QB4 Capital Pty Limited v Guardian Securities Limited

Federal Court of Australia (Full Court)|2023-05-19|Before: Jackman JJ

Background and procedural history 30 The primary judge began by referring to an agreed list of issues for determination, which the court noted by consent on 17 August 2021 (being the second last day of the hearing) represented the entirety of the balance of the matters required to be determined in the proceedings: [5]-[7]. The express agreement of the parties was that the list of issues constituted the universe of issues the Court was required to resolve: [8]. 31 The primary judge then dealt with the nature, terms and history of TGIF. Mr Hasenkam was a director of Guardian from 2003, and was formerly the sole director of Fundus until February 2020. On 22 January 2020, VentureCrowd Holdings Pty Ltd (VentureCrowd) acquired a controlling interest in Guardian, and two days later Mr Maarbani became the managing director of Guardian. He also became the sole director of Fundus in place of Mr Hasenkam. Mr Maarbani is also the chief executive officer and director of VentureCrowd, and a number of its related companies. 32 Australian Executor Trustees Ltd was the custodian of the assets held by FT1 and FT2, and on 18 December 2019 it retired and was substituted as custodian by the company known as Certes CT Pty Ltd (Certes). 33 His Honour noted that in May 2017, QB4 was appointed by Guardian to the roles of investment manager and corporate authorised representative, and remained as investment manager of the ELF and the PIF until at least March 2020: [22]. Mr Mackay is a director of QB4. Ms Wong is a director and the sole shareholder of QB4, as well as a director of QB4 Capital Asset Management Pty Ltd (QB4CAM) and Griffin Mews No 8 Pty Ltd. Mr Wong is also a director of QB4CAM. Mr Migunov and Ms Migunova are unitholders of TGIF (Migunovs). Cloud Capital Pty Ltd (Cloud Capital) is a consulting firm that provides services to QB4 with respect to the investment management of the ELF and the PIF. Mr Duncan is the director of Cloud Capital. 34 After VentureCrowd acquired a controlling interest in Guardian, the board of Guardian was reconstituted and VentureCrowd Property Australia Pty Ltd (VCPA) and VentureCrowd Services Australia Pty Ltd (VCSA), under the instruction of Guardian, completed a full review of the operation and management of TGIF. The primary judge referred to Guardian, VentureCrowd, VCPA and VentureCrowd Nominees Pty Ltd, being the first to fourth respondents in the Principal Proceeding referred to below, as the Guardian Parties. In 2020, Guardian issued a number of invoices to Fundus relating to work that was said by Guardian to have been undertaken by VSCA, VCPA and Mr Maarbani on behalf of Guardian in conducting that full review of the ELF and PIF: [28]. Those invoices were the subject of significant dispute at the trial, and also on appeal. 35 On 12 March 2020, Guardian sent a letter to QB4 requesting copies of the periodic reports regarding the ELF and the PIF, which were required to be sent to Guardian by QB4 pursuant to the Investment Management Agreement. On 16 March 2020, QB4 responded by sending a letter to Guardian, attaching a formal notice of termination of the Responsible Entity Agreement. On 18 March 2020, Guardian responded by sending a letter accepting QB4's termination of the Responsible Entity Agreement, and giving notice of the termination of the Investment Management Agreement and the Corporate Authorised Representative Agreement. The primary judge said that it was unnecessary to deal with the history leading up to the matter and the breakdown in the relationship between QB4 and Guardian, or to detail the motivations behind the correspondence and the events that followed, except to say that the termination of those agreements, along with other details, were contested and proceedings were subsequently commenced: [9] and [29]. The appellants were critical of his Honour's reasoning for not going further into those matters. 36 QB4 commenced proceedings on 9 April 2020 by filing an urgent application before the start of a proceeding seeking freezing orders in relation to TGIF's bank accounts and orders for the appointment of an interim receiver (the Pre-action Relief Application). On 15 April 2020, Farrell J made orders including that QB4 was to commence any proceeding by 22 April 2020. Those proceedings were commenced on 28 April 2020 by originating application (the Principal Proceeding) and subsequently the Pre-action Relief Application was finalised on 5 May 2020: [30]. 37 When the matter first came before the primary judge as Duty Judge, the applicants, some of whom are now the appellants (the QB4 Parties), claimed that Guardian had breached the TGIF constitution and its duty to invest, including its obligation to manage assets and to perform other obligations. A claim was also made that Guardian's purported termination of the Investment Management Agreement was invalid and unlawful and that Guardian remained liable to pay management fees to QB4. A range of interlocutory and final relief was sought: [31]. It is worth noting at this point that the original claim included a claim for compensation pursuant to s 601MA(1) of the Act, although no claim for statutory compensation of any kind was made in the final iteration of the pleadings. It is also worth noting that allegations were made by the QB4 Parties as to contraventions of s 601LC of the Act, dealing with related party transactions involving a responsible entity of a registered scheme or an entity that the responsible entity controls, in the original statement of claim and the amendments made on 7 September 2020 and 23 November 2020, but those allegations were not made in the final version of the pleading dated 28 June 2021 and filed on 1 July 2021. 38 The primary judge gave strong encouragement to the parties to seek to reach a commercial resolution and made orders referring the Principal Proceeding to mediation: [33]. The parties attended a mediation on 18 September 2020, at which a heads of agreement was signed by the parties' solicitors, and a formal settlement deed was subsequently executed on 1 October 2020 (Settlement Deed). His Honour noted that at the time, it was the intention of the parties that the Settlement Deed would resolve the issues in dispute and bring the proceedings to an end, however that agreed resolution miscarried: [33]. 39 Clause 5.1 of the Settlement Deed provided: By 1 October 2020: (a) The distributions presently owing and outstanding to unitholders in the PIF must be paid by cleared funds into the LACP Trust Account in the sum of $174,617.57; (b) The following must be paid by cleared funds into the LACP Trust Account: (i) payment of QB4's outstanding management fees and invoices from Cloud Capital Group (as claimed in the Matter, (b)) for PIF in the sum of $488,744.89; (ii) payment of outstanding costs and expenses incurred in relation to the Griffin Mews Project in the sum of $865,686.55 as set out in Schedule B to this Deed, by way of monies to be held as described in clause 5.2 of this Deed for the purpose of the further subscription for shares in Griffin Mews No 8. 40 On 1 October 2020, pursuant to cl 5.1, Guardian caused or permitted Fundus (via the custodian Certes) to pay a series of amounts from the assets of FT2 to the trust account of QB4's solicitor, Law & Commerce Partners, for the benefit of QB4. It was agreed at the trial that those payments included the three amounts referred to in cl 5.1 above (the Settlement Payments): [35]. 41 Following Guardian's payment of the Settlement Payments, the parties consented to orders to vacate the trial date pursuant to cl 6.1 of the Settlement Deed. That clause provided: Upon the execution of this Deed, and following the payment by 1 October 2020 of the monies due to be paid as set out in clause 5.1, the Parties will consent to orders to vacate the trial date. 42 On 2 October 2020, the primary judge made self-executing orders dismissing the proceedings, with such orders to take effect on 18 January 2021, shortly after the final terms of the Deed were scheduled to be performed. His Honour also granted the parties liberty to relist the proceedings on notice to the Court prior to 17 January 2021. 43 Following the making of those orders, a dispute arose as to Guardian's alleged default of cl 6.3(b) of the Settlement Deed, which provided as follows: If, and to the extent that, the Respondents (other than Certes CT) have paid any of their legal costs from any of the funds mentioned in clause 6.3(a), then the Respondents (other than Certes CT) must reimburse those amounts to the relevant fund(s) by 9 October 2020. 44 There then followed a series of correspondence in which QB4 demanded the remedying of the default, and Guardian attempted to extend the time with which to comply with cl 6.3(b). On 13 November 2020, Guardian was still in default as to its obligation to reimburse the relevant funds, and the QB4 Parties wrote to the Respondents terminating the Settlement Deed by reason of Guardian's default: [39]. The letter of termination included the following: In these circumstances: (1) QB4 Capital and the Migunovs (as defined in the Settlement Deed) hereby accept the Respondents' (other than Certes CT) repudiation of the Settlement Deed; (2) The Settlement Deed has come to an end; (3) QB4 Capital and the Migunovs (as defined in the Settlement Deed) elect to continue with their rights as if the Settlement Deed had not existed. 45 The QB4 Parties made an ex parte interlocutory application for an urgent listing seeking, among other things, to restrain Guardian, Fundus and Certes from having access to the Fundus bank accounts. The primary judge heard the application that day, but given an inability on the part of the other parties who would be affected by the proposed orders to brief counsel for the urgent listing, the matter was adjourned until 23 November 2020. In order to preserve the status quo in the meantime, the primary judge made orders restraining Guardian, Fundus and Certes from making transfers or withdrawals from the Fundus bank accounts for administrative costs, management fees, responsible entity fees and legal fees or legal costs: [40]. 46 In order to cover Fundus's legal fees, on 16 November 2020, VCPA (as the lender) entered into a loan agreement with Fundus (as the borrower) for the amount of $135,000, to be transferred from its bank to the trust account of CE Lawyers at the direction and for the benefit of Fundus with a term of 30 days (Loan Agreement). On 17 November 2020, VCPA paid the amount of $135,000 to CE Lawyers, in accordance with the loan agreement. That amount has not been repaid by Fundus to VCPA and remained an issue in dispute at the trial: [41]. 47 Following further interlocutory hearings, orders were made, eventually by consent, on 2 December 2020 appointing Mr Wengel and Mr Brereton as receivers and trustees of the property of Fundus, including the trust property of FT1 and FT2. Those orders expressly provided that the Receivers' expenses and remuneration would be payable from the assets of the ELF and the PIF: [42]. The consent orders also required the Receivers to provide to the Court and the parties a report as to the receivership of Fundus within 60 days. The primary judge recorded that at the time it was the consensus between the parties that the Receivers were appointed, as officers of the Court, not only to resolve the contentious issue of ongoing control, but also to make enquiries and report to the Court upon payments made by or from the trust property held by Fundus while it was under the control of Mr Maarbani: [44]. Further, there was a consensus among those appearing that the appointment of the Receivers was likely to quell the dispute concerning the relevant costs and charges. His Honour noted that as a consequence of this, the Receivers were not appointed as referees pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth) (the FCA Act) to enquire into and report upon specific issues: [44]. 48 Consistently with the orders made by the Court, the Receivers retained Mr Scott MacKenzie, a director of William Buck, the Receivers' firm, with extensive knowledge of managed investment schemes, to assist their investigation. On 29 January 2021, the Receivers filed their first report (First Receivers' Report), in which the Receivers indicated that they had serious concerns regarding the large quantum of fees and costs applied to FT1 and FT2 by Guardian. The Receivers also said that the records provided to them to substantiate certain fees and charges were insufficient to explain properly all the tasks completed and charged to the trusts. The Receivers' reviews identified transactions processed through the Fundus bank accounts and financial statements during the review period totalling almost $4.4 million which, according to the Receivers, required further analysis to determine who was responsible for bearing the cost, including requiring a costs assessment by a legal costs assessor: [45]. 49 On 8 April 2021, orders were made requiring the Receivers to complete an analysis regarding the reasonableness and propriety of costs and expenses charged by and paid to or at the direction of parties associated with Guardian in relation to the ELF and the PIF during the period 1 April 2020 to 2 December 2020. The Receivers were assisted by Cowell Clark Commercial Lawyers and Global Billing Legal Costs Consultants (Global Billing). On 16 April 2021, the Receivers filed their second report (Second Receivers' Report). To the extent that the conclusions of the Second Receivers' Report are relevant to the issues on appeal, the Receivers concluded that: (1) Guardian is entitled to be indemnified from the PIF and the ELF for the legal expenses incurred by AG Edwards Solicitors (AG Edwards) (the Guardian Parties' solicitors), however those costs should be reduced from $169,941.69 to $146,193.69. (2) It was appropriate for Guardian to use funds from the PIF to satisfy the ELF's costs in instances where the costs incurred were not specific to either fund, in accordance with the TGIF PDS. (3) The costs incurred by VentureCrowd and Guardian in completing a review of the operations and management of the TGIF, and a review of the various constituent and investment documents to determine Guardian's legal obligations to the PIF and the ELF, totalled $626,134.22. While the Receivers concluded that Guardian was entitled to be indemnified for such costs, due to the lack of detailed itemised records for the work undertaken, the Receivers were unable to determine the reasonableness of the quantum of such costs. 50 On 29 March 2020, the primary judge made further orders which required the Receivers to complete an analysis concerning the reasonableness and propriety of the costs and expenses charged or incurred at the direction of QB4 and Cloud Capital in relation to the ELF and the PIF. That further analysis was the subject of a third report dated 22 April 2021 (Third Receivers' Report), which contained a number of criticisms of claims for payment by QB4 and Cloud Capital: [48]. The three reports together are referred to as the Receivers' Reports. 51 The primary judge said that, having considered the way in which the Receivers' Reports were received by the Court and their content, those reports would be treated as prima facie cogent and persuasive reflections of their analysis and opinions and, on the basis of that opinion evidence, ought to be accepted as highly relevant to the propriety of the costs incurred, in the absence of acceptable countervailing evidence: [55]. Consistently with the limitation which the primary judge made pursuant to s 136 of the Evidence Act 1995 (Cth), the primary judge did not use the contents of the Receivers' Reports as evidence of the underlying truth of factual assertions contained in the reports: [55]. There has been no criticism in the appeal by any party of the way in which the primary judge used the Receivers' Reports in his Honour's reasoning. 52 On 21 June 2021, his Honour ordered that the Receivers' outstanding remuneration and disbursements be indemnified out of the assets of the ELF and PIF in accordance with the orders made on 2 December 2020: at [56]. While the QB4 Parties opposed that order, it was the QB4 Parties which had sought the appointment of the receivers (at [56]), and had consented to the orders of 2 December 2020 (at [42]). 53 On 1 July 2021, the QB4 parties filed their further amended originating application and fourth further amended statement of claim (4FASOC). It is those pleadings which were operative by the end of the first instance hearing. The 4FASOC sought equitable compensation in respect of various invoices charged to the funds, declaratory relief that Guardian is not entitled to payment in respect of those sums (among others), orders for the appointment of QB4 as trustee of FT1 and a related company (CODA Asset Management Pty Ltd) as trustee of FT2, and further orders as to the management of the ELF and the PIF assets. On 13 July 2021, Guardian and VCPA filed a cross-claim against QB4, Fundus and the Receivers (First Cross-Claim), seeking orders which included an order that QB4 repay the Settlement Payments with interest. 54 On 17 August 2021, the agreed outstanding issues for determination were amended to reflect the substantive changes to each party's case: [60]. The hearing of those outstanding issues did not conclude until 10 September 2021. On the afternoon of the final day of the hearing, the QB4 Parties responded to criticism of their claim for equitable compensation and indicated their intention to seek leave to amend their further amended originating application and 4FASOC to bring a derivative claim: [61]. 55 The hearing of the Principal Proceeding was conducted in conjunction with the hearing of what the primary judge referred to as the Legal Costs Proceeding. That proceeding had its genesis in proceedings in the Queensland District Court commenced on 18 December 2020 by CE Lawyers, claiming amounts owing under a costs agreement it had with Guardian and Fundus and a deed of acknowledgement of debt: [62]. Those proceedings were later superseded by the Legal Costs Proceeding commenced by QB4 and the Migunovs against CE Lawyers: [64]. QB4 sought declaratory relief that, in essence, sought to undo the effect of the Queensland District Court proceeding in which default judgment had been entered. CE Lawyers then cross-claimed against Guardian and Fundus seeking the relief that had been initially claimed in the Queensland District Court proceeding. On 21 June 2021, the primary judge awarded judgment to CE Litigation Lawyers against Guardian in the amount of $32,614.68, and awarded judgment in favour of CE Litigation Lawyers against the Guardian Parties in the amount of $151,390.46: [66]. Those orders were stayed pending the determination of a cross-claim filed by the Guardian Parties against CE Lawyers, QB4 and the Migunovs, seeking indemnity for legal costs incurred and to be incurred by Guardian in the various proceedings on a full indemnity basis: [65]. That cross-claim was then dealt with by the primary judge at the hearing of the Principal Proceeding. 56 The primary judge then dealt with the QB4 Parties' claim for equitable compensation and declarations relating to two categories of invoices: (1) fees paid or accrued to Guardian in respect of invoices issued to Fundus in relation to the ELF and the PIF (Guardian Invoices); and (2) amounts comprising various legal fees paid from the assets of the ELF and PIF to AG Edwards and CE Lawyers (Legal Invoices).

