Re S & D International Pty Ltd (No 5) [2011] VSC 30 (14 February 2011)

TRUSTEES - right of trustee to be indemnified for costs and expenses out the trust estate - costs incurred by trustee in pursuing action to benefit the beneficiaries - r 65 Supreme Court (General Civil Procedure) Act 2005 - nature of trustee's lien - comparison with liquidator's lien under Universal Distributors

1 On 10 September 2010, judgment was delivered on several issues in this proceeding.[1] I adjourned the further hearing of the matter so that the parties could bring in short minutes of proposed orders. The parties were unable to agree on the orders. I have heard submissions on the orders that should be made and received further written submissions on these issues. The plaintiffs, Mr Velos and Mr Tiwari have each submitted written versions of the orders they seek.

2 The plaintiffs (the liquidator and S&D) seek the following orders:

Declarations as to the parties' interests in the funds in Court and any funds recovered from the first defendant

1. The third defendant is beneficially entitled to one half of:
   • (a) the funds paid in Court representing surplus proceeds of sale of the Footscray Property (including moneys recovered by the plaintiffs from the second defendant) and the Hillside Property, together with the interest accrued thereon;
   • (b) any funds recovered by the plaintiffs from the first defendant pursuant to the orders of the Court made on 5 October 2009;

1. The second plaintiff, as trustee of the Footscray Property and the Hillside Property, is entitled to be indemnified out of the fund for its reasonable costs and expenses, including the reasonable remuneration, costs and expenses of the first plaintiff, occasioned by:
   • (a) the sale of the Hillside property and the payment of the proceeds from that sale into Court;
   • (b) the plaintiffs' prosecution of claims against, and defence of claims by, the first and second defendants in this proceeding with respect to the fund;
   • (c) the plaintiffs' prosecution of claims against, and defence of claims by, the fourth and fifth defendants in this proceeding with respect to the fund;
   • (d) the plaintiffs' defence of the first defendant's appeal in Court of Appeal proceeding no. 3800 of 2009; and
   • (e) the plaintiffs' recovery of any moneys from the first defendant pursuant to the orders of the Court made on 5 October 2009;

(collectively, "the second plaintiff's costs as trustee").

1. The fund is charged first, by way of equitable lien, with payment of the first plaintiff's remuneration, costs and expenses occasioned by the litigation.

1. The charges granted by the second plaintiff over the Footscray Property and the Hillside Property in favour of Velos & Davis on 8 October 2004 ("Velos & Davis Charges") are valid and effective.
2. The fund is charged with payment of the amount or amounts secured to the fourth defendant under the Velos & Davis Charges.

1. The unregistered real property mortgages granted by the second plaintiff over the Footscray Property and the Hillside Property in favour of the Australian and New Zealand Banking Group Ltd on 29 July 2002 ("ANZ Mortgages") are valid and effective.
2. The fund is charged with payment of the amount or amounts secured to the fifth defendant under the ANZ Mortgages.

1. The fifth defendant's interest in the fund, as declared in paragraph 7 above, is subject and subordinated to:
   • (a) the interest of the third defendant as declared in paragraph 1 above;
   • (b) the interest of the second plaintiff as declared in paragraph 3 above; and
   • (c) the interest of the fourth defendant as declared in paragraph 5 above.
2. The fourth defendant's interest in the fund, as declared in paragraph 5 above, is subject and subordinated to:
   • (a) the interest of the third defendant as declared in paragraph 1 above; and
   • (b) the interest of the second plaintiff as declared in paragraph 3 above.
3. The third defendant's interest in the fund, as declared in paragraph 1 above, is subject and subordinated to the interest of the second plaintiff as declared in paragraph 3 above.

Further declarations as against Pradeep Tiwari

1. By giving the Velos & Davis Charges and incurring liability for Velos & Davis' fees and expenses in connection with Sheela Tiwari's and the second plaintiff's defence of the action in proceeding no. 6869 of 2002 ("the Malhotra v Tiwari proceeding), the second plaintiff breached its duties as trustee of the Footscray Property and the Hillside Property.
2. The fifth defendant knowingly assisted the second plaintiff's said breach of its duties as trustee of the Footscray Property and the Hillside Property.
3. The fifth defendant is liable as constructive trustee to compensate and indemnify the second plaintiff for any loss and damage suffered by it as a result of the said breaches of its duties as trustee of the Footscray Property and the Hillside Property.
4. By authorising and facilitating the second plaintiff's giving of the Velos & Davis Charges and its incurring of liability for Velos & Davis' fees and expenses in connection with the Malhotra v Tiwari proceeding, the fifth defendant contravened his duties as a director of the second plaintiff under sections 180, 181 and 182 of the Corporations Act 2001 ("Act").
5. The fifth defendant is liable, as constructive trustee and pursuant to section 1317H of the Act, to compensate and indemnify the second plaintiff for any loss and damage it has suffered as a result of the said breaches of the fifth defendant's duties as a director of the second plaintiff.

1. In default of agreement, the assessment of each of:
   • (a) the amount of the first plaintiff's remuneration, costs and expenses of this proceeding;
   • (b) the amount of the second plaintiff's costs as trustee;
   • (c) the amount payable to the fourth defendant from the fund; and
   • (d) the amount payable to the fifth defendant from the fund;

1. The assessment of the quantum of the loss and damage suffered by the second plaintiff as a result of the breaches of the fifth defendant's duties as a director of the second plaintiff is referred to an Associate Judge.

1. The plaintiffs' costs of the proceeding as between the plaintiffs and the first defendant be taxed and paid by the first defendant.
2. The plaintiffs' costs of the proceeding as between the plaintiffs and the fourth defendant be taxed and paid by the fourth defendant.
3. The plaintiffs' costs of the proceeding as between the plaintiffs and the fifth defendant be taxed and paid by the fifth defendant.
4. The fourth defendant's costs of the proceeding as between the fourth defendant and the fifth defendant be taxed and paid by the fifth defendant.

1. The plaintiffs are directed to serve a copy of these orders on Sheela Tiwari.
2. Liberty is reserved to Sheela Tiwari to apply to vary these orders as she may be advised.
3. The proceeding is otherwise adjourned sine die.

1. The amount secured by the Velos & Davis charges is $225,645.29 as at 12 November 2010 plus interest continuing to accrue at a rate of $27.17 per day thereafter.
2. The Plaintiffs pay the fourth defendant's costs of the proceeding as between them, including reserved costs, on the following basis:
   • (a) up to and including 2 June 2009 (inclusive) and from 17 October 2009 (inclusive) onwards as between party and party;
   • (b) from 3 June 2009 to 16 October 2009 (inclusive) on an indemnity basis;

such costs to be taxed in default of agreement.

1. The fifth defendant pay the fourth defendant's costs of the proceeding as between them, including reserved costs, such costs to be taxed in default of agreement.
2. There be no order as to costs of the proceeding as between the third and fourth defendants.

1. The unregistered real property mortgages granted by the second plaintiff over the Footscray Property and the Hillside Property in favour of the Australian and New Zealand Banking Group Ltd on 29 July 2002 ("the ANZ Mortgages") are valid and effective.
2. The charges granted by the second plaintiff over the Footscray Property and the Hillside Property in favour of Velos & Davis on 8 October 2004 ("the Velos & Davis Charges") are valid and effective.
3. The fifth defendant's equitable proprietary interest in the Footscray Property and the Hillside Property under the ANZ Mortgages is subject and subordinated to the prior equitable proprietary interest of the fourth defendant in those properties under the Velos & Davis Charges.
4. The fifth defendant's equitable proprietary interest in the Footscray Property and the Hillside Property under the ANZ Mortgages is subject and subordinated to the prior equitable proprietary interest of the third defendant in those properties as declared by Balmford J in proceeding no. 6869 of 2002 ("the Malhotra v Tiwari proceeding).
5. The fourth defendant's equitable proprietary interest in the Footscray Property and the Hillside Property under the Velos & Davis Charges is subject and subordinated to the prior equitable proprietary interest of the third defendant in those properties as declared by Balmford J in proceeding no. 6869 of 2002.
6. The funds in Court are charged first with payment of the first plaintiff's reasonable remuneration, costs and expenses directed exclusively towards recovering them out of the hands of the first and second defendants and procuring their payment into Court.
7. By giving the Velos & Davis Charges and incurring liability for Velos & Davis's fees and expenses in connection with Sheela Tiwari's and the second plaintiff's defence of the action in the Malhotra v Tiwari proceeding, the second plaintiff breached its duties as trustee of the S&D International Unit Trust.
8. The fifth defendant knowingly assisted the second plaintiff's said breach of its duties as trustee of the S&D International Unit Trust.
9. The fifth defendant is liable as constructive trustee to compensate and indemnify the second plaintiff for any loss and damage suffered by it as a result of the said breaches of its duties as trustee of the S&D International Unit Trust.
10. By authorising and facilitating the second plaintiff's giving of the Velos & Davis Charges and its incurring of liability for Velos & Davis's fees and expenses in connection with the Malhotra v Tiwari proceeding, the fifth defendant contravened his duties as a director of the second plaintiff under sections 180, 181 and 182 of the Corporations Act 2001 ("Act").
11. The fifth defendant is liable pursuant to section 1317H of the Act to compensate the second plaintiff for any loss and damage it has suffered as a result of the said breaches of the fifth defendant's duties as a director of the second plaintiff.

1. The amount secured by the Velos & Davis Charges is $225,645.29 as at 12 November, 2010 plus interest continuing to accrue at a rate of $27.17 per day thereafter.
2. The amount secured by the ANZ Mortgages is $398,609.10 as at 12 November, 2010.
3. The assessment of the quantum of the first plaintiff's remuneration, costs and expenses directed exclusively towards recovering them out of the hands of the first and second defendants in procuring their payment into court is referred to an Associate Judge.
4. The assessment of the amount of compensation and indemnity to be paid by the fifth defendant (if any) is referred to an Associate Judge.
5. The plaintiffs pay the fourth defendant's costs of the proceeding as between them, including reserved costs, on the following basis:

(a) up to and including 2 June, 2009 (inclusive) and from 17 October, 2009 (inclusive) onwards as between party and party;

(b) from 3 June, 2009 to 16 October, 2009 (inclusive) on an indemnity basis:

such costs to be taxed in default of agreement.

1. The plaintiffs pay the fifth defendant's costs of the claims made by the plaintiffs against the fifth defendant in respect of the ANZ Mortgages, including reserved costs.
2. The fifth defendant pay the plaintiffs' costs of the claims made by the plaintiffs against the fifth defendant in respect of the Velos & Davis Charges, including reserved costs.
3. The plaintiffs pay the fifth defendant's costs (as between party and party) of the claims made by the plaintiffs against the first and second defendants and incurred by the fifth defendant at the trial of this proceeding on 4, 5, 9, 10, 11 and 12 February, 2009.
4. The fifth defendant pay the fourth defendant's costs of the question as between the fourth defendant and the fifth defendant of priority as between the ANZ Mortgages and the Velos & Davis Charges, including reserved costs.

5 Mr Malhotra opposes the orders sought by the plaintiffs seeking to be indemnified for their costs out of the funds in court. MIG contends that it has been released from any claim for costs through a settlement reached between Mr Vartelas and the plaintiffs.

6 In order to deal with the respective applications for costs and the other orders sought it is necessary to canvass the history of the proceedings and the nature of the issues resolved.

7 The first plaintiff is the liquidator of the second plaintiff, S&D International Pty Ltd (S&D). S&D acted as the trustee for the S&D International Unit Trust (the "Unit Trust").

8 S&D was the registered proprietor of two properties: one at 580 Barkly Street Footscray and the other at 45 Boronia Drive, Hillside. The properties have both been sold. The first defendant, MIG Property Services Pty Ltd (MIG), was the first mortgagee of both properties. Prior to the commencement of these proceedings the Footscray property was sold by the second defendant, Mr Vartelas, as agent in possession for MIG. Mr Vartelas was also the receiver of the assets and undertaking of S&D. After the commencement of these proceedings on 13 August 2008, the balance of the proceeds then held by the agent in possession and receiver, Mr Vartelas, were ordered to be paid into Court.

9 As discussed below, the issues in these proceedings have been decided in stages. The first stage resolved issues between the plaintiffs and the first and second defendants over the disposition of the proceeds from the sale of the Footscray property and the delivery up of possession of the Hillside property to the plaintiffs.

10 After those proceedings were resolved on 9 June 2009, the Hillside property was delivered up to the plaintiffs. It has now been sold and the balance of the proceeds after the deduction of certain costs and expenses has been paid into Court.

11 Mr Malhotra the third defendant claims, inter alia, to be entitled to half the moneys paid into court as the proceeds of property of which he was an equal joint beneficial owner. The fifth defendant, Mr Pradeep Tiwari, claims to be entitled to those moneys pursuant to an unregistered mortgage the ANZ bank held over the properties that has been assigned to Mr Tiwari. The fourth defendant Mr Velos also lays claim to those moneys under unregistered charges over those properties granted to Velos & Davis by S&D to secure legal fees. In my judgment of 10 September 2010, I resolved these issues as between the plaintiffs and Mr Malhotra, Mr Velos and Mr Tiwari.

12 The sixth and seventh defendants also claim to be entitled to those moneys as the former liquidators of S&D. Their claims have yet to be resolved. Later in these reasons, it will be necessary to describe in greater detail the precise claims of the parties.

13 Prior to S&D's liquidation, it carried on an Indian wholesale grocery business at the Footscray property known as Bharat Traders International. The business was initially established as a partnership in 1991 by Dinesh Malhotra, the third defendant, his brother, Vinod Malhotra, and Markandey Tiwari, the then husband of Sheela Tiwari. In 1992, Markandey Tiwari divorced his wife Sheela Tiwari. Sheela then married Dinesh Malhotra in January 1993. They separated in January 1994 and divorced on 5 June 1995.

