Plaintiff v First Defendant

1 By summons filed 28 October 2024 ('Application'), the plaintiff seeks summary judgment against the defendants pursuant to s 61 of the Civil Procedure Act 2010 (Vic) ('CPA') on paragraphs 39 to 45[1] of the statement of claim filed 4 October 2024 ('Claim'). Alternatively, the plaintiff seeks orders pursuant to Order 23.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) ('Rules') and/or the inherent jurisdiction of the Court that the defence filed 18 October 2024 ('Defence') be struck out or amended.

(a) the affidavit of George Stathopoulos filed 16 September 2024 ('First Stathopoulos Affidavit');

(b) the affidavit of Michael Jonathan Kenny filed 22 October 2024;

(c) the affidavit of George Stathopoulos filed 10 December 2024;

(d) the affidavit of Michael Jonathan Kenny filed 10 December 2024; and

(e) written submissions dated 28 October 2024 and 10 December 2024.

(a) the affidavit of Raj Malhotra filed 18 September 2024;

(b) the affidavit of Raj Malhotra filed 22 November 2024;

(c) the further affidavit of Raj Malhotra filed 26 November 2024;

(d) written submissions dated 4 November 2024 and 26 November 2024;

(e) the affidavit of Dale Harrison filed 15 December 2024; and

(f) the affidavit of David Welner filed 15 December 2024.

4 For the reasons which follow, I have formed the view that the defence raised by the defendants has no real prospect of success. Further, I am not satisfied that this case is one where it would be appropriate for the Court to exercise the discretion conferred by s 64 of the CPA and allow the matter to proceed to trial.

5 By originating motion filed 13 September 2024 ('Originating Motion'), the plaintiff sought the sum of $530,000.00 from the first defendant, Welner Lawyers Pty Ltd (ACN 640 273 552), pursuant to a loan agreement dated 26 June 2024 ('Loan Agreement') entered into between the plaintiff and the first defendant together with interest and costs. The Originating Motion also sought the sum of $530,000.00 from the second defendant, David Jonathan Welner, pursuant to a guarantee given by Mr Welner in respect of the Loan Agreement ('Guarantee') together with interest and costs and, alternatively, damages including under s 236 of the Australian Consumer Law (Vic). The Originating Motion was supported by the First Stathopoulos Affidavit.

6 At the time of filing the Originating Motion, the plaintiff sought an interim freezing order by summons filed 17 September 2024 ('Freezing Order Application'). The Freezing Order Application came before Delany J on 20 September 2024. On that date, orders were made for the proceeding to continue as if commenced by writ, the parties were directed to file pleadings, timetabling orders were set for the plaintiff's proposed summary judgment application, and the defendants were ordered to comply with a notice to produce issued by the plaintiff on 17 September 2024. The Freezing Order Application was otherwise dismissed.

7 On 4 October 2024, the plaintiff filed the Claim.

8 On 18 October 2024, the defendants filed their Defence to the Claim.

9 On 28 October 2024, the plaintiff filed an amended statement of claim ('Amended Claim') which named 'Welner Lawyers Pty Ltd (ACN 640 273 552)' as the first defendant. The Amended Claim inserted, among others, paragraph 2A, which pleaded:

At all material times the First Defendant:

1. was and is trustee of the Welner Lawyers Trust (ABN 74 815 749 014) (Trust); and
2. had and has a right to be reimbursed and/or exonerated out of the assets of the Trust.

10 The same day, the plaintiff filed a reply dated 28 October 2024 ('Reply') to the Defence, which named the first defendant as 'Welner Lawyers Pty Ltd (ACN 640 273 552) (in its capacity as trustee for the Welner Lawyers Trust (ABN 74 815 749 014)'.

11 During the first day of hearing, the plaintiff confirmed that he was suing the first defendant in its capacity as trustee.[2] Counsel for the plaintiff explained that the plaintiff had amended the description of the first defendant in the Amended Claim, but that the filing of this document had been rejected by the Registry on the basis that an order of the Court is required to change a party name.[3] The plaintiff submitted that the absence of the words 'in its capacity as trustee' from the description of the first defendant in the Amended Claim did not matter, because the plaintiff had pleaded that the first defendant is a trustee.[4] It was further submitted that the position had been made clear in the Reply, which referred to the first defendant in its trustee capacity in the heading of that document.

12 As there was no substantive dispute that Welner Lawyers Pty Ltd (ACN 640 273 552) had acted in its capacity as trustee for the Welner Lawyers Trust (ABN 74 815 749 014) ('Trust'), on 8 November 2024, I made orders that the heading of the proceeding be amended accordingly, and granted leave to the plaintiffs to file and serve a further amended statement of claim to properly record the capacity in which the plaintiff sued the first defendant. Counsel for the defendants did not oppose this order 'in principle',[5] and accepted that the defendants were not taken by surprise in respect of this issue.[6]

13 I otherwise heard the Application on 8 November 2024, but permitted both parties to file a further written outline and/or affidavit material. I indicated that, in the absence of any request for a further oral hearing, the Application would be determined in chambers. Both parties subsequently sought a further oral hearing, which was held on 16 December 2024. Further submissions were filed by the defendants on 26 November 2024 and by the plaintiff on 10 December 2024 ('Parties Supplementary Submissions'). On 11 November 2024, the plaintiff filed a further amended statement of claim ('Further Amended Claim') which amended the heading of the proceeding.

14 The only paragraphs that were the subject of the Application before me were paragraphs 39 to 45 of the Claim. These paragraphs remained unchanged in the Amended Claim and Further Amended Claim. While other amendments were made to the Claim in the Further Amended Claim, for the purpose of these reasons, I need not address them.

15 Against that procedural background, I turn next to consider the claims as pleaded by the plaintiff and the defences raised by the defendants.

16 The claims made by the plaintiff in the Claim and Amended Claim, in so far as they relate to the Application before me, concern a Loan Agreement the plaintiff entered into with the first defendant on 26 June 2024, which was supported by the Guarantee provided by the second defendant. The pleading is in the following terms:

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.

PARTICULARS

Interest and other amounts payable to the Plaintiff under the Loan Agreement continue to accrue. Further particulars will be provided prior to trial.

1. On and from 26 August 2024, the Plaintiff demanded payment of the amounts payable to him under clause 6 of the Loan Agreement.

PARTICULARS

The demand was by text message and repeated in various correspondences thereafter.

1. In breach of clause 6 of the Loan Agreement, the First Defendant has not made any payment required under that term.

2. The amounts payable under clause 6 of the Loan Agreement are debts due and owing to the Plaintiff.

3. 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.

4. In breach of the Guarantee, the Second Defendant has failed to so indemnify the Plaintiff.

5. The monies that the Second Defendant is required to pay under the Guarantee are a debt due and owing to the Plaintiff.

PARTICULARS

The said monies comprise the Loan of $530,000 plus interest and other amounts payable to the Plaintiff under the Loan Agreement and the Guarantee, which continue to accrue. Further particulars will be provided prior to trial.