Guardian Invoices 57 As to the Guardian Invoices, there are three invoices relevant to the appeal, namely invoice 0419 dated 18 May 2020 in the amount of $296,079.30; invoice 0434 dated 28 September 2020 in the amount of $252,892.20; and the unpaid invoice 0451 dated 1 December 2020 in the amount of $77,162.72. The total amount of the Guardian Invoices was $626,134.22. 58 As to the Legal Invoices, these comprise four invoices paid from the assets of the PIF to AG Edwards in the total amount of $169,941.69; and payments from the assets of the PIF to CE Lawyers of $340,000, together with a further unpaid amount of $190,000. 59 There was considerable debate before the primary judge as to whether the QB4 Parties had the necessary standing to bring claims for equitable compensation, which his Honour considered from [78] to [105]. Ultimately, the primary judge, mindful of the overarching purpose expressed in s 37M of the FCA Act, dealt with the claim made in relation to the Guardian Invoices and the Legal Invoices by way of declaratory relief pursuant to s 21 of the FCA Act: [110]-[118]. His Honour said that not to do so would be to ignore the substance of an important aspect of the dispute that had long been understood by the parties to be squarely in the arena, notwithstanding any pleading deficiencies: [110]. His Honour added that if a point was taken when the parties brought in draft orders that declaratory relief was not an appropriate or available mode for solving this important and underlying dispute between the parties, his Honour would return to questions of standing and the appropriate mode of relief at that time: [110]. As matters turned out, no submission was made when final orders were brought in that the declaratory relief was inappropriate, and no ground of appeal or notice of cross-appeal or contention has been raised concerning that matter. It is therefore not necessary for this Court to express a view in relation to the appropriateness of the declaratory relief which was ultimately granted. 60 In relation to the substance of the claims for indemnity, the primary judge conducted a review of the authorities concerning the concept of payments being "properly incurred", stemming from Re Beddoe [1893] 1 Ch 547. The appellants did not take issue with that analysis. Importantly, in terms of onus of proof, the learned trial judge at [130] adopted the well-established principle that trustees should not be deprived of their right of reimbursement unless they have clearly been shown to have acted improperly, with the onus resting on those who seek to deny the right: Nolan v Collie Nominees Pty Ltd (in liq) [2003] VSCA 39; (2003) 7 VR 287 at [50] (Ormiston JA, with whom Batt and Vincent JJA agreed). In their submissions on appeal, the appellants conceded the correctness of that principle, thereby accepting that they bear the onus in this regard. 61 In relation to the Guardian Invoices, these expenses arose out of the review conducted by VentureCrowd of the operation and management of TGIF and the review by Guardian of the various constituent and investment documents to determine Guardian's legal obligations to the ELF and the PIF. The legal review was conducted predominantly by Mr Maarbani in his capacity as a director of VCSA and as a solicitor: [134]. The primary judge expressed considerable disquiet as to the invoices: [136]. His Honour referred to Mr Maarbani's affidavit seeking to explain the relevant work that was undertaken, and the process for recording the work completed by staff, including Mr Maarbani himself, and the time spent on work for the ELF and the PIF: [136]-[137]. The primary judge referred also to the review conducted by the Receivers in the Second Receivers' Report, stating that the information available to them to assess the propriety of the Guardian Invoices was insufficient in terms of the work which Guardian and VentureCrowd claimed to have carried out, including the absence of detailed timesheets or other evidence of the work undertaken: [138]. The Receivers said that they were unable to form a reasonable view of the services provided and whether they were properly incurred, despite asking for the relevant material: [139]. The primary judge said that the evidence regarding the Guardian Invoices did not provide real insight into the work that was performed or its propriety, there were inaccuracies between the amounts charged in the relevant invoices and the times recorded in the timesheets and the evidence of Mr Maarbani, and the amount being charged to the relevant trust in the Guardian Invoices appeared excessive when regard was had to similar fees being charged to the ELF and the PIF and the work being done by AG Edwards during the relevant period: [143]-[146]. In addition to having little confidence in Mr Maarbani's affidavit evidence, the primary judge said that his oral evidence in relation to the issue of the work performed did not provide any further detail or leave the primary judge with any feeling of confidence that the amount charged reflected a proper scope of work or the time required to do the work: [147]. His Honour did not regard the question of the termination, or purported termination, of the Investment Management Agreement as being pertinent to the issues concerning the propriety of the Guardian Invoices: [148]-[151]. 62 Ultimately, the primary judge was satisfied that Guardian had a right to be indemnified for most of the work charged in the Guardian Invoices, but concluded that the total amount of those invoices was not properly incurred in relation to the trusts. His Honour held that the charges should be significantly discounted given the nature and extent of the necessary and proper work to be performed as explained by the Receivers, the imprecise evidence in which the fund expenses were charged, the inconsistencies between the explanations for the work performed and the invoices that were charged to the fund, and the significant fees that were being paid at the time for similar work. Acknowledging that quantifying the discount was not an exercise in precision and necessarily involved taking a broad brush view as to where the just result lay, his Honour concluded that 60% of the amount charged should be regarded as being properly incurred: [152]. 63 The primary judge then dealt with claims by Guardian for payment of responsible entity fees and audit fees: [153]-[172]. These claims are no longer in issue on the appeal.

