PARTIES: OXENBOULD, Michele Kaye (as trustee of the Trust No 1)

BURLEY, Victoria Rose (as trustee of the Trust No 2)

Professions and Trades - Lawyers - Fidelity and guarantee funds - Claims against fund - Tasmania - Whether discretion to reject claim - Whether loss of trust money by a client as a result of fiduciary default - "Right to claim against the firm".

Legal Profession Act 1993 (Tas), ss111(3), 112(1)(a).

Legal Profession Act 2007 (Tas), Sch9, cls 23(2), 38(3).

Dobson v The Solicitors' Trust [2001] TASSC 99; Garrisons Pty Ltd v The Solicitors' Trust [2004] TASSC 139, referred to.

Statutes - Acts of Parliament - Interpretation - Interpretation Acts and provisions - Preservation of rights, liabilities and legal proceedings on amendment, repeal, lapsing etc of Act or provision - Accrued right, privileges and liabilities - Right to claim compensation from Solicitors' Guarantee Fund.

Acts Interpretation Act 1931 (Tas), s16(1).

Legal Profession Act 2007 (Tas), Sch9, cls 23(2), 38(3).

Buck v Comcare [1996] FCA 1485; (1996) 66 FCR 359, followed.

Judgment Number: [2011] TASSC 57

MICHELE KAYE OXENBOULD (as trustee of THE TRUST NO 1)

VICTORIA ROSE BURLEY (as trustee of THE TRUST NO 2)

1 These two appeals relate to funds from two discretionary family trusts that were invested in the mortgage loan scheme of a Hobart legal firm that was named Piggott Wood & Baker. The scheme collapsed in 1998 as a result of imprudent lending. Investors in the scheme made claims for reimbursement from the Solicitors' Guarantee Fund ("the Guarantee Fund") pursuant to the provisions of the Legal Profession Act 1993 ("the 1993 Act"). I understand that all but two of the claimants have now fully recovered the principal sums that had been invested and lost. The two exceptions are the appellants in these proceedings. They are the present trustees of the two relevant discretionary trusts. The respondent, The Solicitors' Trust ("the Trust"), made determinations on 7 April 2009 wholly disallowing their claims. They have both appealed against those decisions, pursuant to the Legal Profession Act 2007 ("the 2007 Act"), s388(1).

2 Each of the two relevant discretionary trusts was created for the benefit of members of a family named Turner. One of the members of that family was a legal practitioner named John Turner. He was a partner in Piggott Wood & Baker, and was heavily involved in both managing its mortgage scheme, and making loans that caused, or contributed to, the failure of the scheme. The appellants are his sister and his partner.

3 Under both the 1993 Act and the 2007 Act, which replaced the 1993 Act, it was the role of the Trust to administer the Guarantee Fund. The Guarantee Fund is a fund that may be used, in certain circumstances, to compensate clients who have suffered losses as a result of misappropriations of trust money and certain other improper conduct by their lawyers.

4 On 13 December 2001 in proceedings in the Federal Court of Australia, Sundberg J made an order under the Corporations Act 2001 (Cth), s601EE(1), appointing two liquidators to be joint and several liquidators in respect of certain loans, including the loans to which these appeals relate. The liquidators were given all the powers that the liquidator of a company would have if the run-out mortgage business of Piggott Wood & Baker were a company. One liquidator, Mr Hamilton, appears to have taken sole charge of the winding up of the business. Investors in the mortgage scheme, other than the appellants, have received refunds of the principal sums invested by them, some from the Guarantee Fund and possibly other sources via the Trust, and some from the liquidator. No interest has been paid.

5 The 2007 Act came into force after the appellants made their claims for payments from the Trust, but before the Trust made the determinations now under appeal. The Trust took the view that certain provisions of the 2007 Act applied to the appellants' claims, and relied on those provisions in rejecting each of their claims. Each such claim was rejected on three bases:

•

That the loss in question was "neither a pecuniary loss because of default nor a pecuniary loss resulting from a default".

•

That unpaid interest was "not a pecuniary loss in respect of which a claim may be made against the Guarantee Fund".

•

That, in the opinion of the Trust, the appellants were likely to be paid the principal sum "from another source, that source being the liquidator of the Piggott Wood & Baker Mortgage Fund".

6 The wording of the first of these three reasons reflects reliance on the 2007 Act. Under s371(1) thereof, a claim against the Guarantee Fund may be made by a person who suffers "pecuniary loss because of a default". Under s380(1), the maximum payable is equal to "the pecuniary loss resulting from the default". The wording that I have quoted was not used in the 1993 Act.

7 The wording of the third of the above reasons also reflects reliance on the 2007 Act. Under s383(1)(c) thereof, a person is not entitled to recover from the Guarantee Fund an amount equal to the value of other benefits "that (in the opinion of the Trust) are likely to be paid to or received by the person ... from other sources". There was no such provision in the 1993 Act.

8 The appellants' principal contentions in these proceedings can be summarised as follows:

•

Money belonging to the two discretionary trusts was lost as a result of members of the firm breaching their fiduciary duties.

•

Those losses were compensable pursuant to the 1993 Act.

•

The Trust had no discretion to disallow claims for compensable losses under the 1993 Act.

•

After the repeal of the 1993 Act, the provisions of the 2007 Act did not become applicable to the appellants' claims. Those claims should therefore have been determined as if the 1993 Act were still in force.

•

The involvement of John Turner as a partner in his firm and in making decisions as to the investment of funds of the two discretionary trusts is irrelevant to the appellants' rights to claim and receive compensation.

9 The Trust's principal contentions are as follows:

•

Under the 1993 Act, the Trust had an unfettered discretion to allow or reject claims; and claimants had only a right to have their claims determined, as distinct from a right to compensation.

•

After its commencement, the 2007 Act was applicable to the determination of the appellants' claims.

•

Section 383(1)(c) of the 2007 Act precluded the appellants from recovering any compensation because they were likely to be paid by the liquidators.

•

Each of the appellants' claims related to losses which resulted not from conduct by members of the firm of such a nature that the appellants became entitled to make a claim, but from conduct of John Turner, not in his capacity as a member of the firm, but as a trustee, or the agent of the trustees, of the discretionary trust in question.

•

Even if compensation was payable under the 2007 Act (which is disputed), no interest was payable because there were special circumstances warranting a refusal to pay interest.

The 1993 Act and the 2007 Act

10 The 1993 Act laid down a procedure for clients to make claims in respect of fiduciary defaults by legal practitioners, in Pt9, Div5. The relevant features of that procedure can be summarised as follows:

•

Under s111(1), certain persons were entitled to apply to this Court "for an order declaring a firm ... to be in default".

•

Such an application could be made by a client who had suffered a loss of trust money or other property as a result of a fiduciary default when the loss occurred wholly in Tasmania: ss111(1)(b), 112(1)(a)(i).

•

When an order was made declaring a firm to be in default, a Court fund had to be established in this Court: s111(2).

•

Any person with a right to claim against the firm then had "an additional right to claim against that Court fund": s111(3).