17 In the Defence, the defendants contend that the first defendant entered into the Loan Agreement as trustee of the Trust only with limited liability and say that the first defendant in its own right has no liability under the Loan Agreement. The Defence is in the following terms:

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.

PARTICULARS

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

1. They admit paragraph 40.

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

3. Under cover of objection that paragraph 32 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.

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

5. 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.

6. 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.

7. 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

18 Having regard to the pleadings and the parties' affidavit material and written submissions, it was not contentious that:

(a) the second defendant, Mr Welner, is and was at all material times an Australian legal practitioner within the meaning of the Legal Profession Uniform Law (Vic);

(b) Mr Welner conducted his legal practice as a firm named 'Welner Lawyers';

(c) Mr Welner is the sole director and sole shareholder of the first defendant, Welner Lawyers Pty Ltd (ACN 640 273 552);

(d) the first defendant is, and was at all material times, the trustee of the Trust;

(e) the first defendant had, and has, the right to be indemnified and/or exonerated out of the assets of the Trust;

(f) on 26 June 2024, the plaintiff transferred the sum of $530,000.00 to the first defendant ('Principal');

(g) clause 6 of the Loan Agreement recorded that the Principal was to be repaid together with interest; and

(h) no payment has been made to the plaintiff to repay any of the Principal or interest either by the first defendant borrower or the second defendant guarantor.

19 The issue for determination before me was the liability of the defendants under the terms of the Loan Agreement and Guarantee and, by reason of the matters raised in the Defence, the discretionary trust deed dated 14 April 2020 ('Trust Deed').

Relevant provisions and principles - Summary Judgment

20 The principles applicable to the grant of summary judgment are well established. They were summarised by Matthews JR (as her Honour then was) in Padella Pty Ltd v Elliott,[7] adopted by Sloss J in Israfoods (2006) Ltd v J & D Consortium Pty Ltd[8] and further detailed by Sloss J in Silver Chef Rentals Pty Ltd v Makong Australia Pty Ltd[9] and more recently in Bendigo and Adelaide Bank Limited v Grahame.[10]

21 The test for summary judgment was explained by the Court of Appeal in the oft-cited case Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd ('Lysaght').[11] The issue for the Court is whether the plaintiff has a 'real' as opposed to a 'fanciful' chance of success noting that the power to terminate proceedings summarily should be exercised with caution and should not be exercised unless it is clear that there is no real question to be tried.[12]

22 Section 61 of the CPA permits a plaintiff to make an application for summary judgment on the ground that the defendant's defence or part of that defence has no real prospect of success. Where an application is made under s 61 of the CPA it must be made in accordance with Order 22 of the Rules.[13]

23 The Court of Appeal in Hausman v Abigroup Contractors Pty Ltd[14] ('Hausman') considered the requirements of rr 22.04 and 22.05 of the Rules. In relation to an affidavit in support of an application for summary judgment, the Court of Appeal stated that 'what must be verified are the facts necessary to establish a good cause of action'.[15] Once the plaintiff has established the elements of the cause of action, the evidential burden shifts to the defendant. Assuming the plaintiff's application is properly made, there will be judgment for the plaintiff unless the defendant shows cause against the application to the satisfaction of the Court.[16] The defendant must satisfy the Court that, in respect of the claim to which the application for summary judgment relates, there is a question that ought to be tried, or there ought for some other reason to be a trial of that claim. The Court, if so satisfied, will give the defendant leave to defend and the proceeding will continue to trial in the ordinary way. The Court will ordinarily require an affidavit by, or on behalf of, the defendant before being satisfied that the defendant is entitled to leave to defend. The standard of diligence required of the defendant in preparing a case in opposition to the application, especially if under pressure of time, is perhaps not as high as that required in preparing for trial.[17] The defendant is required to use reasonable diligence to put before the Court, albeit in a summary form, all the evidence relied on in the defence. It would generally be regarded as an injustice to the plaintiff to introduce for the first time, on appeal, evidence which was readily available for the hearing of the application, but was not produced. An affidavit filed by the defendant may contain a statement of fact based on information and belief.[18] A bald denial that the defendant is indebted to the plaintiff will not suffice. The affidavit should, so far as practicable, deal specifically with the plaintiff's claim and the facts set out in the supporting affidavit to establish that claim. It should state clearly and concisely what the defence is, and identify the facts relied upon in support of that defence.[19]

24 The principles from Hausman remain good law since the advent of the CPA.[20]

25 Section 63 of the CPA provides that, subject to s 64 of the CPA, the Court may give summary judgment in a civil proceeding 'if satisfied' that a claim has 'no real prospect of success'.

Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding 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.

27 Section 65 of the CPA provides that the summary judgment provisions of the CPA are in addition to and do not derogate from any powers a Court has under the Rules in relation to the summary disposal of any civil proceeding. The ability to stay or dismiss a proceeding is also a feature of the Court's inherent jurisdiction to prevent the abuse of its processes.[21]

28 Subsection 7(1) of the CPA sets out its overarching purpose, which is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute. As to compliance with the CPA, the timely, cost-effective and efficient conduct of civil litigation takes into account wider public interest than those of the parties to the dispute. Section 8 of the CPA requires that the Court must 'seek to give effect to the overarching purpose in the exercise of any of its powers' and s 9 of the CPA provides that when making any order or giving any direction in a civil proceeding, the Court is to further the overarching purpose by having regard to the objects specified in subsection (1), being:

(a) the just determination of the civil proceeding;

(b) the public interest in the early settlement of disputes by agreement between parties;

(c) the efficient conduct of the business of the court;

(d) the efficient use of judicial and administrative resources;

(e) minimising any delay between the commencement of a civil proceeding and its listing for trial beyond that reasonably required for any interlocutory steps that are necessary for -

(i) the fair and just determination of the real issues in dispute; and

(f) the timely determination of the civil proceeding;

(g) dealing with a civil proceeding in a manner proportionate to -

(i) the complexity or importance of the issues in dispute; and

(ii) the amount in dispute.

29 I turn now to consider the material filed by the plaintiff in support of the Application.

30 Mr Stathopoulos has sworn two affidavits in the proceeding, being the First Stathopoulos Affidavit and an affidavit filed 10 December 2024. In his First Affidavit, Mr Stathopoulos describes the circumstances surrounding the entry into the Loan Agreement and Guarantee,[22] the advance of funds by him pursuant to the Loan Agreement,[23] the subsequent default by the first defendant under the Loan Agreement[24] and the demands made for payment from both defendants.[25] In respect of these matters, Mr Stathopoulos' evidence reflects the matters pleaded by him.

31 Save for an affidavit filed 15 December 2024, which exhibits an email from Mr Harrison dated 10 December 2024 attaching a document entitled 'Direction to Pay 31.10.24.pdf' ('Direction to Pay'), Mr Welner did not file any other affidavit material. He relied on three affidavits sworn by his solicitor, Mr Malhotra.

32 The affidavits of Mr Malhotra did not dispute the claim that the plaintiff advanced the Principal pursuant to the terms of the Loan Agreement and Guarantee or that the Principal is due and payable and has not been paid.