Legal Invoices 64 His Honour then turned to the Legal Invoices, in respect of which Guardian claimed to be entitled to indemnification from TGIF for its legal fees incurred in the proceedings. Those costs were the subject of claims by QB4 for declaratory relief in the Principal Proceeding and by Guardian in its cross-claim in the Legal Costs Proceeding, 65 The relevant legal fees were charged by solicitors engaged by the Guardian Parties in each of the proceedings. Guardian and Fundus engaged AG Edwards to act on their behalf in the Pre-action Relief Application and the Principal Proceeding from 9 April 2020 to 28 June 2020, after which, on 30 June 2020, they engaged CE Lawyers to represent them in the Principal Proceeding and the proceeding for judicial advice in relation to their defence and prosecution of the Principal Proceeding (Judicial Advice Proceeding). On 14 January 2021, the Guardian Parties engaged Macpherson Kelley to act on their behalf in the Queensland District Court Proceeding, including a costs assessment of the fees charged by CE Lawyers. On 18 January 2021, the Guardian Parties engaged Resolve Litigation Lawyers Pty Ltd to represent them in the Principal Proceeding and, subsequently, the Legal Costs Proceedings. As of 19 April 2021, the legal costs totalled approximately $1,049,446.45 and significant further costs have continued to be incurred since that time. 66 In the Principal Proceeding, the QB4 Parties challenged whether the Legal Invoices were properly incurred in the performance of Guardian's duties as responsible entity and trustee of TGIF. In its cross-claim, Guardian claimed a declaration that it was entitled to indemnity from TGIF for all of the legal fees and disbursements rendered to the Guardian Parties in respect of each of the proceedings commenced in relation to this matter. 67 The primary judge at [178]-[179] adopted as the relevant test, in circumstances where a responsible entity is actively defending proceedings concerning a managed investment scheme, whether the costs of that litigation were reasonably and honestly incurred in connection with the trust, and in circumstances where that is so, the fact that the responsible entity was defending its own character at the same time as defending those proceedings will not matter in and of itself: see Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21 at [259] (Giles JA, with whom Meagher JA agreed at [3]). There was no contest before us on the appeal as to the correctness of that principle. His Honour approached the matter on the basis that the primary consideration in assessing whether legal costs were properly incurred is whether the relevant proceedings were likely to benefit the members of the managed investment scheme: [182]. Again, there was no contest before us as to the correctness of that approach. 68 In applying that principle, the primary judge rejected the submission put by the QB4 Parties that the cause of the extensive litigation was, at its core, the fact that Guardian had lost the support of unitholders and was clinging to office (seeking to invoke the reasoning of the Full Court in Adsett v Berlouis [1992] FCA 368; (1992) 37 FCR 201 at 213): [183]-[187]. His Honour found that: (a) there was no persuasive evidence that Guardian had lost the support of all unitholders in the ELF and the PIF, and the affidavit of Mr Mackay as to a majority of unitholders signing consent letters in order to appoint QB4CAM as trustee of FT2 was sworn as late as 17 June 2021; (b) on 11 May 2020, Guardian indicated its willingness to retire as responsible entity of the ELF and the PIF upon a separation of those funds from TGIF; (c) the disclosure to unitholders for the consent letters was insufficient; and (d) the issue of whether Guardian had "clung" to office was not one of the agreed issues. 69 As to the costs incurred in the Pre-action Relief Application and the Principal Proceeding, his Honour referred to the fact that the Receivers had engaged Global Billing for the purpose of assessing the reasonableness of the costs paid to AG Edwards, and Global Billing reduced the amount of the AG Edwards Invoices from $169,941.69 to $146,193.69: [189]-[190]. His Honour adopted that reduction as appropriate: [191]. As to whether Guardian's defence of the Principal Proceeding was in the interests of unitholders, his Honour concluded that Guardian acted reasonably in responding to the claims brought by the QB4 Parties, which at least until the filing of the 4FASOC on 29 June 2021 had sought relief which went to the heart of the future management of the ELF and the PIF: [192]-[193]. However, his Honour contrasted that with the expenses incurred following Guardian's default under the Settlement Deed. His Honour found that the circumstances justifying and warranting the termination of the Settlement Deed by the QB4 Parties arose directly from the decision of Guardian not to make the payment it was obliged to make under cl 6.3(b): [199]. The cross-examination of Mr Maarbani had revealed that Mr Maarbani caused the Guardian Parties to be in default under the Settlement Deed, in that Guardian had available to it the money to comply with its obligation under cl 6.3(b) but Mr Maarbani chose not to cause it to make the payments and instead sought an extension of time within which to comply with the obligations under the Settlement Deed. His Honour concluded that it was difficult to view that as anything other than a conscious and intentional decision to breach the Settlement Deed and allow the disputation to continue: [200]. Accordingly, his Honour concluded that the legal costs incurred in the proceedings that arose from the date of the termination of the Settlement Deed, being 13 November 2020, could not be said to have been properly incurred in the interests of the trusts: [201]. His Honour therefore concluded that Guardian should not be entitled to its costs (or able to rely on its right of indemnity to be reimbursed for its costs) from 13 November 2020. 70 As to the Judicial Advice Proceeding, in May 2020, Mr Maarbani instructed CE Lawyers to prepare the necessary documentation to apply for judicial advice in relation to Guardian's and Fundus's defence and prosecution of the proceedings in this Court. The application was filed on 23 July 2020, in which Guardian and Fundus sought judicial advice as to whether they were justified in defending the Principal Proceeding and commencing their own cross-claims, as well as whether they were entitled to rely on rights of indemnity in relation to legal costs incurred in the proceedings in this Court. On 4 September 2020, in light of the ongoing settlement negotiations, the application was adjourned by consent to a date to be fixed, and ultimately it was not pursued. 71 The primary judge referred to the reasoning of the High Court in Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 at [67], [71]-[72] and [74] as to the necessity or desirability of a trustee who is sued taking no step in the defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings. His Honour found at [207] that the Principal Proceeding, and therefore the Judicial Advice Proceeding, raised issues beyond Guardian's right to indemnity and alleged breaches of trust, and also accepted that the adjournment of the Judicial Advice Proceeding in the light of pending settlement negotiations did not imply that, at the time it was commenced, it did not represent a reasonable step by Guardian. His Honour pointed out that the fact that the proceeding was not pursued to ultimate success does not foreclose the answer to the question of whether the legal costs were properly incurred: [207]. Although his Honour found that there remained real questions as to whether the application was necessary, his Honour accepted at [207] that some of the costs incurred by Guardian were reasonable and proper and concluded at [208] that it was appropriate for Guardian to be indemnified from TGIF, but only to the extent of 50% of its costs of and incidental to the Judicial Advice Proceeding. 72 As to the Queensland District Court Proceeding and the Legal Costs Proceeding, his Honour found that those fees were not properly incurred in connection with TGIF and were not for the benefit of the beneficiaries under TGIF, in circumstances where the proceeding was directed to defending Guardian's own position: [211]. The primary judge's conclusion that Guardian was not entitled to be indemnified for these costs is not the subject of any cross-appeal. 73 Finally, the primary judge dealt with a claim by VentureCrowd for indemnity for costs incurred by it, and rejected that claim: [213]. There is no cross-appeal from that conclusion.