14 In 1992, Markandey and Vinod left the partnership and Dinesh Malhotra was registered as sole proprietor of the business name. The business was thereafter built up and conducted by Sheela Tiwari and Dinesh Malhotra. In July 1995, Mr Malhotra married Renu Kapoor. In mid-1999, Ms Kapoor commenced divorce proceedings against Mr Malhotra and in September that year applied to the Family Court for a property settlement. Both parties filed affidavits concerning Mr Malhotra's financial affairs. Ms Kapoor alleged that Mr Malhotra had a proprietary interest in the Footscray property and the business. Mr Malhotra denied that allegation and swore an affidavit to that effect.

15 In 1996, a unit trust was established under the name of the S&D International Unit Trust and S&D appointed the trustee. In 1996, S&D took over the conduct of the business. Also in 1996, the Footscray property was acquired and registered in S&D's name. Subsequently in 2000, the Hillside property was acquired and registered in S&D's name.

16 One of the issues addressed in these proceedings has been whether or not Mr Malhotra was an equal joint beneficial owner of these properties or whether or not his interest, if any, in the properties arose as the properties were held as assets of the unit trust and he was the beneficial owner of half the issued units in the unit trust.

17 These properties were mortgaged by S&D to the Commonwealth Bank of Australia ("CBA"), and S&D granted to CBA a mortgage debenture over the assets and undertaking of S&D. Subsequently, these securities were assigned by the CBA to and held by MIG. In Re S&D International Pty Ltd (No 1)[3] it was found that those securities have been satisfied and discharged from the proceeds of the sale of the Footscray property.

18 The two units on issue in the Unit Trust were held in the name of Sheela Tiwari. Dinesh Malhotra resigned as a director in 1999. He subsequently claimed in 2002 that at all times he was the beneficial owner of half the Footscray and Hillside properties, of half the business, of half the units in the Unit Trust and of half the shares in the trustee (S&D).

19 In April 2002, Dinesh Malhotra and Sheela Tiwari fell out. On 26 April 2002, Dinesh Malhotra was locked out of the Footscray property by Sheela Tiwari where they had both resided behind the shop in which the business was conducted. Prior to this, on 18 April 2002, Mr Malhotra had lodged caveats over the Footscray and Hillside properties claiming to hold a 50 per cent share of the property - an estate in fee simple. About this time, Sheela Tiwari consulted Velos & Davis solicitors and retained them to remove the caveats. On 8 April 2002, Pradeep Tiwari was appointed (having turned 18) a director of S&D along with his parents Sheela Tiwari and Markandey Tiwari.

20 After Mr Malhotra was locked out of the Footscray property, in July 2002 Sheela Tiwari and her son Pradeep Tiwari caused S&D to grant unregistered mortgages to the ANZ Bank over the Footscray and Hillside properties and a registered mortgage debenture over the assets and undertaking of S&D as security for a $200,000 business loan from ANZ Bank to S&D. Those moneys and further moneys of S&D were used, along with a home loan from the ANZ Bank to Sheela Tiwari, to enable Sheela Tiwari to buy a residence at Point Cook. The ANZ Bank did not register the second mortgages or lodge a caveat giving notice of its unregistered second mortgages over the Footscray and Hillside properties until 2005 when it lodged caveats, but at no stage did it seek to register the mortgages. It registered with ASIC the mortgage debenture which gave a fixed charge over the properties.

21 On 19 August 2002, Dinesh Malhotra instituted against Sheela Tiwari and S&D legal proceedings in the Supreme Court of Victoria claiming a half interest in the Footscray and Hillside properties, the units in the Unit Trust, and the shares in the trusts and the business. Soon thereafter on 25 September 2002, he delivered his statement of claim. On about 10 October 2002, Velos & Davis received a company search of S&D which disclosed that the ANZ Bank had a taken a mortgage debenture on 11 July 2002 over the assets and undertaking of S&D to secure S&D's indebtedness to the ANZ Bank.

22 Thus began a long series of court cases which have led to the current proceedings. Suffice to say, Dinesh Malhotra succeeded in his initial proceedings before Balmford J in establishing, inter alia, that he was an equal joint beneficial owner in the Footscray property, the Hillside property, the business conducted by S&D and the units in the Unit Trust.

23 As mentioned above, in 2002, Sheela Tiwari retained the firm of Velos & Davis to act for her and S&D in the proceedings instituted by Mr Malhotra in the Supreme Court of Victoria. On 28 September 2004, Velos & Davis received from Sheila Tiwari's accountant, David Mond, accounts of S&D disclosing that S&D owed moneys to the CBA and $200,000 to the ANZ Bank. The assets disclosed were the two properties and stock on hand. On 8 October 2004, Sheela Tiwari and Pradeep Tiwari caused S&D to give an equitable charge over the Footscray property and the Hillside property to Velos & Davis to secure legal fees and disbursements incurred on Sheela and S&D's behalf in the Supreme Court proceedings.[4] The trial of the Supreme Court proceeding commenced on 11 October 2004.

24 In July 2004, Pradeep Tiwari contracted to buy a property at Hoppers Crossing. To assist with this purchase he received $39,500 from S&D, purportedly a distribution of profits from the Unit Trust on 22 July 2004. Previously, in July 2002, the Tiwari Family Trust was established. Sheela Tiwari purportedly declared that she held on behalf of the trust the units she held in the Unit Trust. Subsequently, on 20 September 2004, Mr Tiwari borrowed $40,000 from S&D to assist at the settlement of the purchase of the Hoppers Crossing property.

25 As indicated above, Mr Bill Velos, solicitor, of the firm of Velos & Davis, is the fourth defendant. An issue raised by Mr Malhotra in the second hearing was whether S&D also retained Velos & Davis and incurred any liability for legal fees and disbursements to Velos & Davis and whether, if it did, those fees were secured by the equitable charges Velos & Davis took over the Footscray and Hillside properties.

26 On 6 August 2007, Mr Velos and his partner, Peter Davis (Velos & Davis), obtained judgment in the County Court before Judge Daly against Sheela Tiwari for $190,708.52 plus costs in respect of fees and charges incurred in acting for her (and allegedly S&D) in the Supreme Court proceedings.[5] This debt has not been paid and Mr Velos claims to be entitled to the moneys in court as a matter of priority by virtue of the equitable charges to meet the fees and disbursements incurred by Sheela Tiwari and allegedly S&D.[6]

27 Sheela Tiwari appealed the decision of Balmford J and, while the matter was pending in the Court of Appeal, Sheela Tiwari and Dinesh Malhotra agreed to appoint an administrator to run the business until their dispute could be resolved. They appointed Stirling Horne and Peter Vince, the sixth and seventh defendants, as administrators. Dinesh Malhotra alleges that despite the business being previously profitable, they, with the connivance of Sheela Tiwari and her son Pradeep Tiwari, recommended that S&D be wound up. At that stage S&D owed the CBA as a secured creditor approximately $240,000 and the ANZ Bank as a secured creditor the business loan of $200,000 and interest thereon. In June 2005, the creditors of S&D, including Mrs Tiwari, over the protests of Mr Malhotra, resolved to wind up the company and appointed Messrs Horne and Vince as liquidators.

28 Subsequently, Dinesh Malhotra instituted further proceedings in the Supreme Court to terminate the winding up of S&D and to remove Messrs Horne and Vince as liquidators. At first instance before Mandie J, Mr Malhotra failed to have the winding up terminated and Messrs Horne and Vince removed as liquidators. He successfully appealed the decision of Mandie J not to remove Messrs Horne and Vince but unsuccessfully against the decision not to terminate the winding up.

29 In June 2007, Mr Handberg, the first plaintiff, was appointed as the liquidator of S&D instead of Messrs Horne and Vince. In November 2004, Messrs Horne and Vince lodged a caveat against the properties notifying their claim to a lien over the assets for their unpaid fees and expenses as liquidators of S&D. Messrs Horne and Vince had previously sought to have Mr Malhotra's caveats removed. In July 2006, Gillard J of Supreme Court of Victoria refused their application.

30 As mentioned above, the CBA bank held securities over S&D and the properties and at about the time S&D was placed in administration, the CBA Bank called up its loan to S&D. In June 2005, Mr Malhotra was able to arrange for the CBA to be paid out by Colonel Naresh Malhotra, who took over the securities but assigned them to MIG, the first defendant, on 11 September 2006.

31 MIG was controlled by Mr Mond, an accountant, who acted as a financial adviser and accountant to Sheela Tiwari. On 25 October 2006, Mr Vartelas was appointed by MIG receiver and manager of the assets and undertaking of S&D under the mortgage debenture held by MIG.[7] In August 2007, Mr Vartelas was appointed the agent of MIG and entered into possession of the two properties. At that time, the principal debt secured by the CBA mortgages was $242,540.38.

32 On or about 19 September 2007, MIG, through its agent Mr Vartelas, sold to Tiwari Enterprises Pty Ltd,[8] a company associated with Sheela Tiwari, the Footscray property at public auction for the total sum of $1,360,000. Settlement of the sale occurred on 18 October 2007.[9] On 19 October 2007, the estate agents accounted to MIG for the deposit. At settlement, withdrawals were provided for Mr Malhotra's caveat, the ANZ Bank caveat and the Horne and Vince caveat. Mr Dinesh Malhotra agreed with MIG to provide a withdrawal of his caveat on the basis that MIG would pay the surplus (if any) into court. MIG did not pay the surplus into court nor had it done so by the time this proceeding commenced.

33 At or after settlement, MIG did not account to the mortgagor or the subsequent interest holders for the moneys it was retaining in satisfaction of its secured debt. It did not treat its mortgage and other securities as satisfied in full. It retained the proceeds of sale and did not seek to calculate what it was owed. MIG alleged that at all times it acted properly in accordance with its rights and obligations.

34 In May 2007, the ANZ Bank sold the Point Cook property as mortgagee in possession to another member of the Tiwari family, Prathibha Tiwari. The sale proceeds were not applied to discharge the ANZ Bank mortgages over the Footscray and Hillside properties, but were used to repay other debts of the Tiwari family. By a deed of assignment of 9 July 2008, the ANZ Bank assigned absolutely its right, title and interest in the ANZ Bank mortgages over the Footscray and Hillside properties to Mr Tiwari.[10] Mr Tiwari claims that as at the date of the assignment the S&D debt stood at $356,080.85. He claims that under the assignment he assumed absolutely the right, title and interest of the ANZ Bank in the ANZ Bank mortgages and the S&D debt.[11] He says that entitles him to the moneys in court next after MIG, whose mortgage has now been satisfied.

35 In May 2008, Pradeep Tiwari instituted proceedings against MIG and Mr Vartelas seeking a declaration that, by operation of s 77(3) of the Transfer of Land Act 1958, the defendants were bound to pay to the ANZ Bank such moneys as were payable for moneys owing under or in respect of the second ranking ANZ mortgage from the sale of the Footscray property.[12] He also sought an order that the defendants pay out the ANZ mortgages. Pradeep Tiwari was a guarantor of the ANZ Bank loan to S&D that was used to buy the house for his mother. Soon, after commencing the proceeding, Pradeep Tiwari paid out the ANZ Bank and took an assignment of its securities. Pradeep Tiwari claims he is entitled to the moneys in Court next after MIG. On 10 September 2010, I upheld the validity of the ANZ mortgages and recognised his claim.

36 On 13 August 2008, the plaintiffs issued an originating process seeking directions as to the respective rights, title and interest of S&D and each of the defendants to the proceeding in the proceeds of sale of the Footscray property.

37 In September 2008, on the application of the liquidator of S&D, MIG and Mr Vartelas were ordered to pay into court the balance of the moneys which they still retained from the sale of the Footscray property and the receivership of S&D.

38 As will become apparent when I discuss the history of the plaintiffs' originating process, the plaintiffs initially challenged the validity of the Velos and Davis charges (I also refer to them as Mr Velos' charges). The plaintiffs then for a time ceased making any challenge to Mr Velos' charges although Mr Malhotra sought to continue with the challenges initially raised by the plaintiffs. In April 2009, the plaintiffs informed the court that S&D as trustee of the properties would continue to challenge Mr Velos' charges in the interests of the beneficiaries of the trust assets held by S&D.

39 The plaintiffs initially opposed Mr Malhotra's claim to a proprietary interest in the properties and thus the moneys paid into court. In June 2009, the plaintiffs altered their stance and supported Mr Malhotra's claim.

40 In the 2 September 2010 judgment, I held that Mr Malhotra has successfully established his proprietary right to half the moneys paid into court and successfully resisted Mr Velos' and Mr Tiwari's claims that Mr Malhotra had no claim to those funds, and if he did his claim stood behind their claims. The plaintiffs argue that as they supported Mr Malhotra's claims as against Mr Velos and Mr Tiwari they should be treated as being successful against Mr Velos and Mr Tiwari on this issue.

41 To assess this claim, it is necessary to examine in greater detail the course of the proceedings and the position taken by the plaintiffs in regard to Mr Malhotra's claim to the moneys paid into Court.

42 As mentioned above in proceeding number 6325 of 2008, Pradeep Tiwari makes claims against MIG and Mr Vartelas by writ of summons. The statement of claim alleges that the ANZ Bank is the subsequent mortgagee to MIG and seeks a declaration that the defendants are bound to pay to the ANZ Bank such moneys as are payable in payment of moneys owing under or in respect of the unregistered ANZ mortgages.

43 By an originating process dated 13 August 2008,[13] Mr Handberg and S&D sought directions as to the respective rights, title and interest of S&D and each of the defendants to the proceedings (MIG, Mr Vartelas, Mr Malhotra, Mr Velos, Mr Tiwari and Messrs Horne and Vince) in the proceeds of sale of the Footscray property. They also sought orders requiring MIG to pay the proceeds of sale into Court pending the final hearing and determination of the proceeding. In addition, they sought other orders against MIG, including removing Mr Vartelas as receiver and manager of the property of S&D.

