Plaintiff/Respondent v First Defendant/First appellant

1 This is an appeal against a decision of an Associate Judge granting the plaintiff (the Lender) summary judgment against the first defendant (the Trustee) and second defendant (the Guarantor) (the appellants) in the sum of $2,559,900 pursuant to the Lender's claim in paras 39-45 of the statement of claim. An appeal pursuant to s 17(3) of the Supreme Court Act 1986 (Vic) and r 77.06 of the Supreme Court (General Civil Procedure) Rules 2025 is not by rehearing de novo but by rehearing which, in the absence of further evidence or a change in the law, ordinarily requires an appellant to show error on the part of the Associate Judge before appellate power may be exercised. The Court has all of the powers of the Associate Judge and shall have the power, inter alia, to give any judgment and make any order which ought to have been given or made and to make any further or other order as the case may require.

(a) the Trustee is the trustee of the Welner Lawyers Trust (the Trust) established by a trust deed made 14 April 2020 (the Trust Deed);

(b) cl 8.4 of the Trust Deed provides for the Trustee's indemnity out of the Trust Fund (as defined in the Trust Deed) (Trust Fund);

(c) on 26 June 2024, the parties entered into a loan agreement (the Loan Agreement) and annexed guarantee (the Guarantee);

(d) on 26 June 2024, the amount of $530,000 was advanced by the Lender to the Trustee pursuant to the Loan Agreement;

(e) interest has accrued on the amount of $530,000;

(f) cl 6 of the Loan Agreement provides:

6 Repayment

The Borrower must repay and finally discharge the Loan on the Repayment Date. The Borrower must also pay any Interest accrued on the Loan and not then paid, and all other amounts payable to the Lender under this Agreement that remains unpaid on or before the Repayment Date.

(g) the Guarantor guaranteed the Trustee's obligations under the Loan Agreement on the terms in the Guarantee;

(h) on and from 26 August 2024, the Lender made demands for payment under the Loan Agreement and Guarantee;

(i) no payment has been made by the Trustee or the Guarantor pursuant to the Loan Agreement and Guarantee respectively.

4 The key dispute between the parties on this appeal concerns whether the liability of the Trustee is limited by cl 8.1(l) of the Loan Agreement. Clause 8.1 relevantly provides:

8 Representations and Warranties

8.1 Borrower's representations and warranties

The Borrower represents and warrants that:

...

(k) the Borrower is a trustee (Trustee) of a trust (Trust), the Trustee enters into this agreement in that capacity and is bound by this agreement only in that capacity and in no other capacity;

(I) the recourse of the Lender to the Trustee in respect of any obligations of the Trustee under or in connection with this agreement (whether that liability arises under a specific provision of this agreement) for breach of contract, tort (including negligence) or otherwise) [sic] is limited to the extent to which the Trustee's liability is satisfied out of the trust assets out of which the Trustee is actually indemnified in respect of such obligations;

(m) the Lender may not sue the Trustee in any capacity other than as trustee of the Trust, including seeking the appointment of a receiver (except in relation to property of the Trust), a liquidator, an administrator or any similar person to the Trustee or prove in any liquidation, administration or arrangement of or affecting the Trustee (except in relation to property of the Trust);

(n) if the vendor does not recover the full amount of any money owing to it arising from non-performance by the Trustee of any of its obligations under or in respect of this agreement, the Lender may not (except in the case of breach of trust by the Trustee) seek to recover the shortfall by:

(i) bringing proceedings against the Trustee in its personal capacity; or

(ii) applying to have the Trustee wound up; and

(o) the parties acknowledge and agree that:

(i) the liability of each beneficiary of a Trust (in that capacity) (Trust Beneficiary) is limited as set out in the trust deed or constitution of the Trust; and

(ii) a party has no recourse to a Trust Beneficiary and may not seek to make any claim or bring any proceedings against a Trust Beneficiary in relation to any obligations of the Trustee of the Trust under or in connection with this agreement (whether that liability arises under a specific provision of this contract, for breach of contract, tort (including negligence) or otherwise).

1.1 Obligations guaranteed

The Guarantor unconditionally guarantees to the Beneficiary:

(a) the due and punctual payment by the Borrower of:

(i) all moneys which the Borrower:

(A) pays; or

(B) is or becomes actually liable to pay to the Lender or Beneficiary, for or on behalf of, or for the accommodation of the Lender or Borrower either alone or jointly with any other person whether or not that payment is made or that liability arises under or by virtue of:

1. the covenants and provisions of any agreement, security or instrument;
2. from circumstances connected with such agreement, security or instrument; or
3. by reason of the Beneficiary being or becoming a party to any bond, letter of credit, indemnity, guarantee or other instrument; and

(ii) all other moneys which the Borrower either alone, jointly, severally, or jointly and severally with any other person, now or from time to time is, becomes actually liable to pay to the Beneficiary under or by virtue of any agreement, security or negotiable or other instrument or as a result of any matter or thing; and

(b) the due and punctual observance and performance by the Borrower of all its other liabilities, obligations and agreements (whether monetary or non-monetary, present or future, actual or contingent) to the Beneficiary pursuant to or in connection with any agreement, security or instrument.

1.2 Result of non-payment

If the Borrower defaults in the due and punctual payment of any money referred to in clause 1.1(a), the Guarantor must pay that money to or as directed by the Beneficiary immediately on demand.

1.3 Result of non-performance

If the Borrower defaults or fails in the due and punctual performance of any of its liabilities, obligations and agreements referred to in clause 1.1(b), the Guarantor must indemnify the Beneficiary immediately against all losses, liabilities, damages, costs and expenses (including legal expenses on a full indemnity basis) which may be incurred (directly or indirectly), by the Beneficiary by reason of that default or failure.

...

2.2 No requirement to proceed

The Beneficiary is not required to proceed against the Borrower, exhaust any remedy it may have against the Borrower or enforce any security it may hold with respect to the Borrower's Obligations.

