under the Policy would have been assigned at law since notice of assignment had been given by CGU. 56 In any event, cl 2 would be construed to effect an equitable assignment of the whole of the property. There being no issue as to the identity of the property, the assignment in cl 2 would be effective in equity if for any reason it was not effective at law. Accordingly, his Honour answered Question 8: "Yes".

Question 9 Is any transfer and assignment to [the Trustee] of the Property void and of no effect within cl 1(e) of the Deed after termination of the Deed by reason of cl 1(e) of the Deed and/or s 213 of the Bankruptcy Act ? 57 The primary Judge repeated his view, stated in relation to Question 4, that termination of the Deed of Arrangement did not render void or undo any vesting of property that had occurred pursuant to cl 2 of the Deed. Question 9 was therefore answered: "No". 58 In summary, the primary Judge held that: the assignment pursuant to cl 2 of the Deed of Arrangement of the Debtor's rights under the Policy was effective in equity, if not at law;

the Trustee continued to hold title to the rights under the Policy notwithstanding termination of the Deed of Arrangement;

nonetheless, the Trustee lacked power, once the Deed of Arrangement had been terminated, to maintain proceedings against CGU to enforce the Debtor's rights under the Policy;

after termination of the Deed of Arrangement, the Trustee held the rights under the Policy as bare trustee for the Debtor personally;

the " stay " provided by cl 11 of the Deed of Assignment survived termination of the Deed and enured for the protection of the Debtor; and

because the " stay " survived termination of the Deed of Assignment, the Debtor had no liability to One.Tel or ASIC against which he could be indemnified by the Policy.

One.Tel's Submissions 59 One.Tel challenged the primary Judge's conclusion that the Trustee lacked power to maintain the proceedings. That conclusion had been based on the view that neither s 219 of the Bankruptcy Act nor cl 4 of the Deed of Arrangement could provide a source of power to maintain the proceedings, once the deed had terminated in accordance with cl 17(c) of the Deed and s 235(d) of the Bankruptcy Act. 60 Mr Coles QC submitted on behalf of One.Tel that the Trustee's power to maintain the proceedings did not depend on the powers conferred by either s 219 or cl 4 surviving termination of the Deed of Arrangement. He contended that cl 2 of the Deed of Arrangement effected an assignment to the Trustee of the Debtor's rights under the Policy and, once notice of the assignment had been given to CGU (as it was on 16 October 2006), the assignment operated at law. The Trustee therefore acquired the legal right to the Debtor's rights under the Policy, as the primary Judge in substance held. That legal right remained with the Trustee after termination of the Deed of Arrangement. The Trustee was entitled to institute and maintain the proceedings against CGU quite independently of any powers conferred by s 213 of the Bankruptcy Act or cl 4 of the Deed of Arrangement. 61 Clauses 2, 3 and 5 of the Deed of Arrangement constituted the Trustee a trustee of the rights under the Policy for the benefit of One.Tel and ASIC. Consistently with the object of Part X, One.Tel and ASIC had put aside their rights to pursue the Debtor directly and instead had taken beneficial title to the chose in action (the right to sue CGU) as part of the Deed of Arrangement. Termination of the Deed in no way undermined the trust relationship. 62 Mr Coles QC submitted that: provided the statutory requirements governing entry into a deed of arrangement were complied with, the scheme of Part X of the Bankruptcy Act was that Part X left it to the parties to determine their rights and obligations including whether a particular provision survived termination of the deed;

although Part X of the Bankruptcy Ac t did not provide for the automatic vesting of a debtor's property in the trustee (unlike a deed of assignment), it contemplated that a debtor could assign property, including causes of action to the trustee for the benefit of creditors;

contrary to the views of the primary Judge, if a deed of arrangement had been validly constituted publicly and created a continuing trust capable of surviving termination of the deed, any statutory policy of ensuring that the deed received publicity was not offended;

the touchstone for determining whether a clause in a deed of arrangement survived termination was the intent of the parties ascertained from the deed and in this case the intention of the parties was clear;

the survival of the Trustee's entitlement to sue was consistent with the " spirit " of the Bankruptcy Act , since upon discharge of a bankrupt the trustee in bankruptcy retained title to the property vested in the trustee during the bankruptcy (including title to causes of action);

Part X of the Bankruptcy Act was mainly concerned with the protection of creditors and, accordingly, a deed of arrangement should be construed so as to promote the purpose of allowing creditors to " receive the benefits that would otherwise accrue to them " in the event of a bankruptcy; and

s 219 of the Bankruptcy Act had never been interpreted as anything more than a procedural device to assist a trustee.

