Plaintiffs v First Defendant Second Defendant Third Defendant

Introduction, parties and summary of conclusions

1 Australian Property Custodian Holdings Ltd ("APCHL") is the responsible entity of the Prime Retirement and Aged Care Property Trust ("the Trust") and the ultimate holding company of a number of related entities ("the Prime Group"). A diagram of the relevant parts of the Prime Group corporate structure is attached to these reasons. APCHL, as responsible entity of the Trust, directly and through related Prime Group entities, acquired a number of retirement villages. Eleven of the villages are relevant to this proceeding.[1] Those retirement villages are leased to and managed by Lend Lease Primelife Ltd ("LLP"). Capital Finance Australia Ltd ("CFAL"), Industry Funds Management (Nominees 2) Pty Ltd ("IFM") and Suncorp-Metway Ltd (together, the "Secured Creditors") are secured creditors of one or more entities within the Prime Group. Each of the Secured Creditors has appointed receivers over the assets of the relevant Prime Group entities under the terms of their securities.

2 The plaintiffs, Stirling Lindley Horne and Petr Vrsecky ("Liquidators"), were appointed as liquidators to APCHL and to other companies in the Prime Group. The Liquidators seek a declaration that a proposed proceeding against LLP does not involve property charged to the Secured Creditors and does not require the consent of the Secured Creditors before being instituted. Alternatively, they seek a declaration that they may institute the proposed proceeding against LLP.

3 Finally, the Liquidators seek approval to enter into a litigation funding agreement for the purpose of funding the proposed proceeding against LLP. The litigation funder is controlled by Mr William Lionel Lewski. He is a former director and shareholder of APCHL. Mr Lewski is also a defendant in a proceeding brought by the Liquidators against him and others ("the Listing Fee Proceeding").[2] Among other things, that proceeding concerns allegations of breach of director's duties by Mr Lewski said to arise out of amendments that were made to the Trust's constitution to provide for payment of a "listing fee" to APCHL in its own right (rather than as trustee of the Trust). I will refer to the claims made in that proceeding as "the Listing Fee Claim."

4 Each of the Secured Creditors contends that the proposed claim against LLP is property that is subject to its securities and that the Liquidators are not entitled to institute proceedings in respect of that claim. Alternatively, the Secured Creditors say that if the proposed claim is not subject to their security, nevertheless the Liquidators ought not be permitted to institute proceedings against LLP as this would interfere with the receiverships. Each of the Secured Creditors also says that the proposed litigation funding agreement should not be approved. LLP is also a creditor of APCHL. It made submissions opposing the application for approval of the litigation funding agreement. The Australian Securities and Investments Commission appeared as a friend of the Court and made submissions in respect of the proposed funding agreement.

5 Two of the Secured Creditors, CFAL and IFM, and the CFAL Receivers, have brought counterclaims and each has sought leave to do so with such leave to have retrospective effect. Among other things, they seek declarations that the proposed claim against LLP is subject to the securities held by CFAL and IFM. In addition, CFAL and the CFAL Receivers seek a declaration that the Listing Fee Claim and another potential claim relating to the sale of management rights are also subject to CFAL's securities. They also seek declarations as to the validity of the appointment of the CFAL Receivers. More information about the counterclaims is set out below.

6 For the reasons that follow, the declarations sought by the Liquidators ought not be made. The proposed claim against LLP is property that is subject to the security held by the Secured Creditors. The Secured Creditors have not relinquished their rights in regard to this asset and the Liquidators would need the consent of the Secured Creditors before they were entitled to prosecute the proposed litigation against LLP. That consent has not been forthcoming. To permit the Liquidators to bring the proceeding would be to permit interference with the receiverships and the Court will not sanction this. The Listing Fee Claim (as presently framed in the Originating Process) and the claims relating to management rights are subject to securities held by CFAL. The Liquidators would also require the consent of CFAL to prosecute those claims.

7 The Liquidators' application will be dismissed. I will hear counsel as to the form of orders and declarations that ought to be made in the counterclaims.

8 The proposed claim that the Liquidators seek to bring would be brought by APCHL and a number of its related entities ("the APCHL parties"). Those related entities are also in liquidation and one or other of the Secured Creditors has appointed receivers over each related entity's assets. The proposed defendants to the proceeding are LLP and a number of its related entities ("the LLP parties"). A draft general endorsement of claim has been prepared ("the Draft Endorsement"). From that document, it is apparent that what is intended to be alleged are breaches of each relevant lease, management agreement and a subsequent operating agreement alleged to have been entered into by the relevant LLP parties relating to particular retirement villages. The APCHL parties would claim that they are entitled to determine those agreements and that they have suffered loss and damage up to approximately $173 million. An alternative plea is based on breach of another agreement entered into between the parties with the same loss and damage claimed. The prayer for relief in the Draft Endorsement seeks, amongst other things, damages for breach of the leases and operating agreement, a declaration that each of the leases has been forfeited and determined, an order that the APCHL parties are entitled to possession of the relevant retirement villages which are the subject of the leases, an order for payment of amounts said to be due and payable to the APCHL parties pursuant to the leases and an order that the LLP parties pay to the APCHL parties amounts received from any incoming resident of the villages. I will refer to the claim pleaded in the Draft Endorsement as the "Proposed Claim" and the proceeding in which it would be brought as the "Proposed Proceeding."

9 It was common ground that receivers have power to bring proceedings to realise property that is subject to the charge pursuant to which they have been appointed.[3] The principal questions here are whether the Proposed Claim is the subject of the securities held by the Secured Creditors and whether the Liquidators may bring the Proposed Proceeding in any event. I will consider the position of CFAL first, then IFM and last Suncorp-Metway.

10 CFAL appointed Craig Peter Shepard and Mark Anthony Korda ("the CFAL Receivers") as receivers of the property, assets and undertaking of APCHL. They were also appointed as receivers of the property, assets and undertaking of Nambour Retirement Village Pty Ltd, Buderim Meadows Retirement Village Pty Ltd, Chancellor Park Retirement Village Pty Ltd and Noosa Outlook Retirement Village Pty Ltd ("the Four APCHL Subsidiaries").[4] Included amongst the assets over which the CFAL Receivers were appointed are seven retirement villages owned by those companies or APCHL:

11 The land on which each of the retirement villages is located is the subject of leases and management agreements entered into between the relevant APCHL parties and LLP or one of its related entities. One of the terms of the leases is that LLP must manage and operate the relevant village during the term of the lease with diligence and efficiency and in a proper and business like manner.[5]

12 The CFAL Receivers are realising the assets over which they have been appointed. As part of that process, they have entered into an agreement with LLP called the Joint Sales and Marketing Agreement. That agreement provides for the sale of the seven retirement villages. In particular, it provides for the surrender by LLP of its rights under the various leases and management agreements, together with a payment to LLP and a covenant not to sue on certain causes of action which are the subject of the Draft Endorsement.

13 CFAL and the CFAL Receivers have counterclaimed in the present proceeding seeking, amongst other things, declarations that all causes of action arising from the grant of rights to manage the seven retirement villages or from the management of the villages themselves (those claims being claims contemplated by the Proposed Proceeding) or arising from the sale of management rights in relation to those villages ("the Management Rights Claim") are secured by the CFAL securities. A similar declaration is sought in this proceeding in respect of the Listing Fee Claim. Finally, CFAL and the CFAL Receivers seek a declaration pursuant to s 418A of the Corporations Act 2001 (Cth) or the general law that the appointment by CFAL of the CFAL Receivers was valid and they are validly appointed over all the property and assets of APCHL in its capacity as responsible entity of the Trust.

14 The first matter to consider is the terms of the securities held by CFAL. Amongst other things, CFAL holds fixed and floating charges from APCHL in its capacity as responsible entity of the Trust, together with fixed and floating charges from the Four Subsidiaries ("the CFAL Charges"). It also holds real property mortgages over the seven retirement village properties ("the CFAL Mortgages"). Together, I will refer to the charges and mortgages as the "CFAL Securities."

15 For all relevant purposes, the CFAL Charges are in substantially the same terms.

16 Clause 3.1 of the charge given by the Four Subsidiaries provides:

The Chargor hereby charges the Secured Assets to the Chargee for payment of the Secured Money as sole trustee and responsible entity of the Trust. [6]

17 "Secured Money" is broadly defined to include all money due by the relevant chargor. In the charges given by APCHL, "Secured Assets" is defined to mean:

The whole of the undertaking property and assets of the Chargor in respect of the Property both present and future and includes (i) any part of the Secured Assets by the Chargor as trustee and responsible entity of the Trust in respect to the Property (ii) the benefit of all residents leases of part of the Property (iii) all revenue, income, management fees, service levies and the like derived from the Property and (iv) the chargor's right of indemnity arising from the Trust assets.

In the charge given by the other companies, "Secured Assets" is defined to mean "the whole of the undertaking property and assets of the Chargor both present and future and wheresoever situated and includes inter alia the Property".