6 Relevantly, the Lender alleges in his further amended statement of claim:

1. Further, under clause 6 of the Loan Agreement, the First Defendant was obliged, by the Repayment Date, being 26 August 2024, to repay and finally discharge the Loan, being $530,000, plus any interest on the Loan and all other amounts payable to the Plaintiff under the Loan Agreement.
2. On and from 26 August 2024, the Plaintiff demanded payment of the amounts payable to him under clause 6 of the Loan Agreement.
3. In breach of clause 6 of the Loan Agreement, the First Defendant has not made any payment required under that term.
4. The amounts payable under clause 6 of the Loan Agreement are debts due and owing to the Plaintiff.
5. Further, under clause 1.3 of the Guarantee, the Second Defendant is obliged to indemnify the Plaintiff immediately against all losses, liabilities, damages, costs and expenses (including legal expenses on a full indemnity basis) which may be incurred (directly or indirectly) by the Plaintiff by reason of the First Defendant's default under the Loan Agreement.
6. In breach of the Guarantee, the Second Defendant has failed to so indemnify the Plaintiff.
7. The monies that the Second Defendant is required to pay under the Guarantee are a debt due and owing to the Plaintiff.

THE PLAINTIFF CLAIMS AGAINST THE FIRST DEFENDANT:

1. $530,000 pursuant to the Loan Agreement dated 26 June 2024 between the Plaintiff and the First Defendant (Loan Agreement).

2. Interest and other amounts pursuant to the Loan Agreement.

...

THE PLAINTIFF CLAIMS AGAINST THE SECOND DEFENDANT:

1. $530,000 pursuant to the Guarantee in the Loan Agreement.
2. Interest and other amounts pursuant to the Guarantee and the Loan Agreement.

1. They deny paragraph 39, and say further that the First Defendant (as trustee for the Welner Lawyers Trust only), entered into the transaction as Borrower with limited liability.

40. They admit paragraph 40.

1. They deny paragraph 41, and say that the First Defendant in its own right has no obligations under the Loan Agreement.

2. Under cover of objection that paragraph 42 pleads evidence and a legal conclusion and is liable to be struck out, they do not plead to the allegations paragraph 42 as it contains no allegation of material fact or law against them.

43. They deny paragraph 43 and refer to and repeat paragraph 39 herein.

1. Under cover of objection that paragraph 44 pleads evidence and a legal conclusion and is liable to be struck out, they do not plead to the allegations paragraph 44 as it contains no allegation of material fact or law against them.

2. Under cover of objection that paragraph 45 pleads evidence and a legal conclusion and is liable to be struck out, they do not plead to the allegations paragraph 45 as it contains no allegation of material fact or law against them.

3. In the circumstances, the Defendants say the Plaintiff's claim must fail, is liable to be struck out and the Plaintiff is not entitled to any loss or damage.

PARTICULARS

Refer to clauses 8.1(k) to 8.1(o) of the Loan Agreement.

1. To paragraph 39 of the Defence, the Plaintiff says:

1. clause 8.1(l) of the Loan Agreement is incomprehensible or uncertain and therefore void or unenforceable; and
2. each of clauses 8.1(m) and (n) of the Loan Agreement is against public policy and therefore void or unenforceable.

1. Further and alternatively, to paragraph 39 of the Defence, the Plaintiff says that for each the reasons described in paragraphs 35(a)(vii)-(ix), 35(b)(iia)-(iib), 37(a)(vii)-(ix) and 37(b)(iia)-(iib) of the Amended Statement of Claim dated 28 October 2024, it would be unconscionable, at general law and in contravention of ss 20 and/or 21 of the ACL, for the First Defendant and/or the Second Defendant to rely on any of clauses 8.1(k) to 8.1(o) of the Loan Agreement.
2. Further and alternatively, to paragraph 39 of the Defence, the Plaintiff says:

1. a contract for services;
2. entered by the First Defendant in the course of carrying on a business at a time when it employed fewer than 100 persons;
3. a small business contract within the meaning of s 23(4) of the ACL

1. Further, the Loan Agreement is a standard form contract within the meaning of s 27 of the ACL.
2. Each of clauses 8.1(m) to (o) of the Loan Agreement is:

1. an unfair contract term within the meaning of s 24 of the ACL; and
2. void pursuant to s 23(1) of the ACL.

1. Further and alternatively, to paragraph 39 of the Defence, the Plaintiff says that clauses 8.1(m) to (o) of the Loan Agreement are not agreements of limitation but rather merely warranties and representations.
2. To paragraph 41 of the Defence, the Plaintiff refers to and repeats paragraphs 1 to 4 above.
3. To paragraph 43 of the Defence, the Plaintiff:

a. refers to and repeats paragraphs 1 to 4 above; and

1. says further that:

2. the Second Defendant's liability under clause 1.2 of the Guarantee is not limited by clauses 8.1(m) to (o) of the Loan Agreement; and/or

3. the Second Defendant's obligation of indemnity under clause 5.1 of the Guarantee is not limited by clauses 8.1(m) to (o) of the Loan Agreement.

9 The Lender did not rely upon the matters set out in his reply at paragraphs 2 (unconscionability) or paragraph 3 (causes of action and remedies under the Australian Consumer Law)[1] before the Associate Judge or on this appeal.

10 The Associate Judge carefully set out the background, including the relevant pleadings, factual matters concerning the Trust, the Loan Agreement and the Guarantee that were not in dispute, the material filed by the parties, relevant terms of the Loan Agreement and the Guarantee, the Trust Deed and the parties' submissions. The Associate Judge carefully set out the applicable law concerning a summary judgment application.

11 The Associate Judge stated that any resistance to the application by the appellants based on the identity of the Trustee was abandoned.

12 The Associate Judge stated that the distinction of capacity, as between personal and that of the trustee, is only relevant to whether the Trustee has an indemnity against the Trust Fund. Her Honour stated that it is both factually and legally correct that the Trustee is liable under the Loan Agreement, and that having entered the Loan Agreement as trustee it has an indemnity against the Trust Fund.