•

Section 111(5) required there to be paid into the Court fund:

(a) such money standing to the credit of the firm in trust accounts as this Court ordered, and

(b) such money from the Guarantee Fund as was necessary to meet the requirements specified in s112, which included paying compensation to clients for losses of trust money.

•

The Trust was required to pay into a Court fund, from the Guarantee Fund, sufficient funds to enable the payment of 100 cents in the dollar by way of compensation to each successful claimant, to the extent that the claim was accepted by the Trust: s111(6).

•

The Court was given a discretion to give directions requiring the payment of costs, and/or compensation for the loss of interest: s112(3). The Trust was then required to pay into the Court fund, from the Guarantee Fund, a sufficient amount to enable such payments to be made in full: s116(b).

•

The Trust was given a discretion as to the timing of payments from the Guarantee Fund into a Court fund: s111(6B).

•

This Court was required to apply a Court fund in making various types of payments, including compensation to a client for the loss of trust money as a result of a fiduciary default: s112(1).

•

Claims for such payments were required to be lodged with the Trust: s114(2).

•

Only a client within the class of persons for whose benefit a default order was made under s111(1) had the right to claim compensation from the Court fund: Dobson v The Solicitors' Trust [2001] TASSC 99. Thus, when a default order was made in respect of certain specified loans, clients who had lost money invested in other loans could not claim upon the Court fund established in consequence of the default order.

11 The 2007 Act, Pt3.5, introduced a somewhat different procedure for the compensation of clients from the Guarantee Fund. The following differences between the old and new regimes are significant for the purposes of this case:

•

The relevant provisions in the 2007 Act do not apply to defaults in connection with a managed investment scheme, mortgage financing, or a mortgage investment scheme undertaken by a law practice: s366(2). There was no such exception under the 1993 Act.

•

In the 2007 Act, the word "default" is defined in such a way that, unless there has been an act or omission that involves dishonesty, the provisions of Pt3.5 do not apply: s350. There was no such provision in the 1993 Act.

•

The 2007 Act abolished the system of Court funds. Under s358(2), the Guarantee Fund is required to be applied by the Trust for various purposes, including "the purpose of compensating claimants in respect of claims allowed under this Part in respect of defaults to which this Part applies". In other words, the payments are made from the Guarantee Fund to claimants directly, not via a Court fund.

•

Under the 2007 Act, as I have said, a claimant is not entitled to recover from the Guarantee Fund "any amount equal to amounts ... that (in the opinion of the Trust) are likely to be paid or received by the person ... from other sources in respect of the pecuniary loss to which a claim relates": s383(1)(c). There was no such provision in the 1993 Act.

•

Under the 2007 Act, when The Trust determines the amount of pecuniary loss resulting from a default, it is required to add interest, unless it considers that special circumstances exist warranting the payment of reduced interest or no interest: s382(1). Under the 1993 Act, no interest was payable unless this Court ordered it under s112(3)(b).

The extent of a claimant's rights under the 1993 Act

12 In order to determine which Act applied to the determination of the appellants' claims, it will be necessary for me to decide whether, under the 1993 Act, a claimant had a right to be compensated, or only a right to have a discretionary decision made by the Trust allowing or rejecting the claim. As I have said, the Trust contends that it had an unfettered discretion to allow or reject claims, and that claimants therefore had no right to compensation. It relies on s114(3) of the 1993 Act. That subsection read as follows:

13 That subsection is ambiguous. On the face of it, one possible meaning is that, if the claimant qualified for a payment of compensation, the Trust had an unfettered discretion to pay the claim in full, pay part of it, or pay nothing. The competing interpretation is the one advanced by the appellants, namely that the Trust was given no discretion; that it was entitled to reject a claim only if the claimant was wholly ineligible for compensation; and that it was entitled to reject a claim in part only if the claim was excessive. It is necessary to consider the purpose and history of the legislation, and the context of s114(3), in order to determine which possible interpretation is the correct one.

14 The Acts Interpretation Act 1931, s8A, requires a provision in an Act that promotes the purpose or object of the Act to be preferred to an interpretation that does not promote that purpose or object. The purpose of the provisions relating to compensation in the 1993 Act is to compensate clients, including investor clients, who have suffered losses as a result of breaches of fiduciary duties by legal practitioners.

15 The compensation provisions of the 1993 Act amounted to beneficial legislation. Beneficial legislation should ordinarily be given an interpretation that is favourable to the class of persons intended to be benefited by it. See Pearce and Geddes_, Statutory Interpretation in Australia_, 6th ed, LexisNexis, 2006, pars[9.2] and [9.3]. In this case, the class of persons intended to be benefited comprised clients who had lost money as a result of the improper conduct of legal practitioners.

16 The predecessor of the 1993 Act was the Legal Practitioners Act 1959. That Act contained compensation provisions involving the Guarantee Fund, the Trust, Court funds, and a system of fidelity bonds. There was nothing in its provisions to suggest that there was any discretion to refuse compensation to eligible claimants. It therefore provides no support for the argument that the 1993 Act conferred such a discretion.

17 There are two provisions in the 1993 Act that, in my view, lend a little support, but only a little, to the view that it was not the role of the Trust to make discretionary decisions as to whether, or how much, eligible claimants were to be paid:

•

Under s115(1), a person aggrieved by a decision of the Trust to reject a claim under s114 had the right to "apply to a judge to review the decision". Under s115(3), on the hearing of such an application, a judge was empowered to affirm the decision, to impose terms or conditions, to quash the decision, or to substitute another decision. The Act was silent as to what matters were to be taken into account in determining such an application. A review application must have been an application de novo since the Trust was not obliged to give reasons for its decisions. (There was nothing in the 1993 Act requiring reasons to be given, and the Judicial Review Act 2000 was not enacted until seven years later.) It is hardly likely that Parliament intended that a judge hearing such an application would have an unfettered discretion to accept, wholly reject, or partly reject claims by clients who had lost money. Such discretionary decision-making would ordinarily be entrusted to a statutory authority, but not to a superior court exercising a review function.

•

Under s116(1)(b), the Court was given a power to order that advance payments be paid out of a Court fund to persons suffering personal hardship. However no provision was made conferring a discretionary power to order the repayment of amounts paid pursuant to that provision at a later date.

18 Taking all those matters into account, particularly the purpose of the relevant provisions and their character as beneficial legislation, I think s114(3) should not be interpreted as conferring a discretion to refuse or reduce the compensation payable to eligible claimants. I think it should be interpreted as a machinery provision allowing the rejection of claims by ineligible persons and the partial rejection of excessive claims. It follows that, in my view, every claimant under the 1993 Act who was eligible to receive compensation had a right to such compensation, and not just a right to a discretionary determination by the Trust. Eligible claimants therefore had accrued rights to compensation when the 1993 Act was repealed.

19 Schedule 9 to the 2007 Act contains a series of transitional provisions. The Trust contends that the 2007 Act applied to the determination of the appellants' claims as a result of those provisions, particularly cl 23(2) of the Schedule.