CGU's Submissions 63 CGU filed a notice of contention raising a large number of issues. It also filed written submissions seeking to uphold the reasoning and conclusions of the primary Judge on the principal question, although challenging his Honour's answers to certain of the separate questions. However, Mr Bathurst QC, in his oral argument, departed from the written submissions in a number of respects and did not press all the grounds identified in the notice of contention. What follows is distilled from Mr Bathurst's oral argument. 64 Mr Bathurst put forward four propositions: (i) The primary Judge was correct in holding that the Trustee had no title or standing to sue CGU following termination of the Deed of Arrangement.

(ii) The primary Judge was also correct in holding that the " stay " (or " moratorium " as he called it) contained in cl 11 of the Deed of Arrangement survived termination of the Deed.

(iii) The primary Judge erred in failing to find that termination of the Deed of Arrangement had the effect of releasing the Debtor from any liability to pay moneys to One.Tel or ASIC pursuant to the orders made in the ASIC proceedings. According to Mr Bathurst, his Honour's reasoning supported such a finding, but he had not answered Question 7 in a manner consistent with the reasoning.

(iv) The primary Judge was correct in holding that the Debtor had no continuing liability in respect of which the indemnity provided by the Policy could operate. 65 In support of the first proposition, Mr Bathurst submitted that the Deed of Arrangement, on its proper construction, did not contemplate that the Trustee could enforce rights against CGU once the Deed had terminated. He relied primarily on cl 17(3) of the Deed which, he said, provided the mechanism for extending the term of the Deed to enable the Trustee to institute and maintain proceedings against CGU. In the absence of an extension pursuant to cl 17(3), the Deed did not allow the Trustee to maintain the proceedings against CGU. Mr Bathurst eschewed any notion that One.Tel or ASIC was at fault in failing to secure an extension pursuant to c. 17(3). It was simply a matter of construing cl 17(3) so that it was not rendered otiose. Mr Bathurst said that s 235(d) of the Bankruptcy Act supported this construction of the Deed, but he acknowledged that "we stand or fall on construction". 66 Mr Bathurst, as I understood him, did not dispute three matters: even if the Trustee's powers under the Deed of Arrangement did not survive termination of the Deed, CGU still had to answer One.Tel's contention that the Trustee could maintain the proceedings as the legal assignee of the rights under the Policy;

even if cl 2 of the Deed was intended only to be a covenant to assign (as distinct from an assignment of the Debtor's chose in action), the fact that the Trustee had given notice of the assignment to CGU justified an inference that an assignment of the chose in action had taken place; and

in making or contemplating a decision under cl 9(ii) of the Deed of Arrangement not to pursue a claim under the Policy, the Trustee would owe fiduciary duties to One.Tel and ASIC, since the Trustee held the rights under the Policy on trust to be dealt with in accordance with the Deed of Arrangement. 67 Mr Bathurst's answer to One.Tel's contention was that the assignment of the Debtor's chose in action was not effective at law. The correct analysis was that the Deed assigned to the Trustee such rights as the Debtor had under the Policy on the terms contained in the Deed. The Trustee had the right to realise the Policy during the currency of the Deed or any extension thereof. But if the realisation was not effected (as cl 9(2) of the Deed indicated it might not be), the Trustee held the chose in action on a resulting trust for the Debtor. This was an example of a Quistclose trust (Barclay's Bank Ltd v Quistclose Investments Ltd [1970] AC 567, at 580-581, per Lord Wilberforce), whereby a resulting trust arises if the specific purpose for which the Debtor assigned his property cannot be fulfilled. 68 According to Mr Bathurst, the significance of this analysis was twofold. First, assuming (contrary to Mr Bathurst's preferred position) that the legal interest in the chose in action had been assigned to the Trustee, once the Deed of Arrangement terminated, the Trustee was a " bare trustee " of the chose in action for the Debtor. As such, the Trustee's role was limited to assigning legal title to the chose in action to the Debtor or to a person nominated by the Debtor. The bare legal title did not entitle the Trustee to maintain the proceedings against CGU.

Secondly, because the Debtor had not assigned the whole of his beneficial interest in the chose in action to the Trustee, there had been no " absolute assignment " as required by s 12 of the Conveyancing Act 1919 (NSW) for a legal assignment of a chose in action. The equitable interest in the chose in action acquired by the Trustee could not support the proceedings against CGU because " the equitable interest [of the Trustee] would cease to exist in the failure of the purpose ". 69 Mr Bathurst further submitted that unless the "moratorium" provided for in cl 11 continued after termination of the Deed of Arrangement, the Debtor would be prejudiced by the inaction of others (that is, by the failure of the Trustee to procure an extension of the Deed). Even if the release under cl 10 was no longer possible (because the Trustee could no longer give the certificate contemplated by cl 9), cl 11 would continue to operate in favour of the Debtor. He would be entitled to the benefit of the stay indefinitely.