13 The Associate Judge found that cl 8.1(l) was so unclear that an objective reader could not ascertain its intended meaning, with the result that there was no real prospect of the clause bearing any sensible construction. The Associate Judge found that, as a result, no defence relying on cl 8.1(l) warranted being determined at trial. It is convenient to set out the reasons of the Associate Judge in relation to this issue:

1. There is a further issue on which Counsel for the plaintiff addressed the Court, namely the meaning of the words "actually indemnified". Counsel for the plaintiff submitted that the phrase was ambiguous and could be read either as a statement of law or a statement of fact, such that an objective reader would be unable to discern its intended meaning. On that basis, it was argued that the clause had no reasonable prospect of bearing a coherent or commercially sensible meaning. In this sense, Counsel for the plaintiff contended that if the phrase "actually indemnified" were to be understood as a statement of law, that is, the trustee has a right of indemnity, then the inclusion of the word "actually" is inexplicable. Alternatively, if the phrase was intended to mean trustee's recourse, and therefore, the plaintiff's recourse to the Trust assets was limited to the amount that the trustee, in its discretion, elects to "actually" pay from the Trust assets pursuant to the indemnity, then the clause would operate to give the trustee complete discretion as to whether the plaintiff is paid at all. On this latter construction, Counsel submitted the clause would be illusory as it would afford the trustee complete discretion as to whether or not to comply with the fundamental term of the Loan Agreement, namely, the obligation to repay the debt. Counsel for the plaintiff submitted that such an interpretation would amount to a commercial absurdity in the context of a Loan Agreement, in which repayment is the borrower's fundamental obligation.
2. In respect of this clause, Counsel for the plaintiff submitted that the clause was so unclear that an objective reader could not ascertain its intended meaning, with the result that there is no real prospect of the clause bearing any sensible construction. On that basis, it was submitted that no defence relying clause warranted being determined at trial. I accept that submission, noting that reliance was placed on the decision in Watson v Phipps where it was held:

The function of a court of construction is to ascertain what the parties meant by the words which they have used. For this purpose the grammatical and ordinary sense of the words is to be adhered to, unless they lead to some absurdity or to some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified so as to avoid that absurdity or inconsistency but no further...

(citations omitted)

14 The Associate Judge also found, in the alternative, that the Lender's recourse to the Trust Fund was limited to such an amount that the Trustee, in its discretion, decided to actually pay from the Trust Fund pursuant to the indemnity. The Associate Judge said that the practical effect of this alternative interpretation is that the Lender's recourse to the Trust Fund is entirely at the unfettered discretion of the Trustee, who is also the borrower under the Loan Agreement, and 'unquestionably' that consideration is illusory and unenforceable. This alternative interpretation was the subject of submissions made by the Lender and not the appellants to her Honour. In accepting this submission, her Honour implicitly rejected the appellants' interpretation (which her Honour set out in her reasons at [52] and [74]). It is convenient to set out the Associate Judge's reasons in relation to this matter in full:

1. The alternate interpretation was to the effect that the plaintiff's recourse to the trustee's assets was limited to such an amount that the trustee, in its discretion, decides to actually pay from the Trust assets pursuant to the indemnity. In my view, the latter interpretation would have the practical effect of permitting a trustee to have complete discretion as to whether or not the plaintiff gets paid. That would effectively defeat the very terms of the Loan Agreement and Guarantee themselves, making the terms agreed to, as Counsel for the plaintiff properly identified, illusory. The interpretation favoured by the defendants would permit the trustee to have complete discretion as to whether to honour the fundamental terms of the Loan Agreement, which is the obligation to repay. I do not accept the defendants' argument, nor do I consider it to be a matter that warrants trial.

...

1. Counsel for the plaintiff otherwise relied on the decision of the Court of Appeal in GoConnect v Sino Strategic International where the Court noted that it is trite law, that a contract made for consideration that is illusory is unenforceable. Consideration is illusory if its payment or fulfilment depends upon the unfettered discretion of the promisor. The interpretation of the Loan Agreement urged upon me by the defendants' Counsel, which I do not accept, would depend on the unfettered discretion of the trustee. The effect of the submission advanced by the defendants' Counsel would be that the trustee would have full discretion to determine the extent to which it is actually indemnified from the Trust assets. The practical effect of this is that the plaintiff's recourse to the Trust assets would be entirely at the unfettered discretion of the trustee, being the first defendant, who was also the borrower under the Loan Agreement. Unquestionably, that consideration is illusory and unenforceable. It must therefore follow, that the arguments advanced by the defendants regarding the interpretation of the Loan Agreement have no reasonable prospect of success.

(citations omitted)

102 I am fortified in my conclusions by the fact that:

(a) the Defence does not plead the interpretation now urged on the Court. At paragraphs 39 and 41, the Defence positively pleads that the first defendant, (as trustee for the Trust) entered into the transaction as borrower with limited liability and that the first defendant, in its own right, has no obligations under the Loan Agreement. Both those defences are distinct from the argument that the plaintiff's recourse to the trustee's assets was somehow limited to the amount that the trustee, in its absolute discretion, decides to actually pay from the Trust assets pursuant to the indemnity;

(b) no evidence was filed by Mr Welner with the Court, apart from the Direction to Pay;

(c) exhibited to the First Stathopoulos Affidavit were a series of text messages passing between he and Mr Welner, in which Mr Stathopoulos demanded repayment of his loan. In response to those demands, Mr Welner made various statements, including:

I'll pay you as soon as I can;

working very hard. Should be around $500K coming to you early next week;

I am working very hard on this I am working on it; and I am doing everything I can.

None of the messages in evidence before me from Mr Welner was consistent with the interpretation of the Loan Agreement, Guarantee and Trust Deed urged upon me by his Counsel. Similarly, none of those messages from Mr Welner were disputed by him nor were they explained in terms which supported his interpretation of the Loan Agreement, Guarantee and Trust Deed; and

(d) taking the defendants submissions regarding the validity of clauses 8.1(k) through to 8.1(m) at their highest, as the plaintiff is suing the company in its capacity as trustee, and given that the clauses are directed only towards recourse to assets, rather than limitation of liability, the plaintiff should nevertheless be entitled to judgment against the defendants.

16 The Associate Judge then addressed the liability of the Guarantor. Her Honour said that the Guarantor's defence against any liability under the Guarantee relied upon the Trustee's defence.

17 The Associate Judge also did not accept that a non-party needed to be joined to the proceeding, that any issue arose from a document titled 'Direction to Pay' or that there is an issue that necessitates a trial.