44 On 22 September 2008, the plaintiffs filed an outline of submissions expressed to be pursuant to orders of 29 August 2008.

45 On 26 September 2008, Judd J ordered that the balance of the proceeds of sale of the Footscray property be paid into Court. His Honour also gave the plaintiffs leave to amend their originating process. He further ordered that the parties file and exchange with each other written contentions of fact and law on or before 10 October 2008.

46 In accordance with the order of Judd J made 26 September 2008, the plaintiffs amended their originating process to seek, inter alia, directions as to the respective obligations, rights, title and interest of S&D and each of the defendants to the Hillside property.

47 On 10 October 2008, submissions on behalf of Mr Tiwari were filed. The plaintiffs, MIG and Mr Vartelas, Mr Malhotra, Mr Tiwari and Messrs Horne and Vince all filed statements of contentions of fact and law in accordance with the order of 26 September 2008.[14]

48 On 17 October 2008, Judd J made orders, inter alia, giving directions as to discovery, including an order that Mr Tiwari give inspection of all documents in his custody, control or possession relevant to the quantification of amounts secured by the ANZ mortgage.

49 At a directions hearing on 28 November 2008,[15] Judd J was informed that the plaintiffs had foreshadowed further amendments to the claims they proposed to make which would expand the issues between the parties. In those circumstances, Judd J ordered that points of claim and cross-claim should be filed and served by 10 December 2008. He reserved the issue of whether points of defence should be filed and served. He adjourned the matters for further directions on 12 December 2008.

50 Despite Judd J's order of 28 November 2008 that the parties file and serve points of claim and cross-claim by 10 December 2008, on 11 December 2008, the plaintiffs filed a supplementary statement of contentions of fact and law which purported to be delivered pursuant to orders of Judd J made 28 November 2008 (as indicated, his Honour had in fact ordered the filing of points of claim).

51 The plaintiffs originally instituted the proceeding by an application for (inter alia) directions under s 479(3) of the Act. They now, following comments of Judd J on 17 October 2008, sought to amend their application to seek consequential orders in addition to directions. The plaintiffs' supplementary contentions of fact and law of 11 December 2008 referred to and relied on the contentions previously filed by the plaintiffs on 13 October 2008.

52 The plaintiffs' supplementary statement of contentions of 11 December 2008 made allegations that the equitable mortgage given in favour of the ANZ Bank and the charges obtained by Velos & Davis dated 8 October 2004 were unenforceable against S&D as trustee of the trust.

53 The plaintiffs' supplementary contentions included a claim by S&D as trustee of the trust against Mr Tiwari.[16] The allegations were extensive and included the claim that the trustee (S&D) was entitled to seek the rescission ab initio of the ANZ securities.

54 The plaintiffs' supplementary contentions also included a claim by S&D as trustee in relation to the Velos & Davis equitable charges.[17] The trustee claimed that insofar as the equitable charges executed on 8 October 2004 purported to secure the payment of Sheela Tiwari's legal fees, they were voidable under s 588FE(6A) of the Act.

55 On 12 December 2008, the matters came on for directions and directions for the trial were sought. I ordered that matter number 6325 of 2008 be heard with proceeding 7807 of 2008. Counsel for the plaintiffs indicated that despite the plaintiffs filing their supplementary statement of contentions on the previous day, the plaintiffs intended to file points of claim[18] and I ordered that the time for filing and serving points of claim and cross-claim (if any) be extended to 19 December 2008 except in the case of Mr Malhotra where I extended time to 19 January 2009.

56 On 15 December 2008, MIG and Mr Vartelas filed a cross-claim against the plaintiffs and other defendants. MIG and Mr Vartelas claimed, inter alia, that Mr Handberg, as trustee of the Footscray property and the Hillside property, was only entitled to the residue of the surplus proceeds after the payment of the liabilities S&D had to each of the other defendants.

57 MIG and Mr Vartelas also sought a declaration that MIG may proceed to pay Mr Tiwari such amount of moneys that were due and owing to him in accordance with s 77(3)(c) of the Transfer of Land Act 1958 and in priority to the claims of the plaintiffs and the third to seventh defendants.

58 On 22 December 2008, Messrs Horne and Vince filed their points of claim.[19] Under the heading of "Priorities", they claimed:

(a) Handberg's fees and disbursements reasonably incurred in connection with the realisation of the Footscray Property and, if applicable, the Hillside Property, and to

(i) that of Pradeep Tiwari, save to the extent to which his claim ought be reduced by reason of any breaches of director's duties connected with the ANZ securities (as defined in the plaintiff's Supplementary Contentions of Fact and Law dated 11 December 2008) and with the charges granted by S&D dated 8 October 2004 in favour of Velos and Davis; and

(ii) the fourth defendant, Bill Velos, save to the extent that the charge he alleges secures fees incurred otherwise on behalf of S&D (for instance, fees incurred on behalf of Sheela Tiwari) and to the extent that those fees were not reasonably incurred, then

Horne and Vince fees and disbursements the subject of:

(c) their equitable liens; and then

(d) their statutory lien securing their administration fees and disbursements,

ought be paid from the Court fund in priority to the balance of Handberg's fees and disbursements in the liquidation of S&D.

59 Messrs Horne and Vince adopted the plaintiffs' supplementary contentions of fact and law dated 11 December 2008 in respect of the issues they pleaded under the heading of "priorities" (which at that stage constituted the contentions of the plaintiffs).

60 On 4 February 2009, the plaintiffs filed points of claim dated 22 December 2008.[20] Contrary to their supplementary contentions of fact and law of 11 December 2008, the plaintiffs made no claims against any other party other than MIG and Mr Vartelas. In particular, no allegations were made concerning the ANZ mortgages or the Velos & Davis charges despite the contentions made on 11 December 2008.

61 Mr Malhotra filed a statement of contentions of fact and law dated 21 January 2009.[21] Mr Malhotra challenged the validity of the ANZ mortgages.[22] These contentions went beyond those he alleged in his subsequent points of claim, which I refer to below. Mr Malhotra expressly adopted the supplementary contentions of fact and law of the plaintiffs of 11 December 2008 that the Court should refuse any payments to Mr Tiwari.

62 Mr Malhotra challenged the validity of the Velos & Davis charges[23] and adopted the contentions of the plaintiffs of 11 December 2008 where they submitted that the equitable charges were voidable.[24] As indicated above, at this stage the plaintiffs had amended their claims and were no longer challenging the validity of the ANZ mortgages and the Velos & Davis charges.

63 On 27 January 2009, Mr Malhotra filed his points of claim.[25] His claim states in relation to the ANZ mortgages:

"EFFORTS TO BRING COMPANY FUNDS BACK

40. In April/May 2007, in my efforts to reduce the company liabilities and bring back funds taken away from it by the directors, Pradeep Tiwari and Sheela Tiwari to pay for their own property at Point Cook, I fought with the ANZ Bank to apply the surplus of the proceeds of the sale of the house to meet the S&D debt which was created purely to assist the acquisition of the same property.

41. Appearing in Court on an application by the ANZ Bank (proceeding number 6550 of 2007, ANZ Bank v Dinesh Malhotra), I tried to seek a direction to the above effect. Counsel for the bank, Michael Galvin, told the Court that the Bank had been advised to use the surplus to pay the Pradeep Tiwari debt first and not the S&D debt. Upon submissions made by counsel for the Bank, his Honour Justice Cavanaugh told me that it was for the liquidators to come and fight for those funds.

42. The liquidators, who I have requested at least three times, responded well after the event to no avail."

64 In those paragraphs, Mr Malhotra claims, in effect, that the proceeds from the sale of the Point Cook property should be used to meet the S&D debt which he alleges was created purely to assist the acquisition of the Point Cook property. The S&D debt is alleged to be funds taken away from S&D by the directors, Pradeep Tiwari and Sheela Tiwari.

65 Mr Malhotra subsequently alleged in his points of claim that the only interest that had priority to his caveats being filed over the Footscray and Hillside properties were those of CBA securities which were then held by MIG.

66 Mr Malhotra expressly alleged that the ANZ/Pradeep interest, if accepted, stood behind his interest.[26] He claimed a 50 percent interest in the funds in Court in priority to Pradeep Tiwari (as the assignee representing the ANZ Bank).

67 As discussed below, on 23 April 2009, I ruled that Mr Malhotra had not withdrawn any of the contentions he made in his notice of 21 January 2008 by filing the points of claim in the form which he did some six days later.

68 On 29 January 2009, Mr Velos filed points of cross-claim.[27] Mr Velos sought orders, inter alia, under ss 423(1) and 425 of the Act fixing Mr Vartelas' remuneration and expenses as receiver of the property of S&D and as agent for MIG.

69 On 2 February 2009, the plaintiffs filed a document entitled "Further Amended Originating Process."[28] The amendments sought, inter alia, an order under s 425 of the Act fixing Mr Vartelas' remuneration as receiver of the property of S&D; an enquiry pursuant to s 423(1) into Mr Vartelas' remuneration and expenses as agent for MIG; a declaration that Mr Handberg's costs, charges and expenses of the winding up of S&D are payable in the winding up in priority to the costs, charges and expenses of Mr Horne and Mr Vince; a declaration that by suffering S&D to give mortgage to the ANZ Bank over the Footscray property and Hillside property in July 2002, Mr Tiwari, as a director of S&D, contravened s 181 and s 182 of the Act; and a consequential order under section 1317H of the Act requiring Mr Tiwari to compensate S&D for any loss and damage it has suffered by reason of the said contraventions. No allegations or claims were made by the plaintiffs against Mr Velos or the charges he relied on.

70 On 4 February 2009, the plaintiffs filed their points of claim.[29] Nevertheless, at the directions hearing on 4 February 2009, Mr Galvin, counsel for the plaintiffs sought to amend the plaintiffs' points of claim to raise claims in respect of the ANZ equitable mortgages and the Velos & Davis charges.

71 Mr Galvin alleged that equitable compensation might be payable by Mr Tiwari and that Mr Velos might be liable under the principles of Barnes v Addy.[30] He did not allege any defect in the ANZ mortgages or the Velos & Davis charges on the lines that the plaintiffs had previously alleged. He said:

"That means that we are making a positive allegation in response to his claim (Mr Tiwari) which will necessitate us amending our originating process to seek relief against him personally. Essentially what we say is that he can't have the benefit of his mortgage because it was procured by his own breach of duty to the company. We expect the proposed draft amended originating process is virtually complete.

The other point, similar point in relation to Mr Velos, is that Mr Velos appears to have obtained, he claims an equitable charge over the proceeds in Court. We say about that, that the equitable charge was also procured by a director's breach of duty to which he or in which he is a known participant in the Barnes v Addy sense."[31]

72 Later during the hearing, Mr Galvin indicated that the plaintiffs would not be pursuing the Barnes v Addy claim against Mr Velos. The plaintiffs did, however, seek to pursue the claims in respect of the ANZ mortgage which Mr Tiwari was seeking to enforce. The matter was adjourned to the next day so Mr Galvin could pursue the application to amend the plaintiffs' claims.

73 On 5 February 2009, Mr Galvin formally sought leave to further amend the plaintiffs' originating process.[32] I allowed the amendments where orders were sought as follows:

"12. A declaration that, by suffering [S&D] to give mortgages to the ANZ Bank over the Footscray property and the Hillside property in July 2002, [Mr Tiwari], as a director of [S&D], contravened ss 181 and 182 of the Act.

13. A consequential order under s 1317H of the Act requiring [Mr Tiwari] to compensate [S&D] for any loss and damage it has suffered by reason of the said contravention."

74 I directed that the hearing and determination of these claims be adjourned to a date to be fixed.[33] Mr Galvin had informed me previously on 4 February that the plaintiffs would not be adducing any additional facts to make out the claim in respect of the ANZ mortgages.

75 On 27 November 2008, Mr Malhotra had written to Mr Handberg challenging the validity of the ANZ mortgages and the Velos & Davis charges. The grounds were similar to those raised in Mr Malhotra's contentions of fact and law dated 21 January 2009.[34]

76 Save for the plaintiffs' claim against Mr Tiwari relating his alleged breach of duty in causing the ANZ unregistered mortgages to be granted by S&D and the Velos equitable charges to be granted by S&D, the hearing of the claims raised in the plaintiffs' proceeding and Mr Tiwari's proceeding commenced on 4 April 2009. At that hearing all defendants were represented by counsel save Mr Malhotra who appeared in person.

77 Mr Handberg, the first plaintiff, Mr Mond the director of MIG, the first defendant and Mr Vartelas, the second defendant gave evidence. Mr Malhotra also gave evidence and was cross examined by Mr Galvin for the plaintiffs and Mr Hamlyn-Harris for Mr Velos.

78 On 21 April 2009, at the conclusion of the cross-examination of Mr Malhotra by counsel for Mr Velos, when Mr Tiwari's counsel was entitled to cross examine Mr Malhotra, Mr Tiwari's counsel submitted that no issue was presently before the Court as to the efficacy of the ANZ mortgage.[35] He said that as that was the case, he did not intend to cross examine Mr Malhotra. I then adjourned to rule on the validity of the submission.

79 On 23 April 2009, I ruled that Mr Malhotra was claiming in the proceeding that the ANZ mortgages and the Velos & Davis Charges were unenforceable as against S&D or the assets held by S&D and he was therefore challenging the efficacy of the ANZ mortgages contrary to Mr Tiwari's submission.

80 In my ruling of 23 April 2009, I also dealt with the difficulty Mr Malhotra faced as a litigant in person and the role of S&D as trustee to protect the trust estate. [36]

81 I observed that Mr Malhotra's interests depended to an extent on the ability of the trustee to preserve and protect the trust assets. I referred to the trustee's position and in particular where the trustee was managed by the liquidator who was an officer of the Court.

82 I observed that it was the duty of the trustee to preserve and protect the trust estate. I said that the plaintiffs in making claims for compensation against Mr Tiwari in relation to S&D's granting of the ANZ mortgages and in challenging the Velos & Davis charges were carrying out the trustee's duty to preserve and protect the trust estate.