"Property" is defined in one of the charges as "the Buderim Garden Village, Mooloolaba Road, Buderim, Queensland". The six other retirement villages are specified in the definition of "Property" in one or other of the other charges.

18 Clause 4.3 prohibits dealings with the Secured Assets without CFAL's prior written consent.

19 CFAL has very broad rights in respect of the Secured Assets once there has been default.[7] Included amongst CFAL's rights is a right to perform, observe, carry out, enforce, vary, or rescind any deeds, contracts, obligations, or rights of the relevant chargor.[8] Further, under the CFAL Charges, the CFAL Receivers are empowered to make any arrangement or compromise which they think expedient in CFAL's interest.[9]

20 In the charges given by APCHL, that company is described as a party "in its capacity as trustee and responsible entity of the Trust." In one of the charges given by APCHL, the charging provision in clause 3.1 (see [16] above) has the following additional wording in lieu of the words "as sole trustee and responsible entity of the Trust":

The Chargor does this as beneficial owner except for those Secured Assets which the Chargor owns as trustee of a trust, in which case the Chargor does this as sole trustee of the relevant trust.

21 In addition, clause 12.1 of the charges given by APCHL provides:

12.1 The Chargor enters into this document and all other Transaction Documents for [sic] which it is a party and incurs the obligations contained in this document acting in the capacity as trustee and responsible entity of the Trust which is a managed investment scheme ... and the following provisions apply:

12.1.1 the Chargor enters into this document only in its capacity as trustee and responsible entity of the Trust and in no other capacity;

12.1.2 the liability arising under or in connection with this document is limited to and can be enforced against the Chargor only to the extent to which it can be satisfied out of the assets of the Trust from which the Chargor is actually indemnified for the liability;

12.1.3 the limitation of the Chargor's liability applies despite any other provision of this document and extends to all liabilities and obligations of the Chargor in any way connected with any representation, warranty, conduct, omission, agreement or transaction related to this document or a Transaction Document; and

12.1.4 the Chargee may not sue the Chargor in any capacity other than as trustee and responsible entity of the Trust or seek the appointment of a receiver, except in relation to the assets of the Trust or seek to have a liquidator, an administrator or any similar person appointed to the Purchaser [sic] or prove in any liquidation, administration or arrangement of or effecting [sic] the Purchaser [sic] except in relation to the assets of the Trust.[10]

22 Clause 12.3 in the charges given by APCHL is headed "Chargor Liable as Trustee of the Trust" and provides:

The Chargor has entered this document as trustee of the Trust. All the assets both present and future of the Trust will be available to satisfy the Chargor's obligations under this document. The Chargor also hereby charges to the Chargee the Chargor's right of indemnity out of the Trust's assets to secure payment of the Secured Money.

No restriction on the Chargor's right of indemnity out of or lien over the Trust's assets exists or will be created or permitted to exist and that right of indemnity will have priority over the right of the beneficiaries to the Trust's assets.

24 The terms of the CFAL Mortgages provide that the relevant mortgagor charges the "Secured Assets" to CFAL to secure payment of the "Secured Money." Again, "Secured Money" is broadly defined to include all money due by the mortgagor. In the CFAL Mortgages given by APCHL, the mortgagor is described as "APCHL as responsible entity for the Trust." "Secured Assets" is defined to mean:

(a) the Mortgaged Land;

(b) any contract or agreement in relation to the Mortgaged Land including any agreement or option for sale, leasing or use of the Mortgaged Land and any contract in relation to Works on the Mortgaged Land;

(c) all income derived from the Mortgaged Land;

(d) the Mortgagor's right to receive any money in respect of the Mortgaged Land; and

(e) any business conducted by the Mortgagor on the Mortgaged Land.

25 Clause 11.1 of the CFAL Mortgages is headed "Mortgagor liable as trustee of the trust in its own right" and provides:

The Mortgagor has entered the Mortgage on its own behalf and as trustee of the Trust. In addition to the Mortgagor's own assets, all the assets both present and future of the Trust will be available to satisfy the Mortgagor's obligations under the Mortgage. The Mortgagor hereby charges to the Mortgagee the Mortgagor's right of indemnity out of the Trust's assets. This clause does not affect the Mortgagor's liability in its personal capacity.

26 The facility agreements entered into between CFAL and APCHL provide that APCHL will be liable as trustee of the Trust. For example, one of the facility agreements provides in paragraph 6 as follows:

Trust: If the Borrower enters this Facility Agreement as trustee of any trust of which the Borrower is trustee (the "Trust"), the Borrower and its successors as trustee of the Trust will be liable under this Facility Agreement as trustee of the Trust and all the assets both present and future of the Trust will be available to satisfy the liabilities of the Borrower.[11]

27 Each of the facility agreements also provides that if there is an inconsistency between the facility agreement and any security, the facility agreement prevails.

28 In relation to CFAL, there are five issues for consideration:

(a) As a matter of construction, do the CFAL Securities extend to the Proposed Claim?

(b) Is the Proposed Claim property that is charged under the CFAL Securities?

(c) Are the Liquidators entitled to prosecute the Proposed Claim in any event?

(d) Is the Listing Fee Claim subject to CFAL's Securities?

(e) Is the Management Rights Claim subject to CFAL's Securities?

As a matter of construction, do the CFAL Securities extend to the Proposed Claim?

29 The words used in the CFAL Securities must be interpreted using an objective approach to ascertain the intention of the parties as they have expressed it (not their subjective intention).[12]

30 Counsel for the Liquidators submitted that the "Property" defined in each CFAL Charge was the relevant retirement village (that is, the land) and probably some other business assets. He submitted that the matters referred to in (i) to (iv) in the definition of "Secured Assets" (see [17] above) did not add to the general words which preceded it. Consequently, it was submitted that the choses in action in the Draft Endorsement are not included within the definition of "Secured Assets." First, it was contended that the Draft Endorsement extends to matters in respect of many retirement villages other than the villages referred to in each of the CFAL Charges. Secondly, it was put that the Proposed Claim is one for an unliquidated sum by way of damages for breach of certain groups of agreements, but the claim was not in respect of each agreement. Rather, it was said to be in respect of losses in aggregate suffered by the Trust and the causes of action that are included in the Draft Endorsement are only complete when one identifies the damage which is alleged for breach of the contract. An example of one of the paragraphs pleading loss and damage in the Draft Endorsement reads as follows:

By reason of the breach of the Leases alleged, alternatively the breach of the Operating Agreement alleged herein the Plaintiffs have suffered loss and damage.[13]

31 Particulars of the alleged loss and damage are given with an aggregate amount for the loss of the value of the entire portfolio of retirement villages specified. The Liquidators contended that the loss and damage was not severable to particular breaches and that it is a claim for loss of value that the Trust has suffered by reason of a great many separate breaches. It was contended that it is a claim by APCHL as responsible entity for a single rolled up amount. Counsel submitted that the total loss to the Trust may not be the aggregate of losses that can be individually identified in relation to each village because the entirety of the property (that is, all the retirement villages) may be worth more than each of the properties severally aggregated.

32 The interpretation of the CFAL Charges contended for by the Liquidators is too narrow. The opening words of the definition of "Secured Assets" are very broad -"the whole of the undertaking property and assets of the Chargor in respect of the [Retirement Village]". They cover more than simply the land and some business assets. In my view those words include, among other things, any business conducted on the relevant land by the chargor, any management rights in relation to the land or business, the right to deal with the land (for example, by way of lease) and the right to sue arising out of any contract relating to the land or business (for example the relevant lease, management agreement and operating agreement).

33 The Draft Endorsement pleads breaches of individual agreements such as the leases relating to each of the relevant villages. The alleged breach of each lease is an individual claim, the right to which resides in the individual Prime Group company that entered into that particular agreement. To the extent that an individual claim relates to one of the villages over which a CFAL Charge is held, the claim is subject to that charge.

34 The argument that the claim is one global claim for loss and damage sustained by the Trust brought by APCHL as responsible entity does not accord with the Draft Endorsement. As I have noted elsewhere, the proposed plaintiffs are APCHL and the relevant related entities that own the villages in question. The Proposed Claim for total loss is a rolled up plea made by all the proposed plaintiffs together. Counsel for the Liquidators contended that APCHL as responsible entity could be the only plaintiff, with its related entities simply added as defendants. Certainly where the retirement village is owned directly by APCHL (for example, Buderim Gardens), then it is a claim that might be brought in APCHL's name (as responsible entity) for alleged breach of the contracts to which it is a party. However, four of the retirement villages over which CFAL holds a charge,[14] are not owned directly by APCHL but rather it is the ultimate holding company of the owners of those villages.[15] In this regard, the Trust asset is not the village but rather the shares that are held by APCHL in its subsidiary. Therefore, APCHL, as responsible entity, would be suing a third party for loss in the value of the shares. It is not permitted to do that. In Thomas v D'Arcy,[16] the Queensland Court of Appeal applied the principle adopted by the House of Lords in Johnson v Gore Wood & Co (a firm),[17] that a shareholder in a company is not entitled to claim or recover damages against outsiders for a loss which is a diminution in the value of the shareholder's shareholding that merely reflects the loss suffered by the company. Those cases were followed in Ballard v Multiplex Ltd & Ors.[18] The Australian cases make it clear that in applying the principle, the Court must consider the substance of the claim, not the form in which it is pleaded.[19]

35 It would be for the relevant subsidiaries to sue for their respective rights arising out of the alleged breaches of contract and this is a good reason why the proposed plaintiffs in the Draft Endorsement include the subsidiary companies as well as APCHL.