33 At its highest, and in so far as it raises matters which are relevant to the compass of the Application before me, the affidavit of Mr Malhotra filed 18 September 2024 contends that he is instructed by Mr Welner and believes that:

...during the meeting of 26 June 2024, the Second Defendant confirmed that the borrower was the First Defendant as trustee for the Welner Lawyers Trust, that it was nether [sic] the Second Defendant in his own capacity or as the Plaintiff's former lawyer, and that the Second Defendant would guarantee the obligations under the loan...[26]

34 Mr Welner did not file an affidavit which verified the content of Mr Malhotra's affidavits. I otherwise observe that the matters deposed to by Mr Malhotra at paragraph 4(f) of his affidavit, as set out above, are not the subject of any plea in the Defence.

35 By his affidavit filed 26 November 2024, Mr Malhotra otherwise places into evidence the Trust Deed.

Relevant terms of the Loan Agreement, Guarantee and Trust Deed

36 Before turning to the parties respective submissions, it is necessary to say something of the various key terms contained in the Loan Agreement, Guarantee and Trust Deed.

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

38 Clause 1.1 of the Loan Agreement provided that the Repayment Date was the second monthly anniversary of the Loan Date, with the Loan Date being 26 June 2024, or the date of drawdown under the facility pursuant to clause 3, whichever is later.

39 Pursuant to clauses 8.1(k) to 8.1(o) of the Loan Agreement, the first defendant represent[ed] and warrant[ed] that:

(k) the Borrower [first defendant] 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;

(l) the recourse of the Lender [the plaintiff] 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) 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 [the plaintiff] 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 [sic] 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).

40 The Trust Deed provides that the first defendant is the trustee of the Trust.[27] Mr Welner is listed as a beneficiary of the Trust.[28]

41 Clause 8.4 of the Trust Deed provides for the first defendant's indemnity out of the Trust:

[p]rovided the Trustee [first defendant] acts in good faith:

(a) it is entitled to be indemnified out of the Trust Fund for all debts, damages, obligations or other liabilities incurred, arising or awarded by or against the Trustee in the execution of any power, duty, discretion or authority under this Deed and in respect of all actions, claims, demands and costs relating to or concerning the Trust Fund;

(b) is entitled to reimbursement from the Trust Fund for all money expended and debts incurred in or about the administration of the Trust; and

(c) it may apply the Trust Fund or any money or property comprised in the Trust Fund as it may decide to satisfy the rights of reimbursement or indemnity for which it is under this Deed, or otherwise by law, entitled.

42 Pursuant to clause 1.1 of the Guarantee, Mr Welner, as guarantor, unconditionally guaranteed to the plaintiff the due and punctual payment by the first defendant of all monies which the first defendant is liable to pay as well as the due and punctual observance and performance by the first defendant of all its other liabilities, obligations and agreements to the plaintiff pursuant to or in connection with any agreement, security or instrument.

43 Pursuant to clause 1.3 of the Guarantee, Mr Welner is obliged to indemnify the plaintiff immediately against all losses, liabilities, damages, costs and expenses which may be incurred by the plaintiff by reason of the first defendant's default or failure in the due and punctual performance of any of its liabilities, obligations and agreements.

44 Pursuant to clause 5 of the Guarantee, Mr Welner also agreed to unconditionally and irrevocably indemnify the plaintiff in respect of the obligations of the first defendant. Relevantly, there was no dispute before me that Mr Welner executed the Guarantee. Indeed, the Loan Agreement and Guarantee disclose, on the face of the documents, that they were prepared by Welner Lawyers.

45 Before me, the plaintiff contended that his case was straightforward. He submitted that:

(a) on 26 June 2024, the Loan Agreement and Guarantee were entered into by the parties;

(b) on that date, the plaintiff transferred the Principal to the first defendant pursuant to the Loan Agreement;

(c) pursuant to clause 6 of the Loan Agreement, the first defendant was obliged to repay the Principal together with interest;

(d) no payment has been made to the plaintiff to repay any part of the Principal or interest;

(e) pursuant to clause 1.1 of the Guarantee, the second defendant, as guarantor, unconditionally guaranteed to the plaintiff the due and punctual payment by the first defendant of all monies which the first defendant is liable to pay as well as the due and punctual observance and performance by the first defendant of all its other liabilities, obligations and agreements to the plaintiff pursuant to or in connection with any agreement, security or instrument;

(f) pursuant to clause 5 of the Guarantee, the second defendant, as guarantor, also agreed to unconditionally and irrevocably indemnify the plaintiff in respect of the obligations of the first defendant; and

(g) the second defendant has not made payment to the plaintiff to repay any part of the Principal or interest.

46 The plaintiff, in his written outline, otherwise drew my attention to an exchange between the defendants' Counsel and Delany J at the hearing of the Freezing Order Application on 19 September 2024, where Mr Korman of Counsel confirmed that the defendants admit the debt to the plaintiff and which Mr Korman conceded was, at that date, 21 days in arrears.[29]

47 Based on the premise the first defendant was being sued in its own right, prior to hearing, the defendants submitted that they had a complete defence to the plaintiff's case for the following reasons:

(a) under clause 6 of the Loan Agreement, and taking account of clause 8.1(k) of the Loan Agreement, the first defendant in its own right has no obligations to repay and finally discharge the loan;

(b) as a result, the fact that the first defendant in its own right has not made any payments to the plaintiff is irrelevant;

(c) the second defendant was not obliged to indemnify the plaintiff against the first defendant's default under the Loan Agreement; and

(d) consequently, there could be no failure on the part of the second defendant to indemnify the plaintiff, there are no monies required to be paid under the Guarantee as pleaded, and there is no debt due and owing to the plaintiff.[30]

48 It was conceded by the defendants that, in light of the order I made on 8 November 2024 permitting an amendment to the description of the first defendant in the heading of the proceeding, many of their submissions were no longer relevant.[31]

49 In seeking to resist the grant of summary judgment, during the hearing the defendants' case proceeded on the following four bases.

Interpretation of clause 8.1 Loan Agreement and 'limited liability'

50 First, by reference to clause 8.1 of the Loan Agreement, the defendants submitted that there was a prima facie agreement that the plaintiff would lend money on the basis of the first defendant's limited liability - as trustee only.[32] The defendants relied on clauses 8.1(k) and 8.1(o) of the Loan Agreement to contend that the first defendant entered into the Loan Agreement as trustee for the Trust only, with limited liability. It was otherwise submitted that the plaintiff is precluded from any claim against the second defendant because the second defendant is a Trust Beneficiary, as defined in the Loan Agreement by reason of the operation of clause 8.1(o).