One.Tel's Reply 70 Mr Coles submitted that there could be no resulting trust of rights under the Policy in favour of the debtor, at least not of any value. If the Trustee completed any claim under the Policy, as envisaged by cl 9(i) of the Deed of Arrangement, the rights under the Policy would merge in the judgment or agreement resolving the litigation. If the Trustee decided, in good faith, not to pursue the claim, he was bound by cl 9(ii) of the Deed of Arrangement to issue a certificate. The effect of the certificate would be to release the Debtor from all liability under the orders made in the ASIC proceedings (cl 10). The Debtor would be released from all other debts due to creditors pursuant to cl 8 of the Deed of Arrangement. 71 Mr Coles argued that a resulting or Quistclose trust would not arise unless the parties to the Deed of Arrangement intended such a result. However, the very object of the Deed of Arrangement was to ensure that the Trustee was armed with the rights that would enable him, as the legal owner, to realise the rights for the benefit of One.Tel and ASIC. The parties to the Deed of Arrangement never intended that there could be any reversion of rights to the Debtor, in circumstances where the practical effect would be to deprive One.Tel and ASIC of the very benefit the Deed of Arrangement was intended to confer on them. 72 In supplementary written submissions in reply, One.Tel argued that the Deed of Arrangement contemplated an absolute assignment of the legal title to the rights under the Policy. The Deed did not reserve to the Debtor any entitlement that was inconsistent with such an assignment.

An Overview 73 In Bunnings Forest Products v Bullen, the Court (at 448) identified the object of Part X of the Bankruptcy Act as follows: "the object of the Part is to encourage a debtor to make early disclosure to creditors of the debtor's inability to pay debts and to provide a procedure under which the debtor may call the creditors together to consider whether the debtor may be able to discharge those debts if the creditors permit the debtor to continue to trade, or alternatively, whether the debtor is able to offer an arrangement acceptable to the creditors under which the creditors would receive the benefits that would accrue to them from the bankruptcy of the debtor without incurring the expense of such a proceeding." 74 From the debtor's point of view, having his or her estate administered under Part X, specifically under a deed of arrangement, avoided the stigma of bankruptcy, the rigors of a public examination and the need to obtain a discharge from bankruptcy. From the creditors' point of view, the appointment of a trustee allowed a debtor (if the creditors agreed) to carry on business under the supervision of the trustee and to facilitate the assignment to the trustee of only a portion of the debtor's assets. In addition Part X contemplated arrangements (as in the present case) where a debtor or someone associated with the debtor contributed funds to be divided among the creditors: T Irlicht, Assignments, Arrangements and Compositions by Debtors (2nd ed 1986), at [202] (a passage cited with approval in Bunnings Forest Products v Bullen). 75 The differences between a deed of assignment and a deed of arrangement under Part X were explained by Gibbs J in Schmutter v Gee (Federal Court of Bankruptcy, 1971) (in a passage reproduced in Irlicht, at 38-39 [505]): "The consequences provided by Pt X as flowing from the execution of a deed of assignment are very different from those that result from the execution of a deed of arrangement. The execution of a valid deed of assignment operates to vest in the trustee forthwith upon the trusts and for the purposes of the deed all the divisible property of the debtor, subject to qualifications unnecessary to mention (s 229), but the execution of a deed of arrangement does not bring about any automatic vesting. A deed of assignment operates to release a debtor from all provable debts other than those, if any, that would not be released by his discharge from bankruptcy if he had become a bankrupt on the day on which he had executed the deed (s 230(1)) but a deed of arrangement does not operate as a release unless the deed itself so provides (s 234). A deed of arrangement may be terminated (inter alia) by the passing of a special resolution by the creditors or by an order of the Court (ss 235-6); there is no similar provision for the termination of a deed of assignment although there is provision for the issue by the trustee of a certificate that the divisible property of the debtor has, so far as is practicable, been realized and a final dividend has been paid to the creditors (s 232). Where a deed of assignment has become binding it is not competent for a creditor, so long as the deed remains valid, to enforce any remedy against the person or property of the debtor in respect of a provable debt or to commence any legal proceedings in respect of a provable debt or to take any step in such a proceeding (s 228(2)), whereas in the case of a deed of arrangement, the leave of the Court may be obtained to enforce such a remedy or to commence or carry on such proceedings (s 233(2)). Certain of the provisions of the bankruptcy law such as those relating to the stay of legal proceedings (s 60), the doctrine of relation back (s 115) and the avoidance of antecedent transactions (ss 120-122) are applicable in the case of a deed of assignment but not in the case of a deed of arrangement (ss 231 and 237)."