The Settlement Deed 74 Turning to the question of the Settlement Deed repayments, the cross-claim by Guardian sought repayment of the Settlement Payments made under cl 5.1 of the Settlement Deed executed on 1 October 2020. We have referred above to the terms of cl 5.1 of the Settlement Deed, which required a total amount of $1,529,049 to be paid by 1 October 2020. The claim for repayment was made pursuant to cl 10.1 of the Settlement Deed, and alternatively by way of restitutionary relief. 75 Clause 10.1 of the Settlement Deed provides as follows: Subject to the following dates being varied as agreed by the parties modifying this Deed in accordance with clause 16.3, in the event that: (a) the payments mentioned in clause 5.1 are not paid by 1 October 2020; (b) the Respondents, on and from the date of this Deed, have recourse to the funds of the ELF and the PIF Unit Classes (or the funds of FT1 or FT2) despite clause 6.3(a) but excluding any payment made in accordance with clause 4.5, 4.6(d), 4.10 and 6.4 (subject to any agreement or order to the contrary); (c) any legal fees required to be reimbursed by clause 6.3(b) are not reimbursed and paid by 9 October 2020; (d) the non-cash PIF assets are not converted to cash in the manner prescribed in clause 4.6 by 17 November 2020; (e) the Yamanto Property and the Lawnton Property are not sold by 16 January 2021; (f) the redemption requests mentioned in clauses 5.4 and 5.5 are not paid in accordance with the PDS within 21 days of them being properly made by all unitholders of PIF and ELF; this Deed shall come to an end and the Parties may continue with their Rights as if this Deed had not existed, including that the releases and indemnities given in clause 8.1, 8.7 and 9.3 shall not apply. 76 The releases and indemnities referred to at the end of that clause are as follows: 8.1 QB4 Capital: (a) will use its best endeavours to obtain or provide a release from all PIF and ELF Unitholders with regard to the Claims the subject of the Matter, excluding in respect of clause 4.10 when there is a written notice of dispute, until that dispute is finally determined or resolved; and (b) to the extent it cannot obtain or provide any such release, it and its directors (being Charlotte Wong and Rodney Mackay) jointly and severally give an indemnity to Guardian, the VentureCrowd Entities, Fundus Management and any officer thereof in relation to any loss they may suffer by reason of the failure or inability to provide any such release; (c) and its directors (being Charlotte Wong and Rodney Mackay) give an indemnity to Guardian in relation to any Claim made by any PIF and ELF unitholder in relation to the payment mentioned in clause 5.1(b) and 5.3. 8.7 In relation to Griffin Mews No 8: (a) Fundus Management withdraws the matters stated in letters dated 14 September 2020 under hand of CE Lawyers; (b) Fundus Management releases and discharges Griffin Mews No 8 (and its director, Charlotte Wong) from any Claim arising from, or in any way connected with, the subject of the letters mentioned in clause 8.7(a) provided QB4 Capital and Griffin Mews No 8 comply with their obligations under this deed; (c) Fundus Management acknowledges and agrees that: (i) Charlotte Wong is the sole director of Griffin Mews No 8; (ii) Steven Maarbani is not a director of Griffin Mews No 8. 9.3 Guardian and QB4 Capital indemnify Certes CT (and its directors, officers and employees) in respect of any claim(s) (whether brought by any party to the Matter or any third party) for costs, expense, charge, fee, Claim, demand, damages and compensation of any kind that arises from or is connected with Certes CT acting or refraining to act in a manner contemplated, alluded or implied in this Deed. 77 The term "Rights" is defined to include "any legal, equitable, contractual, statutory or other right, power, authority, benefit, privilege, immunity, remedy, discretion or cause of action". 78 The primary judge accepted at [218] that the effect of cl 10.1 was prospective, and that the clause did not treat the Settlement Deed as if it had never existed. His Honour referred to the decision in FAI General Insurance Co Ltd v Ocean Marine Mutual Protection & Indemnity Association Ltd (1997) 41 NSWLR 559 at 563-4, in which Giles CJ Comm D said in relation to language that a contract which is "avoided ab initio" is taken never to have existed, that such language should not be taken literally, in that rescission cannot turn the clock back to have that literal effect, and "avoidance ab initio" means that the parties are to be restored substantially to the positions they would have been in had there not been a contract, although it remains the case that there was in fact a contract. 79 At [219], the primary judge said that similar logic applies to cl 10.1, in that on its true construction, the occurrence of any of the circumstances itemised in cl 10.1(a)-(f) re-enlivens any right of a party which was compromised by the deed to its fullest extent, as it would have existed but for the Settlement Deed. Conversely, his Honour said that any right conferred by the Settlement Deed would no longer exist for the benefit of any party, and the language of the Settlement Deed is prospective, as the relevant rights are being prospectively restored, rather than retrospectively re-enlivened. His Honour said that the default clause thus operates so that, upon the deed coming to an end, any benefit conferred by the Settlement Deed, including any right QB4 had to the Settlement Payments, is restored substantially to the position in which the parties would have been had the Settlement Deed not been executed. In other words, as his Honour said at [219], the benefit conferred by the payments made to QB4 (via its solicitor) under cl 5.1 was no longer a benefit to which QB4 had any right under the Settlement Deed. The primary judge also rejected QB4's submission that the Settlement Payments were severable, the argument being that they were merely in consideration for the vacating of the hearing dates, which had occurred, rather than being in consideration of the dismissal of the entire proceeding: [220]-[222]. 80 While the reasoning at [219] appeared to come very close to saying that cl 10.1 conferred a contractual right to repayment of the Settlement Payments, at [223] the primary judge said that the better view was that the Settlement Deed did not contain a mechanism that obligates QB4 to repay those amounts to Guardian; that is, Guardian does not have a cause of action in contract that would give it the right to be repaid those monies. His Honour said that the Settlement Deed did not contain a mechanism to restore the status quo ante that would give Guardian the right to be repaid the Settlement Payments. Rather, his Honour said that the default clause simply restored the parties' rights as they were before the Settlement Deed was executed, and accordingly no common law claim in contract exists. 81 However, the primary judge held that the Settlement Payments were liable to be repaid as money had and received on a failure of consideration as a matter of the law of restitution: [227]-[244]. It was unnecessary for the primary judge to consider Guardian's alternative submission as to restitution on the ground of a mistake of law or fact: [236]. His Honour rejected QB4's submissions as to a defence of change of position, noting that no such defence had been raised in the pleadings, and in any event his Honour found that it was not supported by the evidence: [238]-[243].

Costs 82 The primary judge then dealt with the claim by VCPA against Fundus for repayment of the amount of $135,000 lent by VCPA to Fundus in order to pay legal costs, in accordance with the Loan Agreement. That issue fell away in light of the primary judge's findings that Guardian was entitled to indemnity from the assets of the ELF and/or the PIF in respect of the amounts paid to CE Lawyers, as the claim for repayment of the loan would result in a potential double recovery of those amounts: [248]. 83 As to the costs of the proceedings, the primary judge noted that the substantive result was a mixed one and decided that Guardian should pay 50% of the QB4 Parties' legal costs in the Principal Proceeding: [249]-[250]. An application was made for Mr Maarbani, who was not a party to the proceedings, to be personally liable for those costs, and the primary judge held that Mr Maarbani's conduct did not warrant the exceptional response of an order for costs against a non-party, nor was such an order required in the interests of justice: [251]-[252]. As for the Legal Costs Proceeding, his Honour ordered each party to bear its own costs: [250]. 84 While it was accepted by the parties that an order should be made for the Receivers to realise the assets of the PIF and to distribute them rateably to the unitholders of the PIF, an issue remained as to whether the same approach ought to be adopted in respect of FT1 and the ELF. His Honour decided that that was the appropriate resolution and ordered the Receivers to take steps to realise the assets of both FT1 and FT2, being assets attributable to the ELF and the PIF: [257]. There is no issue on this appeal concerning those orders. 85 On 31 May 2022, the primary judge made final declarations and orders in the proceedings.

Joinder of Fundus and the Receivers to the Appeal 86 At the outset of the hearing of this appeal, the appellants applied for orders pursuant to rr 9.05(1) and 36.31(1) of the Federal Court Rules 2011 (Cth) that Fundus and the Receivers be joined as parties to the proceeding. There was no opposition to the joinder of Fundus, but the Receivers opposed their joinder by reason of the lateness of the application and the substantial delay in making it, since the point was first raised by the solicitors for Guardian more than eight months previously on 10 August 2022. The Receivers submitted that they were not necessary parties to the appeal, but Guardian took the opposite stance, contending that the Receivers' right to repayment of the Settlement Payments was directly in issue in the appeal. Neither the Receivers nor Guardian could identify any prejudice which would be caused by the joinder of the Receivers. While we accept that the delay in making the application was very substantial and unexplained, we ordered that the Receivers, together with Fundus, should be joined as parties to the appeal in the absence of any prejudice in doing so, in order that the issues which had been addressed extensively in the written submissions filed in the appeal could be fully resolved. There was no difficulty in the Receivers engaging counsel to appear at the hearing of the appeal, and Mr Street of counsel (who appeared for the Receivers at first instance) participated fully in the hearing of the appeal.