36 The contention that the Draft Endorsement extends to villages over which CFAL does not hold security[20] does not lead to a conclusion that the Liquidators may bring the Proposed Claim. The submission proceeds on the basis that there is only one claim and that because CFAL does not have a charge over the whole claim, the Liquidators may prosecute it. However, there are some difficulties with those contentions. For the reasons I have already given, the Proposed Claim is not one claim but rather many individual claims. Those parts of the Proposed Claim that are charged in favour of CFAL are subject to the rights of CFAL and the Liquidators are not empowered to bring an action based on them simply because there are other claims that may have some connection to the charged claims in a very broad sense.

37 In relation to the CFAL Mortgages, counsel for the Liquidators contended that the right to damages for the proposed cause of action (primarily for breach of contract) did not fit within the meaning of paragraph (d) of the definition of "Secured Assets" (see [24] above). Rather, it was submitted, money in respect of the mortgaged land is money for a lease or money for a profit a prendre or something of that kind. Further, it was submitted, it was not intended that a mortgage of land should cover any action for damages for breach of contract, for example, in respect of the conduct of a business upon the mortgaged land. Counsel submitted that, in their context, the words in paragraph (d) are words that ought to be limited to money which directly derives from the exploitation of rights in the land.

38 Counsel for the Liquidators submitted that paragraph (b) of the definition of "Secured Assets" (contract in relation to the mortgaged land) would not cover a contract or agreement that merely has some connection with the mortgaged land but it would include a lease of the mortgaged land. Counsel accepted that if CFAL wanted to prevent an action which might touch upon its lease rights, that would have to be excluded from any claim the Liquidators brought.

Is the Proposed Claim property that was charged under the CFAL Securities?

39 The Liquidators submitted that a right of action can only be considered to be property (intangible personal property), and the subject of a security interest, if it can be characterised as a chose in action. They submitted that the Proposed Claim did not exist and was not contingent at the time the CFAL Securities were created. As a future chose in action which does not have any existence, the Liquidators contended that it was not assignable. Further they contended that a security cannot be granted over a chose in action which is not assignable.

40 In Gough's Garages Ltd v Pugsley,[21] a company issued a debenture in 1925 by which it charged "its undertaking and all its property at present and future including its uncalled capital" to secure the money due to the debenture holders. A receiver was appointed and he made a claim in the name of the company under a 1927 statute for a new lease of premises. The company was placed into liquidation. One issue was whether the winding up order precluded the company through the receiver from proceeding with the action. The court held that the right to bring the proceedings was part of the security for the debt just as much as any other rights given by the debenture and liquidation did not nullify that right.[22] Greer LJ stated:

I should not be disposed to put too narrow an interpretation on the word "property." After all, property in law consists of rights. The complete property in any chattel consists of the right to the possession and use of that chattel. But a right of any kind, such as a right to a chose in action, is property which may be pledged to debenture holders just as any other kind of property. It does not matter whether the property in question was in existence in the hands of the company granting the debenture at the time when the debenture was given, or whether it came into existence by the operation of a subsequent Act of Parliament. It seems to me that to deprive the debenture holders of a right, under the part of the debenture that I have mentioned, to realize a valuable right of the company, because the company has gone into liquidation, is to nullify one of the valuable rights given to the receiver by the debenture.[23]

41 This case was applied in South Australian Management Corporation v Sheahan & Ors.[24] The facts in that case were that in 1988 a company charged all its undertaking and all its real and personal property and assets, both present and future, as security for all moneys due to the lender. In February 1993, the company began proceedings against a firm of chartered accountants. In the action, the company claimed damages for breach of contract and negligence in relation to accounting advice given to it by the accountants concerning the acquisition of a group of companies. The charge had appointed receivers who retired. The chargee applied for declarations that it was entitled to assume control of the action and that the chose in action was subject to its security. Citing Gough's case as authority, Debelle J held that a chose in action is an asset or property and, subject to the law relating to maintenance and champerty, a chose in action may be secured in the same way as other assets and property.[25] His Honour held that the right to bring the action against the accountants was an asset or property of the company and was subject to the charge. His Honour noted that the security was given long before the proceedings were instituted. Debelle J's judgment was upheld on appeal (although this point was not the subject of the appeal).

42 There is no reason why a charge (if its proper construction permits) cannot secure an asset that comes into existence after the date of the charge, regardless of whether it is tangible or intangible property. If that were not so, chargees would be deprived of what may prove to be very valuable assets. For example, if the Liquidators' argument were to be accepted, book debts arising out of contracts entered into by the company after the charge was given would be excluded from the charge. That may significantly deplete a charge holder's security, particularly if there was a long term charge in place. It would undermine the system of corporate finance and security in this country which relies heavily on the ability of floating charges to effectively secure future property.

43 Further, acceptance of the Liquidators' position on this point would lead to the Court ignoring the intention of the parties. Language such as "all its assets and undertaking both present and future" conveys an intention to cover every asset that exists at any time whilst the charge subsists. There would need to be a very good reason why that intention ought not to be given effect. At the time of its creation, a floating charge does not operate by way of assignment. Rather, it is an hypothecation. In those circumstances, I do not think that it matters if the property that might later come into existence and be subject to the charge could not have been assigned as at the date of creation of the charge because it did not exist.

44 In any event, the Liquidators' submissions ignore the fact that, provided there is consideration, equity will enforce an agreement to assign a future chose in action.[26] It would be an odd result indeed if such an agreement was enforceable, but that a charge over a future chose in action was not.

45 The Liquidators submitted that the Proposed Claim is not even a future chose in action, but merely a bare right to sue for damages which cannot be assigned. They relied on Poulton v Commonwealth[27] which concerned a claim for the tort of conversion and the potential for its assignment. The High Court stated that that right of action was incapable of assignment either at law or in equity.[28] The Liquidators submitted that the Proposed Claim could be viewed as a personal equity or purely personal right. The Liquidators accepted that there are exceptions to the bare right restriction on assignment but contended that they were not applicable. The first exception applies where an assignee has a genuine commercial interest in taking the assignment.[29] The Liquidators relied on the following passage from the reasons of Lindgren J in National Mutual Property Services (Australia) Pty Ltd v Citibank Savings Ltd:[30]

[t]he genuine commercial interest ... is not a nebulous notion of the general commercial advantage of the assignee but something more specific and limited. In particular, it does not embrace an interest arising from an arrangement voluntarily entered into by the assignee of which the impugned assignment is an essential part, like the arrangement in the present case. Rather, the expression refers to a commercial interest which exists already or by reason of other matters, and which receives ancillary support from the assignment.[31]

46 In that case, claims arose out of the circumstances in which investors entered into "negative gearing packages". The claims were alleged against National Mutual and Citibank (amongst others). National Mutual paid out the claims and took an assignment of the claims from the investors. Negligence, misleading and deceptive conduct and other statutory claims were pleaded. Some of the respondents sought orders striking out the claim, partly on the basis that the assignment was invalid. Lindgren J noted that the claims were tort claims or analogous to tort claims.[32] His Honour held that the requisite genuine commercial interest was not present and that the assignment was invalid.

47 In summary, the Liquidators contended that CFAL can only be said to have a genuine commercial interest in taking the assignment of the right of action if its interest existed independently of, and prior to, the assignment itself so that CFAL's interest in the right of action was distinct from the benefit which CFAL seeks to derive from it. Having regard to the nature of the causes of action and the terms of the CFAL Securities and the Proposed Claim, the Liquidators submitted that CFAL does not have a legitimate or commercial interest in the enforcement of the rights of action. In this regard, counsel for the Liquidators submitted that CFAL did not have any pre-existing proprietary interest or business interest in the chose in action at the time the facility agreements were entered into. Counsel submitted that the test is not whether, at the time the chose in action comes into existence, there is some proprietary interest or some existing business relationship. Rather, it was contended that the test has to be applied when the instrument is executed.

48 As noted in [41] above, in South Australian Management Corporati[33] v Sheahan33 the court held that the right to take security over a chose in action is subject to the law relating to maintenance and champerty. Debelle J noted the more recent liberal view that had been taken of the supporting of litigation by a third party. His Honour distinguished the decision in Poulton v [34]mmonwealth34 on the basis that in that case the required genuine commercial interest [35]s lacking.35 In the case before him, the plaintiff had a genuine commercial interest in taking the chose in action as part of its security and there was no hint of trafficking in[36]itigation.36 For the purposes of his decision, His Honour assumed that upon crystallisation of the mortgage debenture, the chose in action was assigned to the security holder or its receivers. He noted that there is a division of opinion as to whether that was a correct analysis of the charge but did not think it necessary to enter into the issue. This was because "[t]he true question is whether a dealing in a chose of action, be it by way of hypothecation as in a charge or by assignment, is contrary to public po[37]cy."37

49 Similarly, in this case, it is not necessary to determine whether the crystallisation of a floating charge effects an equitable assignment of the choses in action that are subject to the charge. This is because CFAL had a genuine commercial interest in the choses in action that were subject to its charge at the time of crystallisation. By that time, it had a commercial interest in all choses in action which existed in relation to the relevant retirement village because it had lent a significant amount of money to APCHL as trustee of the Trust on the basis of security that included choses in action.