As Irlicht (at 39 [505]) points out, while Gibbs J's decision was reversed on appeal, nothing in the judgment of Barwick CJ on the appeal (with whom McTiernan and Windeyer JJ agreed) casts doubt on this passage. 76 Section 213 of the Bankruptcy Act provided that a deed of arrangement was void unless it was entered into in accordance with and complied with the requirements of Part X. Thus, for example, a deed of arrangement had to satisfy certain formal requirements (s 214), nominate only a registered trustee or Official Trustee (s 215) and be executed within 21 days of the special resolution requiring the debtor to execute the deed (s 216(1)). Publicity was achieved by the requirement that the trustee of a deed of arrangement notify each creditor as soon as possible after the deed had been executed and file a copy of the deed in the office of the Official Receiver (s 218). 77 Part X also made provision for the consequences of a deed of arrangement. In particular, a deed of arrangement that complied with the requirements of Part X bound all creditors of the debtor (s 233(1)). Moreover, it was not competent for a creditor, so long as the deed remained in force, to enforce any remedy in respect of a provable debt (except with the leave of the Court) (s 233(2)(b)). 78 Within the limits imposed by Part X, however, it was open to the creditors and the debtor to agree on terms in a deed of arrangement that would serve their respective interests. The only limitation imposed by the definition of "deed of arrangement" (s 187(1)) was, relevantly, that the deed had to provide: "for the arrangement of the affairs of a debtor with a view to the payment, in whole or in part, of his or her debts ".