20 Counsel for the appellants submitted that the transitional provisions should not be interpreted as making the 2007 Act applicable. He relied on the Acts Interpretation Act, s16(1), and on authorities as to the interpretation of repealing Acts in relation to the preservation of accrued rights.

21 The relevant provisions in the Acts Interpretation Act, s16(1), read as follows:

"(1) Where an Act repeals any other enactment then, unless the contrary is expressly provided, such repeal shall not -

(c) affect any right, privilege, obligation, or liability acquired, accrued, or incurred under any enactment so repealed;

(e) affect any investigation, legal proceeding, or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture, or punishment as aforesaid -

and any such investigation, legal proceeding, or remedy may be instituted, continued, or enforced, and any such penalty, forfeiture, or punishment may be imposed as if the repealing Act had not been passed."

22 The repeal of the 1993 Act was effected by a proclamation under the 2007 Act, s661(1): SR 2008, No 148. Although, in a very technical sense, one could say that it was the proclamation that repealed the 1993 Act, I think the repeal should be regarded as one effected by the 2007 Act for the purposes of s16(1). It follows that, pursuant to s16(1), every claimant who was eligible to receive compensation from a Court fund under the 1993 Act, and whose claim had not been determined by the Trust before the commencement of the 2007 Act, had a right to compensation, and that neither the right to compensation nor the pending claim was affected by the repeal, "unless the contrary [was] expressly provided" in the 2007 Act.

23 Clause 38 of Sch9 to the 2007 Act contains some general transitional provisions, including the following subclauses:

"(3) Without limiting subclauses (1) and (2), if a provision of the old Act [ie the 1993 Act] that corresponds to a provision of this Act would, but for its repeal, have applied in relation to any thing done or being done or in existence before the commencement of this Schedule, the provision of this Act applies (with the necessary modifications) in relation to the thing.

(4) This clause does not have effect to the extent that -

(a) other provision is made by this Schedule; or

(b) the context or subject matter otherwise indicates or requires."

24 If those were the only relevant transitional provisions, it would be beyond argument that the 2007 Act applied, with any necessary modifications, to the appellants' rights to compensation and to their pending claims. Those provisions do not expressly provide that rights to compensation or pending claims are affected in any way by the repeal of the 1993 Act.

25 However cl 23 of Sch9 contains specific provisions in relation to claims in respect of fiduciary defaults by legal practitioners. That clause reads as follows:

"(1) Division 5 of Part 9 of the old Act continues to apply to a claim made against the Guarantee Fund under that Division and finalised before the commencement of Part 3.5 (Solicitors' Guarantee Fund) of this Act.

(2) Part 3.5 of this Act applies to a default occurring before the commencement of Part 3.5 if a claim had not been made or finalised under Division 5 of Part 9 of the old Act in respect of the default before that commencement."

26 The Trust contends that cl 23(2) operates so as to make Pt3.5 of the 2007 Act applicable to claims made under the 1993 Act that were not finalised before the 2007 Act commenced.

27 For the purposes of determining the scope and effect of cl 23(2), I think it is desirable first to consider the meaning and effect of cl 23(1). That subclause speaks of "a claim made against the Guarantee Fund" under the 1993 Act but, literally speaking, there was no such thing under that Act. Claimants made claims against Court funds. The Guarantee Fund was one of a number of sources of the money that went into Court funds. Clients did not directly claim against the Guarantee Fund at all.

28 Counsel for the appellants submitted that the words "a claim made against the Guarantee Fund" should be interpreted as referring to something other than a claim by a client for compensation from a Court fund. He submitted that the words in question could be interpreted as referring to an application under s111(1) for a default order, or to a step taken by the Trust to cause money to be paid from the Guarantee Fund into a Court fund pursuant to s111(5) and (6). I reject those submissions. The subclause speaks of a "claim" that is "made" and "finalised". Those words are appropriate if they are intended to refer to a claim for compensation, but are not appropriate to describe the processes by which default orders were applied for and granted, nor the process by which the Trust performed its obligations to pay monies from the Guarantee Fund into Court.

29 It is unfortunate that the author of cl 23(1) apparently lost sight of the fact that clients did not make claims directly against the Guarantee Fund under the 1993 Act. However, in my view, there can be no doubt that the subclause was intended to refer to claims by clients for compensation from Court funds, which can reasonably be regarded as claims for indirect compensation from the Guarantee Fund. Such claims were made by clients lodging them with the Trust under s114(2), and finalised when the Trust either rejected them or, having accepted them wholly or in part, paid in full the principal sum which it had decided to pay.

30 After such finalisation, there were various things that could be done pursuant to the provisions of the 1993 Act, including the following:

•

The Trust could exercise the rights of the client to recover money from the defaulting legal practitioner or firm. By virtue of s113, those rights were assigned to the Trust when an amount was paid out of a Court fund, to the extent of the payment.

•

If the relevant legal practitioner, or a partner in the relevant firm, had become bankrupt, the Trust, as assignee of the client's rights under s113, could prove as a creditor in the bankruptcy.

•

A claimant aggrieved by a decision of the Trust to reject or partly reject the relevant claim, or to impose terms and conditions on the acceptance of it, could apply under s115(1) for a judge to review the Trust's decision.

•

The sale or disposal of the relevant legal practice, or one partner's interest in it, and/or personal property used for or in connection with the practice, could be ordered under s117(1), and steps could be taken to give effect to such orders.

•

An order for costs could be made and complied with pursuant to s112(3)(a).

•

An order for the payment of "compensation for the loss of interest" could be made and complied with pursuant to s112(3)(b).

31 In my view, the purpose of cl 23(1) was to enable those things to be done in relation to finalised claims as if the 1993 Act had not been repealed. And, in my view, the only purpose of cl 23(2) was to make it clear that, except in relation to claims made and finalised before the 2007 Act commenced, the 1993 Act no longer applies. For the reasons which follow, I think that the 2007 Act applies in a modified way in relation to things done, being done, or in existence, before the commencement of the 2007 Act, in accordance with cl 38(3).

32 If cl 23(2) were given its ordinary literal meaning, every provision of Pt3.5 of the 2007 Act would apply to claims made under the 1993 Act but not finalised, and to claims that could have been made under the 1993 Act but were not made, before its repeal. If the subclause were so interpreted, some of the consequences would be as follows:

•

Claims for compensation relating to managed investment schemes, mortgage financing, or mortgage investment schemes could not possibly succeed, since s366(2) makes the relevant provisions of the 2007 Act inapplicable to such activities.

•

Claims relating to misappropriations or breaches of fiduciary duty that did not involve dishonesty would have to be rejected, since s350 makes the relevant provisions of the 2007 Act inapplicable in the absence of dishonesty.

•

Rights to payment under the 1993 Act would be extinguished if, in the opinion of the Trust, the claimants were likely to be paid from another source: s383(1)(c).