51 The defendants further submitted that the Court could not engage in the process of construing to what extent the plaintiff accepted the alleged limitations in clause 8.1 without hearing evidence from the parties, and that the question of how the Loan Agreement is to be construed is a matter that ought to go to trial.[33] Although they conceded that the subjective intentions of the parties are inadmissible, the defendants maintained that the facts known to the parties and the general circumstances at the time the Loan Agreement was entered into are relevant to its construction,[34] rendering the grant of summary judgment inappropriate. Before me, there was no plea in the Defence which raised any 'facts known to the parties' or 'general circumstances'. Similarly, there was no affidavit evidence from Mr Welner setting out the alleged 'facts known to the parties' or 'general circumstances' that were said to require an investigation at trial.

52 Second, the defendants submitted that their liability is limited to the extent of the Trust fund, as defined in the Trust Deed, by reason of the interaction between clause 8.4 of the Trust Deed and clause 8.1(f) of the Loan Agreement.[35] They contended that the intention of clause 8.1(l) is to limit liability 'to the amount that the Trust Deed actually indemnified the trustee'.[36] The defendants submitted that 'actually indemnified' does not mean the amount the trustee chooses to draw against the indemnity; rather, the words 'actually indemnified' should be understood to mean 'actually indemnified under the Trust Deed'.[37] Before me, there was no evidence from the defendants as to the extent or value of the Trust assets.

Interpretation of clauses 8.1(m) and 8.1(n) Loan Agreement

53 Third, in response to the plaintiff's perceived attacks on clauses 8.1(m) and 8.1(n) of the Loan Agreement, to which I will return later in my reasons, the defendants advanced three submissions:

(a) the plaintiff was barred, by clauses 8.1(m) and 8.1(n) of the Loan Agreement, from commencing proceedings against the first defendant in its own right;[38]

(b) the clauses are not against public policy because they do no more than mirror the general law. While the default position is that a trustee entering business transactions as trustee is nevertheless personally liable for any debts incurred in the course of those transactions, personal liability can be excluded by express agreement between the trustee and the creditor; and

(c) the plaintiff's submission that the clauses are merely warranties and representations is presumably based on the fact the heading to clause 8.1 reads 'Borrower's representations and warranties'. However, clause 1.2 of the Loan Agreement provides that 'the clause headings in the Agreement are for reference purposes only and do not in any way influence or affect the meaning of this Agreement'. Furthermore, even if the clauses are no more than representations or warranties, they would nevertheless achieve their purpose because they provided express notice that the first defendant was entering into the agreement as trustee only and was bound only in that capacity, and this is sufficient to exclude the first defendant's personal liability.[39]

54 Fourth, if the Court were to find the defendants liable, there ought to be a stay on any judgment until the Court has determined the scope of any recourse available to the plaintiff.[40]

55 In response to the above contentions, the plaintiff advanced the following submissions.

Interpretation of clause 8.1 Loan Agreement and 'limited liability'

56 As to the defendants' suggestion that the Court should embark on hearing a trial in the proceeding based on an assertion that the general circumstances at the time of entering into the Loan Agreement ought to be considered, the plaintiff relied on the terms of the written documents.

57 The plaintiffs contended that the submissions advanced by the defendants in relation to the construction and/or meaning of various clauses of the Loan Agreement, and by extension the Guarantee and Trust Deed, were so lacking that it was clear that there was no prospect of the defendants succeeding on any argument.

58 Taking each argument in turn, the defendants submitted that clauses 8.1(l) and 8.1(o) of the Loan Agreement were vague and ambiguous such that they could have no sensible meaning.[41]

59 In respect of clause 8.1(l), whilst the plaintiff acknowledged that were several possible interpretations, the plaintiff submitted that the clause was absurd. The plaintiff amplified this submission by focusing on the wording in clause 8.1(1), in particular 'the recourse ... 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'.

60 The defendants' interpretation of clause 8.1(l), would, it was submitted, effectively limit the first defendant's liability to its indemnity under clause 8.4 of the Trust Deed and to actual payments out of the Trust fund, as defined in the Trust Deed, and not merely the extent of an entitlement to indemnity.[42] The plaintiff submitted the words 'actually indemnified' were, in this context, inherently unclear and, in fact, so unclear that there is no real prospect of those words meaning anything sensible.[43] The words 'actually indemnified' may either repose in the trustee the ability to determine at its discretion the amount it actually takes from the Trust assets pursuant to the indemnity, or be simply a passing reference to the law of indemnification. In the former case, it was submitted to be a commercial absurdity, and in the latter, it was said to be meaningless.[44]

61 The plaintiff also pointed to the lack of any evidence regarding what the Trust assets are, as indicating the clause is void for uncertainty.[45] The plaintiff submitted that taken at its highest, the clause limits the plaintiff's recourse to the first defendant out of the Trust assets, but does not limit the liability of the first defendant.[46]

62 In respect of clause 8.1(o), the plaintiff acknowledged that there are several possible interpretations of that clause. The plaintiff contended that if the defendants' interpretation of clause 8.1(o) was accepted, the effect would be to completely exonerate the second defendant from any liability to the plaintiff, regardless of the Guarantee, simply because the second defendant is a Trust Beneficiary. There was no evidence before me that the terms of the Trust Deed had been disclosed to the plaintiff at the time of taking the Guarantee from Mr Welner. Neither of the defendants contended so. Further, the plaintiff submitted that the defendants' interpretation ignores the words 'in that capacity' in subparagraph 8.1(o)(i). The plaintiff further submitted that he does not sue the second defendant in the second defendant's capacity as a Trust Beneficiary, but rather as the guarantor under the Guarantee. The plaintiff additionally submitted subparagraph (ii) of clause 8.1(o) should be interpreted to be subject to that same limitation.[47]

63 The plaintiff further contended that limiting the liability of the first defendant to the assets of the Trust requires clear and unambiguous terms, relying on Austrust Pty Ltd v Astley.[48] It was said that clauses 8.1(l) and 8.1(o) are not clear or unambiguous.[49] The plaintiff submitted that there is no clear statement of limitation that recourse by the plaintiff is limited to the Trust assets,[50] and if it was the intention of the parties entering into the Loan Agreement and Guarantee to impose such a limitation, it should be the subject of a standalone agreement as opposed to a representation or warranty and expressed in clearer terms.[51]

64 Additionally, it was submitted that contractual provisions that reserve for a party the effective discretion as to whether to comply with essential terms are illusory and unenforceable.[52] The plaintiff contended that on the defendants' construction of clauses 8.1(l) and 8.1(o) of the Loan Agreement, the practical effect of the clauses is to give the first defendant the complete discretion as to whether to comply with its essential obligation to repay the loan.[53] The defendant's construction of 'actually indemnified' would rest with the first defendant unfettered discretion to determine the extent to which it is actually indemnified from the Trust assets.[54] The plaintiff submitted that clause 8.1(l) was therefore illusory and should be severed,[55] relying on GoConnect v Sino Strategic International[56], Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd[57] and Godecke v Kirwan[58].