Effect of Termination of the Deed of Arrangement 79 The primary Judge appears to have considered that the only available sources of power that enabled the Trustee to maintain the proceedings against CGU were s 219 of the Bankruptcy Act (which empowered the Trustee to sue by the prescribed official name) and cl 4 of the Deed of Arrangement (which obliged the Trustee to "get in and realise the assets" specified in Schedule A, including the rights under the Policy). In his Honour's view, termination of the Deed of Arrangement three years after its execution (cl 17(C) of the Deed, read with s 235(d) of the Bankruptcy Act) terminated the Trustee's powers under s 219 and cl 4. His Honour did not specifically address the argument relied on by One.Tel on the appeal, namely that the Trustee was entitled to maintain the proceedings in its capacity as the legal owner of the rights under the Policy, quite independently of s 219 or cl 4. 80 In order to meet One.Tel's argument, Mr Bathurst relied on the terms of cl 17(c) of the Deed, rather than the effect of termination of the Deed of Arrangement on the two sources of power identified by the primary Judge. As I have noted, Mr Bathurst contended that in the absence of an extension of the Deed of Arrangement pursuant to cl 17(c), the Deed did not allow the Trustee to maintain the proceedings against CGU. The terms of cl 17(c) have been set out earlier in this judgment ([15]). 81 Two observations may be made about cl 17(c). First, a resolution to extend the "operation of this Deed" had to be passed by a resolution of "the Creditors". The latter term was defined (cl 1(b)) to mean the creditors of the Debtor on the date of execution of the Deed of Arrangement. It follows that a resolution extending the operation of the Deed of Arrangement could not be passed simply by CGU and ASIC without reference to the other creditors of the Debtor. This was so notwithstanding that cl 8 of the Deed of Arrangement released the Debtor from all provable debts owed to creditors, other than One.Tel and ASIC, upon execution of the certificate contemplated by cl 7. 82 Neither the evidence nor submissions addressed the question of whether, if the meeting contemplated by cl 17(c) were convened, One.Tel and ASIC would require the support of other creditors to secure passage of any resolution extending the operation of the Deed of Arrangement. Clause 12 of the Deed provides for the Trustee to call a meeting which is to be held in accordance with ss 223 and 223A of the Bankruptcy Act. Section 223A applied Div 5 of Part IV of the Bankruptcy Act, including s 64ZB, to a meeting called under s 223 by a trustee of a deed of arrangement. Under s 64ZB of the Bankruptcy Act the passage of a resolution required a majority in value of the creditors present and voting: see the definition of "resolution" in s 5. The evidence does not reveal the extent of the indebtedness of the Debtor at the date the Deed of Arrangement was executed. The argument did not address the question of whether the Creditors other than One.Tel and ASIC would have been entitled to vote at a meeting called pursuant to cl 17(c) of the Deed of Arrangement. 83 Secondly, cl 17(c) does not expressly state that if the Deed of Arrangement is not extended beyond the three year period, the Trustee can no longer maintain any proceedings against CGU to enforce the rights under the Policy. Clause 17(c) provides only that the Deed of Arrangement terminates three years from the date of execution unless the Creditors resolve to extend the operation of the Deed for the purpose of finalising any claim for the realisation of rights under the Policy. Clause 17(c) therefore does not address in terms the consequences of termination of the Deed of Arrangement for the enforcement of the rights assigned by the Debtor to the Trustee. 84 Termination of the Deed of Arrangement may well have had the effect of preventing the Trustee from taking or continuing to take steps specifically authorised by the Deed of Arrangement or the Bankruptcy Act. For example, cl 14 of the Deed of Arrangement authorises the Trustee, of the Debtor's attorney under power, to institute and maintain proceedings in the name of the Debtor. On its proper construction, the operation of cl 14 may be limited to the period for which the deed of operation remains on foot. It follows that if the Trustee had commenced proceedings against CGU in the name of the Debtor in reliance on cl 14, termination of the Deed of Arrangement might have brought the proceedings to an end, at least in that form. Similarly, had the Trustee instituted proceedings against CGU in the Trustee's prescribed official name, in accordance with s 219 of the Bankruptcy Act, the proceedings in that form may not have been properly constituted once the Deed had terminated. 85 The amended summons filed by the Trustee does not, however, rely either on s 219 of the Bankruptcy Act or cl 14 of the Deed of Arrangement to support the Trustee's case against CGU. The proceedings as presently framed are brought in the Trustee's own name, relying on his legal title to the chose in action constituted by the rights under the Policy. This is reflected in the pleading of the Trustee's case, which rests his cause of action against CGU on the assignment to him of the Debtor's rights under the Policy. 86 The Trustee's case is that the assignment of the rights under the Policy was effective at law, once the notice of assignment was given to CGU on 16 October 2006. That proposition is disputed by CGU. If, however, it is correct, the assignment of the Debtor's chose in action to the Trustee was complete at law before the Deed of Arrangement terminated on 30 November 2007. Section 12 of the Conveyancing Act permits an assignee at law of a chose in action to sue in his or her own name and to give a good discharge without the assignor's concurrence: J Starke, Assignment of Choses in Action in Australia (1972), at 38 [54]; Norman v Federal Commissioner of Taxation [1963] HCA 21; 109 CLR 9, at 27 per Windeyer J. 87 In my opinion, there is nothing in the language of cl 17(c) of the Deed of Arrangement to suggest that the parties to the Deed intended that the Trustee, in effect, would be divested of the right to maintain an action in his own name once the Deed of Arrangement terminated. The Trustee (assuming his argument on this point to be correct) acquired legal title to the chose in action while the Deed of Arrangement remained on foot. Legal title to the chose in action carried with it the right to sue CGU in the Trustee's own name. Therefore the Trustee, in pursuing the claim against CGU after the Deed of Arrangement had terminated, had no need to rely on any continuing powers conferred by the Deed. In these circumstances, it might be thought that clear words would be required if the Deed of Arrangement were to have the effect of depriving the Trustee of legal rights that accrued to him before the date of termination. Such words are not to be found in cl 17(c). 88 Clauses 9, 10 and 11 of the Deed of Arrangement seem to me to fit comfortably into this analysis. The Trustee's certificate, to be issued under cl 9 upon completion or settlement of the Trustee's claim against CGU or upon the Trustee deciding not to pursue the claim, can be executed, if appropriate, after the Deed of Arrangement has terminated. Under cl 10, the Debtor is released from all liability under the compensation and costs orders made in the ASIC proceedings when the certificate is executed, but not before. Pending execution of the cl 9 certificate, cl 11 prevents either the Trustee or any creditors from taking any steps to enforce the orders against the Debtor, other than to seek recovery pursuant to the arrangement constituted by the Deed. In this way, the "stay" in favour of the Debtor provided by cl 11 can continue even after the Deed of Arrangement itself is terminated. The cl 11 stay is different from the moratorium imposed by s 233(2) of the Bankruptcy Act which prevents creditors enforcing remedies against a debtor only "so long as the deed remains in force". 89 The view that both cll 10 and 11 are capable of surviving termination of the Deed of Arrangement is entirely consistent with the language used in those provisions. The opening words of cl 11 ("Prior to the execution of the certificate referred to in clause 9") imply that the stay provided by cl 11 continues only while it is still possible that the Trustee can execute a certificate under cl 9. If the Trustee were unable to maintain proceedings against CGU after termination of the Deed of Arrangement, it would presumably not be possible for him to execute a certificate under cl 9 following termination. Since a certificate could no longer be issued, the stay provided by cl 11 would come to an end. Construing cl 11 as permitting the stay to continue beyond the date of termination of the Deed (a proposition for which CGU contends) implies that cl 9 should be read so as to authorise the execution of a Trustee's certificate after the date of termination of the Deed. 90 Construing the Deed of Arrangement in this way protects the interests of One.Tel and ASIC, on the one hand, and the Debtor on the other. The Trustee is entitled to continue the proceedings against CGU, in effect on behalf of One.Tel and ASIC, while the Debtor is protected by the stay pending the outcome of the proceedings. Once the proceedings are resolved, the Trustee is obliged to issue the cl 9 certificate thereby releasing the Debtor from all liability in respect of the compensation and costs orders made in the ASIC proceedings. 91 I add four further comments. First, if the operation of the Deed is viewed prospectively, the construction I prefer avoids an outcome where the fate of the Trustee's proceedings being wholly dependent on the Creditors' meeting contemplated by cl 17(c). As I have noted, it is not clear whether One.Tel and ASIC, despite being the only creditors affected by the proceedings against CGU (given that the debts to other creditors have been released), could necessarily secure passage of a resolution extending the terms of the Deed of Arrangement. It would be an odd result if the assignment of the chose in action to the Trustee could be rendered nugatory in this way. 92 Secondly, the Bankruptcy Act contemplates that a deed of arrangement can be terminated by the trustee where the debtor is in default (s 234B) and by the Court if it is satisfied that the deed of arrangement ought to be terminated (s 236). These provisions do not suggest either that the effect of termination is to render the deed of arrangement void ab initio or that none of its provisions is capable of surviving termination regardless of the intention of the parties. On the contrary, s 224 provides that where a deed of arrangement is terminated under ss 234B or 236 all acts and things done by the trustee or any other person before he or she had notice of the termination are "valid and effectual" and are not liable to be set aside in a subsequent bankruptcy. 93 Thirdly, contrary to Mr Bathurst's submissions, I do not think that this construction of the Deed of Arrangement renders cl 17(c) otiose. While the Deed of Arrangement remained in force, the Trustee had certain powers conferred by the Bankruptcy Act that would not be available once the Deed terminated. The ability of the Trustee under s 219 to bring proceedings in the Trustee's prescribed official name is one example. Another is the power of the Trustee (among others) to conduct an examination of the Debtor under s 81 of the Bankruptcy Act (see s 237). 94 Fourthly, I do not think that there is any force in the submission ([58] above) that because the "stay" provided for in cl 11 survived termination of the Deed of Arrangement, the Debtor had no liability to One.Tel or ASIC against which he could be indemnified under the Policy. Clause 11 merely prevents the Trustee or a creditor taking steps to enforce the compensation and costs "other than to seek recovery pursuant to the arrangement constituted by [the] Deed". Clause 11 does not discharge or release the Debtor from the judgment debts. That occurs only on the execution of the certificate by the Trustee in accordance with cl 10 of the Deed of Arrangement. 95 I therefore conclude that, subject to CGU's submissions concerning the efficacy of the assignment of the Debtor's chose in action to the Trustee, the termination of the Deed of Arrangement did not prevent the Trustee maintaining the proceedings against CGU.