33 If those were the consequences of cl 23(2), substantial injustices could result. The success or failure of a claim might depend on when the Trust got around to making a determination in relation to it. Investors in mortgage schemes who thought their money was safe because, as a last resort, they could be compensated with money from the Guarantee Fund, could find themselves deprived of rights to compensation as a result of learning they had lost money too late for a claim to be made or finalised before the repeal date.

34 There is a well established body of authority for the proposition that legislation should not be construed as interfering with vested rights or interests unless that intention is made very clear. In Clissold v Perry [1904] HCA 12; (1904) 1 CLR 363, which concerned legislation relating to the resumption of land, Griffith CJ, with whom Barton and O'Connor JJ concurred, said at 373:

"... it is a general rule to be followed in the construction of Statutes such as that with which we are now dealing, that they are not to be construed as interfering with vested interests unless that intention is manifest."

35 In Commonwealth v Hazeldell Ltd [1918] HCA 75; (1918) 25 CLR 552, the High Court considered the effect of a proclamation on a landowner's rights in relation to minerals. In the majority judgment at 563, Griffiths CJ and Rich J said:

"If this is the law, persons in the position of the respondents may be suddenly and arbitrarily and without compensation dispossessed of valuable rights of property. It is a settled rule of construction that such an intention cannot be imputed to the Legislature unless expressed in unequivocal terms incapable of any other meaning ...".

36 Those two cases, like many of the relevant authorities, relate to vested property rights, as distinct from vested statutory rights. There are many more cases relating to a presumption against the invasion of common law rights: Pearce and Geddes (above), pars[5.29], [5.30]. However there are also authorities for the proposition that legislation should not be interpreted as extinguishing statutory rights unless such an intention is made clear. The House of Lords took that approach in R v Cain [1985] 1 AC 46, which concerned a statutory right of appeal against sentence. In Buck v Comcare [1996] FCA 1485; (1996) 66 FCR 359, which concerned the suspension of weekly payments of workers compensation to a worker who refused or failed to undergo a medical examination, Finn J made the following comments about the statutory right to compensation at 364 - 365:

"Yet it is a right of sufficient significance to the individual in my view, that, where there may be doubt as to Parliament's intention, the courts should favour an interpretation which safeguards the individual. To confine our interpretative safeguards to the protection of 'fundamental common law rights' is to ignore that we live in an age of statutes and that it is statute which, more often than not, provides the rights necessary to secure the basic amenities of life in modern society."

37 Those comments were obiter dicta. They were adopted by Finn J as part of his reasoning in a later decision as to the inadmissibility of a transcript under the Evidence Act 1995 (Cth): Re Schofield; ex parte Rangott v P & B Barron Pty Ltd (1997) 72 FCR 280 at 285 - 286. The passage I have quoted from Buck v Comcare was referred to with approval, but not relied upon, in PPHF v Director-General of Security [2011] FCAFC 70; (2011) 193 FCR 436 at par[38] by Robertson J, with whom Emmett and Perram JJ agreed; Owners Corporation SP73257 v Dasco Constructions Pty Ltd [2010] NSWSC 819 by Einstein J at par[24]; Harvey v Minister Administering the Water Management Act 2000 [2008] NSWLEC 165; (2008) 160 LGERA 50 by Jagot J (Land and Environment Court of New South Wales) at par[65]; Director of Public Prosecutions (WA) v GTR [2007] WASC 318 by McKechnie J at pars[28] - [29]; and SB v Parramatta Children's Court [2007] NSWSC 1297; (2007) 39 Fam LR 132 by Price J (Supreme Court of New South Wales) at par[68].

38 Further, it should be noted that when, as in this case, funds are invested in contributory mortgage loans, the investors become the owners of equitable interests in the mortgaged land, as the Full Court held in Garrisons Pty Ltd v The Solicitors' Trust [2004] TASSC 139. Perhaps not all claimants under the 1993 Act were the owners of such equitable interests, but many were.

39 The transitional provisions in Sch9 to the 2007 Act do not expressly provide that claimants' rights or pending claims are affected by them. They do not evince a clear intention to extinguish claimants' rights under the 1993 Act in situations where they would have no right to claim under the 2007 Act, or when their claims would be rejected under that Act. Having regard to the Acts Interpretation Act, s16(1), and the authorities that I have referred to, I think that cl 23(2) should not be interpreted so as to have that effect. In my view, it should not be given precedence over cl 38(3), but should be interpreted consistently with cl 38(3). That is to say, it should be interpreted as meaning that Pt3.5 of the 2007 Act applies to a matter giving rise to a claim under the 1993 Act, with the "necessary modifications" required by cl 38(3), if that claim was not made or not finalised before the 2007 Act commenced. The necessary modifications are those that are needed in order to give effect to the Acts Interpretation Act, s16(1).

40 In my view the consequences of that interpretation in relation to claims made under the 1993 Act, but not finalised before the commencement of the 2007 Act, are as follows:

•

Such claims must be rejected unless there was a right to claim against the relevant firm within the meaning of the repealed s111(3).

•

Such claims must be rejected unless the claimant was a "client" for the purposes of the repealed s112(1)(a).

•

Such claims must be rejected unless there has been a "loss of trust money or other property as a result of a fiduciary default" within the meaning of the repealed s112(1)(a).

•

Such claims may not be rejected under the new s366(2) on the basis that they relate to mortgage investments. That is a necessary modification to the 2007 Act.

•

Such claims may not be rejected under the new s350 on the basis that there was no dishonesty. That is another necessary modification.

•

Such claims may not be rejected under the new s383(1)(c) on the basis that, in the opinion of the Trust, the claimants are likely to be paid from other sources. That is a third necessary modification.

•

The Trust may not wholly disallow, partly disallow, or reduce a claim on a discretionary basis as provided for in the new s378. That is another necessary modification.

•

Since the determinations relating to such claims are made under the 2007 Act, albeit with the necessary modifications, aggrieved claimants may appeal therefrom pursuant to the new s388(1). Thus, these two appeals are competent.

•

On the hearing of an appeal relating to such a claim, the appellant need not establish that "the whole or part of the amount sought to be recovered from the Guarantee Fund is not reasonably available from other sources", as required by the new s388(3)(a). That is another necessary modification.

•

When such a claim is allowed, interest is payable under the new s382(1), unless it is determined that special circumstances exist warranting the payment of reduced interest or no interest. There is no need for any modification to s382(1).

41 It is therefore necessary now to consider whether the appellants were entitled to claim compensation in accordance with the repealed ss111(3) and 112(1)(a).

42 The older of the two discretionary family trusts is the one that is now named "the Trust No 2". Its history, so far as is relevant, is as follows:

•

This trust was established by a deed dated 27 February 1978. The original trustees were Mr Turner's parents and a partner in the firm of Piggott Wood & Baker, Mr Bale. The beneficiaries were Mr Turner, his then wife, their issue, their other blood relatives, and the spouses of their issue and other blood relatives. The trust was named after Mr Turner and known by the name "J T Turner Family Trust". Mr Turner and his then wife were empowered to appoint and remove trustees.

•

From the 1980s onwards, substantial funds belonging to this trust were invested in contributory mortgages through Piggott Wood & Baker.