50 For the reasons that I have given in [42] above, prior to crystallisation, there is no question of assignment in respect of an intangible asset such as a chose in action. However, assuming for the purposes of the Liquidators' argument that a charge may only be taken over property that is assignable and that the relevant date is when the first of the facility agreements was entered into, I am satisfied that at that time CFAL had a genuine commercial interest which would have been sufficient to satisfy the requisite test. CFAL was on the cusp of lending many millions of dollars in exchange for which it was to hold security that included all the assets in respect of the relevant village (including choses in action which were only to come into existence later). As can be seen from what I have said above, the Liquidators' submissions proceeded on the basis that if the commercial interest did not exist before entry into the relevant agreement, then that is the end of the matter. However, the commercial interest may also arise, in the words of Lindgren J in the National Mutual case, "by reason of other matters." That is the position in this case where a lender was simply taking security for the advances it was to make. In the commonplace occurrence of a commercial loan secured by a charge, such as in this case, there is no trafficking in litigation. It should be remembered that this is the vice to which the prohibition on the assignment of bare rights of action is directed.

51 That the Liquidators' position is untenable was well illustrated by an example given by CFAL's counsel. Creditor A and Creditor B each lend $1 million to a company. Neither of the creditors have a prior business relationship with the company. Both creditors take a floating charge over all present and future assets, including choses in action to secure repayment. Subsequently a deed is entered into by the company granting Creditor B a further charge over present and future choses in action. Through the carelessness of an investment adviser, in breach of the adviser's contractual and tortious duties of care, the company loses the money lent to it by each of the creditors. The company subsequently goes into administration, the charge becomes fixed and each creditor appoints a receiver. On the Liquidators' case, only Creditor B would have a charge over the chose in action against the investment adviser. There is no reason why such a distinction ought to be drawn between the two creditors.

52 The second exception to the restriction on assignment is where the bare rights of action are incidental or ancillary to the transfer of an interest in property.[38] The Liquidators submitted that this exception does not apply because here there is a bare cause of action for unliquidated damages for breach of contract, not of a property right to which a cause or right of action is ancillary.[39] That submission cannot be accepted. The Proposed Claim is for breach of the leases over the relevant villages and breach of the management or operating agreements in respect of those leases. The villages, relevant leases, operating and management contracts are all charged in favour of CFAL. Those contracts were clearly assignable (should that be necessary). Clearly the rights to sue for breaches of those leases and agreements are at least incidental to and relate to the rights and interests charged to CFAL.

Are the Liquidators entitled to prosecute the Proposed Claim in any event?

53 The Liquidators contended that even if a charge attaches to a chose in action, the chargor can enforce the chose in action, subject to the terms of the contract creating the charge, including the express or implied terms for the exercise of rights which the chargee possesses. It was said to follow from the nature of the security as an equitable charge that the incidence of ownership or general proprietorship remain intact even though a charge is given.

54 In this regard, the Liquidators submitted that the appointment of the CFAL Receivers did not entirely displace the power of the directors and the Liquidators stepped into the shoes of the directors once they were appointed. The Liquidators contended that they therefore have power to bring claims in the name of APCHL as responsible entity where doing so does not in any way impinge prejudicially upon the position of CFAL by threatening or imperilling the assets of APCHL which are subject to the CFAL Securities.

55 It was submitted on behalf of the Liquidators that the CFAL Receivers and CFAL have made it clear that they do not seek to enforce the rights asserted in the Draft Endorsement. Thus, it was contended, the Liquidators can do so because they have the residual power to enforce those rights unless the security holder seeks to do so. However, it seems to me that although the CFAL Receivers have not brought any of the claims which are alleged in the Draft Endorsement, nevertheless they have set about realising that asset by entering into the Joint Sales and Marketing Agreement with LLP. The asset has not been abandoned by CFAL such that it might be realised by the Liquidators.

56 In relation to the Joint Sales and Marketing Agreement, counsel for the Liquidators submitted that a chargee's rights to realise a security may only be exercised reasonably and in the interests, amongst others, of the owner of the property. Counsel argued that on first appearance, the release of a right is not such a reasonable exercise. He contended that a mere release without consideration would deprive the owner, who has an interest in the property subject to the rights of the security holder, of the benefit of that consideration.

57 The Joint Sales and Marketing Agreement between the CFAL Receivers and LLP that was in evidence was a heavily redacted version. There is no explicit consideration mentioned in the unredacted parts of that document for the release. Counsel for the Liquidators contended that it could be inferred that the consideration would be the advantages that CFAL gets under the document and those advantages are the surrender of the management rights by LLP and the release by the CFAL Receivers of the Proposed Claim which the Liquidators want to bring and the payment of an unknown sum of money to LLP. There is no evidence of the value of the management rights. Counsel contended that the Court was not in a position to say that that was reasonable. Counsel later contended that no consideration was attached to the release.

58 Counsel for the Liquidators also contended that there is no basis for suggesting that in order to deal with the management rights, it was necessary to release the Proposed Claim against LLP. Counsel submitted that if LLP is rational, it would sell its management rights for the best price that could be obtained and would join with the CFAL Receivers if the best price that could be obtained is in a joint transaction. It was contended that LLP would not pass up the opportunity to obtain the best price just because it might be sued and found liable. For LLP to do otherwise would be to take an irrational position. Counsel noted that there was no evidence from LLP about what its position was.

59 Counsel submitted that, on the balance of the evidence, the Court could not determine that the release of the cause of action is a proper exercise of the powers of CFAL and in those circumstances, the Liquidators ought not to be denied the relief that they sought.

60 Receivers and secured creditors have obligations when realising property that is the subject of a charge or mortgage. If they realise an asset at an undervalue, then they may be liable for loss sustained by reason of that. However, the manner in which the CFAL Receivers have exercised their powers in relation to a charged asset, or whether too little consideration has been obtained for it, is not relevant to the issues in this case. Rather, the question here is whether the CFAL Receivers are exercising rights in respect of the claims over which CFAL holds security such that the Liquidators are not entitled to deal with those same claims and are not entitled to the declarations that they seek (effectively declarations that they may prosecute the Proposed Claim). As I have already determined, it is clear that the CFAL Receivers have exercised rights in relation to the claims which are subject to CFAL's Securities by entering into the Joint Sales and Marketing Agreement with LLP. If a challenge is to be made as to whether that was a proper exercise of those rights then that would be a matter for another proceeding. In this regard, I should not be taken as suggesting that the CFAL Receivers have not properly exercised their powers. If such an allegation were to be made, it would have to be determined on full and tested evidence and with the benefit of submissions.

61 In any event, having determined that some of the claims which are the subject of the Proposed Claim are charged, before the Liquidators could bring an action in respect of those claims, it would be necessary for CFAL to provide its consent under clause 4.3 of the CFAL Charges which otherwise prohibits dealings with the Secured Assets. That consent has not been given.

62 Further, it seems to me that even if consent was not required and the CFAL Receivers had not dealt with the claims that are charged, or even if no part of the Proposed Claim was charged to CFAL, the Liquidators should not be granted the relief that they seek. When properly performing their functions, receivers must be left to gather in and realise the charged assets to repay the secured creditor without hindrance or interference from the chargor or Liquidators of the chargor.[40] This does not mean that when receivers have been appointed, liquidators may never prosecute a claim in the name of the company. However, if the prosecution of the claim would have a negative effect on the charged assets or their realisation, then the liquidators must stay their hand.[41]

63 In the present case, if the Liquidators prosecuted the Proposed Claim there is a high degree of likelihood that this would constitute an interference with the exercise of other rights which CFAL wishes to exercise. What the CFAL Receivers propose to market for sale is improved real property with the benefit of an income stream from the relevant retirement villages. One only needs to consider the relief that is sought in the Draft Endorsement (including the termination of leases which are clearly charged) to see that prosecution of the Proposed Claim would interfere with the receivership. Even if, as counsel for the Liquidators proffered, the relief sought in the Draft Endorsement was limited to a claim for damages for breach of contract (under the leases and management agreements) I am still not persuaded that there would be no interference. From the evidence of the Liquidators it is clear that they contemplate that final settlement of the Proposed Claim will likely involve dealing with the management rights and the claim against LLP. There is also evidence from one of the CFAL Receivers that the prosecution of the Proposed Claim would interfere with the sale and marketing of the relevant villages. Receivers appointed by the other Secured Creditors have given similar evidence in respect of the villages charged in their appointor's favour. They are all registered liquidators, chartered accountants and partners of well known accounting firms. Their commercial view is that for them to sell the relevant villages, the rights of LLP must be dealt with one way or another. It seems to me that that is a matter of common sense. It was submitted on behalf of the Liquidators that the land and chattels could be sold without the management rights. Technically that is so. However, it is difficult to conceive that receivers acting reasonably would sell the land alone without first attempting to come to an arrangement with LLP as the manager to remove the uncertainty of litigation against it by APCHL and the effect that that uncertainty might have on a reasonable prospective purchaser. The commercial reality is that in the negotiations with the various receivers appointed by the Secured Creditors, LLP will endeavour to obtain the best bargain it can in relation to the management rights (including in relation to potential claims against it).