Assignment at Law? 96 Mr Bathurst's argument that the assignment of the Debtor's rights under the Policy to the Trustee was not effective at law took as its starting point the proposition that the assignment did not carry with it the whole of the Debtor's beneficial interest in the chose in action. As I have noted, according to Mr Bathurst, the Debtor retained a residual beneficial interest in the rights since the Trustee might decide, pursuant to cl 9(ii) of the Deed of Arrangement, not to pursue a claim under the Policy. In that event, there would be a resulting trust to the assignor (the Debtor), who would be able to enforce the rights against CGU. 97 One of the difficulties in a case that proceeds on agreed facts, is that arguments may be advanced that raise factual issues, at least potentially, not addressed in the agreed statement. This is particularly so when the argument is advanced at a late stage in the proceedings, as happened in the present case. 98 There was some debate as to whether there were any circumstances in which the rights under the Policy could be of any benefit to the Debtor, assuming that a resulting or Quistclose trust might come into existence upon the issue of a certificate to the Trustee pursuant of cl 9 of the Deed of Arrangement. Mr Bathurst pointed out that the Debtor had brought proceedings against CGU in 2002 seeking an indemnity in respect of legal costs paid by him in defending the ASIC Proceedings. (The further amended summons filed by the Debtor was before the primary Judge and was reproduced in the Blue Book). He submitted that a resulting or Quistclose trust might be of benefit to the Debtor in relation to the claim made in these proceedings. The agreed facts indicate that the proceedings were discontinued in September 2004. The question of whether they could be revived more than five years later was not explored in argument. 99 On the assumption that this proposition can be made good, the question is whether the assignment was an "absolute assignment" for the purposes of s 12 of the Conveyancing Act 1919 (NSW) ("Conveyancing Act"). If not, the assignment was not effective at law and, so Mr Bathurst argued, a mere equitable interest in the rights would not suffice to give the Trustee standing to pursue the claim against CGU. Section 12 of the Conveyancing Act provides as follows: "Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor …" 100 Section 12 of the Conveyancing Act derives from s 25(6) of the Judicature Act 1873 (UK) (now s 136 of the Law of Property Act 1925 (UK)) and has counterparts in all Australian jurisdictions: G Tolhurst, The Assignment of contractual Rights (2006), ch 5. As Starke points out (Assignment of Choses in Action in Australia, at 38 [53]), in order for there to be an assignment of a chose in action in conformity with s 12, assuming the necessary intention to assign the chose in action, three principal conditions must be satisfied:

(i) the assignment must be in writing under the hand of the assignor;

(ii) the assignment must be absolute and not by way of charge; and

(iii) express notice of the assignment must be given to the debtor or other obligor.