The Guardian Invoices 87 This topic concerns appeal grounds 1(a), (g) to (i), (v) and (w) and notice of contention grounds 7 and 8. 88 The argument for the appellants embraced a broad sweep of the history of TGIF since Guardian came under the control of VentureCrowd. Mr Douglas KC contended that: (a) VentureCrowd's acquisition of control over Guardian was made in circumstances which entitled QB4 to terminate the Responsible Entity Agreement pursuant to the change in control clause; (b) the investment made in the Pimpama development of $2.5 million by way of unsecured loan was an unauthorised investment and was made in breach of the procedure laid down by the Responsible Entity Agreement for making investments, and was subsequently recovered; (c) Guardian had failed to continue funding current projects, such as the Griffin Mews development; (d) VentureCrowd was in a parlous financial condition and was attracted to its acquisition of Guardian by the prospect of having access to the healthy financial position and prospects of TGIF; (e) the Investment Management Agreement was purportedly but invalidly terminated by Guardian on 18 March 2020; and (f) Guardian was prepared to do whatever it perceived as necessary to retain the trusteeship of TGIF. 89 There are two principal problems with that broad line of argument. The first is that it involves matters which were neither pleaded in the 4FASOC nor included in the exhaustive list of issues of 17 August 2021. The question whether the Pimpama investment was an authorised investment and breached the Responsible Entity Agreement had been raised in an earlier iteration of the pleading, as too had the question whether the Investment Management Agreement had been validly terminated and the issue whether Guardian had an obligation to make funds available for the Griffin Mews project. However, they were no longer issues raised by the 4FASOC, and other aspects of these submissions had never been pleaded. The second problem is that these matters were at best tangential to the real question as to whether the expenses represented by the three Guardian Invoices were properly incurred. That question involves looking at the actual work claimed to be performed and the amounts claimed in relation to that work in forming an assessment as to whether, and how much of, the expense for that work was properly incurred in the interests of beneficiaries. As we have noted above, the appellants did not take issue with the principle that those seeking to deprive a trustee of a right of indemnity bear the onus of showing that the trustee had acted improperly. 90 There is a great number of cases concerning the meaning and application of the question whether expenses have been "properly incurred". As we have noted above, the starting point is often taken to be the decision in Re Beddoe [1893] 1 Ch 547. It is sufficient for present purposes to refer to the judgment of the Full Court in Adsett v Berlouis [1992] FCA 368; (1992) 37 FCR 201, in which it was said, adopting the language of Bowen LJ in Re Beddoe, that the word "properly" means reasonably as well as honestly incurred (at 212). As the Full Court said (at 212), if the expense is one prudently and reasonably incurred in the discharge of the trustee's proper duties, there is a right under the general law to be indemnified out of the trust estate. If the expense is not so incurred or is unreasonable or unnecessary, there is no right under the general law to indemnity because the expense is "not properly incurred". No argument was put to us in the appeal that the Full Court's reasoning should not be followed. The respondents referred briefly in their written submissions to the NSW Court of Appeal's reasoning in Gatsios Holdings Pty Ltd v Nick Kritharas Holdings Pty Ltd [2002] NSWCA 29; (2002) ATPR 41-481, which involves a major departure from the orthodoxy adopted in Adsett v Berlouis, and we adhere to that orthodoxy, both because it has the authority of the Full Court, and also because the criticisms by Ormiston JA of Gatsios are well made: see Nolan v Collie Nominees Pty Ltd (in liq) [2003] VSCA 39; (2003) 7 VR 287 at [44]-[57]. 91 Adsett v Berlouis involved a trustee in bankruptcy, but the Full Court said that there was no relevant difference between the principle applicable to a trustee in bankruptcy and the principle applicable to trustees more generally. With specific reference to the position of a trustee in bankruptcy, the Full Court said (at 213) that, except in the most unusual of circumstances, a trustee who has lost the confidence of the majority of creditors ought not to cling to office, but make way for someone else. While the appellants in the present case sought to liken the position of Guardian to that scenario (substituting unitholders for creditors), there was no evidence that Guardian had lost the support of the majority of unitholders in TGIF (of whom there were some thousands, nearly all of whom were not in the ELF or the PIF Unit Classes), and it could not be said that Guardian was "clinging to office" in circumstances of opposition by a majority of unitholders. 92 The appellants also sought to make much of the concession by Mr Maarbani in cross-examination that Guardian was "absolutely in a position of conflict" in relation to this work. That was a proper concession for Mr Maarbani to make, given VentureCrowd's controlling interest in Guardian and Mr Maarbani's position as CEO and director of VentureCrowd. However, it is clear from cll 21.2, 21.3 and 23.19(a) of the TGIF constitution that being in a position of conflict does not in itself present an obstacle to the transaction. Similarly, cl 10.3 of the constitutions of FT1 and FT2 permits self-interested dealings by the Trustee. As we have noted above, s 601FC(1)(c) of the Act does not prohibit the responsible entity from being in a position of conflict, provided that it gives priority to the interests of members over its own interests. There is no allegation of a breach of that provision in the 4FASOC. At the hearing of this appeal, Mr Douglas KC accepted that Guardian was able to act in a position of conflict: T38.45-46. 93 In relation to the Investment Management Agreement, a submission was made by the appellants to the effect that it was improper for Guardian and VentureCrowd to undertake the work claimed in the Guardian Invoices at a time when QB4 was willing and able to perform such work and in circumstances where the Investment Management Agreement was still on foot. Whether or not the Investment Management Agreement was still on foot, and we express no opinion on that matter given that it fell outside the issues to be decided at first instance, cl 3.3 of that agreement, to which we have referred above, expressly contemplates that Guardian and Fundus may conduct an audit or review themselves, and require the cooperation of QB4 in so doing. Mr Douglas KC accepted that Guardian was entitled to carry out a review even if the Investment Management Agreement remained on foot: T37.22-38.2. 94 A further submission by the appellants was that all of the Guardian Invoices were rendered to the PIF, because the ELF had no liquid funds available. The appellants submitted that this provided evidence that the payments did not reflect any genuine work carried out on behalf of the PIF or the ELF, but rather they were payments made from the liquid assets of the PIF to alleviate VentureCrowd's financial difficulties at the time. However, there is nothing to suggest that there would not have been an accounting in due course by the ELF in favour of the PIF when the ELF did have liquid funds available. The alternative would have been for the ELF to have sold assets in order to pay invoices, which would not appear to have been in the best interests of TGIF's unitholders. We reject the submission that the mechanism of payment provides evidence that the work was not in fact performed at all. 95 The real question of whether the Guardian Invoices were expenses properly incurred depends upon an assessment of what work was actually done and whether it was undertaken reasonably and honestly in the interests of the unitholders of TGIF. We have referred above to the primary judge's misgivings as to the insufficient detail and documentation provided to the Receivers for the purposes of the Second Receivers' Report, as well as the primary judge's concerns as to the reliability of Mr Maarbani's affidavit evidence (which stopped short of the outright rejection of that evidence). They were matters which the primary judge took into account in reaching the conclusion that 60% of the Guardian Invoices represented expenses which were properly incurred. The appellants submitted that given the state of that evidence, the primary judge should have concluded that none of the amounts which were the subject of the Guardian Invoices was recoverable, and to the extent that they had been paid, they ought to be repaid. 96 In assessing that submission, it is necessary to have regard to the objective documentary evidence which reveals the work actually undertaken. That evidence includes the following: (a) A report dated 9 April 2020 by VentureCrowd to Guardian concerning the level of investment management fees and expenses, the performance of the PIF compared to its target return, the value of PIF units, the state of the Griffin Mews Project, the illiquidity of the ELF, the state of ELF's development projects and recommendations for future reviews and enquiries. (b) A due diligence report on the Griffin Mews Project by VCPA. (c) A letter dated 1 May 2020, in which Guardian wrote to Ms Wong as director of Griffin Mews No 8 Pty Ltd making a request for a substantial amount of information in order to deal with a number of Guardian's concerns in respect of the Griffin Mews Project. (d) A due diligence report by VCPA on the Wattlebird investment. (e) A due diligence report by VCPA concerning the Yamanto project. (f) A due diligence report by VCPA concerning the Lawnton project. (g) A Notice of Meeting, Explanatory Statement and covering letter to unitholders for the purposes of a meeting of unitholders of each of PIF and ELF respectively on 15 June 2020. Those documents comprise some 60 pages of material. We note at this point that although one of the submissions made by the appellants was that the work claimed by Guardian and VentureCrowd was done secretly, that submission is inconsistent with the material prepared and sent in relation to the 15 June 2020 meeting. (h) An update to unitholders concerning the unitholders' meeting held on 15 June 2020. In addition, on 31 March 2021, Mr Westera of VCPA provided Guardian with a detailed report of the work which VCPA had undertaken in relation to invoices 0434 and 0419. 97 In the light of that objective documentary material, all of which on its face appears to be for the benefit of unitholders of TGIF, we reject the appellants' submission that the primary judge should have concluded that none of the amounts the subject of the Guardian Invoices were recoverable. Mr Douglas KC submitted that there was a very real question as to whether any of the claimed work was done at all, or, if it was done, whether it was for the benefit of unitholders. That submission is contrary to the objective documentary material to which we have referred, and the proposition was not put directly to Mr Maarbani in cross-examination. Moreover, as we have noted above, the appellants accepted that they bore the onus of showing clearly that the trustee acted improperly so as to be disentitled from claiming its right of indemnity. The appellants have not discharged that onus in terms of showing any error in the primary judge's overall assessment that 60% of the amount of the Guardian Invoices was properly incurred. 98 In light of that conclusion, it is not necessary for us to deal with grounds 7 and 8 of the notice of contention which concern, respectively, whether Guardian is entitled to reasonable remuneration for its work by way of a quantum meruit or just allowances, and whether any reduction in the indemnity in favour of Guardian would translate into a claim for damages caused by QB4's breach of contract. 99 Finally, we note that the question of indemnity for the Guardian Invoices appears to have been argued by the parties as a matter concerning the right of indemnity pursuant to cl 22 of TGIF's constitution. However, the Guardian Invoices concern payments by Fundus to Guardian from FT1 and FT2, and accordingly the appropriate provision in question was cl 12 of the constitutions of FT1 and FT2. However, given that cl 12 is expressly limited to the extent that s 601GA(2) of the Act permits an indemnity in favour of the responsible entity, and cl 12.4(a) is expressly confined to expenses "properly incurred", nothing turns on this point.

The Legal Invoices 100 This topic comprises notice of appeal grounds 1(a) and (n) and 3(e), and notice of contention ground 9. 101 The appellants submit that Guardian should not be entitled to indemnity for any of its legal costs of the proceedings in light of the background circumstances which prompted QB4 to commence the proceedings. These were essentially the same circumstances relied upon by QB4 in relation to the Guardian Invoices, namely the change of control of Guardian through the acquisition by VentureCrowd in breach of the Responsible Entity Agreement, Guardian causing the PIF to enter into the Pimpama transaction involving a loan of $2.5 million without security, the termination of the Responsible Entity Agreement, the subsequent recovery of the $2.5 million together with interest, the purported termination by Guardian of the Investment Management Agreement, and the underlying motive of enabling continuing access to the funds of the ELF and PIF to VentureCrowd which was said to be in difficult financial circumstances. 102 As we have said in relation to the Guardian Invoices, none of these allegations were pleaded in the 4FASOC or included in the exhaustive list of issues for determination. Further, none of these matters of background and context, even if established by the evidence, would be sufficient for the appellants to discharge their onus of clearly showing that the legal costs were improperly incurred. In this regard, given that the allegations and relief sought by the QB4 Parties until the filing of the 4FASOC on 29 June 2021 went to the heart of the future management of the ELF and PIF (and not merely Guardian's claim for indemnity), as his Honour held, Guardian was entitled to form a bona fide view that that relief should be resisted in the interests of unitholders. It was only upon the termination of the Settlement Deed on 13 November 2020 that the evidence justified a conclusion that the expense incurred in continuing the litigation was no longer in the interests of unitholders. 103 Mr Maarbani gave express evidence in relation to his decision to resist the relief sought by QB4. In his affidavit of 9 April 2021 at [12], Mr Maarbani expressed concern about the appointment of an interim receiver as sought by the QB4 Parties in the Pre-action Relief Application, including concerns that the QB4 Parties may not have represented the interests of all unitholders in the PIF and the ELF, the proposed receiver was not a registered company liquidator, and there appeared to be a potential conflict of interest between the unitholders and the QB4 Parties. In his affidavit of 19 April 2021, Mr Maarbani said that he formed the view that the orders which were sought restraining Guardian from dealing with the assets of the PIF and the ELF would effectively bring the management of those funds to a standstill, including making it impossible for Guardian to make any payments in the ordinary course of operating the funds, such as quarterly distributions to unitholders of the PIF (at [10]). He again expressed a concern that the QB4 Parties may not have represented the interests or wishes of all unitholders of the PIF and the ELF and expressed concerns in relation to the conduct of QB4 as the investment manager of those funds, including the appropriateness of fees which QB4 had received from those funds (at [11] and [15]). None of that evidence was the subject of any direct challenge, and it is implicit in the primary judge's reasoning (especially at [193]) that his Honour took Mr Maarbani's evidence into account in reaching the conclusion that Guardian was entitled to indemnity for legal costs up until 13 November 2020. 104 It cannot be inferred from the fact that Guardian consented to the appointment of the Receivers on 2 December 2020 that Guardian had acted unreasonably in defending the proceedings at earlier points in time. As Mr Livingston SC submitted, the appointment of the Receivers was not a victory for either party, but a commercial resolution in light of the circumstances as they then stood. By that point in time, the claim was a significantly different one from that which had originally been made, the proposed receivers were registered company liquidators, and the fact that the resolution reached in the Settlement Deed had fallen over meant that a different way of resolving the dispute, such as having receivers conducting FT1 and FT2 and enquiring into and reporting on the disputed payments, was a reasonable fall-back approach. While the appointment of receivers had been raised before Farrell J in April 2020 at the outset of the proceedings, her Honour was not satisfied at that time of the appropriateness of appointing receivers, and the matter was not agitated again until November 2020. 105 Accordingly, the QB4 Parties have not discharged their onus of showing clearly that the incurring of legal costs in the proceedings up until 13 November 2020 was improper. 106 In light of that conclusion, ground 9 in the notice of contention, dealing with the repayment by Fundus of the loan to VCPA, does not arise, just as the issue did not arise at first instance given the conclusions of the primary judge relating to legal costs.