Is the Listing Fee Claim charged in favour of CFAL?

64 To recap, the Listing Fee Claim concerns allegations of breach of director's duties by Mr Lewski said to arise out of amendments that were made to the Trust's constitution to provide for payment of a "listing fee" to APCHL in its own right (rather than as trustee of the Trust).

65 CFAL contends that the Listing Fee Claim is part of the property included in the CFAL Charges given by APCHL ("the APCHL Charges"). The basis of this contention is that that claim is charged to CFAL because APCHL has charged its right of indemnity out of the Trust assets in favour of CFAL. In particular, CFAL relies on clause 12.3 of the APCHL Charges[42] and the definition of "Secured Assets" in those charges, the relevant part of which reads:

The whole of the undertaking property and assets of the Chargor in respect of the Property both present and future and includes ... (iv) the chargor's right of indemnity arising from the Trust assets.

66 In summary, the primary position put by the Liquidators is that as a matter of construction of the facility agreements and the APCHL Charges together, the intention that is to be derived is that the charge is only intended to be a security given over assets of the Trust and not over any assets of the trustee. The Liquidators submitted that the definition of "Secured Assets" has to be read subject to the other provisions of the APCHL Charges which make it plain that APCHL entered into those charges only as trustee or responsible entity of the Trust. It was said to follow that APCHL cannot have charged its own asset (that is, its right of indemnity), because it did not enter into those charges in its own right.

67 Counsel pointed to clause 3.1 which is a charge given by APCHL as trustee of the Trust. He submitted that, as a matter of construction, that ought to be the governing provision. Counsel contended that there is an inconsistency between that clause and item (iv) in the definition of "Secured Assets" and that inconsistency ought to be resolved in favour of the chargor. Counsel contended that this would accord with the clear terms of the facility agreement. Counsel relied on paragraph 6 of the facility agreements.[43] Counsel submitted that what was charged was the assets of the Trust not the assets of the trustee. He contended that there is an inconsistency with that paragraph if there was an assertion that the assets of the trustee could be accessed.

68 Counsel also submitted that clause 12.3 was inconsistent with the charging provision in clause 3.1 and with the facility agreement which, by agreement, is to take priority.

69 Assets of a trust may be charged directly, or indirectly through the trustee's right of indemnity. In Custom Credit Corporation Limited v Ravi Nominees Pty Ltd[44] the Full Court of Western Australia held that a chargor which was the trustee of a trust had only charged the assets which it held beneficially. There was no direct charge over the trust assets. However, the court also held that one of the assets which the chargor held beneficially was its right of indemnity in respect of trust assets. Owen J (with whom Malcolm CJ and Walsh J agreed) concluded that there was no reason why a solvent trustee could not charge its right of indemnity.[45] Indirectly, therefore, all of the assets of the trust were available to satisfy the debts owed to the chargee.

70 On a proper construction, the APCHL Charges extend to APCHL's right of indemnity. There is no inconsistency between the facility agreements and those charges and there is no internal inconsistency in the charges. It is clear when the whole of the charge is considered that what was intended to be excluded were any assets (other than its right of indemnity) which APCHL held beneficially. What was to be available to CFAL was direct access to the Trust assets related to the relevant retirement village and indirect access (through APCHL's right of indemnity) to the Trust assets. The "Secured Assets" are charged under clause 3.1. The Liquidators' submission that that clause does not include a charge of the right of indemnity ignores part (iv) of the definition of "Secured Assets." This is even more obvious in the charge that has the additional wording in clause 3.1 (see [20] above) to the effect that APCHL charges the Secured Assets as beneficial owner except where the assets are Trust assets, in which case it does so as trustee. If there were any doubt that the right of indemnity is charged, clause 12.3 makes this perfectly clear.

71 There is no conflict between the APCHL Charges and paragraph 6 of the facility agreements. That paragraph simply makes it clear that what is available to CFAL are only the Trust assets. It does not limit the route to those assets to a direct right of access only.

72 There are two aspects to a trustee's right of indemnity. It has a right of reimbursement (where it has discharged a trust liability and is entitled to be reimbursed from the trust assets) and a right of exoneration (where it uses trust assets to discharge a trust liability). The Liquidators submitted that APCHL as responsible entity has not discharged any liabilities of the Trust for which it has not been reimbursed. Accordingly, the right of indemnity that is sought to be accessed is the right of exoneration.

73 The Liquidators submitted that if APCHL has charged its right of indemnity, the charge only extends to the right of reimbursement, not the right of exoneration. In this regard, the Liquidators pointed to clause 12.1.2 (see [21] above) of the APCHL Charges. They submitted that that clause makes it clear that the charge over APCHL's right of indemnity, as set out in clause 12.3 (see [22] above) and the definition of "Secured Assets," is limited to the Trust assets from which APCHL as responsible entity is actually indemnified for any liability. As APCHL as responsible entity has not personally discharged any of the liabilities of the Trust, it was contended that there is and can be no actual indemnification from trust assets or reimbursement. This distorts the true meaning of the clause which is that the trustee is not liable if the Trust assets are insufficient to meet the liability.

74 A further contention put on behalf of the Liquidators as to why the right of indemnity which is subject to the charge does not extend to the right of exoneration was that the charging of that right would be a breach of trust because that charge could be used to discharge liabilities that are not trust liabilities. Counsel noted that if a trustee discharges a trust liability out of its own pocket, the trustee is entitled to reimbursement and the reimbursed amount can be spent on whatever the trustee likes. Counsel contrasted this with the position when a trustee is exercising a right of exoneration. That right can only be used for the purposes of discharging trust liabilities, that is, to exonerate the trustee from liabilities incurred by it in the execution of the trust. If the trust property is taken for some other purpose, that would be a breach of trust. Counsel said that this followed from the fact of the charge. For this reason, counsel contended that as a matter of construction, clause 12.3 could only be referring to a right of reimbursement and not a right of exoneration because otherwise the trustee would be giving a charge which may be used to discharge liabilities which are not trust liabilities. Counsel developed this submission by saying that one could not know how the future would develop and what obligations would become subject to the charge, particularly when the "Secured Moneys" was in such very broad terms.

75 Counsel for the Liquidators contended that in Ravi Nominees, Owen J was only referring to a charge over the right of reimbursement (even though his Honour referred to the right of indemnity). I do not agree with this interpretation of his Honour's reasons. His Honour held:

In my opinion, the trial judge was quite correct when he said that the right of exoneration could only be applied against the actual liability incurred but that, it seems to me, is exactly what has happened. The [trustee] incurred a liability to [the lender]. The liability was incurred in the performance of the trust. A right of indemnity arose on the incurring of that liability. The effect of [the charging provision] is, prospectively, to set aside or apportion away the right of indemnity to the extent necessary to discharge that liability if and when it fell due. The setting aside is not absolute but by way of assignment or security for payment of that liability.[46]

76 Similarly here, APCHL incurred the liability to CFAL as trustee for the benefit of the Trust. The right of indemnity (both by way of reimbursement and exoneration) in respect of that liability has been charged. If APCHL incurred a liability other than as trustee, then there would be no right of exoneration in respect of that liability. The scenario of breach of trust and the use of trust assets to meet a non-trust liability simply could not arise in that context. A secured creditor with a charge over the right of exoneration can have no greater or different right to take trust assets than the trustee.

77 Other submissions made on behalf of the Liquidators seemed to proceed on the basis that there was no right of exoneration until the Liquidators performed their functions. However, as soon as APCHL as responsible entity incurred a liability to CFAL, the right to indemnity arose and was charged in favour of CFAL. Access to that right in no way depends on the Liquidators.

78 Finally, the Liquidators submitted that having regard to other relevant provisions of the APCHL Charges (especially that the APCHL Charges given by APCHL were only in its capacity as trustee), the words in clauses 3.1 (iv) and 12.3 of the APCHL Charges should be read down so that the charge is only taken to be over assets of the Trust relating to the particular village referred to in the schedule to the charge. Whilst clause 3.1 (iv) might be so restricted, to read down clause 12.3 in this way would be to ignore the unambiguous and plain meaning of the clause. It is an additional and specific charging provision. The clause expressly states that "all" the assets of the Trust are to be available to satisfy the liability of APCHL and, to that end, it "also" charged its right of indemnity out of "the Trust's assets." If the parties' subjective intention was that the charge was to be restricted to the right of indemnity out of specific Trust assets, then different language ought to have been used to express that intention.