If these conditions are satisfied, the legal title passes to the assignee from the date notice is given. 101 Mr Bathurst disputed only that the second of these requirements was satisfied in the present case. He submitted that the assignment by the Debtor was not "absolute" and relied on observations made by Mason J (with whom Aickin and Wilson JJ agreed) in Clyne v Deputy Commissioner of Taxation [1981] HCA 40; 150 CLR 1. In that case, a taxpayer had assigned by deed interest bearing term deposits as security for future advances to be made by the assignee to the taxpayer. Mason J pointed out (at 19-20) that in the event that the loans were repaid, the assignee would come under an obligation to refund to the taxpayer the proceeds of the term deposits. The assignment was said to be "by way of security" but expressed to assign: "all his the assignor's right title and interest in and to the … moneys and investments and interest accruing thereon at law or in equity to and unto the assignee for the assignee's own and separate use and benefit absolutely".

Mason J said (at 20) that the effect of the deed was to give the assignee as against the Bank the right to the proceeds of the term deposits and the interest in the meantime. 102 His Honour nonetheless considered that the assignment was "absolute" for the purposes of s 12 of the Conveyancing Act: "Because the [assignee] acquired the right title and interest of the assignor by way of security only, in the event that the loans were repaid she would come under an obligation to refund to the [assignor] the proceeds of the term deposits. None the less, within the context of s. 12 the assignment was 'absolute'. An 'absolute assignment' in the section signifies one which is unconditional. Consequently it has been held to embrace an assignment notwithstanding that the document effecting the assignment provides or implies the need for a re-assignment or re-conveyance on the happening of a future event, e.g. the repayment of a loan for which the assignment is being held as a security - see W. R. Warren, Choses in Action (1899), pp. 163-167; Burlinson v Hall [(1884) 12 QBD 347]; Tancred v Delagoa Bay and East Africa Railway Co. [(1889) 23 QBD 239, at 242-243]; Durham Brothers v Robertson [[1898] 1 QB 765, at 772]. In Durham , Chitty L.J. said that an unconditional assignment of a debt by way of mortgage to secure repayment of a loan would be an absolute assignment within the statutory provision notwithstanding that it is subject to an equity of redemption." 103 It will be seen that Mason J regarded an "absolute assignment" as one that is unconditional, thereby settling a point which was previously thought not to be entirely clear: cf Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669, at 679, per Samuels JA. Mason J held that the assignment of the taxpayer's term deposits was to be characterised as "unconditional" notwithstanding that the assignment, which was expressed to be for "the assignee's own … use and benefit absolutely", was also expressed to be (and was in fact) by way of security. Mason J did not elaborate the precise nature of the "obligation" of the assignee once the loans were repaid, but it can hardly be doubted that, in those circumstances, the assignee would have held the term deposits on trust for the assignor. This is confirmed by his Honour's reference to the three English authorities which support the proposition that a loan can be unconditionally assigned even if it is subject to an equity of redemption. 104 In Durham v Robertson, the Court of Appeal held that an assignment of a debt "until the money [due by the assignor to the assignee] be repaid" was not an absolute but a conditional assignment. Chitty LJ (with whom A L Smith and Collins LJJ agreed) reasoned as follows (at 773): "The commonest and most familiar instance of a conditional assurance is an assurance until J. S. shall return from Rome. The repayment of the money advanced is an uncertain event, and makes the assignment conditional. Where the Act applies it does not leave the original debtor in uncertainty as to the person to whom the legal right is transferred; it does not involve him in any question as to the state of the accounts between the mortgagor and the mortgagee. The legal right is transferred, and is vested in the assignee. There is no machinery provided by the Act for the reverter of the legal right to the assignor dependent on the performance of a condition; the only method within the provisions of the Act for revesting in the assignor the legal right is by a retransfer to the assignor followed by a notice in writing to the debtor, as in the case of the first transfer of the right. The question is not one of mere technicality or of form: it is one of substance, relating to the protection of the original debtor and placing him in an assured position." 105 In Tancred v Delagoa, the Queen's Bench Division held that an assignment of a debt to secure an advance, with a proviso for redemption and reassignment upon payment of all moneys due under the advance, was an absolute assignment. Denman J (with whom Charles J agreed) considered (at 242) that the proviso did not prevent the assignment being absolute. The difference between Durham v Robertson and Tancred v Delagoa was explained by Glass JA in Grey (at 673) this way: "A distinction is clearly drawn between a reassignment occurring by force of the original transaction (conditional), and a reassignment which depends on a further assurance."