65 The plaintiff submitted that this discretion, and by extension the illusory nature of clause 8.1(l), was further demonstrated by the fact that the first defendant, in its own capacity and not as Trustee, on-lent the plaintiff's Principal to Urbanlife Group Australia Pty Ltd ('UrbanLife'). The plaintiff submitted that if the first defendant, in its capacity as Trustee, transferred the Principal to itself in its own capacity, that would call into question whether it satisfied the conditions of its entitlement to the indemnity in clause 8.4 of the Trust Deed. The plaintiff submitted that on the defendants' argument, if there is no indemnity then the defendants would have no liability to the plaintiff under clause 8.1(l), which could be the result of the second defendant causing the first defendant to act in a way that potentially avoids its entitlement to indemnity.[59] This was said to be an absurd result and an interpretation that lacked any reasonable prospect of success.

66 Relying on Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth of Australia,[60] it was also contended that it is immaterial in what capacity the first defendant borrowed funds from the plaintiff, because whether it borrowed funds in its own capacity or as trustee, it nonetheless remains liable for the obligation to repay.[61] The plaintiff submitted that the distinction is relevant only as to whether it has an indemnity against the Trust assets.[62]

Interpretation of clauses 8.1(m) and 8.1(n) Loan Agreement

67 Although the plaintiff submitted that it is not contrary to public policy to limit his ability to sue the first defendant in any capacity other than in its capacity as trustee, or to limit his recourse to the Trust assets, what is contrary to public policy is the limitations in clauses 8.1(m) and 8.1(n) to bringing winding up proceedings.[63] However, the plaintiff ultimately submitted that the public policy issue in respect of bringing winding up proceedings was not an issue that needed to be addressed for the purposes of the Application.[64] I accept that submission.

68 It was further argued that clause 8.1 is not an agreement by the plaintiff to a limitation but rather, is merely a representation and warranty made by the first defendant as borrower.[65] The plaintiff submitted that the chapeau of clause 8.1, being '[t]he Borrower represents and warrants that', indicates that clause 8.1 contains representations and warranties by the borrower and not agreements by the plaintiff to the matters in clause 8.1.[66] The plaintiff submitted that the phrase '[t]he Borrower represents and warrants that' would not be excluded by clause 1.2 of the Loan Agreement as it is part of the Loan Agreement itself and not a heading.[67]

69 Additionally, the plaintiff contended that there is inherent ambiguity and confusion arising from the fact that the subclauses within clause 8.1, despite what they say on their face, are representations and warranties and not agreements.[68] However, the plaintiff denied that such ambiguity and confusion meant this is an issue that ought to proceed to trial. The plaintiff submitted that the matter is so clear that there is no real prospect of the defendants succeeding on any argument that the effect of clause 8.1 of the Loan Agreement was to limit the plaintiff's rights.[69]

70 The plaintiff's position was that a stay was not necessary.[70]

71 In their supplementary written submissions dated 26 November 2024, the defendants advanced three further submissions in opposition to the Application, each of which was challenged by the plaintiff in their supplementary submissions dated 10 December 2024.

72 First, the defendants submitted that, following the order I made on 8 November 2024, the plaintiff had failed to serve an amended writ to bring a claim against the first defendant in its capacity as trustee. It was submitted by the defendants that, in the absence of any amended writ, the Amended Claim exceeded the confines of the writ and therefore, the Application should be dismissed.[71] In response, the plaintiff submitted that pursuant 8 November 2024 orders, the plaintiff was not required to file and serve an amended writ. Furthermore, and in any event, the lack of description on the writ of the first defendant in its capacity as trustee is a mere irregularity, and it is evident from the pleading that the first defendant is sued in its capacity as trustee.[72]

73 Second, the defendants submitted that as they had adduced evidence of alleged conversations between the parties, this called into question the plaintiff's capacity to bring proceedings and could form the basis for an application to strike out the proceedings in their entirety. No such application was advanced by the defendants before me. Although, in their supplementary written submissions, the defendants also contended that their 'evidence of no admission to any liability' raised a question of fact that must be determined at trial,[73] this submission was ultimately not pressed by counsel for the defendants.[74] In reply, and assuming the communications to which the defendants refer is the material exhibited to the affidavit of Raj Malhotra filed 22 November 2024, the plaintiff submitted that the material does not support the allegation that the plaintiff agreed to forego interest, or the allegation he agreed to not bring proceedings except in certain circumstances.[75] Having regard to the alleged conversations referred to in Mr Malhotra's affidavit, and the documents exhibited, I accept the plaintiff's submission that the alleged conversations do not, and could not, constitute an agreement in the terms alleged.

74 Third, in respect of clause 8.1(l), the defendants submitted that the first defendant's right of indemnity is limited only to the extent of the Trust fund, as defined in the Trust Deed, pursuant to clause 8.4 of the Trust Deed. The defendants further contended that the plaintiff has no recourse against the second defendant pursuant to clause 8.1(o) of the Trust Deed because the second defendant is a Trust Beneficiary as defined in the Trust Deed.[76] In reply, the plaintiff reiterated that clauses 8.1(l) and 8.1(o) of the Loan Agreement are vague and ambiguous, that the clauses give a practical discretion to the first defendant as to whether to repay the loan, and that the clauses are not terms of agreement but rather representations and warranties.[77]

75 During the hearing on 16 December 2024, the defendants:

(a) conceded in respect of the first supplementary submission;[78]

(b) did not press any part of the second supplementary submission;[79]

(c) in respect of the third supplementary submission, submitted that the fact the second defendant is named as a Trust Beneficiary only concerns the second defendant's liability as guarantor, and does not concern the first defendant.[80]

76 On 15 December 2024, one day before the final hearing of the Application, an affidavit of Dale Harrison sworn on 13 December 2024 ('Harrison Affidavit') and an affidavit of Mr Welner sworn on 15 December 2024 ('Welner Affidavit') were filed by the defendants.

77 The Welner Affidavit exhibited the Direction to Pay dated 31 October 2024 to UrbanLife Group Australia Pty Ltd (ACN 631 929 096) ('UrbanLife') from the plaintiff, whereby the plaintiff in his capacity as attorney for the first defendant directed UrbanLife to make payment of outstanding amounts to him. Meanwhile, the Harrison Affidavit contained the statement that it was UrbanLife's intention to pay the first defendant by the end of 2024, the funds payable under the Loan Agreement.[81]

78 During the hearing on 16 December 2024, the defendants submitted that the Harrison Affidavit and Welner Affidavit raised an issue of double recovery. The defendants submitted that, in the event the plaintiff was to receive judgment against the first defendant, it would still have a claim against UrbanLife for the debt which it owed to the first defendant and had been directed to pay.[82] As a consequence, the defendants submitted that UrbanLife should be joined as a party to the proceeding.[83] Relying on Yee v Yee,[84] the defendants also submitted that UrbanLife should be joined because any orders made against the defendants would directly affect its rights and liabilities under the Direction to Pay.[85] The defendants made no application for joinder.