79 The Liquidators have instructed their solicitors in the Listing Fee Proceeding to add a claim that the arrangements in relation to the listing fee constitute a voidable transaction within s 588FF of the Corporations Act 2001 (Cth). Such claims would be in addition to claims for breach of director's duties and the like. Such a claim could only be made by the Liquidators.

80 The ability of the Liquidators to bring a claim under s 588FF of the Corporations Act in respect of the Listing Fee Claim does not deprive CFAL of its rights as chargee to a claim that arises out of the same factual substratum. It does not prevent the CFAL Receivers from realising the charged chose in action by pursuing the Listing Fee Claim (as it is presently framed). If the Liquidators choose to bring a claim under s 588FF, then the Court will have to determine how the two matters are to proceed. That is not something that needs to be determined in this proceeding.

Is the Management Rights Claim charged in favour of CFAL?

81 CFAL contends that the Management Rights Claim is the subject of its securities. For the reasons I have given in [32] above, a claim relating to the management rights is clearly one which falls within the terms of CFAL's Securities and is subject to the direct charge over Trust assets given in clause 3.1. For the reasons given in the preceding section, it is also charged under clause 12.3 as it is a Trust asset out of which APCHL has a right to be indemnified.

82 Both IFM and Suncorp-Metway reserved their rights to claim that the Listing Fee Claim and the Management Rights Claim fall within property charged to them. If in addition to CFAL they do have a charge over those claims (either in whole or in part), that does not create any difficulty. It would be a question of priorities which would need to be dealt with just as in the case of any other asset that was charged to more than one creditor.

83 Retrospective leave should be granted to CFAL and the CFAL Receivers to bring their counterclaim.

84 Part of the relief that they seek is declarations that certain "causes of action" are subject to and secured by the CFAL charges. The Liquidators submitted that a "cause of action" is not a right or proprietary right or property but rather is the fact or combination of facts giving rise to a right to sue.[47] To the extent that the nomenclature used by CFAL in its counterclaim for the declarations it seeks is inapposite, the form of the declaration sought can be adjusted. I am satisfied that the CFAL Receivers' application for declarations as to the validity of their appointment over certain assets should be granted.

85 In addition to opposing the application made by the Liquidators, IFM seeks a declaration that any right or claim that APCHL has against LLP in relation to the Brentwood Retirement Village forms part of the property which is subject to a charge in its favour.

86 IFM holds a fixed and floating charge from APCHL in its capacity as responsible entity for the Trust ("the IFM Charge"). It has exercised its rights under that charge and has appointed George Georges, John Melluish and James Rayner Shady as receivers ("the IFM Receivers").

87 Under the terms of the IFM Charge, APCHL charges the "Secured Property" to secure payment of the "Secured Money." "Secured Money" is broadly defined and includes all money owing by APCHL to IFM. "Secured Property" is defined as follows:

Your legal and equitable estate or interest in any present and future undertaking and property in relation to the property, including all management rights, contracts, leases, agreements, fees, benefits and all income, dividends or profits or any amounts in that nature, your uncalled capital and called but unpaid capital and the uncalled premiums from time to time on your shares in relation to or arising from the Property.

88 "Property" is defined to mean the property known as the Brentwood Retirement Village. Clause 3.1 relevantly provides:

This Charge is a fixed charge over your interest in any present or future secured property which is:

• land;
• goods, plant and equipment (other than stock in trade);
• ...
• goodwill attaching to any property or business;
• ...
• books of account and other documents, records and software relating to your business and activities;
• ...
• if you are a trustee, any right of indemnity against the trust property and equitable lien over the trust property which secures that indemnity;
• benefit of any contract to which you are a party, including any insurance policy;
• ...; and
• other property (if any) specified in Item 4 of the Schedule.

• Brentwood Retirement Village situated at Scaysbrook Drive, Kincumber, New South Wales (being the land and property comprised in Certificate of title folio identifier 103/707503, 12/882530/102/1018818, 1/1018827, 201/1034204, 202/1034204);
• any interest held by you in respect of any business conducted by you and without limitation the following: the Brentwood Retirement Village operated at the property by the borrower;

[Nature of Operation: Brentwood Village Management Pty Ltd ACN 125 660 541 and Retirement Guide Management Pty Ltd ACN 125 225 390 and Retirement Guide Pty Ltd ACN 108 659 141 will operate the retirement village.]

together with the furniture, fixtures, fittings, plant and equipment located at and used in connection with the business conducted at the property.

• all present and future agreements for sale of land of the whole or part of the property, including any money paid or payable pursuant to such agreements and any agreement to lease relating to the whole or any part of the property;
• 'Conditional Agreement' dated 1 May 2007 between you and Brentwood Village Ltd and Kim Samuel Jacques;
• 'Contract for the Sale of Land' dated 1 May 2007 between you and Brentwood Village Limited ACN 002 570 087 as Vendor in relation to the property;
• 'Lease' over the property between you as landlord and Brentwood Village Management Pty Ltd ACN 125 660 541 as tenant dated on or about the date of this document, and any subsequent variation;
• 'Management Agreement' between you, Brentwood Village Management Pty Ltd ACN 125 660 541 and Retirement Guide Management Pty Ltd ACN 125 225 390 dated on or about the date of this document;
• 'Sub-Management Agreement' between you, Retirement Guide Management Pty Ltd and Retirement Guide Pty Ltd dated on or about the date of this document;
• 'Loan Agreement' between you and Brentwood Village Management Pty Ltd dated on or about the date of this document."

90 In respect of any property over which the charge is not fixed, there is a floating charge.

91 Included under the heading "Limitation of Liability," the following clauses appear:

22.1 You enter into this Charge in your capacity as the trustee and responsible entity of the Prime Retirement and Aged Care Property Trust (ARSN 097514746) (Trust), which Trust is a registered managed investment scheme, and in no other capacity. A liability arising under or in connection with this Charge can be enforced against you only to the extent to the extent (sic) to which it can be satisfied out of property of the Trust out of which you are actually indemnified for the liability. This limitation of your liability applies despite any other provision of this Charge or any other document to which it is a party and extends to all your liabilities, obligations and indemnity in any way connected with any representation, warranty, conduct, omission, agreement or transaction related to this Charge.

22.2 We may not sue you personally or seek the appointment of a liquidator, administrator, receiver or similar person to you or prove in any liquidation, administration or arrangement of or affecting you.

92 IFM has broad powers once there has been default by APCHL.[48] These powers include the power to "commence, defend, prosecute, settle, discontinue, and compromise litigation."[49] In addition, the IFM Charge gives wide powers to receivers appointed under its terms - they have the right to do everything that APCHL may authorise an agent to do on its behalf, unless limited by the terms of appointment.[50] In this case, there is no such limitation contained in the appointment document.

93 The Liquidators made the same submissions in relation to the IFM Charge as they had in relation to CFAL's Securities. Their counsel contended that what was charged was property in relation to the Brentwood Retirement Village and, as a matter of construction, that did not include choses in action. However, the definition of "Secured Property" which is charged is much broader than that. Amongst other things, it includes all management rights, contracts and leases in relation to or arising from the Brentwood Retirement Village. It would be an incongruous outcome if those words were interpreted as not encompassing the right to sue for breach of those agreements. In my view, at least that part of the Proposed Claim which relates to any lease of the Brentwood Retirement Village or management or operating agreement in respect of that village is subject to the IFM Charge ("the Brentwood Claims").

94 For the reasons already given in respect of the CFAL Securities, there was no impediment to IFM's charge being taken in respect of choses in action not in existence at the time the IFM Charge was entered into. Once the Brentwood Claims arose, they were caught by the IFM Charge.[51] Further, just as in CFAL's case, IFM had a commercial interest in taking the security it did over choses in action that relate to the Brentwood Village and that came into existence whilst its charge was in place.[52] Moreover, the Brentwood Claims are incidental or ancillary to property over which IFM has its charge. In this respect, the same reasoning applies to IFM's position as applied in the case of CFAL.[53]

95 Unlike CFAL, IFM and its receivers have not yet entered into an agreement with LLP. However, the IFM Receivers want to sell the Brentwood Retirement Village business and real estate unencumbered by the management rights. To this end, they are negotiating with LLP (as they have power to do). This illustrates that the asset has not been abandoned by IFM and, as in the case of CFAL, the Liquidators ought not to be permitted to institute the Proposed Claim.[54] Even if IFM was not dealing with the Brentwood Claims, the same outcome would result for the reasons that I have given in relation to CFAL.[55] In relation to the argument of interference, in addition to the matters I have mentioned in relation to CFAL, the Brentwood Retirement Village is generating trading losses. One of the IFM Receivers has given evidence that sale of that village has been delayed because of the Proposed Claim. While that delay continues there will be continuing trading losses and that is prejudicial to IFM and would diminish the assets available to satisfy the debt owed to IFM.