18 Finally, her Honour addressed her conclusions. Her Honour said:

1. The power in s 63 of the CPA is expressly made subject to s 64, which permits the Court to allow a matter to proceed to trial if the Court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because (a) it is not in the interests of justice to do so; or (b) the dispute is of such a nature that only a full hearing on the merits is appropriate.
2. In Lysaght, the Court of Appeal also expressed the cautionary note that the power to terminate proceedings summarily is one that should be exercised with caution and should not be exercised unless it is clear that there is no real question to be tried.
3. For the reasons discussed above, I am not satisfied that there is any question that ought to be tried, or any other reason why there ought be a trial of the plaintiff's Claim as set out at paragraphs 39 to 45 of the pleading.
4. In those circumstances, there is no reason why those parts of the proceeding that were the subject of the Application before me should not be disposed of summarily.
5. In reaching that view, I have had regard to the CPA and its overarching purpose of facilitating the just, efficient, timely and cost-effective resolution of the real issues in dispute.
6. For the foregoing reasons, the Court is of the view that the Defence has no real prospect of success and that it is appropriate that paragraphs 39 to 45 of the proceeding be disposed of summarily. Accordingly, subject to hearing from the parties, orders will be made for judgment to be entered for the plaintiff against the respective defendants along the lines set out in the minute of order previously provided to my chambers by the plaintiff on 12 December 2024 together with the updated interest calculations provided that day.

1. Pursuant to s 63 of the Civil Procedure Act 2010 (Vic), summary judgment is given for the plaintiff with respect to the claims contained at paragraphs 39 to 45 of the plaintiff's statement of claim filed 4 October 2024 as amended on 28 October 2024 and further amended on 11 November 2024 ('Statement of Claim').
2. The defendants pay to the plaintiff the sum of $2,559,900.00 comprised as follows:

(a) $530,000.00 pursuant to the Loan Agreement and Guarantee, as those terms are defined in the Statement of Claim;

(b) interest of $159,000.00 due on the first interest payment date of 26 July 2024 under the Loan, as that term is defined in the Statement of Claim;

(c) interest of $159,000.00 due on the second interest payment date of 26 August 2024 under the Loan, as that term is defined in the Statement of Claim; and

(d) interest of $1,711,900.00 due on the Loan, as that term is defined in the Statement of Claim, calculated at the interest rate of 30% per calendar month from 27 August 2024 to 15 July 2025, being 323 days at $5,300.00 per day.

1. The defendants pay the plaintiff's costs of and incidental to the plaintiff's summons filed 28 October 2024, such costs to be paid on a standard basis taxed in default of agreement.

20 The appellants' notice of appeal has nine grounds, but the appellants expressly confined the appeal to grounds 1 and 4 and abandoned the remainder:

1. The learned Associate Justice erred in finding that the defence had no real prospects of success.

...

4. The learned Associate Justice erred in construing the terms of contract.

21 Ground 1 does not adequately identify any substantive ground of appeal. Grounds of appeal 1 and 4 must be read and considered together. The parties conducted the appeal on this basis.

22 First, the appellants submitted that cls 8.1(k)-8.1(o), despite being preceded by the chapeau of cl 8.1, stating '[t]he borrower represents and warrants that', should be understood as agreements of limitation so as to make commercial sense. They submitted that it was 'sloppy drafting' to include them as representations and warranties but it is clear that the parties intended these provisions to have legal effect as agreements and not 'idle chatter' of the Trustee. They submitted that they are not ambiguous. However, they submitted that if the Court finds they are ambiguous then the appeal should be allowed as there should be a trial to determine matters such as the factual matrix.

23 Second, the appellants submitted that the Trustee's liability is limited to the value of the 'realisable' assets in the Trust Fund at the time the loan was liable to be repaid (ie 26 August 2024). They submitted that the Associate Judge erred by failing to take this into account. They submitted that the expression 'is satisfied' in cl 8.1(l) should be construed as 'could be' or 'is notionally satisfied'.

24 They submitted that it is only those assets in the Trust Fund that may be realised that are relevant, and submitted that interpretation is confirmed by the term 'actually indemnified'. They submitted that 'actually' means 'in fact' or 'in reality'. They submitted that this would exclude assets which are only 'paper assets' and cannot be realised. As a result, they submitted that cl 8.1(l) only makes sense if it applies to Trust assets that are 'available' to exonerate the Trustee's debts, in which case it restricts the Lender's recourse to such assets. Alternatively, they submitted that the word 'actually' should be severed.

25 They submitted that if cls 8.1(k)-8.1(n) are construed with a view to making commercial sense of the Loan Agreement, their meaning is plain: 'The parties entered into a limited recourse loan, whereby the Lender's recourse, and hence the Trustee's liability, was limited to the extent of certain assets. Those assets are the Trust Fund out of which, pursuant to the general law (subject to modification by the Trust Deed), the Trustee was indemnified'.

26 They submitted that it is artificial to draw a distinction between the limited nature of the Lender's agreed recourse and the obverse, being the limited nature of the Trustee's liability. They submitted that they are one and the same. They submitted that the Associate Judge erred in finding that cl 8.1(l) concerns a limitation on the Lender's recourse to assets rather than a limitation on the Trustee's liability.

27 Third, the appellants submitted that the Lender adduced no evidence of the value of the realisable assets in the Trust Fund. They submitted that the Associate Judge erred in suggesting that it was for the appellants, rather than the Lender, to establish this. The appellants submitted that the Associate Judge erred in granting summary judgment in a fixed amount in circumstances in which there was no evidence of the value of the realisable assets in the Trust Fund.

28 Fourth, they submitted that, as the Trustee's liability was limited to the value of the realisable assets in the Trust Fund, the Guarantor's liability could not exceed this amount. They also submitted that cl 1.1(a) of the Guarantee further supports its submission that the Trustee's liability was limited to realisable assets in the Trust Fund, but this submission was not further developed.

29 Fifth, they submitted that, upon the Lender's proper construction, the Lender cannot be subrogated to the Trustee's right of exoneration from the Trust assets. This is because, upon the Lender's proper construction, 'actually indemnified' means used to make a payment. As a result, in the event that the Trustee actually indemnifies themselves, there would be no Trust assets. The appellants submitted that subrogation would not be available to enable the Lender to take some kind of step (which the Trustee refused or otherwise failed to take) that would have the effect of increasing the amount of Trust assets to which the Lender has recourse for exoneration of the debt. There is no such step. The appellants submitted that if 'actually' is construed to mean 'actual exercise by the Trustee of the Trustee's right of indemnity', there are no circumstances in which the Lender himself could take action to be subrogated.