The Judicial Advice Proceedings 107 This topic concerns ground 1(o) of the notice of appeal. As we have said above, the primary judge found that it was appropriate for Guardian to be indemnified from TGIF but only to the extent of 50% of its costs of and incidental to the Judicial Advice Proceeding. 108 The argument for the appellants is that the Judicial Advice Proceeding was never proceeded with and was hopeless from the start, being adversarial in nature. The appellants contended that this application was simply part of the delaying tactics used by Guardian to delay or prevent the resolution of the case, and accordingly indemnity should be denied for all of the costs incurred. 109 We have referred above to the High Court's decision in the Macedonian Orthodox Community Church case at [74], where Gummow ACJ, Kirby, Hayne and Heydon JJ said that: A necessary consequence of the provisions of s 63 of the [Trustee Act 1925 (NSW)] is that a trustee who is sued should take no step in defence of the suit without first obtaining judicial advice about whether it is proper to defend the proceedings. Guardian appears to have acted upon that statement in making the judicial advice application. 110 Later cases have qualified the apparently absolute nature of that statement, bearing in mind that a single sentence in a High Court judgment is not to be construed as a statute, and must be read in the context of the decision as a whole. For example, there are cases which construe the use of the word "should" in [74] as a statement of the desirability, rather than of the necessity, for a trustee to seek judicial advice in certain circumstances: see Mills as Trustee v Mills [2018] NSWSC 363 at [22] (Sackar J); Ludwig v Jeffrey (No 2) [2020] NSWSC 1677 at [93] (Slattery J). Further, it has been pointed out that the High Court in that case was specifically considering the situation of gratuitous trustees of charitable trusts: Perpetual Investment Management Ltd [2014] NSWSC 784 at [53] (Robb J). It may be doubted whether the statement applies to trustees (such as in the present case) which have the benefit of an express clause in the trust deed enabling them to rely upon legal advice given by counsel or solicitors and to be exonerated from liability in doing so (cl 19.2 of the TGIF constitution). Nevertheless, Guardian cannot be criticised for conducting itself unreasonably by acting on the clear and unequivocal statement of the High Court in that case. 111 In light of the broad range of the relief sought by the QB4 Parties in the Principal Proceedings, much of which was not pursued in the 4FASOC, and the impact which it would have had on the future of the PIF and the ELF had that relief been granted, it cannot be said that seeking judicial advice in respect of the defence of those proceedings at that time was an unreasonable step taken by Guardian as responsible entity. As the primary judge found, those proceedings did not deal solely with Guardian's personal exposure and personal claims for indemnity arising from its conduct as responsible entity. The proceedings also concerned questions concerning the broader administration or dissolution or restructuring of the PIF and the ELF. The fact that the Judicial Advice Proceeding was not ultimately pursued does not demonstrate that the costs incurred in relation to it were unreasonable, particularly against the background of settlement negotiations, which for a time appeared to have been fruitful, and the subsequent appointment of the Receivers by consent, which was very different from the appointment of a receiver originally proposed by the QB4 Parties. 112 Guardian also points to the fact that on 9 July 2020, orders were made for the Judicial Advice Application to be filed by 23 July 2020, and no objection was raised by the QB4 Parties to that course. 113 Accordingly, the QB4 Parties have failed to discharge the onus of showing that 50% of the costs of the Judicial Advice Proceeding should not have been treated as a proper claim for indemnity.

Settlement Deed Repayments 114 This topic concerns appeal grounds 1(p) to (t) and 3(c) and notice of contention grounds 1 and 2. We deal first with notice of contention ground 1, which contends that QB4 was subject to a contractual obligation under cl 10.1 of the Settlement Deed to return the amounts received by it under cl 5.1 of the Settlement Deed. 115 We have set out above the terms of cl 10.1, together with the clauses to which it cross-refers. We approach the question of contractual construction on the basis that the terms of a commercial contract are to be understood objectively by what a reasonable business person would have understood those terms to mean: Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544 at [16] (Kiefel, Bell and Gordon JJ); Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35] (French CJ, Hayne, Crennan and Kiefel JJ). 116 As we have noted above, the term "Rights" was defined to include "any … benefit, … remedy, …or cause of action". By reason of the Settlement Payments made pursuant to cl 5.1 of the Settlement Deed, the QB4 Parties had the benefit and the remedy (via their solicitors' trust account) of an amount of $1,529,049. The event referred to in cl 10.1(c), namely that any legal fees required to be reimbursed by cl 6.3(b) were not reimbursed and paid by 9 October 2020, had occurred, thereby bringing the deed to an end. There was some debate between the parties as to whether the deed came to an end automatically, or required the election of a party to bring that about, but nothing turns on that issue for the purposes of the contractual argument, given that on 13 November 2020 QB4 in fact elected to bring the deed to an end. Accordingly, the deed had come to an end either on 9 October 2020 or on 13 November 2020. 117 The issue concerning repayment depends on the proper construction of the words towards the end of cl 10.1: "the Parties may continue with their Rights as if this Deed had not existed". That language permits the parties to continue to retain benefits and remedies but not if those benefits and remedies were due to the existence of the Settlement Deed. The language is prospective in the sense that it applies relevantly to the parties continuing to enjoy those benefits and remedies in the future. However, the crucial question is whether those benefits and remedies would have been obtained if it were not for the existence of the Settlement Deed. There can be no doubt that the fact of holding cash via a solicitors' trust account in the amount of about $1.5 million is a benefit, and it would also appear to be a remedy in the circumstances of the Settlement Deed resolving the underlying disputes. Those payments were required to be made by cl 5.1, and accordingly the benefit enjoyed by the QB4 Parties of holding that cash was one which existed by reason of the Settlement Deed. By reason of the concluding words to cl 10.1, the QB4 Parties were not entitled to continue to hold that benefit and those remedies. There was therefore a contractual obligation arising from the language of cl 10.1 on the part of QB4 to repay the money. 118 The point is reinforced by considering the aspect of the extended definition of "Rights" which includes a "cause of action". The pleading by QB4 as at 1 October 2020 included causes of action relating to payment of outstanding management fees to QB4 and invoices rendered by Cloud Capital, and the payment of outstanding costs and expenses incurred in relation to the Griffin Mews project. These are two of the three elements of cl 5.1, which comprise the Settlement Payments. As Mr Livingston SC submitted, it is to be expected that if the Settlement Deed came to an end under cl 10.1, then the parties would intend that those causes of action would be re-enlivened for the future, and that the QB4 Parties would be free to pursue them in the proceeding. Under the concluding words to cl 10.1, those causes of action could not be treated as if the Settlement Deed had resolved them once and for all in circumstances where the Settlement Deed came to an end. 119 The appellants argued that cl 10.1 should be construed so as not to deprive a party of something which had already happened and been performed as at the date when the deed came to an end. In our view, there are three principal difficulties with that submission. The first is that it is difficult to reconcile with the expanded definition of "Rights" in the Settlement Deed, which includes benefits and remedies, and which the concluding lines of cl 10.1 do not unqualifiedly leave in place. Second, even in respect of the narrow concept of legal rights, such rights may accrue either conditionally or unconditionally, and the question whether a right has unconditionally accrued depends in itself on the proper construction of cl 10.1 (which permits rights to continue only if they do not depend on the deed existing). Whether a right has accrued unconditionally cannot be determined as a separate and anterior issue before dealing with the proper construction of cl 10.1. Third, it is difficult to reconcile the appellants' argument with the express inclusion at the end of cl 10.1 of the releases and indemnities given in cll 8.7 and 9.3, which were given as at the date of the deed on 1 October 2020, and therefore had been conferred by the time that the deed came to an end, yet those releases and indemnities expressly no longer apply. 120 The appellants further submitted that cl 10.1 should be construed consistently with the rule of construction that a party cannot be permitted to take advantage of its own wrong: see TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 147 (Hope JA, with whom Priestley and Meagher JJA agreed). It is difficult to see how that principle applies in the present case. The order requiring payment by QB4, being order 11 of the orders of the primary judge of 31 May 2022, requires QB4 to pay to the Receivers of FT2 the amount of $1,529,049 plus interest. The benefit of the order therefore accrues to the Receivers as the trustees of FT2. It was not explained by counsel for the appellants how that could be treated as an advantage to Guardian, or the taking advantage by Guardian of its own wrong. The argument appeared to proceed on the basis that it was sufficient to show that the repayment had been triggered by a breach of contract by Guardian, without showing how that breach and the consequential repayment were an advantage to Guardian. 121 The construction which we have adopted of cl 10.1 is very similar to that expressed by the learned primary judge at [219]. As we have noted above, the primary judge at [223] concluded that there was no contractual cause of action requiring QB4 to repay the Settlement Payments received under cl 5.1 on the ground that the Settlement Deed did not contain a mechanism that obligated QB4 to repay those amounts. In our view, cl 10.1 itself provided that mechanism and there was no need for any further provision to deal with the repayment. Accordingly, we respectfully take a different view from the primary judge on the question whether QB4 was under a contractual obligation to repay those amounts. The consequence is that order 11 made by the primary judge should stand, although the legal basis for that order, in our view, is a contractual obligation arising directly from cl 10.1 of the Settlement Deed. 122 In light of that conclusion, it is not necessary to deal with the alternative claims for restitution based on failure of consideration and mistake of fact or law.