•

Mr Turner and his wife separated. By a deed dated 23 May 1990, she resigned as an appointor under the 1978 deed and ceased to be a beneficiary under it.

•

By a deed dated 1 June 1998, the original trustees retired and were replaced by a company named PWB-Let Pty Ltd. Mr Turner was one of the directors of that company.

•

The mortgage scheme collapsed in November 1998.

•

By a deed dated 7 May 2001, PWB-Let Pty Ltd retired as the trustee, and was replaced by two new trustees - the appellant Victoria Rose Burley and Mr Turner.

•

By a deed dated 7 July 2006, Mr Turner resigned as a trustee, resigned as the appointor under the 1978 deed, and renounced his position as a beneficiary. Ms Burley continued as the sole trustee of that trust, and replaced Mr Turner as the appointor. Also, the trust was renamed as "the Trust No 2".

43 The history of the other relevant discretionary family trust, so far as is relevant, is as follows:

•

This trust was established by a deed dated 12 August 1994. The original trustees were the appellant Michele Kaye Oxenbould and Mr Turner. The beneficiaries included Mr Turner's parents, their children and grandchildren, certain related corporations and trusts, and certain classes of charities. The trust was named after Mr Turner's parents and known by the name "W J & N M Turner Family Trust". Mr Turner was empowered to appoint and remove trustees. Those powers were to go to Ms Oxenbould on and from his death.

•

Thereafter, substantial funds belonging to this trust were invested in contributory mortgages through Piggott Wood & Baker until the mortgage scheme collapsed in November 1998.

•

By a deed dated 7 July 2006 Mr Turner resigned as a trustee, and as the appointor under the 1994 deed, and renounced his position as a beneficiary. Ms Oxenbould replaced him as the appointor, and continued as the sole trustee. The trust was renamed as "the Trust No 1".

44 The firm had a large contributory mortgage lending practice. That practice had existed for decades. The way in which it operated was described by Mr Turner in an affidavit, as follows:

"17 The mortgage practice was a contributory one which worked by establishing a pool of funds which were available to be lent on first mortgage security at interest. Clients would subscribe to the mortgage fund by completing an application form. The application form was published with an information sheet setting out the conditions of the investment of monies in the mortgage fund. Money received from clients was deposited with the firm by clients in order to be, in due course, lent out when an investment opportunity arose. While being so held, Piggott Wood & Baker would deposit the funds in a bank account and keep a record of the amount and date of the investment. ...

19 When a loan was repaid, in the absence of other instructions from the client, all of the monies would be returned to the pool to await further investment. The funds would again be advanced according to the date of their original deposit with Piggott Wood & Baker.

20 It was our practice at Piggott Wood & Baker to permit clients to call for repayment of their funds whilst the loan in which their money had been advanced was on foot. The accounts department would effect this by 'withdrawing' that client's funds from the loan and replacing them with funds awaiting investment in the pool. This was commonly described as 'substitution' and would be handled simply as an administrative matter by the accounts department without reference to the clients whose monies were being substituted into the loan.

21 My role with the mortgage practice was primarily dealing with clients who sought to borrow money from the mortgage practice. The mortgages would be taken in the name of Grant Kench and Michael Foster, who were both partners in the firm of Piggott Wood & Baker. They would hold the mortgages as trustees for the benefit of the contributors to the loans.

22 It was the practice of Piggott Wood & Baker to ensure that interest received by its clients on the scheduled dates, irrespective of whether or not such payments had been in fact received from the borrowers by the dates for payment. This was also provided for in the application for the mortgage fund where clients were at liberty to request that interest payments be advanced by the firm if the interest had not been received by the due date. The firm would do this by remitting the interest payments to which the lenders were entitled from its own funds if the same had not then been received from the borrower and reimbursing that payment from those funds when they were received. This was done to ensure that if interest was delayed for a week the firm's clients would not be disadvantaged but would instead receive their interest on the scheduled day."

45 There came a day, in 1998, when borrowers were in default to such an extent that the firm was no longer capable of paying the outstanding interest to the lenders in full. As a colleague said to me at the time, the music stopped, and there were not enough chairs.

46 I will refer to the relevant loans by reference to the loan numbers used in the Federal Court proceedings and the default order proceedings, and by reference to the firm's matter numbers.

47 Underwood J (as he then was) made a default order in relation to Loan 41 on 1 October 2002, and in relation to each of the other relevant loans in June 2004.

48 The relevant facts relating to this loan are as follows:

•

On 4 September 1996 a mortgage loan of $800,000 was made to a person named D P Krushka, or perhaps to an entity controlled by that person.

•

The sum advanced included $15,000 belonging to Trust No 2. I have no evidence that Mr Turner played any part in the decision to include its money in the loan.

•

On 15 August 1998 $10,000 of the $15,000 was repaid.

•

In making the default orders in 2004, Underwood J said in relation to this loan, "I am satisfied fiduciary default occurred upon the making of the loan when the first amount was paid on 4 September 1996 and on the making of the subsequent advance on 26 June 1997."

•

In his outline of submissions on these appeals, counsel for the appellant wrote, "This breach was on the basis that the valuation in respect of that loan was inadequate and grossly overestimated the value of the security being offered." However I have been unable to find any evidence in the material before me to substantiate that assertion.

•

Ms Burley lodged a claim for $5,000 in respect of this loan.

•

The Trust took the view that Mr Turner, as the agent of the trustees of Trust No 2, caused funds of that trust to be invested with actual knowledge of the circumstances held by Underwood J to constitute a fiduciary default, on the basis that he was the partner in the firm who was directly responsible for the loan at the time the default circumstances occurred.

49 The relevant facts relating to this loan are as follows:

•

On 10 June 1994 a mortgage loan of $600,000 was made to Everworth Tas Pty Ltd.

•

Three further advances were made to that company - on 2 December 1994, on or about 21 January 1995, and on 15 November 1995. Those advances increased the total sum owing by the company to $1.2 million.

•

Funds belonging to Trust No 2 were invested in this loan, in substitution for funds withdrawn by other investors, on two occasions: $15,000 on 6 November 1997, and $2,000 on 11 November 1998. I have no evidence that Mr Turner played any part in the decisions to invest those amounts in this loan.

•

In June 2004, on making the default order in respect of this loan, Underwood J said, "With respect Loan no 32 I find that fiduciary defaults occurred on 10 June 1994 with respect to $600,000, on 2 December 1994, $300,000, 25 January 1995, $100,000, and 15 November 1995, $200,000."

•

Ms Burley lodged a claim for $17,000 in respect of this loan.

•

The Trust took the view that the sums totalling $17,000 were invested in this loan by Mr Turner as the agent of the trustees of Trust No 2, with actual knowledge by him of the circumstances which were found by Underwood J to constitute defaults.