30 Sixth, they submitted that, upon their proper construction, the Lender can take action to be subrogated to the Trustee's right of exoneration from the Trust assets.

31 Seventh, they submitted that the Court should allow the appeal and then find that the appellants are liable to the extent of the Trustee's right of exoneration from the Trust Fund and set this down for determination or, alternatively, dismiss the application for summary judgment.

32 Finally, the appellants allege in their defence that the Trustee has no obligations 'in its own right' under the Loan Agreement (see paragraph 41 of the defence). But this was not pressed at the appeal. It is hopeless and contrary to authority. A person acting as trustee does not assume an additional or qualified legal personality.[2]

33 First, the Lender submitted that cls 8.1(k)-(o) are not expressed in clear and unambiguous terms and that such terms are a requirement for a limited recourse loan to be valid.[3] He submitted that it fails the 'stringent requirement' that limited recourse clauses should be expressed in clear and unambiguous terms. He submitted:

(a) these clauses are expressed to be representations and warranties and not agreements as the chapeau to cl 8.1 includes the words '[t]he Borrower represents and warrants';

(b) the reference to 'actually indemnified' in cl 8.1(l) is ambiguous and confusing. It might mean that the Lender may have recourse to all of the assets of the Trust Fund from which the Trustee may potentially be indemnified or might refer to an amount that the Trustee, in its sole discretion, in fact elects to pay from the Trust Fund pursuant to the indemnity in cl 8.4 of the Trust Deed;

(c) he adopts the Associate Judge's finding that cl 8.1(l) is so unclear that an objective reader could not ascertain its intended meaning.

34 Second, the Lender submitted that the only way in which cl 8.1(l) can be construed as being 'clear' is to give 'actually indemnified' its plain meaning which is a reference to an actual payment. He submitted that the primary debt obligation in cl 6 of the Loan Agreement is limited to the amount by which the Trustee is 'actually indemnified'. The Lender submitted that this makes the Loan Agreement and Guarantee illusory as its practical effect is that it gives the Trustee the discretion as to whether there are available Trust assets within the Lender's 'recourse', and therefore whether to repay the Lender at all. He submitted:

(a) the Trustee's liability is limited to actual payments out of the Trust Fund and not merely the extent of the Trustee's indemnity. As a result, the Trustee has the practical discretion to make actual payments from the Trust Fund. The Lender explained this in the following terms:

MR CLOUGH...there is a primary debt with interest and other payments payable under clause 6, that for whatever reason the Trustee decides to indemnify itself out of Trust assets for that primary debt, pays itself a dollar and then says to the lender, well, I've only paid myself a dollar and that's all I need to pay you in defence to your claim for this overall debt.

(b) he adopts the Associate Judge's findings that this would defeat the terms of the Loan Agreement and Guarantee and make the terms agreed to illusory.

35 Third, the Lender submitted that the appellants impermissibly seek to rewrite cl 8.1(l) to seek to give it meaning. They seek to do 'violence' to the clause, including by ignoring certain words and seeking to insert others. The appellants seek to ignore '[t]he Borrower represents and warrants' and replace them with '[t]he parties agree'. The appellants seek to make 'is satisfied' become 'could be satisfied'. The appellants seek to make the word 'actually' now 'realisable', or alternatively, to sever it. The appellants now seek to impose a matter of timing on the valuation of the Trust Fund. But there is no term as to when this should be determined.

36 Fourth, the Lender submitted that the only way in which cl 8.1(l) is clear is to give 'actually indemnified' its plain meaning which is a reference to an actual payment.

37 Fifth, the Lender accepted that the appellants' construction of cl 8.1(l) does not make the Loan Agreement and Guarantee illusory.

38 Sixth, the Lender submitted that even if cl 8.1(l) concerns a limitation upon the rights of enforcement against the Trustee and not upon the Trustee's liability, it would nonetheless be illusory as:

(a) the Lender's exercise of the right of subrogation is not applicable as such a right does not result in the Trustee being 'actually indemnified' as the right of subrogation is properly viewed as a remedy of the Lender to have direct resort to the assets of the trust, rather than as an indemnification of the Trustee;

(b) even if the Lender's exercise of its right of subrogation may logically and practically result in the Trustee being 'actually indemnified' within the meaning of clause 8.1(l), the Trustee retains the power and discretion to distribute the assets of the Trust prior to repaying the loan, with the effect of leaving nothing available to indemnify the Trustee, whether as a payment by the Trustee or as a payment compelled by the Lender's right of subrogation;

(c) because the Lender's right of subrogation is purely derivative of the Trustee's right of indemnity, the latter right must be 'soundly based', for example, upon the debt in question being incurred in the proper performance of the Borrower's duties as trustee.

39 Finally, the Lender submitted that even if the appellants' construction of cl 8.1(l) is accepted and it concerns the Trustee's liability, then that is a matter that is a defence and not something that the Lender needs to prove. The Lender submitted that they failed to establish this.

40 The appellants admit the Loan Agreement, the Guarantee, the Lender's advance of $530,000 to the Trustee and their non-payment of any amounts under the Loan Agreement and Guarantee. The central issue on this appeal is whether cl 8.1(l) limits the liability of the Trustee.

Trustee's liability is not limited by the Loan Agreement

41 The liability of a Trustee is normally unlimited,[4] but it may be limited or qualified if there are 'clear words' to this effect in the contract in question.[5] It is necessary that there are 'words negativing the personal liability which is an ordinary incident of trusteeship'.[6] In Muir v City of Glasgow Bank, Lord Penzance said that a trustee's unlimited personal liability would only be limited to the amount of the trust assets if, on a proper construction of the agreement in question:

the intention of the parties to that contract was apparent that [the trustee's] personal liability should be excluded; and that although [the trustee] was a contracting party to the obligation the creditors should look to the trust estate alone.[7]

42 In Copper (Qld) Investment Pte Ltd v Hallion the Court of Appeal said:

101 The principles of contractual construction were not in dispute between the parties; rather, what was in dispute was the application of the principles to the 2018 SSA. In summary, the relevant principles are as follows:

(a) The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to the text, context and purpose of the contract. The context includes the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract.