Costs of the Proceedings at First Instance 123 This topic concerns appeal grounds 3(f) and 4. 124 The appellants submitted that the primary judge should have ordered Guardian to pay the appellants' costs of the proceedings at first instance on an indemnity basis, rather than the order actually made that Guardian pay 50% of the QB4 Parties' costs of the proceedings on the ordinary basis. The appellants submit that the primary judge failed to take into consideration the history of the matter, in line with the appellants' submissions in relation to the Guardian Invoices and the Legal Invoices. For the reasons already given, those matters were not pleaded, were not included in the exhaustive list of issues for determination, and in any event have (at their highest) only a peripheral relevance to the question of costs. The appellants have not shown any error in the exercise of discretion within the meaning of House v The King (1936) 55 CLR 499 at 504-5. Accordingly, there is no basis to the contention that the costs order made by the primary judge should be disturbed.

Non-party Costs Order against Mr Maarbani 125 This topic is raised by appeal ground 1(u). 126 The appellants submit that Mr Maarbani's conduct warranted the exceptional response of an order for costs against a non-party. The primary judge correctly referred to the Full Court's decision in Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) [2012] FCAFC 50; (2012) 200 FCR 154 at [82]-[85] and [88]-[90], in which Keane CJ, Lander and Foster JJ recognised that the Court has jurisdiction to award costs against a non-party, and cited with approval the decision in FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340, in which Basten JA (with whom Beazley JA agreed) said at [210] that a survey of the cases in which orders have been made against non-parties is that they tend to satisfy at least some, if not a majority of the following criteria: (a) the unsuccessful party to the proceedings was the moving party and not the defendants; (b) the source of funds for the litigation was the non-party or its principals; (c) the conduct of the litigation was unreasonable or improper; (d) the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was a substantial interest; and (e) the unsuccessful party was insolvent or could otherwise be described as a person of straw. 127 In the present case, the first two and the last two of those criteria were either not applicable or were not established by the evidence. The third of the criteria was the subject of contest, and the primary judge held that there were aspects of Mr Maarbani's conduct in relation to the Settlement Deed which were regrettable. However, the primary judge concluded that Mr Maarbani's conduct did not warrant a non-party costs order. Again, no error within the meaning of House v The King has been shown by the appellants, and there is no reason for us to depart from the conclusion of the primary judge on this issue.

Issues of Standing to seek Pecuniary Orders 128 This topic is raised by appeal grounds 1(b) to (e), 2 and 3(b) and (d), and notice of contention grounds 3 to 6. 129 Questions of standing occupied much attention in the written submissions. It was Guardian which challenged the standing of the QB4 Parties to claim pecuniary remedies by way of equitable compensation, and at the hearing of the appeal Guardian acknowledged that the issue of standing arose only if the Court were otherwise minded to make order 3(d) sought in the notice of appeal, namely that Guardian is to pay (or cause to be paid) to the Receivers for the benefit of FT1 and FT2 respectively, such sums as may have been paid out of the trust assets of FT1 and FT2 with respect to the payment of Guardian's invoices and the costs incurred by Guardian in the proceedings. The conclusion which we have expressed above confirms the correctness of the primary judge's conclusions in relation to those matters, and accordingly we would not make order 3(d) as sought in the notice of appeal. Accordingly, no question of standing arises on the appeal or the notice of contention. As we have indicated above, it is not necessary for us to express any view as to the appropriateness of the primary judge's use of declarations to resolve the disputes concerning the question of standing.

Grounds of Appeal not Pressed 130 The appellants do not press grounds 1(f) (construction of s 601GA(2) of the Act), 1(k)-(m) (responsible entity fees and audit fees), and 3(a) (the Receivers' remuneration and expenses) of the notice of appeal. Although ground 1(j) (that the "Gross Asset Value" could not be calculated) was not expressly abandoned, it was impliedly not pressed, being an aspect of ground 1(k), and no submissions were made in relation to it. Appeal ground 5 is duplicative of appeal grounds 3 and 4. No submissions were addressed specifically to it. It need not be dealt with separately from our treatment of grounds 3 and 4. We note that there was no ground of appeal or any cross-appeal directed to whether the primary judge's order 10, allowing a set-off in relation to payments between Guardian and the Receivers, was correctly made.

Conclusion 131 Accordingly, the notice of appeal should be dismissed. 132 On 12 August 2022, the primary judge ordered that orders 6-11 and 18 of the orders made on 31 May 2022 (dealing with the payment of money and costs) be temporarily stayed pending the filing and determination in the appellate jurisdiction of an application for a stay of orders pending appeal. On the assumption that that stay remains in place, we order that it be set aside. 133 Guardian is entitled to an order that the appellants pay its costs of the appeal, including the costs of the interlocutory application dated 24 April 2023 for the joinder of Fundus and the Receivers. Mr Douglas KC did not resist an order that the appellants pay the costs of that interlocutory application. At the hearing of the appeal, Guardian sought an order for its costs thrown away by reason of the joinder of the Receivers. These costs will be covered by the costs order in its favour in relation to the appeal. It is therefore unnecessary to make a separate order dealing with these costs. The second and third respondents, being Fundus and the Receivers, are also entitled to be paid their costs by the appellants, which also include the application for joinder of Fundus and the Receivers to the appeal. I certify that the preceding one hundred and thirty-three (133) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Moshinsky, Stewart and Jackman.

Corporations Act 2001(Cth)ss 9, 601FC, 601GA, 601LC, 601MA

Federal Court Rules 2011(Cth)rr 9.05, 36.31

ey (No 2) [2020] NSWSC 1677 Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of the Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 Mills as Trustee v Mills [2018] NSWSC 363 Nolan v Collie Nominees Pty Ltd (in liq) [2003] VSCA 39; (2003) 7 VR 287 Perpetual Investment Management Ltd [2014] NSWSC 784 Re Beddoe [1893] 1 Ch 547 TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130

THE COURT: 1 This is an appeal from the decision of the primary judge in QB4 Capital Pty Limited v Guardian Securities Limited [2022] FCA 262. The proceedings concern a registered managed investment scheme under Ch 5C of the Corporations Act 2001 (Cth) (the Act) known as The Guardian Investment Fund (TGIF). The responsible entity of TGIF is Guardian Securities Ltd (Guardian). The first appellant, QB4 Capital Pty Ltd (QB4), is the former investment manager of TGIF.