83 I said that in view of the fact that those or similar issues were currently before the court, I should not have deferred the hearing of the plaintiffs claims against Mr Tiwari. I said that they should have been heard along with the issues raised by Mr Malhotra concerning the efficacy of the ANZ mortgages and the Velos & Davis charges.

84 I noted that at the direction hearing on 4 February 2009, S&D as trustee raised the possibility of bringing a claim against Mr Velos under the principles of Barnes v Addy. I observed that normally, a beneficiary is not entitled to bring claims that should be made by the trustee. I noted that initially, in its statement of facts and contentions filed,[37] S&D as the trustee had sought to protect the trust assets by seeking to invalidate the securities which seek to attach to the trust assets. I observed that such a process was proper for the trustee to adopt.

85 I further opined that it may be preferable, if the trustee considered it reasonable to do so, for it to pursue the claims challenging the validity of the securities over the trust assets.

86 After I delivered my ruling on 23 April 2009, the plaintiffs indicated that the trustee would take up claims the trustee had against Mr Velos and Mr Tiwari concerning their securities over the trust assets.[38] Mr Galvin as counsel for the plaintiffs said as follows:[39]

MR GALVIN: I have some instructions Your Honour. Your Honour I'm instructed the trustee company, the plaintiff and the liquidator will take up the claims again against Mr Velos and against Mr Tiwari. I should say to Your Honour though, without explaining to Your Honour as Your Honour doesn't need to hear of course, why these matters were not pursued in the way they might have been.

Your Honour will recall that Mr Handberg was appointed in replacement of Mr Horne and Mr Vince some time ago, by the court. Since his appointment he has had access to very limited funds. Indeed the reason we're all here partly is because funds had to be extracted from - we say, against the party holding them and deposited into court.

Even still Mr Handberg does not have resources with which to conduct the sort of due diligence, if you like or investigation, that one would ordinarily expect from a liquidator before he or she embarked upon the sort of litigation that Your Honour has made rulings about. I mean beyond priorities.

I only say that Your Honour because he is a court officer. I'm instructed to advance an explanation as to why he might not have pursued these matters in the way they might ordinarily have been pursued. We will however, pursue them. There is an anxiety about the potential for adverse costs orders. I don't expect Your Honour to make any ruling or comment on that now.

For example, if the case against Mr Velos were to fail, Mr Velos was to seek costs against the company or Mr Handberg personally, those are issues which might arise, which we're anxious about.

We have a degree of knowledge about the Velos charges, but not a full detail - there are 18 boxes, I'm instructed, of documents relating to that litigation, or 16 whatever it is. But, we consider that there is a basis for bringing the claim and on that basis we will prosecute it Your Honour.

What I proposed Your Honour is that I know there have been several rounds of pleadings and statements of facts and contention. We will have a further attempt at, with Your Honour's leave, a single document which will bind together all of the claims we make against all of the parties, including these claims.

With Your Honour's leave we'd filed that document within perhaps three weeks I would seek Your Honour. The intention would be to give Mr Donald and my learned friend Mr Hamlyn-Harris all of the particulars they would need to understand and meet the claim, the claims against their clients.

HIS HONOUR: Well, I think I should make a comment. First of all my ruling should not be taken to contain any criticism of the conduct of the litigator.

MR GALVIN: I've not take that way Your Honour.

HIS HONOUR: I really mention it because as all parties had been urging on me, other than Mr Malhotra, they'd been urging on me that his interest is really as a beneficiary of a trust. When one stands back and thinks about it then as I said in my ruling, without referring to any cases, it's pretty fundamental that the primary duty to look after the trust as is falls on the trustee, in effect, the court may not permit a beneficiary to interfere.

But, on occasion where the trustee can't act because it's got no funds or refuses to act, then a beneficiary might be given leave to bring the proceedings. Mr Malhotra hasn't defined all this and the proceedings would be brought on behalf of the trust. That's different as arise here because the litigant personally doesn't understand those subtleties.

MR GALVIN: I know.

HIS HONOUR: That's why in an ideal world that any claims would be made by the trustee, but as you say the trustees got limited resources.

MR GALVIN: Your Honour, notwithstanding the absence of resources or their current state in two places primarily the courts coffers and a vacant piece of land at Hillside. The liquidator will, in a sense relieve Your Honour of the obligation of having to deal with it through Mr Malhotra as a beneficiary. Your Honour will not then have the need to concern yourself with the litigant in person.

HIS HONOUR: The problem was, as you can see, that when you raised it, the issue, one can draw the inference there was reasonable grounds for the allegation. Whether you succeed I don't know.

MR GALVIN: Yes.

HIS HONOUR: Then you have a litigant in person there whose saying the money shouldn't go to these people and the trustee had already articulated the grounds.

MR GALVIN: Yes.

HIS HONOUR: I was left with that dilemma of how to deal with it.

MR GALVIN: I understand the dilemma Your Honour and hopefully if we proceed this way, Your Honour will find it more convenient.

HIS HONOUR: That would be a far more sensible way of dealing with it and I would probably encourage you to talk to Mr Malhotra on the basis that what you're doing is in his interests.

MR GALVIN: In his interest.

HIS HONOUR: As the trustee. Of course he would want to know what you're up to and he may well then come back and say to me I adopt the arguments of the trustee.

MR GALVIN: He may have arguments of his own as well.

HIS HONOUR: He may have some others, but he may come back and say I'm satisfied.

MR GALVIN: That's right, yes, Your Honour.

HIS HONOUR: Thank you. Now, Mr Malhotra, in my ruling I assumed you were adopting the arguments that the trustee had initially put forward attacking the securities.

MR MALHOTRA: Yes, Your Honour.

HIS HONOUR: Yes, now you've heard Mr Galvin say that the trustee is now prepared to reinstate those allegations and continue with them, which in part attacked the efficacy of both the Velos charges and the ANZ securities and also - yes, and to do that, Mr Galvin agrees that the case should be adjourned so that those claims can be particularised. Mr Donald wants, so far as the ANZ - so far as Tiwari is concerned, wants them particularised.

MR MALHOTRA: Yes, Your Honour.

HIS HONOUR: Mr Donald has said they've got a good defence. They say that there was moneys owing to Sheela Tiwari and that the money was borrowed to repay the loan, and he wants time to put documents in to establish that defence.

So the application by Mr Donald for an adjournment is supported by Mr Galvin. Do you have anything to say about it?

MR MALHOTRA: No, Your Honour, I'm in your hands.

87 As will be seen below, the claims that S&D took up and pursued were claims by S&D as trustee against Mr Tiwari and Mr Velos. S&D did not seek to make claims on behalf of Mr Malhotra, although he would be a beneficiary of those claims if successful. The plaintiffs also changed their position on Mr Malhotra's claims to the moneys in court and thereafter supported his claims to priority over Mr Velos and Mr Tiwari which were resisted by Mr Velos and Mr Tiwari.

88 Before the hearing of evidence continued, Mr Robertson suggested that costs may be saved if the hearing of the proceedings could be broken up so that discreet issues could be dealt with one by one.[40] He suggested that it would be convenient to continue to hear and determine the claims involving MIG and Mr Vartelas and that the claims between the plaintiffs and Mr Malhotra on the one hand and Mr Tiwari and Mr Velos on the other could be heard on another day. Further, he suggested, the claims of the sixth and seventh defendants could be heard separately again.

89 The fourth, fifth, sixth and seventh defendants agreed to that course and the hearing involving MIG and Mr Vartelas continued and was heard on 28, 29 and 30 April 2009. Only counsel for the plaintiffs and MIG and Mr Vartelas participated on those days.

90 On 9 June 2009, I delivered my judgment on the issues as between the plaintiffs and MIG and Mr Vartelas.[41] It is convenient to set out generally the issues between the parties and my decision.

91 The matters raised between the plaintiffs of the one part and MIG and Mr Vartelas of the other also concerned the other parties. They were content, however, to allow them to be argued between the plaintiffs, MIG and Mr Vartelas.

92 There were two basic issues. The liquidator sought an order that he had first priority to the moneys in court as against the other parties, save the secured debt of MIG, on the basis that he had a lien over them arising out of his efforts to preserve and protect them from misuse by MIG and Mr Vartelas.

93 Secondly, the plaintiffs contended that MIG's mortgage was satisfied in full on the sale of the Footscray property on 18 October 2007, or at the latest on 19 October 2007, when MIG or its agents received the balance of the sale moneys.

94 The plaintiffs also claimed that MIG and Mr Vartelas were obliged to and should have accounted to the plaintiffs and the other subsequent encumbrancers for the moneys that they retained from the sale as at 19 October 2007; and as and from 19 October 2007, MIG and Mr Vartelas held the surplus moneys on trust for the subsequent interest holders. Further, the plaintiffs contended that given the circumstances of the case, MIG and Mr Vartelas were obliged to pay the surplus moneys immediately into Court after settlement on 19 October 2007.

95 The plaintiffs contended that as the debt due to MIG was satisfied in full on 19 October 2007, the receivership over the assets and undertaking of S&D should have been terminated that day or shortly thereafter. Further, the plaintiffs contended that MIG and Mr Vartelas were not entitled to any interest, costs, fees or expenses after 19 October 2007. The plaintiffs contended that MIG and Mr Vartelas should compensate S&D and/or the other subsequent encumbrancers in interest for failing to pay the moneys into Court as requested by S&D and the subsequent encumbrancers. The plaintiffs sought relief under ss 434(1)(b), 434B(1), 434B(5) and 1321 of the Act in respect of MIG's and Mr Vartelas' conduct.[42]

96 The plaintiffs contended that MIG was not entitled to include in the sum secured by the mortgage; expenses incurred in having Colonel Malhotra exercise powers as the registered mortgagee and to effect the transfer of the mortgage to MIG; and fees charged by Mr Mond, the controller of MIG, for his personal services purportedly provided to MIG.

97 MIG and Mr Vartelas disputed the claims of the liquidator and S&D, save that they admitted that they should have given an account, but only when they had fully satisfied MIG's mortgage debt, fees and expenses, including those of Mr Vartelas, which they claimed had not been done.

98 MIG and Mr Vartelas contended that MIG's mortgage debt was not satisfied on 19 October 2007 and it was still not satisfied. They claimed that they were entitled to retain the whole of the sale moneys while they made and continued to make investigations and inquiries into the merits of the subsequent interest holders.

99 MIG and Mr Vartelas contended that they were bound by s 77(3)(c) of the Transfer of Land Act 1958 to hold the proceeds of sale until they had determined for themselves the respective interests and priorities of the "subsequent mortgages and charges." They contended that they were entitled to seek the directions of the Court in determining those issues if they so wished. MIG and Mr Vartelas contended that they should not have been ordered to pay into Court the moneys that they still retained.

100 MIG and Mr Vartelas contended that s 77(3)(c) includes unregistered mortgages and charges. The plaintiffs disputed that construction and said that the ANZ Bank's equitable mortgage and the other equitable charges under its mortgage debenture were not to be satisfied by MIG under paragraph (c); but rather that paragraph (d) applied which required the surplus proceeds to be paid to the mortgagor or into Court.

101 MIG and Mr Vartelas contended that they were not obliged to account to the subsequent interest holders on 19 October 2007 or any date thereafter until they had completed their duties under s 77(3)(c) of the Transfer of Land Act 1958 as set out above. They contended that once they have carried out their duties under s 77(3)(c ), and not until then, would they finally account to the subsequent interest holders.

102 MIG and Mr Vartelas contended that as the mortgage debt has not been satisfied, the receivership should not be terminated and should not have been terminated on 19 October 2007 or any date thereafter.

103 MIG and Mr Vartelas contended that the Court should not adjudicate on the issue of the appropriateness of MIG reimbursing itself from the sale proceeds for the proceedings against Colonel Malhotra or Mr Mond's fees. They contended that this issue should be left for the taking of accounts in the traditional way, if its accounting is ultimately disputed by any of those entitled to dispute it.

104 In my judgment of 9 June 2009, I held on a preliminary basis that the liquidator was entitled to priority for the costs he incurred in preserving the fund by having it paid into Court.

105 I held that the MIG and Mr Vartelas should have discharged the mortgage debt on 19 October 2007 and forthwith paid the surplus moneys into Court. I found that on 19 October 2007 they should have accounted for the allocation of the sale proceeds to the subsequent interest holders including S&D. I found that, as against S&D as mortgagor, MIG and Mr Vartelas were not entitled to any interest, costs, charges or expenses beyond 19 October 2007. I found that MIG and Mr Vartelas were not entitled to apply the sale proceeds to meet the costs of MIG incurred in relation to Colonel Malhotra and the charges claimed by MIG for Mr Mond's personal services in dealing with the mortgage.

106 I found that Mr Vartelas' appointment as receiver of S&D should have ceased on 19 October 2007. I found that Mr Vartelas was not entitled to any cost, charges or expenses as receiver beyond 19 October 2007. I found that MIG and Mr Vartelas were obliged to pay interest on the surplus moneys retained by them. I found that on 19 October 2007 Mr Vartelas should have delivered up to S&D the Hillside property. I found that it was appropriate to make orders under the Corporations Act 2001 to give effect to these findings.

107 Counsel for the plaintiffs have informed me that MIG and Mr Vartelas appealed against my decision of 9 June 2009. I am told that the plaintiffs have compromised the appeal of Mr Vartelas but that the appeal of MIG is still on foot though stayed through a failure by MIG to put up security for costs.

RE S&D INTERNATIONAL PTY LTD (NO 4)[43]

108 The hearing of the claims between the plaintiffs, the third defendant, Mr Malhotra, the fourth defendant, Mr Velos and the fifth defendant Mr Pradeep Tiwari were fixed for hearing to begin on 5 October 2009. On that day, the plaintiffs asked for an adjournment and leave to amend the claims they made against Mr Velos and Mr Tiwari. The matter was adjourned and the plaintiffs' claims against Mr Velos and Mr Tiwari were amended.