I would understand his Honour in this passage to be referring to a reassignment at law. 106 In Burlinson v Hall, a solicitor assigned certain debts to the assignee (Burlinson): "to have, receive, and take the debts upon trust that Burlinson should receive the same, and out of the same pay [the amount due by the solicitor to Burlinson] and should pay the surplus (if any) of the same debts [to the solicitor]."

Day J held (at 349-350) that this was an absolute assignment notwithstanding that the surplus belonged to the assignor. In his view, the assignment was, in terms, absolute: "Not indeed absolute as a sale, but absolute as contradistinguished from conditional, an assignment giving a title there and then … True, if the debt due from the assignor were paid off, the assignor might be entitled to have the subject matter of the assignment re-assigned to him. But the right of the assignee to whom it is assigned is absolute . No person can control him in dealing as he thinks fit with that which was assigned to him ." (Emphasis added.)

A L Smith LJ held (at 351-352) that the existence of a resulting trust, in favour of the solicitor when Burlinson was paid out did " not make it the less an absolute assignment ". 107 It follows from these authorities that if an assignment of a chose in action is unconditional, in the sense that the assignment transfers "unconditionally all the rights of the assignor in the chose to the assignee", the assignment is absolute for the purposes of s 12 of the Conveyancing Act: Commercial Factors Ltd v Maxwell Printing Ltd [1994] 1 NZLR 724, at 732, per Hammond J. See also Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190, at 194, per Mathew LJ; Raiffeison v Zentralbank Ősterreich AG v Five Star General Trading LLC [2001] EWCA Civ 68; [2001] QB 825, at 855-856 [74], All ER 257, at [74], per Mance LJ. This is so notwithstanding that the assignment itself contemplates a resulting trust in favour of the assignor in certain circumstances (as in Burlinson v Hall). A fortiori, if an assignment unconditionally transfers all the rights of the assignor in the chose in action to the assignee, the fact that in certain circumstances, which may or may not occur, a resulting trust will be implied in favour of the assignor does not prevent the assignment being absolute. 108 By the Deed of Arrangement in the present case, the Debtor covenanted to assign, inter alia, his rights under the Policy, including the right to damages, to the Trustee "on trust to be dealt with in accordance with this Deed of Arrangement" (cl 2). The Trustee was obliged to realise the Debtor's assets, including the rights, and to apply any amount received under the Policy in payment of any liability the Debtor may have had to One.Tel and ASIC (cll 4, 5). CGU does not dispute that, notice having been given of the assignment, an assignment of the chose in action took place. 109 The assignment transferred all of the Debtor's legal title to the chose in action under the Policy. There was no qualification imposed on the entitlement of the Trustee to utilise the legal title to the chose in action in any manner he considered fit to fulfil the terms of trust which required him to apply any amount received under the Policy in payment of any liability of the Debtor to One.Tel and ASIC. The fact that there might be circumstances in which the rights under the Policy (or some of them) conceivably could be held on trust for the Debtor does not detract from the conclusion that the assignment was absolute. 110 It follows that the assignment to the Trustee of the Debtor's rights under the Policy was effective at law. The Trustee is therefore entitled to pursue his claim against CGU for an indemnity under the Policy in respect of the Debtor's liability to comply with the orders made in the ASIC proceedings.

Equitable Assignment 111 If the assignment of the Debtor's rights under the Policy was not effective at law, it would have taken effect as an equitable assignment. In these circumstances, there is a rule of practice that the Debtor, as assignor, may be a necessary party to proceedings brought by the assignee to enforce the interest assigned, although in some circumstances the rule may be departed from: R Meagher, D Heydon and M Leeming, Meagher Gummow & Lehane's Equity Doctrines and Remedies (4th ed, 2002), at [6-520]; Long Leys Co Pty Ltd v Silkdale Pty Ltd (NSWCA, unreported, 19 December 1991), at 11-12, per Sheller JA (with whom Priestley and Meagher JJA agreed); William Brandt's Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454, at 462, per Lord Macnaghten. 112 The Debtor was joined as a defendant in the proceedings brought by the Trustee against CGU and it appears that the Debtor has taken no objection to the Trustee pursuing the claim. It is not obvious why, even if the assignment of the Debtor's rights under the Policy was effective only to equity, the proceedings brought by the Trustee not properly constituted. This point was adverted to in argument but was not developed. Accordingly, it is neither necessary nor appropriate to express a final view on it.

CONCLUSION 113 The appeal must be allowed. CGU must pay One.Tel's costs of the appeal. 114 One.Tel should file within 14 days short minutes of order giving effect to these reasons. If the short minutes are not agreed between the parties, the short minutes should be accompanied by One.Tel's brief written submissions supporting its proposed orders. If CGU disputes the orders proposed by One.Tel, it should file within a further 7 days its short minutes of order, accompanies by CGU's brief written submissions supporting its proposed orders.

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.