79 In response, the plaintiff submitted that this issue was moot. Any payment by UrbanLife would be effectively a payment to the first defendant, so there would be no double dipping.[86] Furthermore, UrbanLife was not a necessary party because it was not privy to the Loan Agreement or Guarantee, nor does it have any special interest in the case.[87]

80 Relatedly, the defendants submitted that the plaintiff has a duty to mitigate his debt, and given that he is able to make a claim directly against UrbanLife arising from the Direction to Pay, the plaintiff should be entitled only to that part of the claim which he is unable to mitigate.[88] The defendants submitted that the plaintiff was required to explore the avenue of obtaining funds directly from UrbanLife before the quantum of judgment could be ascertained.[89] The defendants further submitted that a trial was required to lead evidence as to whether the plaintiff had taken reasonable steps to mitigate his loss, and to what extent mitigation is available from UrbanLife.[90]

81 In response, the plaintiff submitted that mitigation does not apply to the present case. The 'damages' in this case are simply the non-payment of the debt and interest, and even if there is an alternative avenue to obtain payment of that debt, it does not reduce the amount of the debt.[91] The plaintiff further submitted he has taken mitigating steps, in the sense of seeking summary judgment and thereby mitigating the accumulation of interest on the debt.[92] The plaintiff also submitted that whether or not UrbanLife pays some or all of the debt, no payment had yet been made, and until there is evidence of an actual reduction of the debt claim, the ability to mitigate was irrelevant.[93] Whether a third party, here UrbanLife, may have agreed to discharge the first defendant's liability under the Loan Agreement does not preclude the entry of judgment against the first defendant.

82 The plaintiff's case before me was essentially one where it sought to prove the terms of the Loan Agreement and Guarantee, event of default and entitlement to judgment. There was no dispute that a written Loan Agreement and Guarantee had been entered into, or that the Principal had been advanced under the Loan Agreement. Nor was there any dispute that the time for repayment had passed and that the Principal, together with interest, remained due and payable. Additionally, there was no dispute before me that a Guarantee had been given by Mr Welner in respect of the first defendant's obligations under the Loan Agreement and that, having been called on, that Mr Welner had not discharged his obligation pursuant to the Guarantee.

83 Where an application for summary judgment is properly made, the position, as stated in Hausman,[94] is that there will be judgment for the plaintiff unless the defendant shows cause against the application to the satisfaction of the Court.[95]

84 A defendant wishing to show cause can do so by affidavit, or otherwise, but must use reasonable diligence to put before the Court all of the evidence relied upon. Any affidavit should state clearly and concisely what the defence is, and provide sufficient particulars to enable the defence case to be properly understood. I reiterate my earlier observations in relation to the compass of the one affidavit filed by Mr Welner in opposition to the Application and of the fact that he did not confirm, on oath, the matters attributed to him in Mr Malhotra's affidavits.

(a) the plaintiff was suing the first defendant, a trustee company, in its capacity as trustee;

(b) the trustee company's liability is limited to the value of the Trust assets;

(c) there is a distinction between limiting liability to the value of the Trust assets and limiting recourse to the Trust assets, while nonetheless leaving liability in full;

(d) Mr Welner's liability under the Guarantee is, in any way, limited; and

(e) UrbanLife should be joined as a party to the proceeding and/or whether, an allegation that the plaintiff had not mitigated warranted the matter proceeding to trial.

86 Importantly, those questions arose in the context where:

(a) there was no evidence before me from either defendant as to the assets of the Trust;

(b) there was no dispute that the Principal had been advanced, was due and owing with interest and had not been repaid; and

(c) there was no dispute as to Mr Welner's liability under the Guarantee for any amounts determined to be payable by the first defendant under the Loan Agreement.

Identity of the first defendant in the pleading

87 As to the first issue, having not opposed the amendment of the heading of the proceeding, and having regard to the matters pleaded in paragraph 2 of the Amended Claim, any resistance to the Application by the defendants based on the identity of the first defendant was abandoned.[96]

88 As to the second issue, namely whether a company's liability is limited to the value of the trust, it is trite law that a trustee has a right of indemnity.

89 In Carter Holt Harvey Woodproducts Australia Pty Ltd v the Commonwealth[97] Kiefel CJ, Kean and Edelman JJ, in considering the nature of the power of exoneration in insolvency, held:

Whether sourced in statute, or as an express term or equitable implication in the trust instrument, the trustee has two rights to obtain indemnity. In Chief Commissioner of Stamp Duties (NSW) v Buckle, this Court approved the following passage from Scott on Trusts, which described the general characteristics of the two rights of indemnity:

Where the trustee acting within his powers makes a contract with a third person in the course of the administration of the trust, although the trustee is ordinarily personally liable to the third person on the contract, he is entitled to indemnity out of the trust estate. If he has discharged the liability out of his individual property, he is entitled to reimbursement; if he has not discharged it, he is entitled to apply the trust property in discharging it, that is, he is entitled to exoneration.

Although both of these rights of indemnity might strictly be described as powers of indemnity, their description as 'rights' emphasises that they do not exist independently of the rights that the trustee holds on trust. The powers of indemnity are concerned with a means by which trust rights can be used. They are thus part and parcel of the trust 'rights' in a broad sense. For instance, a trustee's rights concerning 'cash at bank' include both the right to be paid money on request and the power to direct that those funds be used to discharge debts owed to trust creditors.

90 Similar observations have been made recently in Naaman v Jaken Properties Australia Pty Ltd,[98] where the High Court held (citations omitted):

1. It has been settled by decisions of this Court, consistently with decisions of many other courts in Australia and elsewhere, that a trustee has as an incident of office an entitlement in equity to be indemnified out of the trust assets (by way of recoupment of past expenditure or exoneration from existing liability) for expenses and liabilities properly incurred by the trustee in the execution of the trust.

...

1. The interest which a trustee has in the trust assets that is commensurate with the entitlement of the trustee to be indemnified out of the trust assets for expenses and liabilities properly incurred in the execution of the trust has repeatedly been said in this Court to be properly characterised as a beneficial interest in the trust assets which takes priority over the beneficial interest that the cestuis que trust have in the trust assets.

...

1. Where a trustee acting within its powers properly or reasonably incurs a debt or liability in the course of the administration of the trust, although the trustee is personally liable for that debt and liability, it is entitled to indemnity out of the trust estate. If the trustee has not discharged the liability, the trustee has a right of exoneration and is entitled to apply the trust property in discharge of the debt or liability and if the trustee has discharged the liability, the trustee has a right of reimbursement.

91 Counsel for the plaintiff submitted that the denial in paragraph 41 of the Defence was without reasonable prospects of success and plainly wrong in so far as it pleads that the first defendant has no obligations under the Loan Agreement.

92 In this regard, it was contended that the trustee remains liable under the Loan Agreement irrespective of whether Welner Lawyer Pty Ltd (ACN 640 273 552) entered into the Loan Agreement in its own capacity or in its trustee capacity, as the distinction in capacity is relevant only to whether the trustee has an indemnity against the Trust assets. And where it entered into the Loan Agreement as trustee, as is the case here on the face of the Loan Agreement document, it has that indemnity against the Trust assets. Plainly that submission is not only a factually correct statement, having regard to the evidence before me, but legally correct. I accept that submission.