TGIF and its Sub-trusts 2 The TGIF is divided into several different unit classes. The two which are relevant to these proceedings are the Enhanced Land Fund (ELF) and the Premium Income Fund (PIF). 3 The Product Disclosure Statement (PDS) for the ELF dated 9 June 2017 explains that the ELF provides investors with an indirect exposure to an underlying diversified portfolio of land sites suitable for property development in Australian residential, commercial and industrial property markets. The PDS explains that the only investment of the ELF is as the sole beneficiary of the Fundus Trust No 1 (FT1), a sub-trust of TGIF. It is said that the sub-trust will seek to acquire a diversified portfolio of selected land sites and improve their value for future property development. Accordingly, it is said that units in the ELF provide investors with an indirect exposure through a sub-trust to a diversified portfolio of underlying land sites suitable for property development in Australia. The underlying land sites will be held by a custodian in the sub-trust. The trustee of the sub-trust was Fundus Management Pty Ltd (Fundus). 4 The PDS for the PIF dated 29 August 2018 similarly explains that units in the PIF class of TGIF provide an indirect investment in property, in that the PIF unit class is the sole investor in the Fundus Trust No 2 (FT2), a sub-trust of TGIF. The PDS explains that the sub-trust will seek to invest in a portfolio of underlying property development project sites for a share in the project gross margins, paid as fixed monthly income and premium income at completion. Fundus was the trustee of FT2. 5 Accordingly, FT1 and FT2 were both sub-trusts of TGIF. The trust property of TGIF was units in FT1 and FT2, and the trust property of FT1 and FT2 respectively were the underlying investments made in real property and other assets. Mr Douglas KC, who appeared for the appellants, expressly conceded that that was the effect of the PDSs, and that that analysis was correct: T23.17-24.3. This is not an unusual legal framework for real property investments in Australia. As Mason P explained in Chief Commissioner of Stamp Duties (NSW) v ISPT Pty Ltd (1998) 41 ATR 29 at 40, where A holds on trust for B who holds on trust for C, the role of B as trustee is recognised and not ignored, as failure to do so would defeat the parties' intention that the sub-trust operate according to its terms, including the term that the nominated sub-trustee act as such. Although Mason P acknowledged an exception in the case of a bare trustee acting as the sub-trustee, that exception is of no significance in the present case (in that nothing turns in this case on the role of the custodian of the assets of FT1 and FT2). In light of what we say below in relation to issues of standing, it is not necessary for us to consider whether that analysis is any different in the context of a registered managed investment scheme and the definition of "scheme property" in s 9 of the Act which is picked up in s 601FC(2). 6 The constitution of TGIF contains a number of conventional provisions for a unit trust which is a registered managed investment scheme. The unitholders are defined by reference to those recorded on the Register as the holder of Units: cl 7.3. Clause 6.4 deals with the issue of Units in different classes. Clause 21.2 provides that the Manager (defined as the responsible entity and trustee, namely Guardian) may deal with itself in other capacities in the following terms: Subject to the Applicable Standards, the Manager (or any of its Associates) may: (a) deal with itself (in any capacity), an Associates [sic] or a Member, including: (i) buying Assets; (ii) selling property into the Trust; (b) raising fee relating to the issue of Interests and other fees underwriting any issue of Interests; and paying any fee (including any contemplated by Clause 23.19), in its own right, as trustee of another scheme or in another capacity; (c) be interested in any contract or transaction with itself (in any capacity), an Associate or Member, or (d) act in the same or similar capacity for another managed investment scheme or trust. 7 Clause 21.3 also provides: The Manager and its Associates do not have to account for, and may retain for their own benefit, any profit or benefit arising from anything referred to in Clause 21.2. 8 The "Applicable Standards" are defined by reference to a number of legal sources, including the Act and the constitution of TGIF. 9 Clause 23.19(a) entitles the Manager or one of its Associates to receive and charge fees in addition to other fees received under the constitution and to recover costs and outlays for various services which are listed and any other services not reasonably contemplated by the Manager as being part of the duties for which it is otherwise remunerated under the constitution. Clause 19.4 provides as follows: Subject to the Applicable Standards, the Manager and any Associate may: (a) act for other persons in a similar capacity to which it acts under this document or in any other capacity; (b) hold Interests; (c) except in its capacity as Manager, act for or represent individual Members; (d) buy Assets in its own right or any other capacity and sell any assets held by it in its own right or in any other capacity to the Trust; (e) deal with each other. The term "Associate" is defined by reference to the meaning given to that term in Pt 1.2 of the Act for the purposes of Ch 5C of the Act. 10 Clause 22 deals with indemnities in favour of the Manager. Clause 22.1 provides as follows: (a) The Manager is indemnified out of the Trust for: (i) all expenses, losses, damage and liabilities (whether actual, contingent, prospective or otherwise) incurred, arising out of, or in connection with acting in connection with the Trust with any of the matters listed in Clause 22.2; (ii) all liabilities incurred by it in relation to the proper performance of its duties or exercise of its powers as Manager under this Constitution (including, without limitation, in connection with any acts or omissions by the Manager in relation to Clause 4.3A, Clause 28.3 or Schedule 1); and (iii) all other liabilities incurred by it in relation to the operation of the Trust other than liabilities incurred as a result of breach of trust, recklessness or fraud on the part of the Manager. (b) This indemnity: (i) is without prejudice to any indemnity allowed by law; (ii) survives the termination of this document; and (iii) may be claimed from the assets. but the indemnity is not available where the indemnity is not permitted under the Applicable Standards. (c) The Manager has a lien on and may use the Assets for the purpose of the indemnity and generally for the payment of all legal and other costs, charges and expenses of administering or winding up the Trust and otherwise properly performing its duties to the trust. 11 Clause 22.2 relevantly provides: Subject to the Applicable Standards, the Manager is not liable to any person because of: … (c) making any payment to any person in good faith, even if a payment ought or need not have been made; … (e) Acting in good faith on the advice or opinion of, or information obtained from, any person (including any Adviser); … 12 The term "Adviser" is defined by reference to cl 19.2, which provides that the Manager may take and act upon the advice of counsel or solicitors, bankers, accountants, auditors, valuers and other persons consulted by the Manager who are believed by the Manager in good faith to be expert in relation to the matters upon which they are consulted and act independently. 13 Clause 23.12(b) provides as follows: The Manager must not reimburse itself for an expense not incurred in the proper performance of its duties in connection with the Trust. 14 Clause 23.13 provides: The rights of the Manager to be paid fees or recover expenses under clause 23, or to be indemnified out of the Property of the Trust, are subject to the Manager properly performing its duties in connection with the Trust. 15 The terms of the constitutions of FT1 and FT2 are relevantly identical. 16 Clause 7 of those constitutions deals with the Register of Members. The term "Member" is defined as a person for the time being registered under the provisions of the constitution as a holder of Units. Clause 7.3 provides that: The Trustee is entitled to regard the Register as conclusive proof as to who is a Member at any given time. The Trustee is not required to recognise any beneficial interest held in any Unit. 17 Clause 10.3 deals with self-interested dealings by the Trustee in the following terms: (a) Subject to the Corporations Act, the Trustee may: (i) be interested in any contract or transaction with itself (as trustee of the Trust or in another capacity) or a Member, including any contract or transaction involving the sale of property by the Trust or the purchase of property by the Trust; (ii) act in the same or similar capacity in relation to any other managed investment scheme; (iii) hold Units in, or other securities issued by, the Trust in any capacity; (iv) hold or deal in or have any other interest in an Asset; or (v) act in any capacity as a representative, delegate or agent of a Member. (b) For the purposes of this clause, the Trustee includes an officer, employee, shareholder or associate of the Trustee. (c) Where the Trustee acts in accordance with Clause 10.3(a): (i) it may retain and need not account for any benefit derived by it; and (ii) it will not be in breach of any fiduciary obligations owed to the Members provided it has acted in good faith. 18 Clause 12 deals with fees and expenses. Clause 12.4(a) provides as follows: All costs, charges and expenses properly incurred in connection with the establishment, administration, management and winding up of the Trust by the Trustee, or the performance of its duties under this Constitution, will be paid out of the Assets. If the Trustee pays such costs, charges and expenses, then the Trustee will, in addition to the remuneration payable to it, be indemnified and will be entitled to be reimbursed out of the Assets in respect of such costs, charges and expenses, together with any GST payable in respect of those costs, charges and expenses. 19 There then follows in cl 12.4(b) a lengthy list of kinds of costs, charges and expenses which are included in, but are expressed not to limit, cl 12.4(a). Clause 12.4(c) provides that: No person will be ineligible or disqualified for payment under this clause because they are related to, or are Associates of, the Trustee or the directors of the Trustee. 20 Clause 12.5 further provides as follows: (a) Despite anything else in this Constitution, while the Trust is a registered managed investment scheme (and in accordance with sub-section 601GA(2) of the Corporations Act), the rights of the Trustee to be paid fees out of the assets or to be indemnified out of the assets for liabilities or expenses in relation to the performance of its duties under this Constitution or the Corporations Act are available only in relation to the proper performance of those duties. (b) The lack of entitlement to any payment pursuant to clause 12.5(a) only applies to that part of the payment which relates to the specific lack of proper performance on a given matter. Nothing in this clause 12.5 means the Trustee is not entitled to be paid fees and costs for work performed properly. 21 Clause 19.4 deals with reliance by the Trustee on others and provides relevantly that the Trustee may take and may act upon the advice of counsel or solicitors, bankers, accountants, auditors, valuers or other persons consulted by the Trustee who are in each case believed by the Trustee in good faith to be expert in relation to the matters upon which they are consulted, and if the Trustee does so then it will not be liable for anything done in good faith and in reliance on their advice. 22 The reference in cl 12.5 to s 601GA(2) of the Act is to the following provision: If the responsible entity is to have any rights to be paid fees out of scheme property, or to be indemnified out of scheme property for liabilities or expenses incurred in relation to the performance of its duties, those rights: (a) must be specified in the scheme's constitution; and (b) must be available only in relation to the proper performance of those duties; and any other agreement or arrangement has no effect to the extent that it purports to confer such a right. 23 Even if the indemnity clause in the FT1 and FT2 constitutions (and for that matter the counterpart in TGIF's constitution) did allow for an indemnity in circumstances where the trustee had not acted in the proper performance of its duties, the indemnity would not be entirely void, but would operate to the extent that the trustee had acted properly in the performance of its duties: see Bruce v LM Investment Management Ltd (Administrators Appointed) (No 2) [2013] QSC 347 at [27] (Dalton J). That principle was not contested by any party by the time of the hearing of this appeal, when an earlier ground of appeal relating to this point (namely ground 1(f)) was abandoned. 24 It is also worth observing at this point that the duties imposed on the responsible entity by s 601FC(1) of the Act include a duty to: (c) act in the best interests of the members and, if there is a conflict between the members' interests and its own interests, give priority to the members' interests. 25 That provision modifies the principles under the general law that a trustee may not put itself in a position where its interest or duty, or its duties, conflict, or where there is a significant possibility of conflict, and that a transaction entered into in breach of that principle is voidable, and equity will not enquire whether the transaction was as good or better a deal as that which the beneficiaries could obtain from other persons: see Everest Capital Ltd v Trust Company Ltd [2010] NSWSC 231; (2010) 77 ACSR 371 at [100]-[101] (White J). Accordingly, pursuant to s 601FC(1)(c), the responsible entity of a managed investment scheme may permissibly be in a position of conflict provided that it gives priority to the members' interests over its own interests. We have referred above to the clauses of TGIF's constitution and the constitutions of FT1 and FT2 which expressly permit self-dealing and positions of conflict. 26 On 19 May 2017, an Investment Management Agreement was entered into between Guardian (as the trustee and responsible entity of TGIF), Fundus (as the trustee of FT1 and FT2) and QB4 (as the investment manager), whereby QB4 was engaged as an independent contractor to promote, administer, invest and manage the investment portfolio of FT1 and FT2. Clause 3.3 provided that upon written request of Guardian or Fundus, QB4 must cooperate with any audit or review conducted by Guardian or Fundus in relation to any of the trusts, the investment portfolio of the trusts, or QB4's directly related business activities. Clause 3.8 provided that Guardian or Fundus may give instructions to QB4, or vary any decision of QB4, in the performance of the services provided by QB4. Clause 10 dealt with termination, and provided in cl 10.2 for the Trustees (Guardian and Fundus) to have a right of termination in certain defined circumstances, but otherwise under cl 10.5 a Trustee was not entitled to terminate the agreement unless QB4 consented and a related body corporate of QB4 was then appointed to be the new investment manager, or the trustee obtained the approval of a special resolution of members of the relevant trust. 27 On the same day, 19 May 2017, the Responsible Entity Agreement was entered into between Guardian (as the responsible entity of TGIF) and QB4, providing for the establishment of the ELF class of units in TGIF, and the preparation and issue of a PDS relating to the ELF. Clause 9 laid down a procedure to be followed by QB4 and Guardian in relation to the acquisition of assets, those steps including the notification by QB4 of proposed assets, the provision of further information by QB4 if requested, the undertaking of reasonable due diligence by Guardian, the decision by Guardian to acquire an asset by reference to specified investment criteria, the notification by Guardian of its decision as to acquiring an asset, and the actual acquisition of the asset itself. Termination of the agreement was dealt with in cl 14, including a provision relevantly that any party may terminate the agreement by written notice without the consent in writing of the other party, if effective control (as defined) of another party changes in any respect which, in the reasonable opinion of the first party, may be detrimental to the interests of the first party. 28 On 13 November 2018, the Corporate Authorised Representative Agreement was entered into between Guardian and QB4, appointing QB4 as Guardian's authorised representative. 29 Guardian remains the trustee and responsible entity of TGIF. On 2 December 2020, the Court made orders by consent under which Mr Wengel and Mr Brereton (the Receivers) of the firm William Buck were appointed as receivers and managers of Fundus, and were also appointed as trustees of FT1 and FT2 in the place of Fundus.

At a glance

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Judgment (15 paragraphs)

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Cases Cited (24)

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