(b) The determination of the meaning of the terms of a commercial contract is an objective exercise. It is necessary to ask what a reasonable businessperson in the position of the parties would have understood the terms to mean. That will require consideration of the language of the contract, the circumstances addressed by the contract and the commercial purpose to be secured by the contract. Relatedly, a court will generally approach the task of construing a commercial contract on the assumption 'that the parties ... intended to produce a commercial result'. A commercial contract should be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'.

(c) Ordinarily, a contract is construed by reference to the terms of the contract alone. If an expression in a contract is unambiguous, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

(d) However, sometimes, recourse to events, circumstances and things external to the contract is necessary.

(i) First, such recourse may be necessary in determining the proper construction where a provision is ambiguous, such that there is a constructional choice to be made.

(ii) Secondly, such recourse may be necessary in order to identify the commercial purpose of the contract. In that context, an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating may assist in identifying the commercial purpose.

(e) Even if recourse is had to events, circumstances or things external to the contract, those matters are nonetheless objective. That is, what may be referred to are external events, circumstances or things that are known to the parties or which assist in identifying the purpose or object of the transaction. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.

102 I note that some caution is required in relation to the proposition that courts will construe a commercial contract so as to avoid it making commercial nonsense or working commercial inconvenience. In particular, as this Court has said, this is not a 'licence to alter the meaning of a term to achieve a result' the court might consider reasonable. Furthermore, 'business common sense' is a topic upon which minds may reasonably differ. And, as Lord Mustill said in Charter Reinsurance Co Ltd v Fagan, 'there comes a point at which the court should remind itself that the task is to discover what the parties meant from what they have said'.[8]

43 Clause 8.1(l) is poorly drafted. But it is not vague, unclear or ambiguous. The clause appears within cl 8.1 which includes the heading 'Borrower's representations and warranties'. But on its terms, cl 8.1(l) is an express term that is objectively intended to prescribe limits on the recourse of the Lender. It would be absurd for the prescriptive terms of cl 8.1(l) to operate as a mere description of a factual matter represented and warranted by the Trustee.[9] Clause 8.1(l) is a term that was intended to have legal effect independent from the chapeau to cl 8.1. This is also confirmed by cl 8.1(l) being part of a number of clauses in cl 8.1 that are intended to have legal effect independent from the chapeau to cl 8.1 (see cls 8.1(k) and (m)-(o)).

44 Clause 8.1(l), upon its proper construction, is a limitation upon the Lender's enforcement of the Trustee's liability and not a limitation upon the Trustee's liability itself.

45 First, cl 8.1(l) concerns an express limitation on the 'recourse of the Lender'. The parties did not expressly limit the Trustee's liability. It is the actions of the Lender against the Trustee that are limited and not the Trustee's liability.

46 Second, cl 8.1(l) only operates in circumstances in which the Trustee's liability has been established. This is because the clause uses the terms 'that liability arises' and 'the Trustee's liability is satisfied' (emphasis added). The reference to the 'Trustee's liability' is not a reference to any form of limited liability. Clause 8.1(l) operates in circumstances where the Trustee has a liability to the Lender 'under or in connection with' the Loan Agreement. It presupposes that the Trustee has liability in an amount, rather than placing a limit on that liability.

47 Third, the reference to 'the Trustee's liability is satisfied out of trust assets' is a reference to the 'Trustee's liability' in fact being satisfied from assets in the Trust Fund. It may be satisfied out of the assets in the Trust Fund by the Trustee exercising its right of indemnity from the Trust Fund under cl 8.4 of the Trust Deed and then making a payment to the Lender. It is common ground that this has not occurred. In addition, depending on the circumstances, the Lender may also have a right to be subrogated to the Trustee's own right to resort to the Trust Fund.[10] I further address the issue of subrogation later in this judgment.

48 Fourth, the words 'out of which the Trustee is actually indemnified in respect of such obligations' identify the relevant 'trust assets' in cl 8.1(l). But these words are not necessary and merely confirm the position. This is because the Trustee can only satisfy its liability out of assets in the Trust Fund in respect of which the Trustee is 'actually indemnified'. The fact that these words are not necessary does not make the clause vague, unclear or ambiguous. Upon the appellants' construction of cl 8.1(l) these words are also not necessary and add nothing to the clause.

49 Fifth, the answer to the question of what a reasonable businessperson in the position of the parties would have understood the terms to mean, is that the Lender's recourse to enforce the Trustee's liability is limited to the terms set out in cl 8.1(l). The limitation was not upon the Trustee's liability. This makes commercial sense of both the Loan Agreement and the Guarantee.

50 Sixth, I do not accept the appellants' submission that it is artificial to draw a distinction between the limited nature of the Lender's agreed recourse and the obverse, being the limited nature of the Trustee's liability. This distinction is of critical importance, especially given the existence of the Guarantee. A limitation of the Trustee's liability would also limit the Guarantor's liability (see cl 1.1(a) of the Guarantee), whereas a limitation on recourse (ie enforcement) does not.

51 Seventh, I do not accept the appellants' submission that cl 1.1(a) of the Guarantee further supports its submission that the Trustee's liability was limited to realisable assets in the Trust Fund. This submission was not developed.

52 Eighth, the appellants submitted that the words 'is satisfied' should be read as referring to the extent to which the Trustee's liability could be satisfied or is notionally satisfied out of the Trust Fund. However, a liability 'is satisfied' if it has been discharged. This relates to enforcement. In my view, it is not possible to simply construe the word 'is' as 'could be' or 'notionally satisfied'. The express words are clear. This is also supported by the operative part of the clause being the 'recourse of the Lender' and not the 'Trustee's liability'.

53 Ninth, the Associate Judge did not err in giving summary judgment in the absence of any evidence concerning the value of the assets in the Trust Fund at the time of repayment (ie 26 August 2024). This is because the value of the assets in the Trust Fund is irrelevant to the liability of the Trustee and the Guarantor. Clause 8.1(l) does not limit the liability of the Trustee.