93 As to the third issue, and to the extent that the defendants contend that the plaintiff is limited in his recourse to assets of the Trust, and as to the extent of the trustee's indemnity, there were two interpretations of that position put before me.

94 Firstly, it was put by Counsel for the plaintiff that the effect of that clause was merely to restate the legal position that the trustee has a right of indemnity. This, it was submitted, then raises the issue of the use of the word 'actually'.

95 Counsel for the plaintiff submitted that had it been the parties' intention to somehow limit the trustee's recourse, the word 'actually' would be a meaningless qualifier to the limitation of recourse. Alternatively, even if the word is taken in its grammatical context or given its ordinary meaning, it makes no commercial sense and serves no purpose, rendering it an unnecessary or confusing qualification.

96 In amplifying this point, including the limitations of the defendants' own submissions, the plaintiff relied on the decision of Mulligan J in Austrust Pty Ltd v Astley[99] ('Austrust') where his Honour held:

It is, and was at the time, well known that a trustee is personally liable for debts which he incurs in that capacity unless personal liability is expressly excluded in the relevant transaction, eg, a loan agreement or a memorandum of mortgage, and care must be taken to ensure that such exclusion is expressed in clear and unambiguous terms.[100]

97 In Austrust, Mulligan J, citing Lord Westbury LC, went on to state:

It is not contrary to public policy for a trustee to limit or exclude personal liability but such an exclusion can be achieved only by clear words. In Lumsden v Buchanan (1865) 4 Macq 950 at 955 Lord Westbury LC went so far as to say that a limitation of liability 'must be the result of express stipulation'; but express words are not required if the circumstances, including the construction and nature of the contract, demonstrate the intention that payment should be made not personally by the trustee but only from the assets of the trust. The presumption in favour of personal liability is strong. It is not displaced because a person makes a contract or covenant 'as trustee'. Those words are simply descriptive and it remains a personal contract or covenant by the trustee himself.[101]

98 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.

99 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.

100 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[102] 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...

101 Counsel for the plaintiff otherwise relied on the decision of the Court of Appeal in GoConnect v Sino Strategic International[103] 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.

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 Stathopolous 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.

103 As to the fourth issue, Mr Welner's defence against any liability under the Guarantee relied on in the first defendant's defence. Relying on clause 1.3 of the Guarantee, Mr Welner contended that he is only obliged to indemnify the plaintiff for the first defendant's obligations under the Loan Agreement, specifically the Principal plus any interest. Other than pleading that he is only liable in so far as the first defendant is liable, there is no further or separate defence raised by Mr Welner to the plaintiff's claim. Having determined that the defence by the first defendant lacked any reasonable prospect of success, it must follow that the defence of Mr Welner must also lack any reasonable prospect of success.

104 I otherwise note that the plaintiff only pressed for its claim in relation to the Principal and interest owing under the Loan Agreement and not for any costs that might have otherwise been claimable under the terms of the Loan Agreement.[104]

105 Finally, contrary of the submission by Counsel for the defendants, I do not accept that UrbanLife need to be joined to the proceeding, that there is a matter arising from the Direction to Pay or that there is an issue of mitigation that necessitates a trial. No application was made by the defendants to join UrbanLife to the proceeding. Nothing about the decision I am required to make in respect of the Application will determine UrbanLife's rights. The mere fact that an attorney clause in the Loan Agreement has been used to issue a direction to pay to the ultimate recipient of the Principal that was advanced is of no relevance to determining whether the Defence has a real prospect of success. Additionally, there is nothing about the Direction to Pay having been issued that means it is not in the interests of justice to enter judgment or that the dispute is of such a nature that only a full hearing on the merits is appropriate.

106 At its highest, Counsel for the defendants submitted that:

HER HONOUR: But that goes back to basic principles, does it not, Mr Korman, that were the plaintiff to be in receipt of a judgment, it can't recover more than the value of its judgment.

MR KORMAN: That's right.

HER HONOUR: It can't double-dip.

MR KORMAN: It can't double-dip. And yet it would be in a position where it can, that's my point.

HER HONOUR: Well, that - - -

MR KORMAN: And the reason why this case - or this would come around is because both parties ought to have been - both Urban Life and my client ought to have been parties to this case. And in that circumstance you have one judgment that binds everybody - - -

HER HONOUR: Why should Urban Life be party to this proceeding?

MR KORMAN: Because the plaintiff has a claim now against Urban Life to pay it moneys under this direction to pay.

HER HONOUR: I'm struggling, Mr Korman, to understand how any of this impacts upon my ability to decide the application before me, which is a very limited application based on a confined number of paragraphs of the pleading which simply deal with the loan agreement as it stands and whether or not there is a debt due and payable under the loan agreement.[105]

MR KORMAN: Well, on a summary judgment basis. That is, what I'm saying is that at trial evidence would be led as to what efforts the plaintiff had engaged in to mitigate its loss, what was the outcome of those efforts, and the court will then determine whether the efforts to mitigate its loss were sufficient. Here, it seems that the fact that - I should say the fact that Mr Harrison has said that he intends to pay the loan doesn't ipso facto mean, and I don't mean to besmirch my own client, but the moneys may or may not come back to the plaintiff. And what I'm saying is that there is a - - -

HER HONOUR: I don't understand that point.

MR KORMAN: What I'm saying is that the ability to obtain funds directly from Urban Life gives an ability to potentially partially or wholly reduce the damages that are claimed. That avenue needs to be explored by the plaintiff before the quantum of judgment to which it is entitled can be ascertained.[106]

HER HONOUR: But here, Mr Korman, the plaintiff has served its notice. What further steps do you say it could, or should, have taken?

MR KORMAN: Well, it should wait a reasonable period to see if payment will be forthcoming.

HER HONOUR: What's that reasonable period? And where is the authority for that proposition?

MR KORMAN: The authority? Well, I would rely on general principles to the effect as follows: In every case the question of to what extent a plaintiff can mitigate its damage will vary from case to case. In some cases the opportunity to mitigate might be so remote that there really can't be anything sensibly submitted. In other cases there may be an opportunity to take certain actions to mitigate the damage. The court in every case will have to determine on the basis of the evidence before it, including for example the evidence that Mr Harrison might give if called to testify, as to what a reasonable attempt to mitigate - what constitutes a reasonable attempt to mitigate.

It's not possible here at a summary judgment application, on the basis of affidavit material that's entirely silent about this step that was taken, for any sensible conclusion to be drawn by the court as to whether or not the plaintiff has taken reasonable steps to mitigate its claim.

There simply is no evidence before the court that would allow the court to make that determination. In my submission I don't think it's a question for authority as to what is reasonable; it's a question for the court to weigh up having the benefit of all the relevant evidence. And all the relevant evidence will only be available at trial. That's my submission on the duty to mitigate.

It's clear that there is an avenue of mitigation potentially available to the plaintiff. What's not clear, because the evidence that's been submitted to date doesn't suffice to allow the court to establish it, is to what extent mitigation is available from Mr Harrison. It's simply not possible for me or the plaintiff, or the court, to know at this stage.[107]

110 The defendants' Counsel otherwise placed reliance on the learned authors of Cheshire and Fifoot, reading a partial to support the submission that there was an issue, here the duty to mitigate, that warranted a trial:

However the injured party is obliged to take only such steps as are reasonable and need not resort to measures that are costly, complex or extravagant or likely to impair its position or reputation...