50 It should be noted that, in the case of this loan, the investments made on behalf of Trust No 2 occurred after the acts constituting fiduciary default that were specifically referred to by Underwood J. However, in the course of determining the application before him in June 2004, his Honour said this:

"With respect to all the orders I have made, and all the orders that I will make, the form of my reasons is clearly to indicate the point in time [at] which the fiduciary default occurred with respect to sums advanced, but where the fiduciary default occurs at the very beginning of the loan and the making of the first payment, it is to be clearly understood it taints the whole loan which should never have been made in the first place and consequently the contributors to it after that date are included within the order. When I refer to an advance of funds, I intend to include, where relevant of course, funds of investors later substituted for the loan I actually identified."

51 The relevant facts relating to this loan are as follows:

•

This was a loan to a person named J K Krushka or an entity controlled by that person. Substantial sums were advanced, beginning on or before 19 April 1996.

•

The sum of $6,000 belonging to Trust No 2 was invested in this loan on 16 July 1998. I have no evidence that Mr Turner played any part in the decision to make that investment.

•

Underwood J gave the following reasons for making the default order in relation to this loan in June 2004:

"... this was, as Mr Porter says, an entirely speculative loan and the valuations were based on the business to be carried out when the project was complete, being successful, or at least being successful to the extent postulated by the valuation and that is an improper basis for making this sort of loan, and certainly without further inquiry and specific authorisation. The defaults and dates are as follows: 19 April 1996, $205,000, 29 April 1996, $150,000, 22 May 1996, $100,000, 14 June 1996, $51,000, 24 June 1996, $84,000, 5 July 1996, $136,000, 24 July 1996, $100,000, 30 July 1996, $100,000, 9 August 1996, $150,000, 16 August 1996, $88,000, 27 August 1996, $160,000, 4 September 1996, $160,000, 13 September 1996, $71,000, 9 October 1996, $245,000, 17 October 1996, $133,000, 8 November 1996, $200,000, 16 July 1998, $6,000."

•

Ms Burley lodged a claim for $6,000 in respect of this loan on behalf of Trust No 2.

•

The Trust took the view that, at the time the sum of $6,000 was invested, Mr Turner was a director of the trustee of Trust No 2, namely PWB-Let Pty Ltd and the agent of that trustee. It took the view that he was the partner directly responsible for the loan when the default circumstances occurred, and that he had assumed the risk of losing the amount invested by investing it with full knowledge of the circumstances surrounding the loan.

52 For reasons which I do not understand, there are a number of separate transactions, or groups of transactions, each of which has been referred to as Loan 40. The firm has different numbers for different Loan 40 matters. These appeals concern claims relating to two Loan 40 matters - nos 962265 and 971218.

53 The relevant facts relating to the Loan 40 with the firm's number 962265 are as follows:

•

This was a loan to a trustee or trustees associated with a person named L J Krushka. It was referred to at the hearing of these appeals as a loan to Krushka Trust No 3.

•

There were 42 loan advances, commencing with $100,000 on 20 September 1996, and concluding with $11,000 on 9 October 1997. The total advanced was over $3 million.

•

The loan in question was made to finance the construction of a hotel on a property at Ravenswood. The valuations provided in relation to this loan were obviously flawed. Each time, the valuer estimated the profits that would be generated by the hotel when it was finished, valued the completed hotel by capitalising the assumed profits, estimated the percentage of the construction work that had been completed, and opined that the current value of the hotel was equal to that percentage of what it would be worth when completed. As the High Court pointed out in Fouche v The Superannuation Fund Board [1952] HCA 1; (1952) 88 CLR 609, that methodology does not produce a reliable estimate of the security value of a property, and any investment by a trustee relying on such a valuation amounts to a breach of trust.

•

Mr Turner was the partner responsible for this matter within his firm.

•

Funds belonging to both Trust No 1 and Trust No 2 were invested in, and withdrawn from, this loan on many occasions from 18 February 1997 to 28 September 1998. The evidence before me establishes that the decisions to invest funds belonging to the two discretionary trusts were made by Mr Turner.

•

The final amounts invested in this loan included $744,000 belonging to Trust No 1 and $172,000 belonging to Trust No 2.

•

Claims for those amounts were lodged with the Trust by the respective trustees.

•

On making the relevant default order in June 2004, Underwood J said this:

"I find that a fiduciary default occurred on 20 September 1996 and that default arose out of the valuation that was obtained and the failure of the fiduciary to make further inquiry about it. This failure tainted all subsequent lendings on this loan No 962265. ... They total the amount of $3,522,500."

•

The Trust took the view that the sums in question were invested by Mr Turner, acting as an agent of the trustee or trustees of the two trusts; and that he had actual knowledge of the default circumstances at the times of the investments, having been the partner directly responsible for the loan when the default circumstances occurred.

54 The relevant facts relating to this loan are as follows:

•

On 23 May 1997 a second mortgage loan of $60,000 was made either to L J Krushka or to an entity associated with that person, on the security of the Ravenswood property.

•

The sum advanced was contributed solely from the funds of Trust No 1. Mr Turner arranged that investment.

•

When making the relevant default order in June 2004, Underwood J made a finding that a fiduciary default occurred on 23 May 1997 with the loan of $60,000, but I have no evidence of the reasons stated by his Honour for making that finding. However I infer that the finding was made on the basis that the firm had committed a breach of trust by relying upon the flawed valuations of the Ravenswood property.

•

The Trust took the view that Mr Turner invested the sum of $60,000 when acting as a trustee of Trust No 1, without reference to his co-trustee, with actual knowledge of the circumstances that were found to constitute a default, he having been directly responsible for the loan when the default circumstances occurred.

55 The relevant facts relating to this loan are as follows:

•

This was a mortgage loan to a borrower named Langridge. It was made in or before 1994.

•

The loan was secured over a number of properties. On 14 July 1994, one of those properties was sold. As a result of the sale and the consequent depletion of the value of the security properties, the principal sum secured by the mortgage became 68 per cent of the relevant security valuation. By virtue of the Rules of Practice 1994, r62(1)(a), when clients authorised their money to be invested in first mortgages, there was a breach of trust if the amount advanced exceeded two thirds of the relevant security valuation. Apparently the relevant investors had authorised the investment of their funds only in first mortgage loans. Thus, a fiduciary default occurred when the relevant proportion became 68 per cent.

•

On 21 February 1995, one or more investors withdrew $45,000 from this loan, and $45,000 belonging to Trust No 1 was substituted. I have no evidence that Mr Turner played any part in the decision to make that investment.

•

On the basis of the fiduciary default that occurred on 17 July 1994, Underwood J made a default order in respect of this loan on 1 October 2002.

•

The Trust took the view that Mr Turner invested the sum of $45,000 when acting as a trustee of Trust No 1, without reference to his co-trustee, with actual knowledge of the circumstances that were found to constitute a default, he having been directly responsible for the loan when the default circumstances occurred.