96 Retrospective leave should be granted to IFM to bring its counterclaim and the declaration that it seeks should be made.

97 Suncorp-Metway holds a fixed and floating charge from each of Carlyle RV Properties Pty Ltd, Argyle Garden Village Pty Ltd and Carlyle Villages Pty Ltd ("the Suncorp-Metway Charges") together with real property mortgages from the last two companies. Suncorp-Metway has appointed Shaun Christopher McKinnon and Justin Denis Walsh as receivers over the assets and undertaking of each of those companies ("the Suncorp-Metway Receivers").

98 Under the Suncorp-Metway Charges, the relevant mortgagor charges the "Mortgaged Property" with the payment of the "Moneys Secured." "Moneys Secured" is broadly defined and includes all amounts owing by the mortgagor to Suncorp-Metway. "Mortgaged Property" is defined to mean:

(a) the property referred to in Part 5;

(b) all rights and privileges of the Mortgagor to enjoy the property referred to in paragraph (a); and

(c) where the context requires the whole or any part of the Mortgaged Property.

99 Part 5 in turn refers to Item 6 of the Schedule for the "Mortgaged Property." Item 6 of the charge given by Carlyle RV Properties Pty Ltd reads as follows:

The Mortgaged Property is the undertaking of the Mortgagor and all of its property, rights and other assets, whether owned at present or acquired in the future, including without limitation the goodwill of its business and its uncalled and called but unpaid capital, including:

(i) All property, rights, assets and other interests acquired by the Mortgagor from Village Commercial Services Pty Ltd ACN 063 815 298 under the Agreement for Sale of Business between those parties dated 23 March 2007 (the 'Commercial Business') together with all property, rights, assets and other interests acquired by the Mortgagor in respect of the Commercial Business in the future;

(ii) All property rights, assets and other interests acquired by the Mortgagor from Village Management Services Pty Ltd ACN 010 896 189 under the Agreement for Sale of Business between those parties dated 23 March 2007 (the 'Management Business') together with all property, rights, assets and other interests acquired by the Mortgagor in respect of the Management Business in the future;

(i) All of the Mortgagor's right title and interest in Liquor Licence No. 45101265 and any other liquor licence held by the Mortgagor in connection with the operation of Carlyle Gardens Townsville;

(ii) All of the Mortgagor's right title and interest in Liquor Licence No. 451010925 and any other liquor licence held by the Mortgagor in connection with the operation of Carlyle Gardens Mackay;

(iii) All of the Mortgagor's right, title and interest in Food Licence No. 23.2001.158.1 and any other food licence held by the Mortgagor in connection with the operation of Argyle Garden Village; and

(iv) All assets of the Mortgagor's right, title and interest in Carlyle Gardens Townsville, Carlyle Gardens Mackay and Argyle Garden Village including all food, liquor and other stock, furniture, fixtures and fittings, other goods, chattels, plant and equipment situated or intended to be situated at Carlyle Gardens Townsville, Carlyle Gardens Mackay and Argyle Garden Village.

100 Item 6 of that charge then goes on to define more specifically Argyle Garden Village, Carlyle Village Mackay and Carlyle Village Townsville by reference to the particular land titles on which those retirement villages are located.

101 The charges given by Argyle Garden Village Pty Ltd and Carlyle Villages Pty Ltd do not include the more specific wording in the roman numeral sub-paragraphs set out in [99] above.

102 Clause 6.1 provides that the charges operate as a fixed charge over certain assets and as a floating charge over the remainder (if any). As drafted, the charges state that the "Mortgaged Property" is subject to the fixed charge such that no assets are said to be subject to the floating charge. In any event, clause 6.4 provides that the floating charge automatically converts to a fixed charge upon the occurrence of an event of default, which includes the appointment of a receiver. Therefore, on any view, all the assets that have been charged are now subject to the fixed charge. Clause 13.3 prohibits the mortgagor from dealing with the Mortgaged Property. It reads as follows:

Subject to Clause 6.1(b)(i) [which deals with assets subject to the floating charge] and the provisions of any Legislation the Mortgagor shall not, without the prior consent of the Bank:

(a) Deal with the Mortgaged Property;

(b) ...; or

(c) Deal with the Mortgaged Property where the Bank's Powers, this Company Charge or the Mortgaged Property are affected.

103 There is a non-exhaustive definition of "Dealing" with "Deal" being defined to have a corresponding meaning.

104 Suncorp-Metway has broad powers on default. It is entitled to do anything that it could do if it was the absolute owner of the Mortgaged Property.[56] With the consent of Suncorp-Metway, the receivers appointed by them also have that broad power.[57]

105 Like IFM, the Suncorp-Metway Receivers are in negotiations with LLP regarding a strategy for the sale of the assets managed by LLP. They wish to market the three relevant villages for sale with the leases held by LLP to be assigned or surrendered. One of the Suncorp-Metway Receivers gave evidence that if the leases were terminated as a result of the Proposed Claim succeeding, that would be likely to be prejudicial to fruitful negotiations with potential purchasers who wanted to take an assignment of the leases. He also gave evidence that the existence of proceedings brought by the Liquidators in respect of the Proposed Claim would be likely to be prejudicial to the Suncorp-Metway Receivers securing a surrender of the relevant leases.

106 Counsel for the Liquidators acknowledged that the definition of "Mortgaged Property" in the Suncorp-Metway Charges is an extremely broad provision. However, counsel made two points about it. First, he contended that the LLP proposed claim is a bare right of action and, secondly, the particular right of action is not something that answers the description, the "undertaking of the mortgagor" because there are other people's rights mixed up in it. That is, the claim is a rolled up claim. I have already dealt with these arguments in relation to CFAL's position and the same reasoning applies to Suncorp-Metway.[58]

107 The other arguments that were raised in relation to Suncorp-Metway were the same as those raised against CFAL and IFM. For the same reasons that I have given above, they cannot succeed.

108 It follows from what I have said that the Secured Creditors between them have a charge over the whole of the Proposed Claim. They have not abandoned that claim nor consented to the Liquidators bringing it. In those circumstances, the Liquidators' application for declaratory relief in respect of the Proposed Claim must fail.

109 If, contrary to what I have found, it is open to the Liquidators to institute and prosecute the Proposed Claim, the question arises as to whether the Court should give approval to them under s 477(2B) of the Corporations Act to enter into the proposed litigation funding agreement ("the Funding Agreement").[59]

110 In considering whether to give approval for the Liquidators to enter into the Funding Agreement, the Court gives due regard to the Liquidator's commercial decision and does not substitute its own views for those of the Liquidator. However, the Court's approval will not be given where "there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct."[60]

111 In relation to the approval of funding agreements, in BL & GY International Co Ltd v Hypec Electronics Pty Ltd (in liq); Hypec Electronics Pty Ltd (in liq) v Department of Lands[61] Austin J noted that "the Court must be vigilant, where such an arrangement is proposed, to ensure that the interests of creditors are properly protected. That is normally likely to mean that the liquidator will have to retain a measure of control, at least negative control, over the conduct of the litigation, and that any potential for conflict of interest between the creditor and the body of creditors generally is carefully addressed."[62]

112 As I noted at the outset of these reasons, ASIC appeared as a friend of the Court. ASIC submitted that in addition to the matters identified by Austin J as relevant to the protection of the interests of creditors, the Court might be concerned that any agreement that bears its imprimatur should not lead to a perception of conflict.

113 It is trite law that a liquidator must not only be independent but be seen to be independent.[63] ASIC submitted that the Liquidators were asking for the Court's approval to enter into an agreement that may open them up to criticism that there is an appearance of a lack of independence because of the identity of the funder.

114 The proposed funder is APC Advisers Pty Ltd (as trustee for the APC Advisers Unit Trust). That company is controlled by Mr Lewski, who as I have noted is a former director of APCHL and a current defendant to the Listing Fee Claim and the recipient of a letter of demand in relation to the Management Rights Claim. The beneficiaries of the APC Advisers Unit Trust are interests associated with Mr Lewski (although their precise identity has not been disclosed). The other parties to the Funding Agreement are to be the Liquidators and their solicitors, Cornwall Stodart.

115 In the Listing Fee Claim, the Liquidators allege that Mr Lewski was (among other things) involved in serious breaches of APCHL's duties as the trustee of the Trust and of breaching his duties as a director of APCHL. Part of the relief sought against Mr Lewski is damages of some $33 million. It is likely that if the Management Rights Claim is prosecuted that Mr Lewski will be a defendant and that a significant amount of compensation will be sought from him.

116 The Funding Agreement provides for the funder to advise the plaintiff and consult with the lawyers in relation to litigation strategy.[64] The plaintiff and the lawyers are obliged to disclose to the funder any information reasonably requested by the funder as being necessary to monitor the progress of the proceeding.[65] Major decisions (including whether to make a settlement offer or to accept or reject one) are not to be made without consultation with the funder.[66] As the sole director of the funder, it is likely that Mr Lewski will be the person to whom information is provided and who is consulted. As ASIC submitted, he may well gain information that is useful to him in the defence of the Listing Fee Claim and the Management Rights Claim; for example, information about the demands being placed on the Liquidators and their resources from time to time, and the factors that influence the Liquidators' decision making.