109 The hearing of the claims did not recommence until 8 February 2010. The hearings continued off and on until they were completed on 20 August 2010. I delivered judgment on 2 September 2010. As indicated earlier, the issue currently before me are the orders I should make following that judgment. These issues include orders as to the costs of the proceedings, orders on the respective claims made by the parties and the rights of S&D over the trust assets to meet its costs of the proceedings. It will be convenient to deal with the issue of costs first.

110 The plaintiffs seek an order that the plaintiffs' costs of the proceeding as between the plaintiffs and Mr Velos be taxed and paid by Mr Velos. Mr Velos for his part seeks to divide the costs of these proceedings into three categories. The first is for the period to 2 June 2009, the second is the period from 3 June 2009 to 16 October 2009 and the third is for the period from 16 October 2009 to the conclusion of the hearing.

111 In order to assess these claims I need to examine the issues between the plaintiffs and Mr Velos and the history of those claims.

112 First, I deal with the pleadings as between the plaintiffs and Mr Velos.

113 By its originating process of 13 August 2008, the plaintiffs in substance sought under ss 479(3), 432(1) 1321 and 434B of the Act directions and any necessary declarations or orders as to the respective rights of the parties to the funds paid into court by Mr Vartelas (being proceeds of the sale of the Footscray property) and consequential directions or orders as to payment out and disbursement of that fund.[44] The plaintiffs named as defendants, inter alia, MIG, Mr Vartelas, Mr Malhotra, Mr Velos and Mr Tiwari. Mr Velos had laid claim to the moneys for some time under his equitable charges. The plaintiffs made no claims against Mr Velos.

114 On 26 September 2008, Mr Velos entered an appearance.

115 By order of Judd J made 26 September 2008, the plaintiffs were given leave to file and serve an amended originating process and each party was ordered to file and exchange written contentions of fact and law by 10 October 2008.[45]

116 The plaintiffs' amended originating process of 26 September 2008 made no claims against Mr Velos.[46]

117 The plaintiffs' contentions of fact and law dated 13 October 2008 made no claim against Mr Velos. The plaintiffs, however, referred to the administrators' statement of 7 June 2005 which expressed the view that Mr Velos' claim for legal fees against S&D was "unlikely to succeed." The plaintiffs also referred to the observations by Mandie J in Malhotra v Tiwari[47] that possibly Mr Velos may not have a claim against S&D. The plaintiffs said that they did not have any information concerning the charge and "wish to reserve their right to make submissions with respect to it after they have had an opportunity to consider the evidence tendered in support of it."[48]

118 The plaintiffs claimed that Mr Malhotra had no beneficial interest in the Footscray property and "therefore has no proprietary right to any part of the proceeds of its sale."[49]

119 Mr Velos filed a statement of contentions dated 14 October 2009[50] and on 16 October 2010, Mr Velos swore and filed an affidavit setting out the circumstances surrounding his taking the charge and asserting that he was entitled "as a matter of priority" to the fees owed by S&D ($190,708.52 plus costs and interest).[51]

120 On 28 November 2008, Judd J ordered that the parties file and serve any points of claim and any points of cross claim on or before 10 December 2008.[52]

121 Despite this order for pleadings, the plaintiffs filed a supplementary contention of fact and law dated 11 December 2008, that for the first time made a claim against Mr Velos. They contended that the charging of the Footscray Property and the Hillside Property to secure the payment of Sheela Tiwari's legal fees, costs and disbursements was an unreasonable director related transaction under s 588FDA of the Act and consequently voidable under sub-s 588FE(6A) of the Act. They claimed that consequently, Mr Velos was not entitled to claim the moneys owed to him from the funds paid into court.[53]

122 In accordance with the order of Judd J made on 28 November 2008, the plaintiffs filed points of claim dated 22 December 2008.[54] These, however, did not repeat the s 588FDA claim that had been made on 11 December 2008 against Mr Velos and made no other claims against Mr Velos.

123 Mr Velos filed points of cross claim dated 28 January 2008.[55] Mr Velos pleaded the equitable charges and sought orders that his charge was a subsequent charge for the purposes of s 77(3) of the Transfer of Land Act 1958 and that he had priority over all others save for the payments made to Mr Vartelas pursuant to ss 423(1) and 425 of the Act. He also sought an order that $210,596.09 be paid out of the monies in court to him.

124 On 2 February 2009, the plaintiffs filed a further amended originating process.[56] As in the points of claim filed on 22 December 2008, it did not raise any claims against Mr Velos.

125 The plaintiffs filed a combined response dated 5 February 2009 to the defendants' points of claim and cross-claims.[57] In the plaintiffs' response to the cross-claim of Mr Velos of 28 January 2008, they alleged that the surplus sale proceeds of the Footscray property and any from the sale of the Hillside property be applied in accordance with s 556 of the Act in the following order:

(a) first, in payment of Mr Handberg's salvage costs;

(b) secondly, in payment of the amount (if any) due to Mr Tiwari under the Tiwari mortgage after deductions of any amount due from Mr Tiwari to S&D;

(c) thirdly in payment to Velos of the amount (if any) validly secured under his equitable mortgage;

126 This response left open the issue of whether any amount was due and whether those moneys were validly secured under the equitable mortgages. In the response to Mr Malhotra's claims, they denied that Mr Malhotra had any interest in the Footscray property or the Hillside property and, by inference, in the moneys in court.

127 The response to Mr Tiwari's cross-claim, claimed, inter alia, that Mr Tiwari was liable to pay compensation to S&D in a sum equal to the amount he claimed under the Tiwari/ANZ mortgage.

128 Subsequent to the plaintiffs' announcement to the court on 23 April 2009, that they would challenge Mr Velos' charge for the trust estate's benefit, on 2 June 2009 the plaintiffs filed an amended response and cross-claim to Mr Velos' points of claim.[58]

129 The cross-claim raised a Barnes v Addy claim against Mr Velos. It alleged that S&D retained Mr Velos to act for it and Sheela Tiwari and undertook to pay Mr Velos' fees and disbursements in defending and asserting on behalf of Sheela Tiwari a claim to sole beneficial ownership of the property in the unit trust including the Footscray and Hillside properties to the exclusion of Mr Malhotra. The plaintiffs alleged that the giving of the Velos & Davis charges was in breach of S&D's fiduciary obligations and that Mr Velos had actual knowledge of these matters. Alternatively, they pleaded that if Mr Velos did not have actual knowledge he deliberately shut his eyes or abstained from making inquiries that an honest and reasonable person would make. In the premises, they claimed, that the charges were liable to be set aside.

130 The plaintiffs also changed their approach to Mr Malhotra's claim. The plaintiffs pleaded the existence of the unit trust and alleged that the beneficiaries of the trust were Sheela Tiwari and Mr Malhotra, who, as equal unit holders in the trust, jointly held the beneficial interest in the property of the trust as joint proprietors in equal undivided shares.[59]

131 On 5 October 2009, the claims by the plaintiffs against Mr Velos and Mr Tiwari came on for hearing. The plaintiffs applied for an adjournment. They advised the court that they had recently been provided with affidavit material by Mr Velos which led the plaintiffs to being not satisfied that they were able to pursue the Barnes v Addy claim against him. The plaintiffs sought leave to amend their claim against Mr Velos.

132 On 16 October 2009, I made orders consequent upon the hearing of 5 October 2009. I adjourned the further hearing of the claims as between the plaintiffs, Mr Malhotra, Mr Velos and Mr Tiwari. I gave leave to the plaintiffs to amend their claims against Mr Velos and Mr Tiwari. I ordered that Mr Malhotra have leave to file and serve amended points of claim in respect of his claims against Mr Velos and Mr Tiwari. As events transpired, Mr Malhotra did not do so. Further I made orders for discovery and for the preparation of the issues for trial including that the parties file outlines of argument concisely summarising their submissions. I also ordered that the costs of the adjournment granted on 5 October 2009 and the costs of the amendments to the plaintiffs' points of claim be reserved, including the question as to whether Mr Velos' costs be paid on an indemnity basis.[60]

133 Under the plaintiffs' further amended response and cross claim to Mr Velos' points of claim dated 16 October 2009,[61] the Barnes v Addy claim was withdrawn and further allegations were made by the plaintiffs against Mr Velos.

134 In particular, the plaintiffs deleted their claims against Mr Velos that by undertaking a liability to pay Velos' charges S&D acted in breach of its fiduciary duties. The amended cross-claim deleted the allegations that Mr Velos had knowledge that the granting of the charges over the Footscray and Hillside properties was a breach of trust.

135 The plaintiffs maintained the allegation that the beneficiaries of the trust were Sheela Tiwari and Dinesh Malhotra, who, as equal unit holders in the trust, jointly held the beneficial interest in the property of the Trust as joint proprietors in equal undivided shares.[62]

136 The amended cross-claim added the allegation that Mr Malhotra lodged his caveats claiming an interest over the properties.[63]

137 As foreshadowed on the adjournment application of 5 October 2009, the plaintiffs also alleged that the purported charging of Mr Malhotra's interests in the properties by S&D in favour of Mr Velos was not for a proper purpose of the trust and outside S&D's power and authority. Accordingly, it alleged that Mr Velos' equitable charges were not valid and effective, or alternatively, were not valid or effective to charge or encumber Mr Malhotra's interest in the properties.

138 The plaintiffs further alleged that Mr Velos took his charges with notice of Mr Malhotra's interests in the properties and that if the Velos & Davis charges were valid any consequent interests and rights of Mr Velos in the properties was subject and postponed to the interests of Mr Malhotra in the properties.[64]

139 The prayer for relief deleted the claims against Mr Velos and substituted a new claim seeking a declaration that the interests of Mr Malhotra in the Footscray and Hillside properties, which had been pleaded in the 6 June 2009 cross claim, were not validly encumbered by the equitable charges. Further or alternatively, the prayer for relief claimed a declaration that any interest of Mr Velos in the Footscray property or the Hillside property pursuant to the equitable charges was subject or postponed to the prior interest of Mr Malhotra in that property.

140 As indicated above, the pleading alleged that the equitable charges were not valid or effective at all because the charges were given by S&D in breach of trust. In final submissions the plaintiffs contended that S&D did act in breach of trust in granting the charges to Mr Velos but contrary to the pleading did not contend that he thereby did not obtain a valid or effective equitable charge.[65]

141 On 13 November 2009, Mr Velos filed a reply and response to the plaintiffs' further amended response and counter-claim (to Mr Velos' points of claim) dated 16 October 2009.[66]

142 Mr Velos alleged that Balmford J held that Sheela Tiwari and Mr Malhotra were equal unit holders in the unit trust and as such did not have any beneficial or equitable interest in the properties.

143 Mr Velos alleged that Mr Malhotra did not claim any beneficial or equitable interest in the properties by his caveats.[67]

144 Mr Velos alleged that the charges were validly taken and Mr Velos took the charges as a bona fide purchaser for value without notice.

145 As to the claims made concerning Mr Malhotra's interest in the properties in the plaintiffs' amended cross-claim of 16 October 2009,[68] Mr Velos alleged that Mr Malhotra had no interest in the Footscray or Hillside properties. Further he alleged that when Velos & Davis took the charges, Mr Velos had no notice of Mr Malhotra having any genuine interest in the properties. Further, he alleged that the interest asserted by Mr Malhotra in his caveats was not the interest that Mr Malhotra subsequently asserted in the Supreme Court litigation or the interests upheld by Balmford J.

146 In his closing submissions of 26 April 2010,[69] Mr Velos claimed that by reason of Mr Malhotra's conduct Mr Malhotra's interest in the properties ought to be postponed to the interests of Mr Velos.[70]

147 Accordingly, the issues as between the plaintiffs and Mr Velos that were the subject of the second stage proceedings were as follows:

(a) the plaintiffs asserted that Mr Malhotra had an interest in the properties and Mr Velos asserted he did not;

(b) the plaintiffs asserted that Mr Velos took his interest under the charges with notice of Mr Malhotra's interest and Mr Velos said he did not;

(c) the plaintiffs asserted that Mr Velos' interest was subject to and postponed to that of Mr Malhotra's and Mr Velos says it was not;

(d) Mr Velos asserted that Mr Malhotra had lost his priority (if he had it) by his conduct. The plaintiffs deny that he had lost his priority.

(a) Mr Malhotra did have an interest in the properties;

(b) Mr Velos' charge was subject to and postponed to Mr Malhotra's prior equitable interest; and

(c) Mr Malhotra had not lost his priority through his conduct.

149 Accordingly, on these three issues the plaintiffs were successful. The plaintiffs did not dispute Mr Velos' claims to the amount outstanding on his charges. At the continuation of the hearing in 2010, the plaintiffs did not challenge the validity of the Velos & Davis charges.[71]

150 I have a discretion as to costs but such discretion must be exercised judicially. Section 24(1) of the Supreme Court Act 1986 provides:

Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.

151 As discussed above, the plaintiffs initially sought directions as to the distribution of the funds in court. They sought first priority for salvage costs incurred by them. Mr Velos did not contest this claim. Nor did he contend that the plaintiffs were in error in seeking the directions that they did.

152 Before 2 June 2009, the position was as follows. The plaintiffs did briefly for some 11 days make a claim against Mr Velos on behalf of S&D. Mr Velos made a formal claim to the moneys in priority to everybody save Mr Vartelas. The plaintiffs contended that Mr Tiwari should have priority to Mr Velos. The plaintiffs did not make any claim in support of Mr Malhotra. In fact, in their pleading of 5 February 2009, they denied Mr Malhotra had any interest in the properties and thus the moneys in court.

153 The dispute as between Mr Velos and Mr Tiwari as to their priority to the moneys in court was primarily a matter for them.

154 After considering all these factors, in my discretion, I find that neither the plaintiffs nor Mr Velos should have costs in respect of any claims which they made against the other for the period up to 2 June 2009.