56 The meaning of the word "client" in the repealed s112(1)(a) was considered by the Full Court in Garrisons Pty Ltd v The Solicitors' Trust (above). The Full Court held that the assignee of an investor client constituted a client of the firm within the meaning of s112(1)(a). Underwood J, with whom Crawford J (as he then was) and Evans J agreed, pointed out that the relationship between a firm and an investor client was that of a trustee and a cestui que trust, and that, upon the investment of the client's funds and the giving of a mortgage, each investor client held an equitable interest in the mortgaged land. Against that background, it was held that an assignee who took the original investor's interest in the mortgaged land became a client of the firm for the purpose of s112(1)(a). At pars[16] - [18], Underwood J discussed submissions made in the proceedings at first instance as to other situations when questions might arise as to whether a successor of the original investor client constituted a client within the meaning of the relevant provision. His Honour said this:

"16 ... Analogous situations were urged upon the learned primary judge. It was submitted that the following persons would be clients within the meaning of the Act, s112(1)(a):

•

a new trustee of a superannuation fund, appointed to replace the trustee who had invested money with the firm;

•

a trustee in bankruptcy of the estate of a bankrupt who had invested money with the firm;

•

an executor of the estate of a deceased person who had invested money with the firm;

•

the beneficiary of an order made in the Family Court vesting in him or her a share of the money that had been invested with the firm.

17 With respect to these submissions, the learned primary judge said, at par16:

'It may be that all of those situations are distinguishable. It may be that some or all of them are not. ... I do not think I need consider those situations. I think it is at least arguable that the sorts of claimants I have referred to might constitute clients for the purposes of s112(1)(a), given the evident purpose or object of the relevant provisions. However it is my firm view that an assignee in the position of the present applicant does not constitute a client for the purpose of that provision and that no loss within the scope of that provision exists in relation to any of the assignors.'

18 With respect, I differ from the learned primary judge, for it seems to me that such persons would clearly be clients of the firm within the meaning of the Act, s112(1). Like the appellant, each would have taken the interest that the investor had in the money or the security, and when fiduciary default caused a loss of trust money, viz, upon realisation of the security, like the appellant, such persons were clients of the firm who had lost trust money."

57 In the light of those comments I think it is clear that, as a general rule, when funds have been invested by a client that held them as a trustee, and the original investor is replaced by a new trustee, the new trustee must be regarded as a client of the firm, even if he or she was not appointed until well after the default circumstances occurred. Thus Ms Burley must be regarded as a client of the firm, even though she did not become a trustee of Trust No 2 until May 2001. I do not think it makes a difference that Mr Turner was a trustee of Trust No 2 from May 2001 until July 2006. The funds of Trust No 2 were invested by its original trustees, and by PWB-Let Pty Ltd, and they were investor clients of the firm. If Mr Turner acted as the agent of the original trustees, or of PWB-Let Pty Ltd, that can make no difference to the status of Ms Burley.

58 However the facts are more complicated in relation to Trust No 1. Mr Turner was a trustee of that trust from its creation in 1994 until his resignation in July 2006. If a sole practitioner were to operate a contributory mortgage practice, and to invest his own money along with that of investor clients, there would be no reason to regard him as a client of his own practice, with a right to payment from the Guarantee Fund in the event of a fiduciary default on his part. Similarly, if one member of a firm were to invest his or her own money in the firm's contributory mortgage scheme, there would be no reason to regard that partner as a client of the firm with a right to payment from the Guarantee Fund.

59 The situation in relation to Trust No 1 is that a partner in the firm invested money that was the property of himself and a co-trustee, and was subject to fiduciary obligations under a discretionary trust deed. The beneficiaries of that trust were really only potential beneficiaries. They had no enforceable right to any payment of principal or income. As individuals they had a right to compel the administration of the discretionary trust, but no interest in any of the trust property: Jacobs' Law of Trusts in Australia, 7th ed, LexisNexis Butterworths, 2006, par[314]. In the eyes of the common law, the trust property belonged to Mr Turner and Ms Oxenbould at all material times. There is no evidence that Ms Oxenbould played any role in relation to the investment of funds in the mortgage scheme. The invested funds were funds that Mr Turner controlled as a co-owner at common law.

60 If Mr Turner had been the sole trustee of Trust No 1 when each of its investments were made, it may well have been that, for the purposes of s112(1)(a), those monies were invested by him and lost by him in his capacity as a partner in the firm, not a client, and that, for the purposes of s111(3), he had no right to claim against the firm such as to give rise to an additional right to claim against a Court fund. However I think that the position must be different as a result of Ms Oxenbould having been a co-trustee when each of the investments was made. Upon each investment being made, she acquired an interest in the mortgaged land, albeit as a sub-trustee. Having regard to the purpose or object of the compensation provisions in the 1993 Act, the nature of those provisions as beneficial legislation, and the decision of the Full Court in Garrisons Pty Ltd v The Solicitors' Trust (above), I think Ms Oxenbould should be regarded as a client of the firm for the purposes of s112(1)(a).

Losses of trust money as a result of fiduciary defaults?

61 In relation to some of the relevant loans, no funds belonging to either of the relevant discretionary trusts were invested until after the occurrence of the first fiduciary defaults that formed the basis for the making of the relevant default order. However, as I pointed out in relation to Loan 32, Underwood J made it clear that, whenever additional or substituted funds were invested in a particular loan after the first fiduciary default identified by him in relation to that loan, a fresh fiduciary default occurred, and each such fiduciary default was also relied upon by him as a basis for the making of his default orders of June 2004 in relation to the relevant loans.

62 All but one of the loans to which these appeals relate were the subject of default orders made by Underwood J in June 2004. The exception was Loan 41. As I have said, his Honour made a default order in respect of that loan on 1 October 2002. There is nothing in the material before me that reveals whether or not his Honour referred to fiduciary defaults relating to that loan after the initial fiduciary default relating to it on 14 July 1994. The investment of funds to which the relevant claim relates did not occur until the following year. The relevant parts of the orders made on 1 October 2002 read as follows:

"1 That the firm of Piggott Wood & Baker is in default;

2 That there be paid into the Court Fund such monies standing to the credit of any trust bank account and trust deposit account of that firm relating to loans made to R Langridge (loan no 941128) ...".

63 In the circumstances, I infer that the default order made in respect of Loan 41 was intended to be not only for the benefit of the original investors whose funds were initially advanced to the borrower, but also in respect of other investors whose funds were substituted for withdrawn funds.

64 It follows that none of the appellants' claims could properly be rejected as a result of any investment being made after a fiduciary default, whether or not that default was specifically referred to by Underwood J at the time of making the relevant default order.

65 The Trust does not dispute that, so far as the funds of investors other than the appellants were concerned, there was a loss of trust money as a result of one or more fiduciary defaults in relation to each of the relevant loans. However the Trust contends that the losses suffered by Trust No 1 and Trust No 2 should not be characterised as resulting from any fiduciary defaults on the part of the firm. It contends that they should be characterised as losses caused by Mr Turner as a trustee of Trust No 1, and as the agent of the trustees from time to time of Trust No 2.

66 A loss can have two causes. Each time the firm made one of the investments to which these appeals relate, there was a breach of its partners' fiduciary duties amounting to a fiduciary default for the purposes of the 1993 Act. Each time Mr Turner took any step to facilitate any of the relevant investments by Trust No 1, of which he was a trustee, he committed a breach of the fiduciary duties that he owed in that capacity. When he did so, there is no basis for saying that there was not also a breach of the fiduciary duties of the partners of the firm.