111 The partial passage does not, however, support the defendants' position. The full passage reads:[108]

However, the injured party is obliged to take only such steps as are reasonable, and need not resort to measures that are costly, complex or extravagant, or likely to impair its position or reputation. It has been said that 'a plaintiff is not obliged to act otherwise than in the ordinary course of business, and the standard is not a high one because the defendant is a wrongdoer'. Reasonableness is assessed as a question of fact, in the light of the circumstances existing at the time the mitigating action was taken and without the benefit of pure hindsight.

Failure to mitigate that is due to impecuniosity on the part of the injured party probably does not affect the recovery of damages, at least where the breach contributed to the party's lack of means.

The plaintiff is entitled to damages for loss incurred in any reasonable attempt to mitigate, even if the total loss resulting from the breach is increased thereby. Thus, the plaintiff is entitled to recover the cost of litigation reasonably undertaken, even if unsuccessful.

112 As the learned authors make clear, there is no obligation on the plaintiff to resort to measures that are costly, complex or extravagant or likely to impair its position or reputation. Noting that there is no positive defence pleaded which alleges a failure to mitigate, I do not accept the defendants' submissions.

113 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.

114 In Lysaght,[109] 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.

115 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.

116 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.

117 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.

118 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

119 The parties are directed to confer as to an appropriate form of order to give effect to these reasons. In the event the parties are unable to reach agreement about those matters, the matter will be listed for a brief further hearing and the parties will be required to set out their respective positions in short written submissions.

[1] Transcript of Proceedings (8 November 2024) 1.17-1.24.

[7] [2018] VSC 301.

[8] [2019] VSC 323, [41].

[9] [2019] VSC 703, [49]-[60].

[10] [2020] VSC 86, [22]-[38] ('BABL').

[11] [2013] VSCA 158; (2013) 42 VR 27, 40 [35].

[12] Ibid, 40 [35] (Warren CJ and Nettle JA, Neave JA agreeing in part at 42 [40]-[42]).

[13] Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 22.03.

[14] (2009) 29 VR 213; [2009] VSCA 288 ('Hausman').

[15] Ibid, 225 [60] (citations omitted).

[16] Ibid, 225-226 [62]-[65] (citations omitted).

[21] Burton v Shire of Bairnsdale [1908] HCA 57; (1908) 7 CLR 76, 92 (Isaacs J).

[22] Affidavit of George Stathopoulos filed 16 September 2024, [13]-[14].

[26] Affidavit of Raj Malhotra filed 18 September 2024, [4(f)].

[27] Clause 1.1 of the discretionary trust deed dated 14 April 2020.

[29] Transcript of Proceedings (19 September 2024, Delany J), 27.24-27.30.

[30] Defendant's Submissions dated 4 November 2024, [6] ('DS').

[31] Transcript of Proceedings (8 November 2024) 45.20-45.24.

[35] Defendants' Supplementary Submissions dated 26 November 2024, [6] ('DSS').

[36] Transcript of Proceedings (8 November 2024), 50.24-51.7.

[40] Transcript of Proceedings (8 November 2024), 53.15-54.15.

[41] Plaintiff's Supplementary Submissions dated 10 December 2024, [19] ('PSS').

[42] Ibid, [19(a)]; Transcript of Proceedings (8 November 2024) 28.4-28.23.

[43] Transcript of Proceedings (8 November 2024) 35.21-36.10.

[46] Ibid, 26.6-28.2, 34.13, 35.5, 44.23-45.3.

[48] [1993] SASC 3969; (1993) 60 SASR 354, 373.

[49] PSS, [20]; Transcript of Proceedings (8 November 2024) 30.10-31.15.

[50] Transcript of Proceedings (8 November 2024) 31.15-32.29.

[53] Ibid, [21]; Transcript of Proceedings (8 November 2024) 26.16-26.25, 28.24-28.30.

[54] PSS at [19(a)]; Transcript of Proceedings (8 November 2024) 39.12-39.22.

[55] Transcript of Proceedings (8 November 2024) 38.19-44.21.

[56] [2016] VSCA 315.

[57] [2016] HCA 26; (2016) 260 CLR 1.

[58] [1973] HCA 38; (1973) 129 CLR 629.

[60] [2019] HCA 20; (2019) 268 CLR 524, 542-543 [29] (Kiefel CJ, Keane and Edelman JJ).

[61] Transcript of Proceedings (8 November 2024) 20.28-21.1.

[62] Transcript of Proceedings (8 November 2024) 21.30-22.19.

[63] Plaintiff's Outline of Submission dated 28 October 2024, [14] ('POS'); Transcript of Proceedings (8 November 2024) 29.3-29.16.

[66] Transcript of Proceedings (8 November 2024) 15.25-16.24.

[67] Ibid, 16.6-16.14. See also Clause 1.2(c) of the Loan Agreement which provides that '[t]he clause headings in [this] Agreement are for reference purposes only and do not in any way influence or affect the meaning of this Agreement.'

[68] Transcript of Proceedings (8 November 2024) 16.16-16.24.

[74] Transcript of Proceedings (16 December 2024) 12.1-12.14.

[78] Transcript of Proceedings (16 December 2024) 10.16-11.1.

[81] Affidavit of Dale Harrison filed 15 December 2024, [6].

[82] Transcript of Proceedings (16 December 2024) 3.1-4.12.

[84] [2017] NSWCA 305, [197].

[85] Transcript of Proceedings (16 December 2024) 10.2-10.10.

[90] Ibid, 7.14-8.15, 9.2-9.22, 18.1-18.22.

[95] Hausman (n 12) [2009] VSCA 288; (2009) 29 VR 213, 225 [62].

[96] Transcript of Proceedings (16 December 2024) 11.31-12.13.

[97] [2019] HCA 20; 268 CLR 524, [29] (citations omitted).

[98] (2025) 99 ALJR 295. See also [14]-[17] and [88].

[99] Austrust Pty Ltd v Astley [1993] SASC 3969; (1993) 60 SASR 354.

[101] Austrust (n 99) 374, quoting Paul D Finn, Essays in Equity (Law Book Company, 1985) 144 (McPherson J) (citations omitted).

[102] (1985) 60 ALJR 1, 3 (citations omitted).

[103] [2016] VSCA 316, [46]-[55].

[104] Transcript of Proceedings (8 November 2024) 24.3-24.16.

[105] Transcript of Proceedings (16 December 2024) 4.5-4.28.

[108] Nick Seddon and Rick Bigwood, Cheshire & Fifoot, Law of Contract (Lexis Nexis Australia, 12th ed, 2022) [23.43] (citations omitted).

[109] [2013] VSCA 158; (2013) 42 VR 27, 40 [35](d) (Warren CJ, Nettle JA).