155 On 3 June 2009, the plaintiffs made a Barnes v Addy claim on behalf of S&D against Mr Velos and, as trustee, made a claim that Mr Malhotra had a proprietary interest in the moneys in court and held that interest in priority to Mr Velos.

156 On 5 October 2009, the Barnes v Addy claim was abandoned and as a result the plaintiffs applied for an adjournment.

157 On 16 October 2009, the plaintiffs withdrew that claim and substituted the claim that asserted Mr Malhotra's claim and that Mr Malhotra had priority to Mr Velos' charges.

158 Taking these factors into account, in my discretion, I propose to order that Mr Velos' costs thrown away by reason of the adjournment of the hearing of the proceedings on 5 October 2009 and on 16 October 2009, including any reserved costs, be taxed and be paid by the plaintiffs. I propose to order that the Mr Velos' costs thrown away by reason of the amendment ordered on 16 October 2009, including any reserved costs, be taxed and be paid by the plaintiffs. I do not propose to order indemnity costs in relation to the abandonment of the Barnes v Addy claim.

159 Mr Velos submits that the plaintiffs supported Mr Malhotra's interest in the monies in court on the basis that Mr Malhotra was an equal beneficial owner of the units in the unit trust rather than him having a direct beneficial interest in the properties. In the plaintiffs' closing submissions of 27 April 2010, the plaintiffs referred to the decision of Mandie J where His Honour accepted that for the purposes of the proceeding before him, Mr Malhotra's entitlements in the Footscray property, the Hillside property and the business were as a beneficial holder of one half of the units in the unit trust. The plaintiffs contended, and had done so since 2 June 2009, that the beneficiaries of the unit trust were at all material times, Sheela Tiwari and Mr Malhotra who, as equal beneficial owners of the units, jointly held the beneficial interest in the trust property as joint proprietors in equal undivided shares.[72]

160 Mr Velos pleaded and argued that the interest of Mr Malhotra in the units in the unit trust did not give rise to him having any equitable interest in the property owned by the unit trust. Mr Velos contended that the unit holder was merely an unsecured creditor for the purposes of s 77(3) of the Transfer of Land Act 1958. I upheld Mr Velos' submission that beneficial ownership of units in the unit trust would not give the unit holder a proprietary interest in the real properties held on behalf of the unit trust, even though it was not necessary for me to decide the issue. I found, however, that Mr Malhotra's proprietary interest in the real properties had been declared by Balmford J and her declaration defined the nature of his interest.

161 The plaintiffs argue that they also supported Mr Malhotra's claim based on Balmford J's declaration that I eventually upheld. The plaintiffs' closing submissions of 27 April 2010 deals with Mr Malhotra's interest in the properties on the basis that his property rights are determined by the rights of a unit holder.[73] The plaintiffs contend that they also supported Mr Malhotra's claim on the basis argued by him. The plaintiffs refer to their observations concerning this matter on 8 and 9 February 2010 and their closing submissions of 27 April 2010.[74] In their submissions the plaintiffs said:

94 The purchase of the Hillside property was not apparently connected with the conduct of the business, but was done with the consent of both beneficial owners of the units, Malhotra and Sheela. Balmford J accepted Mr Yacoub's evidence that he had suggested to Malhotra that this property also be bought in the name of the Unit Trust.[75] In these circumstances, it must be concluded that the Hillside property was purchased for the mutual benefit of Malhotra and Sheela with S&D's knowledge and consent, thus arguably making its acquisition (and ultimate development for Malhotra's and Mrs Tiwari's mutual benefit) an additional purpose of the Unit Trust.[76]

95 In this connection, the plaintiffs, Velos and Pradeep agree that both the Footscray property and the Hillside property are assets of the Unit Trust, and not property subject to some other express trust. Even if the Hillside property is the subject of a separate express bare trust, the plaintiffs' arguments remain the same. S&D was still the trustee of that trust and was in breach of its duties insofar as it permitted the property to be mortgaged for Sheela's exclusive benefit.

162 In this submission, the plaintiffs are addressing the allegation that S&D acted in breach of trust in granting the ANZ mortgage and the Velos & Davis charges and the consequential claim against Mr Tiwari.

163 In my view, at its highest, the plaintiffs contended that if Mr Malhotra's claim was upheld the liquidator's duties and rights would not be different and that their claim against Mr Tiwari would not be adversely effected.

164 Accordingly, as to the period from 17 October 2009, the plaintiffs as trustee successfully supported Mr Malhotra's rights as a beneficiary to a half interest in the moneys in court against Mr Velos' claim that Mr Malhotra had no interest. They also successfully supported Mr Malhotra in his resistance to Mr Velos' claim that if Mr Malhotra did have a proprietary right his right stood behind Mr Velos' claim.

165 I take into account that the plaintiffs pleaded that Mr Velos did not have a valid and effective charge because S&D acted in breach of trust even though the plaintiffs eventually did not press that claim and that ultimately the plaintiffs only claim against Mr Velos was in support of Mr Malhotra's claim to priority over Mr Velos.

166 In the circumstances set out above, I find that the plaintiffs have been substantially successful in their claims against Mr Velos and Mr Velos has been unsuccessful in his claims against the trust estate moneys, so far as concerned Mr Malhotra, which S&D, as trustee, was resisting.

167 Taking these matters into account, in my discretion, I propose to order that the plaintiffs' costs of the proceeding on and after 17 October 2009 as between the plaintiffs and the fourth defendant be taxed and be paid by the fourth defendant.

THE COSTS AS BETWEEN THE PLAINTIFFS AND MR TIWARI

168 The plaintiffs seek an order that the plaintiffs' costs of the proceeding as between the plaintiffs and Mr Tiwari be taxed and paid by Mr Tiwari.

(a) The plaintiffs pay Mr Tiwari's costs of the claims made by the plaintiffs against the Mr Tiwari in respect of the ANZ Mortgages, including reserved costs.

(b) Mr Tiwari pay the plaintiffs' costs of the claims made by the plaintiffs against Mr Tiwari in respect of the Velos & Davis charges, including reserved costs.

(c) The plaintiffs pay Mr Tiwari's costs (as between party and party) of the claims made by the plaintiffs against the first and second defendants and incurred by Mr Tiwari at the trial of this proceeding on 4, 5, 9, 10, 11 and 12 February, 2009.

170 On 19 December 2008, Mr Tiwari filed points of cross claim.[77] He pleaded his rights under the ANZ mortgage and his entitlement to the moneys in court next after MIG.

171 The plaintiffs' points of claim of 22 December 2008, made no claim against Mr Tiwari.[78] Previously in the plaintiffs' supplementary contentions of law and fact the plaintiffs claimed that Mr Tiwari breached his fiduciary duties in procuring S&D to grant the ANZ mortgage and the Velos & Davis charges and sought consequential relief.[79]

172 The plaintiffs response to the cross claim of Mr Tiwari of 5 February 2009,[80] made a claim for damages arising out of the ANZ mortgage but made no claims in relation to Mr Velos' charges.

173 On 27 May 2009, the plaintiffs amended their points of response and cross claim to Mr Tiwari's claim.[81] The amendments only related to the ANZ mortgages. The plaintiffs made no claims in relation to Mr Velos' charges. It was not until 16 October 2009,[82] when the plaintiffs filed their further amended points of response and cross claim to Mr Tiwari's claim, that an attack was made by S&D on Mr Tiwari in respect of Mr Velos' charges.

174 In substance, the plaintiffs claims against Mr Tiwari failed in relation to the ANZ mortgages but succeeded in relation to the Velos & Davis charges. Mr Tiwari disputed the claim of Mr Malhotra to have a proprietary interest in the moneys in court.

175 Taking these matters into account, in the exercise of my discretion on costs, I propose to order that there be no order as to costs on the proceedings as between the plaintiffs and Mr Tiwari.

THE COSTS AS BETWEEN THE PLAINTIFFS AND MR MALHOTRA

176 As discussed above, until 2 June 2009, the plaintiffs denied and opposed Mr Malhotra's claim. On and after 3 June 2009, the plaintiffs supported Mr Malhotra's claim to priority to the moneys in court save as to the question of the plaintiffs' claim to be indemnified for its costs of the proceedings out of the moneys in court.

177 The plaintiffs did not support Mr Malhotra's contentions that he held an equal joint beneficial interest in the moneys in court flowing from his equal joint beneficial interest in the properties. Rather, the plaintiffs argued that Mr Malhotra's equal joint beneficial interest in the units in the unit trust gave him a proprietary interest in the moneys in court.

178 As discussed above, on and after 2 June 2009, S&D as trustee sought to make claims for the benefit of Mr Malhotra as a beneficiary of the trust estate held by S&D and on his right to the moneys in court.

179 Taking these matters into account, in my discretion, I propose to order that Mr Malhotra's costs of the proceedings on and until 3 June 2009 as between Mr Malhotra and the plaintiffs, including any reserved costs, be taxed and be paid by the plaintiffs. I propose to make no other order as to costs as between the plaintiffs and Mr Malhotra.

180 Mr Tiwari accepts an order that he pay Mr Velos' costs of the question, as between Mr Velos and Mr Tiwari, of priority as between the ANZ Mortgages and the Velos & Davis charges, including any reserved costs.

181 On the other hand, Mr Velos seeks an order that Mr Tiwari pay Mr Velos' costs of the proceeding as between them, including any reserved costs, such costs to be taxed in default of agreement.

182 As between Mr Velos and Mr Tiwari, Mr Velos has been successful in establishing that his claim to the moneys in court have priority to Mr Tiwari's claims under the ANZ mortgages.

183 Taking these matters into account, in the exercise of my discretion, I propose to order that Mr Velos' costs of the proceedings as between Mr Velos and Mr Tiwari relating to the issue of priority as between the ANZ Mortgages and the Velos & Davis charges, including any reserved costs, be taxed and paid by Mr Tiwari.

184 Mr Velos took issue with Mr Malhotra's claim to a proprietary interest to the moneys in court. Further, if Mr Malhotra did have an interest, which Mr Velos denied, then Mr Velos claimed Mr Malhotra's interest ranked after Mr Velos' claims under his charges. Mr Velos failed on these issues.

185 Taking these matters into account, in my discretion, I propose to order that Mr Malhotra's costs of the proceedings as between Mr Malhotra and Mr Velos, including any reserved costs, be taxed and be paid by Mr Velos.

186 Mr Tiwari denied Mr Malhotra's proprietary interest in the moneys in court. In my discretion, I propose to order that Mr Malhotra's costs of the proceedings as between Mr Malhotra and Mr Tiwari, including any reserved costs be taxed and be paid by Mr Tiwari.

187 The plaintiffs seek an order that the plaintiffs' costs of the proceeding as between the plaintiffs and MIG be taxed and paid by MIG.

188 MIG raises two matters. First, that MIG has been released from any claim for costs by reason of the settlement between the plaintiffs and Mr Vartelas. MIG claims it has been released by the plaintiffs from all claims they have, or might have had against MIG and Mr Vartelas or either of them, arising out of the subject matter of the principal proceeding (proceeding number of 7807 of 2008), the appeal proceeding or the directions application (as defined therein).[83]

189 Secondly, MIG claims that if that argument fails, no order should be made as to costs, but that if any cost order is made the costs should not include the dates 4, 5 and 9-12 February 2009. MIG also claims that the costs should have deducted from them $125,000 paid by Mr Vartelas to the plaintiffs in the settlement of his appeal.[84]

190 On the release issue, MIG contends that if an order is made against the defendants or respondents to a proceeding the defendants are jointly and severally liable.[85]

191 The plaintiffs sought orders against MIG and Mr Vartelas. Judgment was delivered on 9 June 2009 and orders made 19 June 2009.[86] Amongst the orders and declarations made, the Court declared that MIG's mortgages over the Footscray and the Hillside properties were discharged and satisfied in full on 19 October 2007. The Court ordered that Mr Vartelas forthwith cease to act as receiver and manager of the property of S&D. The Court ordered that possession of the Hillside property be delivered up to S&D. Orders were made for separate inquiries into the amounts and sums that should have been accounted for by each of MIG and Mr Vartelas.

192 The Court declared that after payment of such amounts as are allowed to MIG and Mr Vartelas following the inquiries, the fund paid into court by MIG and Mr Vartelas, being the proceeds of sale of the Footscray property and the funds held by Mr Vartelas as receiver and manager of S&D, are charged with payment of the first plaintiff's costs and expenses of and incidental to procuring the said payment into Court. Otherwise the costs were reserved.

193 Each of the orders were directed to either MIG or Mr Vartelas separately save that they were both ordered to deliver up possession of the Hillside property to the first plaintiff.

194 Mr Vartelas was appointed the agent in possession of MIG and in that capacity took possession of and sold the Footscray property. Mr Vartelas was also appointed by MIG to be the receiver of S&D. Mr Vartelas accounted to MIG for some of the proceeds of sale of the Footscray property but retained the balance.

195 MIG and Mr Vartelas were represented by the same solicitor and counsel during the hearing and determination of the claims against them. The costs of the proceedings against them were reserved. In the normal course MIG and Mr Vartelas would have been ordered to pay the plaintiffs' costs of the proceedings against them.

196 Neither defendant raised a separate defence to the claims made against them. Nevertheless, the orders made against them were individual orders and save for the delivery up order they were not jointly the subject of any order. The costs were reserved. That, however, does not involve a joint order against them.

197 I have not made an order for costs relating to the claims made against MIG and Mr Vartelas. The plaintiffs now seek an order for costs against MIG alone. An order that MIG and Mr Vartelas pay the plaintiffs' costs of the proceedings against them would have led to them being jointly and severally liable on the order for costs: see Thiess Watkins White Constructions Limited (in liquidation) v Witan Nominees (1985) Pty Ltd[87] (Thiess' case) and the authorities cited by Cooper J therein.