117 ASIC also brought to the attention of the Court the provision in the Funding Agreement that obliges the Liquidators to accept and follow the reasonable legal advice provided by the lawyers who are engaged. ASIC submitted that implicitly it is only where the lawyers' advice is unreasonable that the Liquidators can seek a second opinion or act against their advice. ASIC contended that that is a significant fetter on the independence of the Liquidators in the way that they run the litigation.

118 Further, under the Funding Agreement, the funder may terminate the agreement at any time by giving 21 days' notice in writing.[67] Although in those circumstances it will be liable for any adverse costs order (including any costs payable as a consequence of filing a notice of discontinuance) its liability is limited to costs outstanding at the date of the notice of termination and arising out of things done before termination. ASIC noted that there is no assurance that the funder will remain solvent or capable of providing funding and, although cash security is to be provided, it is limited and there is no ongoing requirement for the funder to satisfy the Liquidators that it has the capacity to fund or provide further security. ASIC also observed that there is no restriction on the liquidity of the assets that the funder must hold for the purpose of funding, nor the degree to which the funder can encumber those assets.[68] ASIC submitted that the agreement to fund and the indemnity against adverse costs orders is only as good as the vehicle that has provided it.

119 ASIC concluded that for these reasons, the funding arrangements create a means by which the liquidation may suffer as a result of the funder's actions: the funder could withdraw funding or render itself incapable of providing indemnities. As such, ASIC contended that the capacity of the funder to take either action, or even to threaten to do so, may create a perception that the Liquidators' judgement might be clouded in so far as it relates to actions against Mr Lewski.

120 The Liquidators contended that Mr Lewski's relationship with the funder is irrelevant to the Court's consideration of the application for approval of the Funding Agreement. They contended that:

(a) the funding is sought by the Liquidators and will be expended by them in pursuing the Proposed Claim controlled by them under the Funding Agreement;

(b) the terms of the Funding Agreement are clear and ensure the independence of the Liquidators;

(c) the Liquidators are acting independently of Mr Lewski and have commenced proceedings against him in relation to the Listing Fee Claim;

(d) there are no other funders willing to fund the litigation (two other funders having been approached who have said that they will not fund the litigation);

(e) there is nothing in the facts that shows that the Liquidators are or are likely to be susceptible to influence by Mr Lewski;

(f) the submissions on behalf of ASIC concerning the relationship with Mr Lewski were nothing more than hypothesis and speculation.

121 In certain circumstances, an action may be funded by a person against whom the company in liquidation might have a cause of action. However, before the Court gives its approval, it must consider the reasonable observer's likely perception of the liquidator's entry into the funding arrangement. Here it seems to me that the impression that is likely to be created is that the Liquidators are in a compromised position in relation to prosecution or finalisation of the Listing Fee Claim against Mr Lewski and the investigation, prosecution or resolution of other claims against him. I have come to this conclusion having regard to the seriousness of the allegations that are made in the Listing Fee Claim and the likely gravity of allegations to be made in the Management Rights Claim, the likely amount claimed against Mr Lewski in relation to those claims and the terms of the Funding Agreement, in particular, those terms that require the Liquidators to consult with the funder and which enable the funder to withdraw funding. Even if (contrary to the views I have expressed) the Liquidators were entitled to bring the Proposed Proceeding, approval ought not to be given to the Liquidators to enter into the Funding Agreement to enable them to do so.

122 Having formed this view and in light of the other conclusions that I have come to, it is not necessary to consider the additional submissions made by ASIC, CFAL, IFM, Suncorp-Metway and LLP as to why the Court should not give approval to the Liquidators to enter into the Funding Agreement.

123 The Liquidators are not entitled to the declarations that they seek as the proposed proceeding against LLP involves property charged to the Secured Creditors who have not consented to that proceeding being instituted. In addition, the Listing Fee Claim and the Management Rights Claim are subject to charges given in favour of CFAL. CFAL, the CFAL Receivers and IFM are entitled to declaratory relief. I will hear counsel as to the form of the orders and declarations to give effect to these reasons.

[1] The 11 retirement villages are noted on the corporate diagram attached to these reasons.

[2] Supreme Court proceeding S CI 2012 1199.

[3] Section 420(2)(k) Corporations Act 2001 (Cth). Additionally, the Secured Creditors' charges give receivers appointed under them the power to bring proceedings.

[4] The appointments were partially terminated over certain real property. Contemporaneously, CFAL took possession as mortgagee of that property and appointed the CFAL Receivers as its agent.

[6] In one of the charges given by APCHL, the additional wording set out in [20] below is included in lieu of the words "as sole trustee and responsible entity of the Trust ". In one of the charges, the reference to "responsible entity" is omitted.

[10] One of the charges given by APCHL is in slightly different terms but is to the same effect.

[11] There are two other facility agreements which are to the same effect.

1. [12] Toll (FGCT) Pty Limited v Alphapharm Pty Limited and Ors [2004] HCA 52; (2004) 219 CLR 165 at 179; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at 462. See also Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 and Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45; (2011) 282 ALR 604.

[13] The other pleading for loss and damage relates to breach of a different agreement but otherwise is in identical terms.

[14] Nambour, Buderim Meadows, Chancellor Park and Noosa Outlook.

[15] APCHL is the holding company of Hibiscus RV Properties Pty Ltd which in turn is the holding company of the owners (Nambour Retirement Village Pty Ltd, Buderim Meadows Retirement Village Pty Ltd, Chancellor Park Retirement Village Pty Ltd and Noosa Outlook Retirement Village Pty Ltd.) See the corporate structure diagram attached to these reasons.

[16] [2005] 1 Qd R 666; [2005] QCA 68.

[18] [2008] NSWSC 1019; (2008) 68 ACSR 208.

[19] Thomas v D'Arcy [2005] QCA 68; [2005] 1 Qd R 666 at 675; [2005] QCA 68 at [18]; Ballard v Multiplex Ltd [2008] NSWSC 1019; (2008) 68 ACSR 208 at [41].

[20] For example, the Townsville and Mackay villages which are owned by Carlyle Villages Pty Ltd over which Suncorp-Metway holds security - see the corporate diagram attached to these reasons.

[21] [1930] 1 KB 615.

[24] (1995) 16 ACSR 45.

[26] Palette Shoes Pty Ltd v Krohn [1937] HCA 37; (1937) 58 CLR 1 at 26 -27; Booth v Federal Commissioner of Taxation [1987] HCA 61; (1987) 164 CLR 159 at 165 - 166.

[28] Ibid. at 607. The Liquidators also relied on Salfinger v Nuigini Mining (Australia) Pty Ltd (No 3) [2007] FCA 1532 at [115] and [119].

[29] Equuscorp Pty Ltd v Haxton [2012] HCA 7; Trendtex Trading Corp v Credit Suisse [1982] AC 679.

[30] [1995] FCA 1628; (1995) 132 ALR 514.

[33] (1995) 16 ACSR 45.

[35] A similar observation was made by Heydon J in Equuscorp Pty Ltd v Haxton [2012] HCA 7 at [156] and see also the reasons of Gummow and Bell JJ in that case at [79].

[36] (1995) 16 ACSR 45 at 58.

[38] Trendtex Trading Corp v Credit Suisse [1982] AC 679.

[39] ICM Agriculture Pty Ltd v Young [2009] FCA 109 at [122] was relied on by the Liquidators.

[40] Newhart Developments Ltd v Co-Operative Commercial Bank Ltd [1978] 1 QB 814 at 819-820.

[42] See [22] above.

[43] See [26] above.

[44] (1992) 8 WAR 42.

[46] (1992) 8 WAR 42 at 57.

[47] Peter E Nygh and Peter Butt (eds), Butterworths Australian Legal Dictionary, (1997) 172; Daniel Greenburg (ed), Jowitt's Dictionary of English Law, (3rd ed, 2010) 344-345.

[51] See [42] - [43] above. The words "any present and future undertaking and property" in the IFM Charge are the equivalent of the phrase "all its assets and undertaking both present and future" in the CFAL Charge.

[52] See [49] - [51] above.

[53] See [52] above.

[54] See [55] above.

[55] See [62] - [63] above.

[57] Clause 1.1 (definition of "Power") and clause 18.5.

[58] See [33] - [52] above.

[59] In this regard, s 477(2B) of the Corporations Act provides:

Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf ...if:

(a) without limiting paragraph (b), the term of the agreement may end; or

(b) obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;

more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, with those 3 months.

[60] Re Spedley Securities Ltd (1992) 9 ACSR 83 at 85-86. See also Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109 at 118 (Austin J).

[61] [2008] NSWSC 856 at [49].

1. [62] Ibid. at [49].
2. [63] Re National Safety Council of Australia, Victorian Division [1990] VicRp 2; [1990] VR 29 at 34 (court appointed liquidator); Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 (voluntary liquidator).