54 Tenth, the proper construction I have identified is not illusory. The Associate Judge found, in the alternative, that cl 8.1(l) is illusory. But this was based upon her Honour's alternative finding that cl 8.1(l) limited the Trustee's liability. The Associate Judge found it was illusory as it gives a discretion to the Trustee to make a payment. Clause 8.1(l) is not illusory, based upon the proper construction I have set out. I have already referred to the fact that the Lender may have a right to be subrogated to the Trustee's own right of indemnity.

55 A right of subrogation refers to the substitution of one party for another, such that the party that has been substituted to 'stand in the shoes' of the other can acquire and enforce the rights of the other party against a third party.[11] O'Bryan J expanded upon the right of a creditor to be subrogated to a trustee's indemnity in Re Wilson:

There appears to be no reason in principle why a creditor must pursue his common law rights to judgment before he will be allowed to be subrogated to the trustees' indemnity against the estate. It is one thing to refuse him an order for administration as a matter of discretion if no more appears than the facts of the debt, but if he has demanded payment from his debtor and has failed to receive payment and the circumstances are such as to lead to the reasonable conclusion that a judgment, if obtained, would be fruitless, it would be a harsh and unnecessary rule that required him first to proceed to judgment.[12]

56 In Agusta Pty Ltd v Provident Capital Ltd the New South Wales Court of Appeal said:

1. The basis on which equity thus protects the unpaid creditors lies in the right to be subrogated to the debtor-trustee's own right to resort to the trust property. It is pertinent to quote, in that connection, the following passage at para 21-38 of Lewin on Trusts (18th ed, 2008, J Mowbray, L Tucker, N Le Poidevin and E J F Simpson (eds)):

Although unsecured creditors and other claimants do not have a direct claim against the trust property in respect of unsecured liabilities incurred by trustees in the administration of the trust, and cannot levy execution upon trust property they may by subrogation have a right to stand in the place of the trustee and enforce their liabilities against the trust property to the extent that the trust will be so entitled.

1. The "right" of subrogation might perhaps be better viewed as a "remedy" of subrogation (P W Young, C Croft and M L Smith, On Equity (2009) at 868). That characterisation seems appropriate in a case such as the present where equity would allow creditors with an unsatisfied money judgment at law to bring proceedings in which the creditors, for their own benefit, asserted in respect of the trust property in the trustee's hands, the beneficial interest enjoyed by the trustee by virtue of the right of indemnity.
2. In Boscawen v Bajwa [1995] EWCA Civ 15; [1996] 1 WLR 328 at 335, in a passage approved by the High Court in Bofinger v Kingsway Group Ltd [2009] HCA 44 at [94], Millett LJ described the foundation of subrogation as an equity that arises from the conduct of the parties on well-settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff. In the situation under discussion, it is unconscionable for the trustee to retain for itself the preferred beneficial interest in trust assets when it is the unsatisfied debts of the trustee to the creditors that gives rise to that interest of the trustee. The trustee therefore cannot deny the right of the creditors to the benefit of preferred beneficial interest.

74 The trustee will be compelled to deal with the preferred beneficial interest for the benefit of the unpaid creditors and, in order to give a particular creditor the fruits of that beneficial interest, equity will appoint a receiver, thereby facilitating a sale of trust property and ensuring that the proceeds, having been brought under the control of the court, are, to the appropriate extent, put into the hands of the creditors entitled by subrogation rather than the hands of the trustee: see, for example, Levasseur v Mason & Barry [1891] UKLawRpKQB 65; [1891] 2 QB 73; Re Potts [1893] UKLawRpKQB 44; [1893] 1 QB 648, Re Marquis of Anglesey [1903] UKLawRpCh 136; [1903] 2 Ch 727 at 731. The creditor thereby obtains equitable execution of the judgment.[13]

57 As also stated by McPherson J in General Credits Ltd v Tawilla Pty Ltd:

The trustee has the right to indemnity out of the trust assets in respect of liabilities properly incurred in the affairs of the trust; and the claim of creditors in equity to be subrogated to that right has often been recognized...But the creditors' claim necessarily depends on the existence of a right exercisable by the trustee to be indemnified... If the liability incurred by the trustee was not authorized or properly incurred; or if, through some misapplication of trust assets, the trustee is in debit on the trust accounts, no right of indemnity can exist, nor any claim to subrogation arise in favour of a creditor...[14]

59 In this case, the Lender has proceeded to apply for a judgment debt and has not, at least presently, sought to be subrogated to the Trustee's indemnity against the Trust Fund. This may be explained by the Lender taking a position that cl 8.1(l) is unenforceable as it is uncertain or, alternatively, that it is illusory. But this does not mean that the Lender cannot seek such a remedy in the future upon obtaining a judgment debt.

60 The Lender submitted that cl 8.1(l) is illusory as it limits the 'Trustee's liability' to actual payments out of the Trust Fund. I do not accept this submission. This is because, as I have already said, cl 8.1(l) does not limit the Trustee's liability. I do accept that it limits enforcement of the Trustee's liability to the extent to which it is satisfied out of the Trust Fund. But I do not accept that this makes the Loan Agreement and Guarantee illusory, as if the Trustee does not pay the debt the Lender may seek to be subrogated to the Trustee's right of indemnity against the Trust Fund to exercise the right of exoneration.

61 The Lender also submitted that even if the Lender has a right of subrogation, it would not result in the Trustee being 'actually indemnified' within the meaning of cl 8.1(l) as the right of subrogation is properly viewed as a remedy of the Lender to have direct resort to the assets of the Trust, rather than an indemnification of the Trustee. I do not accept this submission. It is contrary to well established authority. A person who is subrogated to another stands in their shoes.[15] The exercise by a creditor of their remedy of subrogation means that the trustee would be compelled to deal with the preferred beneficial interest of the unpaid creditor.[16] To give the creditor the fruits of that beneficial interest the Court, by exercising its equitable jurisdiction, may appoint a receiver to facilitate the sale of the trust assets.[17] Clause 8.1(m) specifically refers to the right of the Lender to appoint a receiver in relation to the 'property of the Trust'.