198 After the orders were made against MIG and Mr Vartelas but before any orders for costs were made, MIG and Mr Vartelas ceased to be jointly represented and retained separate solicitors. They each lodged separate notices of appeal against the orders.[88]

199 The plaintiffs and Mr Vartelas have reached terms of settlement on the orders that were obtained against Mr Vartelas and on Mr Vartelas' appeal.[89] The relevant terms provide as follows:

1. The First Respondent shall seek directions from the court pursuant to section 511 of the Corporations Act 2001 (Cth) (Directions Application) seeking orders that he and the Second Respondent are justified in settling the Appeal Proceedings with the Appellant on the terms set out in this deed.

2. The Appellant shall pay to the First Respondent the sum of $125,000.00 (Settlement Sum), C/- Mills Oakley Lawyers within 30 days of the granting of the orders sought in the Directions Application.

3. The First Respondent and the Second Respondent will accept the Settlement Sum in full and final satisfaction of any costs orders that have been, or but for this agreement might have been, made against the Appellant in favour of the First Respondent and/or the Second Respondent in Supreme Court of Victoria proceeding number 7807 of 2008 (Principal Proceeding) and in the Appeal Proceeding.

4. On the granting of the orders sought in the Directions Application, the Appellant shall discontinue the Appeal Proceeding with no order as to costs.

5. The Appellant shall release and forever discharge the First Respondent and the Second Respondent from all claims he has, or might have had, against them or either of them, arising out of the subject matter of the Principal Proceeding, the Appeal Proceeding or the Directions Application.

6. The First Respondent and the Second Respondent shall release and forever discharge the Appellant from all claims they have, or might have had against them or either of them, arising out of the subject matter of the Principal Proceeding, the Appeal Proceeding or the Directions Application.

200 MIG's appeal is proceeding. It has been stayed pending the payment of security for costs. Mr Mond deposes on behalf of MIG that MIG intends to post the security and pursue the appeal.

201 As indicated above, the plaintiffs have given a release to Mr Vartelas for claims that they have or might have had against Mr Vartelas and MIG arising out of the principal proceeding. In other words, the plaintiffs have released Mr Vartelas from a claim that they might have arising out of a cost order against them or either of them arising out of the principal proceeding.

202 As explained by Cooper J in Thiess' case, an order for costs against two or more persons may be enforced against one only of those persons and taxed against him or her alone. Also, where if one of two parties jointly made liable for costs absconds and is never served, the party with the benefit of the order might proceed against both parties jointly or the party who did not abscond alone.

203 In this instance, however, an order has not been made against MIG and Mr Vartelas for costs upon which they would be jointly and severally liable. I am not asked to do so. The costs order that is sought to be made is against MIG alone.

204 Accordingly, the release given to Mr Vartelas has not affect on a joint liability with MIG, as none exists.

205 Accordingly, I propose to order that the costs of the proceedings as between the plaintiffs and MIG, including any reserved costs, be taxed and paid by MIG.

(a) Mr Malhotra is beneficially entitled to one half of:

(i) the funds paid in Court representing surplus proceeds of sale of the Footscray Property (including moneys recovered by the plaintiffs from the second defendant) and the Hillside Property, together with the interest accrued thereon;

(ii) any funds recovered by the plaintiffs from the first defendant pursuant to the orders of the Court made on 5 October 2009;

207 Mr Malhotra has successfully maintained his claim and I propose to make this order.

2. S&D, as trustee of the Footscray Property and the Hillside Property, is entitled to be indemnified out of the fund for its reasonable costs and expenses, including the reasonable remuneration, costs and expenses of the first plaintiff, occasioned by:

(i) the sale of the Hillside property and the payment of the proceeds from that sale into Court;

(ii) the plaintiffs' prosecution of claims against, and defence of claims by, the first and second defendants in this proceeding with respect to the fund;

(iii) the plaintiffs' prosecution of claims against, and defence of claims by, the fourth and fifth defendants in this proceeding with respect to the fund;

(iv) the plaintiffs' defence of the first defendant's appeal in Court of Appeal proceeding no. 3800 of 2009; and

(v) the plaintiffs' recovery of any moneys from the first defendant pursuant to the orders of the Court made on 5 October 2009;

(collectively, "the second plaintiff's costs as trustee").

209 In the proceedings S&D sought orders to be indemnified out of the fund for its costs of the proceedings.[90] S&D's contends its claim is based on its entitlement, as a trustee under the general law, to its reasonable costs and expenses of administering the trust, including costs incurred in litigation.[91]

210 The plaintiffs have sought a declaration of their right to be indemnified out of the trust assets. The rational for this entitlement was set out by Lindley LJ in Re Beddoe; Downes v Cottam[92] where he said:

I agree that a trustee is entitled as of right to full indemnity out of his trust estate against all his costs, charges, and expenses properly incurred: such an indemnity is the price paid by cestuis que trust for the gratuitous and onerous services of trustees; and in all cases of doubt, costs incurred by a trustee ought to be borne by the trust estate and not by him personally. The words "properly incurred" in the ordinary form or order are equivalent to "not improperly incurred." This view of a right of a trustee to indemnity is in conformity with the settled practice in Chancery and with Turner v Hancock, the latest decision on the subject. (citation omitted)

211 In Re National Safety Council (No 2)[93] J D Phillips J explains that a trustee is ordinarily entitled, by the nature of his office and his duties, to a full indemnity out of the trust assets for all costs, charges and expenses properly incurred in the litigation. He went on to say:

This is but one application of the wider principle which was described by Danckwerts J in Re Grimthorpe thus: "It is common place that persons, who take the onerous and sometimes dangerous duty of being trustees, are not expected to do any of the work on their own expense; they are entitled to be indemnified against the costs and expenses which they incur in the course of their office; of course, that necessarily means that such costs and expenses are properly incurred and not improperly incurred. The general rule is quite plain; they are entitled to be paid back all that they have had to pay out." Accordingly, an order that the trustee, in taking his costs out of the assets, have his costs taxed "as between solicitor and client" was not sufficient to afford him the indemnity to which he was entitled: Daniell, (quoted in Giles); contrast Re Bradshaw. This inadequacy prompted the court to formulate a more appropriate order, that the plaintiff trustee have his taxed costs and expenses of and incident to the litigation, without the addition of the words "as between solicitor and client": Practice Direction, 27 October 1953; Practice Note, 23 March 1954. The Practice Direction in England was explained by Vaisey J. in a Practice Note, 3 November 1953. Of the order newly formulated, his Lordship said: "It is, I think, plain that those words 'the costs and expenses of and incident to any application' are intended to cover the whole of the costs that the trustees were entitled to, and mean almost the same as costs on an indemnity basis, or costs as between solicitor and own client." The word "almost" is significant; it recognises that a trustee is not in the same position as an individual litigant, who may pay whatever he likes. A trustee "must use his judgment to try and save the estate money which should not be unnecessarily paid out" (Grimthorpe) but subject thereto, the trustee was to have his costs, charges and expenses in full out of the assets. In a very real sense, the new order for a plaintiff trustee's costs substituted for the old standard of what was reasonably necessary as found in r27(29) a new standard of what was proper. (citations omitted)

212 It has been said that to deprive a trustee of the right to costs there must be something in the nature either of an active violation or some culpable or gross neglect of duty.[94] However, in Adsett v Berlouis[95] the Full Court of the Federal Court of Australia (Northrop, Wilcox and Cooper JJ) held that a trustee's right to remuneration is limited to work properly undertaken. They said that:

"in this context, 'properly' means work reasonably and bona fide undertaken for the purpose of administering the estate or performing any public duty imposed by the Act, conformably with the trustee's duty to perform the work with reasonable care and skill and in an efficient and economical way."[96]

213 Their decision provides a useful summary of the relevant principles:[97]

A number of observations must be made about these submissions. First, we do not accept that the circumstances under which a trustee may be deprived of his or her costs indemnity are as limited as counsel suggest. It is necessary to refer to the pertinent principles. A trustee appointed in relation to a bankrupt becomes trustee of the bankrupt's estate. The trustee is bound to administer that estate in accordance with the Bankruptcy Act and Bankruptcy Rules. The trustee has a dual function: first, to administer the estate in the interests of the creditors and the bankrupt; second, to exercise, as a public duty and for the public welfare, certain powers given, and duties imposed, under the Act (Re Campbell; ex parte Official Trustee . The conduct of the trustee is subject to the supervision of the Court (e.g. Division 4 of Part VIII of the Act) and a trustee in bankruptcy has historically been regarded as an officer of the relevant court (Ex parte James, Re Condon; Scranton's Trustee v Pearse; Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (In Liq.); Re Henderson. A trustee in bankruptcy who acts for remuneration is under a duty of care greater than that of a gratuitous trustee (In Re Silver Valley Mines CA. The trustee is required to bring reasonable skill to the performance of his or her duties (Silver Valley Mines; Re Alafaci; Registrar in Bankruptcy v Hardwick).

A trustee under the general law must exercise judgment so as to save the estate unnecessary expenditure of money (In Re Grimthorpe, Deceased; In Re Whitley ). A trustee in bankruptcy is in no different position. The discharge of a public duty imposed by the Act is to be performed conformably with the requirements of that duty, but also conformably with the trustee's obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditors' claims and any possible surplus for the bankrupt. We adopt, as a correct statement of the duty of a trustee and the proper manner of its performance, the words of Smithers J in Mannigel v Aitken:

"In the case of bankruptcy the Trustee is in charge of the assets of the

bankrupt and those assets are to be applied for the benefit of the

creditors and if there be any surplus for the benefit of the bankrupt.

It is clear that the minimum standard required of the Trustee is that he

shall handle the assets with a view to achieving the maximum return from the assets to satisfy the claims of the creditors and to provide the

best surplus possible for the bankrupt. Obviously a great deal of

discretion and judgment is required to be exercised by the Trustee. It

was said by Rogerson J. in Re Ladyman that the standard of conduct required of the Trustee will ordinarily be the standard required of a professional man and perhaps higher. The learned judge referred to 'the high standard of conduct required of trustees."

'A Trustee undoubtedly has a discretion as to the mode and

manner, and very often as to the time in which or at which,

he shall carry his duty into effect. But his discretion is

never an absolute one. It is always limited by - the

dominant duty - the guiding duty of recovering, securing and

duly applying the trust fund; and no Trustee can claim any

right of discretion which does not agree with that paramount

obligation'.

Where an order is sought that the Trustee be removed and to make good

the losses suffered by the estate, it must be established that the

Trustee has been guilty of a breach of duty to act 'diligently and

prudently in regard to the business of the Trust'. See Riley J. in Re

Alafaci.

According to Halsbury's Laws of England (3rd ed), a trustee must take all reasonable and proper measures to obtain possession of the trust property and to get in all debts and funds due to the trust estate, and to preserve it, and to secure it from loss. He must take reasonable precautions to see the property is not stolen or lost by default. The Trustee is bound to execute the trust with fidelity and reasonable diligence and ought to conduct its affairs in the same manner as an ordinary prudent man of business would conduct his own affairs. But beyond this he is not bound to adopt further precautions. It was said by their Honours Dixon C.J., McTiernan and

Windeyer JJ. in Elder's Trustee and Executor Co. Ltd. v. Higgins that:

'We are not to judge what the Trustee then did or failed to do by the light of later events...The duty of the Trustee was to exercise due diligence, care and prudence in the conduct of the business, bearing in mind the need to preserve the capital of the Testator's estate...The argument that the Trustee having, it was said, exercised a discretion, its conduct is now unchallengeable is sufficiently answered by a passage from the judgment of Fry L.J. in Re Brogden ... Whether or not one calls (the trustee's action) an exercise of discretion, the question remains was it the act of a prudent Trustee'."

A trustee in bankruptcy is governed by the general law relating to trustees save where the position of the trustee is modified by the Bankruptcy Act or Rules (Re Ladyman). The Act confers no right on a trustee to be reimbursed in respect of the costs, charges or expenses incurred in the administration of the estate. The trustee's right to an indemnity is provided under the general law.

Under that law a trustee is entitled as of right to a full indemnity out of the trust estate against all costs, charges and expenses properly incurred by the trustee (Turner v Hancock; In Re Love; Hill v Spurgeon; In Re Beddoe; Downes v Cottam).

A trustee's right to remuneration for his or her own efforts, as distinct from reimbursement of outgoings, is not conferred by the general law. A trustee, generally speaking, has no right to remuneration. Neither does the right to remuneration arise out of the indemnity in respect of "costs, charges or expenses". That collocation of words does not include the value of services provided by the trustee in administering the estate. The concepts of remuneration and outgoings are distinct. It is true that in some statutory provisions - for example, s 109 of the Bankruptcy Act - the trustee's remuneration is specifically included amongst the "costs, charges and expenses of the administration of the bankruptcy". But such special provisions, giving an extended meaning to "costs, charges and expenses", do not remove the conceptual dichotomy between remuneration and outgoings. Rather, they group the two concepts for the limited purposes of the relevant sections.

Where a trustee in bankruptcy is appointed in the expectation that he or she will be remunerated, and there is no prior agreement to act gratuitously, the Act assumes the existence of a right to be remunerated. Section 162 provides a mechanism for fixing the quantum of the remuneration (Mayne v Jaques) The right to remuneration for work done is enforceable by the trustee by calling a meeting of creditors to fix the remuneration by resolution or, if the creditors so resolve, to have the remuneration fixed by the committee of inspection, if any (s 162 (1)). Where remuneration is not fixed by the creditors or the committee of inspection, the Registrar may fix the remuneration (s 162(4)). The remuneration to which the trustee is entitled is to be just and proper (Mayne v Jaques), or reasonable remuneration in all the circumstances (Re Palmer; Ex parte Taylor), for the work carried out by the trustee. The right to payment is only lost for a specific reason, as, for examples, if no work was done or needed to be done or misconduct by the trustee (Mayne v Jaques) As to the loss of the right under the general law see Turner v Hancock and In Re Love ).