67 There is no suggestion, in respect of any investment transaction, of any valid or effective consent having been given by any trustee of Trust No 2, by Ms Oxenbould as co-trustee of Trust No 1, or by any beneficiary of either trust. Any such consent could only be effective if full disclosure of all relevant facts known to Mr Turner had been made to the person consenting: Meagher, Gummow & Lehane, Equity Doctrines & Remedies, 4th ed, at 179.

68 I think it is quite clear that, regardless of any breaches of fiduciary duty by Mr Turner, or any other person or entity associated with either of the discretionary trusts, each of the losses to which the appellants' claims relate was a "loss of trust money ... as a result of a fiduciary default" within the meaning of the repealed s112(1)(a).

69 The firm had a fiduciary relationship with its investor clients. The partners received the investor clients' money as trustees. They lent the invested monies in ways that involved breaches of their fiduciary duties that they owed to their investor clients. In those circumstances, an affected investor client was entitled to claim, sue for, and recover equitable compensation. "Beneficiaries can hold their trustees civilly liable to restore the trust funds and to make good any loss caused by a breach of trust": Jacobs' Law of Trusts in Australia (above), par[2203].

70 In my view there is nothing in the evidence to suggest that Ms Oxenbould might be precluded from recovering compensation from the firm for the benefit of Trust No 1. The relevant monies of that trust had been placed with Piggott Wood & Baker for investment in contributory mortgages. There is no evidence to suggest that Ms Oxenbould was put on notice of any impropriety on the part of the firm before its mortgage scheme collapsed. It follows that she was under no obligation to check up on the firm to see whether any breaches of fiduciary duty had been committed. Whether Mr Turner committed any relevant breach of trust in his capacity as one of the trustees of Trust No 1, she must have had a right to claim equitable compensation from the firm, with the result that s111(3) gave her an additional right to claim against the Court fund established in relation to each relevant loan.

71 There is no suggestion that Ms Burley did anything, or had notice of anything, that would preclude her from claiming and recovering equitable compensation for the benefit of Trust No 2, but she did not become a trustee of that trust until May 2001, after all the relevant losses had been suffered.

72 Two of the original trustees of Trust No 2 were Mr Turner's parents. They are in the same position as Ms Burley. There is nothing to suggest that they did anything, or had notice of anything, that could relieve the firm of an obligation to pay compensation for the benefit of Trust No 2 prior to their retirement as trustees on 1 June 1998.

73 Mr Bale is in the same position. Although he was originally a partner in the firm, he left and became the Solicitor-General for Tasmania long before any of the relevant breaches of fiduciary duty occurred.

74 Some of the relevant breaches of duty occurred after PWB-Let Pty Ltd became the trustee of Trust No 2 on 1 June 1998. That company, as a trustee, had a fiduciary duty to act in the best interests of the beneficiaries of the trust, and therefore not to invest in risky or excessive loans, or to lend to borrowers with a history of default. Mr Turner was a director of that company, and knew of circumstances which made some at least of the investments of money belonging to Trust No 2 inconsistent with the company's fiduciary obligations as a trustee. However it is well established that the knowledge and conduct of a delinquent director should not be regarded as the knowledge and conduct of the company: Southern Cross Commodities Pty Ltd v Ewing (No 2) (1988) 6 ACLC 647 at 674. By his involvement in improper dealings with money belonging to Trust No 2, Mr Turner breached the fiduciary duties that he owed to the company as one of its directors. But in those circumstances the company was not precluded, as a result of anything Mr Turner knew or did, from claiming and recovering equitable compensation from the firm.

75 The Trustee Act 1898, s13(3), provides that, "Every new trustee ... shall have the same powers, authorities and discretions, and may in all respects act as if he had been originally appointed a trustee by the instrument, if any, creating the trust." Accordingly, the rights of the original trustees of Trust No 2 to claim equitable compensation passed to PWB-Let Pty Ltd when it replaced them, and all its rights to claim equitable compensation in respect of breaches of duty before and after its appointment are now vested in Ms Burley as its successor.

76 For the reasons stated above, I must conclude that the Trust was obliged to accept each of the claims to which these appeals relate, subject to two qualifications:

•

The sums claimed should be reduced to take account of payments made on 29 September 2009 pursuant to the Bankruptcy Act 1966 (Cth) from the assets of one of the former partners in the firm. The evidence before me reveals that $12,470.73 was paid, comprising $2,570.23 for one of the trusts, and $10,113.50 for the other. Because of a typing error in the relevant affidavit, I do not know which sum related to which trust.

•

There remains the question of interest, or compensation for loss of interest, which I will deal with shortly.

77 Many people may think that this is a most distasteful result. Mr Turner's repeated, outrageous and disgraceful breaches of duty resulted in substantial losses and inconvenience for many people, and in a mess which is still being sorted out 13 years later. The conclusion that I have reached will see over $1 million of public money pass from the Guarantee Fund to his sister and his partner, for the benefit of his family, excluding himself. However, despite the conduct of Mr Turner, there is no reason for the two discretionary trusts to be treated as shams, and there is no reason to treat the other individuals associated with them as tainted by his gross improprieties. The conclusion that I have reached is based upon the applicable legislation, interpreted in accordance with established principles.

78 The applicable provision in the 2007 Act is s382(1), which reads as follows:

"(1) In determining the amount of pecuniary loss resulting from a default, the Trust is to add interest on the amount payable (excluding interest), unless the Trust considers that special circumstances exist warranting a reduction in the amount of interest or warranting a determination that no amount should be paid by way of interest."

79 All of the claims by other investors in relation to Piggott Wood & Baker were determined under the 1993 Act before its repeal. None of those other investors has received any "compensation for the loss of interest" under s112(3)(b) of that Act, nor any interest from any other source. Clearly those are special circumstances. There is no reason why either of these appellants should receive more generous benefits than all the other investors. The special circumstances warrant a determination that no amount should be paid by way of interest.

80 These appeals related to seven determinations by the Trust - three relating to Trust No 1, and four relating to Trust No 2. Because I do not know how the payments of $12,470.73 should be apportioned between the two trusts and amongst the various loans, the only appropriate course is for me to remit the matters to the Trust for reconsideration in accordance with appropriate directions, pursuant to s388(5)(b)(iii) of the 2007 Act.

81 My orders in relation to each appeal are therefore as follows:

3 Each matter is remitted for reconsideration by the respondent in accordance with the following directions:

(a) the respondent must allow each of the appellant's claims, in the sum claimed, less an appropriate proportion of the sum of $12,470.73 referred to in par26 of the affidavit of Chris Stakis, sworn on 14 January 2010, and less any further amount received by the appellant in respect of the relevant loan prior to the respondent's new determination.

(b) Subject to any change of circumstances after the making of this order, the respondent is to determine that no amount should be paid to the appellant by way of interest.