62 The Lender submitted that even if the Lender has a right of subrogation, cl 8.1(l) is illusory as the Trustee retains the power and discretion to distribute the assets of the Trust prior to repaying the loan. He submitted that if the assets are exhausted then there would be no repayment to the Lender in 'practice'. I accept that the Trustee retains such a power. But this does not make cl 8.1(l) illusory. It was open to the parties to address and avoid this risk by agreement. This does not mean that the Loan Agreement and Guarantee are illusory. In ALYK (HK) Ltd v Caprock Commodities Trading Pty Ltd, Black J said:

I accept that that possibility of distributions or other transactions that would reduce the assets of the Fund ... is left open by a construction of that provision which allows its application at, inter alia, the date of an arbitral award or judgment against Caprock. However, it would readily be open to the contracting parties to avoid the risk of transactions that reduced the amount recoverable under an arbitral award or judgment, for example, by expressly providing that particular transactions that dissipated the assets of the Fund, such as distributions to beneficiaries, transactions with related parties or transactions not on arm's length terms, would be disregarded in applying the limitation of liability in the Contract. The parties did not do so in the present case, but that does not seem to me to be reason to strain to construe the clause to avoid a result which could have been avoided by a straightforward contractual provision. In some circumstances, a transaction that reduced the amount that may be recovered under a judgment may also be open to attack as, for example, a breach of an implied term in a contract or a breach of a duty of good faith, to the extent to which such a duty is recognised in Australian law. I accept that ... there may be limited scope for such duties after the Contract was terminated. In some circumstances, such a transaction may be voidable on the liquidation of a company which undertook it, and I note that ALYK has highlighted the possibility that it may ultimately seek to wind up Caprock in the course of this application.[18]

63 The Lender also submitted that even if the Lender has a right of subrogation, cl 8.1(l) is illusory as such a right is purely derivative of the Trustee's right of indemnity. He submitted that the Trustee would not have a right of indemnity if, for example, the Trustee entered into the Loan Agreement otherwise than in the proper performance of its duties as Trustee. As a result, he submitted that the Trustee has a discretion to render its right of indemnity nugatory, resulting in the Lender's right being worthless. Again, it was open to the parties to address and avoid this risk by agreement. This does not mean that the Loan Agreement and Guarantee are illusory by reason of cl 8.1(l).

64 I accept the Lender's submission that he is not required to exercise his remedy of subrogation against the Trustee prior to seeking relief against the Guarantor. I refer to cl 2.2 of the Guarantee.

65 Finally, the Trustee's liability to the Lender under the Loan Agreement is not limited simply by reason of the Trustee entering into the Loan Agreement and Guarantee as a trustee.[19] This was not pressed, in any event, on this appeal. A mere description that the person contracts as 'trustee' is insufficient to qualify the trustee's personal liability.[20]

66 As a result of my findings concerning the proper construction of cl 8.1(l) and its operation and effect, the Associate Judge:

(a) was incorrect in finding cl 8.1(l) of the Loan Agreement was uncertain;

(b) was incorrect in finding, in the alternative, that cl 8.1(1) was illusory;

(c) was correct in finding, in the alternative, that cl 8.1(l) is a limitation on the Lender's recourse on enforcement of the Trustee's liability and not a limitation on the liability of the Trustee.

The appellants' defence to the Lender's claim pursuant to the Loan Agreement and Guarantee, alleged in paragraphs 39 to 45 of the further amended statement of claim, has no real prospects of success

67 I refer to and adopt the Associate Judge's statement of the applicable law concerning an application for summary judgment. Clause 8.1(l) does not provide any defence for the appellants to the Lender's claim pursuant to the Loan Agreement and Guarantee, alleged in paragraph 39 to 45 of the further amended statement of claim. It does not limit the liability of the Trustee. The defence has no real prospects of success. The Lender is entitled to summary judgment against the appellants.

68 There was no dispute between the parties that if the Lender is entitled to summary judgment, he is entitled to judgment in the amounts set out in the order of the Associate Judge. I will dismiss the appeal. My preliminary view is that the appellants should pay the Lender's costs of the appeal, but I will hear the parties on this issue if they wish to address it. The parties are directed to provide a draft form of order to Chambers by 4.00pm on 7 November 2025, marked up with any differences between the parties.

[1] Competition and Consumer Act 2010 (Cth) sch 2.

[2] See Elders Trustee and Executor Co Ltd v EG Reeves Pty Ltd [1987] FCA 332; (1987) 78 ALR 193, 253 (Gummow J) (Elders Trustee).

[3] The Lender relied upon Austrust Pty Ltd v Astley [1993] SASC 3969; (1993) 60 SASR 354, 373 (Mullighan J), citing Muir v City of Glasgow Bank and Liquidators (1879) 4 App Cas 337, 355 (Earl Cairns LC).

[4] Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 773, 774 (Glass JA, Samuels JA agreeing) (Helvetic).

[6] Investec Trust (Guernsey) Ltd v Glenalla Properties Ltd [2018] UKPC 7; [2019] AC 271, 307 (Lord Hodge). See also at 344 (Lord Mance) and 356 (Lord Briggs).

[7] (1879) 4 App Cas 337, 368.

[8] [2025] VSCA 221, [101]-[102] (Beach, Walker and Kenny JJA) (citations omitted).

[9] See Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 426-7 (Dixon CJ and Fullagar J), 437 (McTiernan, Webb and Taylor JJ).

[10] See Re Wilson [1942] VicLawRp 22; [1942] VLR 177, 183 (O'Bryan J).

[11] See Charles Mitchell and Stephen Watterson, Subrogation: Law and Practice (Oxford University Press, 2007) 3.

[12] [1942] VicLawRp 22; [1942] VLR 177, 183.

[13] [2012] NSWCA 26 (Barrett JA, Campbell JA and Sackville AJA agreeing) (Agusta).

[14] [1984] 1 Qd R 388, 389-90.

[16] Agusta (n 13) [74] (Barrett JA, Campbell JA and Sackville AJA agreeing).

[18] [2016] NSWSC 764, [17] (emphasis added).

[19] See, eg, Super 1000 v Pacific General Securities [2008] NSWSC 1222; (2008) 221 FLR 427, 446 [80] (White J); Psevdos v Commonwealth Bank of Australia (No 2) [2017] FCA 19, [59]-[61] (Charlesworth J).

[20] Helvetic (n 4) 773 (Glass JA, Samuels JA agreeing).