The obligation of a trustee in bankruptcy to pay costs to another party involved in litigation unsuccessfully instituted or defended by the trustee is a matter distinct from the trustee's entitlement to recoupment out of the bankrupt's estate (Pitts v La Fontaine ; Re Driller). Ordinarily, an unsuccessful trustee will be ordered to pay the costs of the successful party. Such an order imposes a personal obligation on the trustee. In such a case, the question then arises as to whether or not the trustee has a right to be reimbursed out of the trust estate. This latter question arises in the administration of the bankruptcy, not in the original litigation. In the general area of the administration of trusts, the position was stated by Lindley L.J. in Re Beddoe :

"I entirely agree that a trustee is entitled as of right to full indemnity out of his trust estate against all his costs, charges, and expenses properly incurred: such an indemnity is the price paid by cestuis que trust for the gratuitous and onerous services of trustees; and in all cases of doubt, costs incurred by a trustee ought to be borne by the trust estate and not by him personally. The words 'properly incurred' in the ordinary form of order are equivalent to 'not improperly incurred'".

"The fallacy of the Respondent's argument lies in supposing that because a trustee has to pay costs in a collateral suit, it is as costs that

he inflicts them on his own trust fund. It is only as 'charges and expenses' that he can recover them...'"

"The principle of law to be applied appears unmistakably clear. A trustee can only be indemnified out of the pockets of his cestuis

que trust against costs, charges, and expenses properly incurred for the benefit of the trust - a proposition in which the word 'properly' means reasonably as well as honestly incurred. While I agree that trustees ought not to be visited with personal loss on account of mere errors in judgment which fall short of negligence or unreasonableness, it is on the other hand essential to recollect that mere bona fides is

not the test, and that it is no answer in the mouth of a trustee who has embarked in idle litigation to say that he honestly believed what

his solicitor told him, if his solicitor has been wrong-headed and perverse. Costs, charges, and expenses which in fact have been

unreasonably incurred, do not assume in the eye of the law the character of reasonableness simply because the solicitor is the person who was in fault. No more disastrous or delusive doctrine could be invented in a Court of Equity than the dangerous idea that a trustee himself might recover over from his own cestuis que trust costs which his own solicitor has unreasonably and perversely incurred merely

because he had acted as his solicitor told him. If there be one consideration again more than another which ought to be present to the mind of a trustee, especially the trustee of a small and easily dissipated fund, it is that all litigation should be avoided, unless there is such a chance of success as to render it desirable in the interests of the estate that the necessary risk should be incurred."

See also In Re England's Settlements Trusts; Dobb v England .

The principle enunciated by Bowen L.J. in Beddoe applies to the administration of bankrupt estates (In Re Bryant, Ex parte Gordon; Re Dusseck, Ex parte The Trustee v Australian Mosaic Flooring Ltd). In Bryant, Cave J expressed himself at 266 as follows:

"Trustees must understand that it is not because they are trustees and have a right to bring motions and initiate proceedings which, if

properly brought, will be paid for out of the assets of the estate, that they are recklessly to institute litigation either by bringing

motions or by leading other persons to bring motions. Where the trustee has shown such carelessness and want of sense in a case in

which, if he had exercised common sense, it would probably have saved litigation, I shall certainly make him pay the costs out of his own pocket."

The critical question, in our view, is whether or not the conduct which gave rise to the burden of costs - whether costs ordered to be paid or costs incurred by the trustee in prosecution of the litigation - was proper in the sense explained in Beddoe; that is, whether the expenditure was reasonably, as well as honestly, incurred. Where, for example, the litigation was obviously misconceived or, even if it was otherwise reasonable to be undertaken, extravagant in the resources applied to it, we would not regard the expense incurred as proper; notwithstanding that the trustee may have acted honestly throughout. It is neither possible nor desirable to attempt to identify all of the situations in which costs expenditure would not be regarded as proper. Nor is it profitable to attempt a detailed rule covering all circumstances. But we issue the caution that the language in some authorities, many of which relate to gratuitous trustees, may mislead. Sometimes that language appears to require a degree of personal misconduct or wilful recklessness, as opposed to mere negligence, mistake or breach of the trustee's duty as set out above. We do not think that such a limitation can stand with cases such as Re Beddoe, which in our opinion correctly express the law. 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". The position is no different with a trustee in bankruptcy. Where the line is drawn, between an expense properly incurred and one not properly incurred, is to be determined on the facts of the particular case and in the exercise of judgment.

In principle, there is no difference in the approach to be taken when the questions of the trustee's right to indemnity and right to remuneration fall for consideration. That is, the trustee's right to remuneration is limited to work properly undertaken. In this context, "properly" means work reasonably and bona fide undertaken for the purpose of administering the estate or performing any public duty imposed by the Act, conformably with the trustee's duty to perform the work with reasonable care and skill and in an efficient and economical way. (citations omitted)

214 In Re Suco Gold Pty Ltd (in liquidation)[98] the Full Court of the Supreme Court of South Australia (King CJ, Jacobs and Matheson JJ) dealt with an application by a liquidator for directions that he could apply moneys from the sale by him of assets held by the company as trustee of two unit trusts in paying and discharging, inter alia, the liquidator's cost, expenses and remuneration incurred by him in the course of or for the purpose of winding up the company. I will address this case later when considering the liquidator's claim for a "salvage" lien. In addressing that issue the Full Court dealt with a trustee's right to indemnity out of the trust assets.

215 They held that s 252 of the Companies Act 1962 (SA) (a forerunner to s 556 of the Act) implies that the costs and expenses of a winding up, including the liquidator's remuneration, are debts of the company. They held that those expenses incurred in discharging the duties imposed by the trust on the company in liquidation were covered by the trustee's right of indemnity out of the trust assets.

216 In reaching that conclusion the court referred to the fact that equity implied into every trust deed a right in the trustee to be indemnified out of the trust property in respect of liabilities incurred in the performance of the duties of his office, citing as authority Worrall v Harford.[99] The court confirmed that there is now a statutory right of indemnity, which in Victoria's case is s 36(2) of the Trustee Act 1958 that provides:

A trustee may reimburse himself or pay or discharge out of the trust premises all expenses incurred in or about the execution of the trusts of powers.

217 King CJ said after considering the nature of the indemnity that: [100]

The right of indemnity which a trustee possesses is therefore in essence a right to resort to the trust property for the protection and preservation of his personal estate against liabilities which he has incurred in the proper performance of the trust. It has a twofold aspect as appears from the passage cited above from Re Blundell. If the trustee has discharged the liability, he is entitled to recoup himself out of the trust property. If he has not discharged the liability, he is entitled to resort to the trust property for the purpose of discharging the liability thereby freeing his personal estate from the burden of the liability. I refer generally to the valuable article by Professor H A J Ford "Trading Trusts and Creditors' Right.[101] (citation omitted)

218 It is also relevant to note that rule 63.26 of the Supreme Court (General Civil Procedure) Rules 2005 provides as follows:

Unless the Court otherwise orders, a party who sues or is sued as trustee or mortgagee shall be entitled to the costs of the proceeding out of the fund held by the trustee or out of the mortgaged property in so far as the costs are not paid by any other person.

219 I shall now apply these principles to the facts of this case. S&D holds the properties and their traceable proceeds as trustee. Further the action that S&D took against Mr Velos and Mr Malhotra were for the benefit of the trust estate. Also S&D defended the rights of Mr Malhotra as a beneficiary of the trust fund held by S&D.

220 As discussed, S&D opposed Mr Malhotra's claim until 2 June 2009, after which it supported Mr Malhotra's claim. As trustee, it could have merely abided the decision of the court as the respective claimants were present before the court save for Mrs Tiwari.

221 S&D did actively pursue claims against Mr Velos and Mr Tiwari for the benefit of the trust estate.

222 In accordance with Re Suco Gold Pty Ltd (in liquidation)[102] discussed above, the trustee's costs and expenses will include the reasonable remuneration, costs and expenses of the liquidator.

223 Accordingly, consistently with the authorities referred to above, I find that S&D is entitled to a declaration that:

2 The second plaintiff, as trustee of the Footscray Property and the Hillside Property, is entitled to be indemnified out of the fund for its reasonable costs and expenses, including the reasonable remuneration, costs and expenses of the first plaintiff, occasioned by:

(a) the sale of the Hillside property and the payment of the proceeds from that sale into Court;

(b) the plaintiffs' prosecution of claims against, and defence of claims by, the first and second defendants in this proceeding with respect to the fund (as defined by the plaintiffs);

(c) the plaintiffs' prosecution of claims against, and defence of claims by, the fourth and fifth defendants in this proceeding with respect to the fund;

(d) the plaintiffs' defence of the first defendant's appeal in Court of Appeal proceeding no. 3800 of 2009; and

(e) the plaintiffs' recovery of any moneys from the first defendant pursuant to the orders of the Court made on 5 October 2009.

THE LIQUIDATOR'S CLAIM TO A CHARGE OVER THE FUND

224 The plaintiffs seek a declaration that the fund is charged, by way of an equitable lien, with payment of the liquidator's remuneration, costs and expenses associated with the litigation. This relief is sought in addition to the respective declarations concerning S&D's costs as trustee dealt with above.

(a) the funds paid in Court representing surplus proceeds of sale of the Footscray Property (including moneys recovered by the plaintiffs from the second defendant) and the Hillside Property, together with the interest accrued thereon;

(b) any funds recovered by the plaintiffs from the first defendant pursuant to the orders of the Court made on 5 October 2009;

Henceforth when I refer to "the fund" I should be taken to referring to the fund as defined by the plaintiffs.

226 This relief is sought in paragraph 1D of the plaintiffs' Further Amended Originating Process. The plaintiffs contend that the claim is based on the salvage principles and authorities set out in the 9 June 2009 judgment[103] and arises as a matter of law.[104]

227 It is useful to state in general terms the rights of the plaintiffs to a charge over the trust assets. As discussed above, a trustee has a right of indemnity out of trust assets for expenses and liabilities incurred on behalf of the trust. That right of indemnity is supported by an equitable lien over the trust assets whether or not the trustee is in possession of the trust assets.

228 In this proceeding the plaintiffs are the liquidator of S&D and S&D in liquidation. The liquidator is authorised to seek directions and commence certain proceedings in his name as part of the liquidation. On liquidation, the property of S&D does not pass to the liquidator although he has extensive powers to deal with the property. A claim to recover property of S&D in liquidation is usually brought in the name of the company by the liquidator.

229 The unpaid costs, expenses and remuneration of the liquidator are debts owed by the company in liquidation to the liquidator. Where the trustee is a company in liquidation the costs, expenses and remuneration of the liquidator may be liabilities of the trustee incurred on behalf of the trust. In that case, the company in liquidation would have a right of indemnity over the trust assets for the liabilities incurred on behalf of the trust, supported by a lien over the trust assets. The liquidator would be able to apply the trust assets in meeting the right of indemnity and satisfying the lien and apply the moneys in meeting his costs, expenses and remuneration.

230 In addition to the right of trustees to indemnify themselves out of trust assets for liabilities incurred on behalf of the trust, a liquidator who realises a company's assets may also have a charge over a fund, that may or may not be a trust fund, for costs, expenses and remuneration incurred in the care, preservation and realisation of the fund that has priority over other claimants on the fund such as a first mortgagee. This is generally known as the principle enunciated in Re Universal Distributing Company Ltd (in liquidation).[105] This charge may be of a narrower compass than the trustee's general right of indemnity with supporting lien. On the other hand, this charge has priority over other securities over the trust assets.

231 The trustee's lien arising through its right to indemnity is an equitable interest in the trust assets: Octavo Investments Pty Ltd v Knight.[106] In Kemtron Industries Pty Ltd v Commissioner of Stamp Duties[107] McPherson J of the Full Court of the Supreme Court of Queensland (with whom Andrews SPJ agreed) said that in any case in which the trustee is entitled in respect of liabilities properly incurred to his indemnity and lien over assets vested in him as trustee, the trust property (which means the property to which the beneficiaries are entitled in equity) is confined to so much of those assets as is available after the liabilities have been discharged or at least provided for.[108] The trustee's charge will compete with and be subject to earlier mortgages and charges created in favour of secured creditors.[109] In Collie v Merlaw Nominees Pty Ltd[110] Warren J of the Supreme Court of Victoria said that the right of reimbursement and indemnity is a first charge or lien on the trust property.[111] Her Honour referred to Octavo Investments Pty Ltd v Knight;[112] Custom Credit Corp Limited v Ravi Nominees;[113] Re Pumfrey;[114] Rothmore Farms Pty Ltd v Belgravia Pty Ltd;[115] and Jennings v Mather.[116] The reference to these cases confirm that her Honour was referring to a first charge as against the estate and thus the rights of the beneficiaries. Her Honour was not suggesting there was any priority over a prior secured creditor over the assets of the estate.

232 On the other hand, the liquidator's lien under the Universal principles over the proceeds of realisation will have priority over mortgages and charges over the assets that are realised to generate the proceeds of realisation.

233 The plaintiffs support the liquidator's claim to an equitable lien on the principle enunciated in the Universal case[117] which, if available, will give the liquidator priority over the interest of Mr Malhotra and the secured creditors. I now turn to the claim of the liquidator under the principle in the Universal case. [118]

234 In the Universal case[119] the company was wound up under upon a creditor's petition. The court order appointed an official liquidator and required him to give security and to leave an account of his receipts and payments and to file a report of the progress of the winding up at the office of the District Registrar every three months. The Company had given a debenture purporting to create a floating charge over the assets of the Company, including the uncalled capital, and the winding-up order was expressed to be made without prejudice to the rights of the debenture-holder against the assets except that the petitioning creditor's costs should be paid in priority to the debenture.

235 The official liquidator left at the office of the District Registrar accounts of receipts and payments up to the end of 1932. He sought to pass these accounts and also to have his remuneration fixed. The debenture-holder attended these appointments and objected that the liquidator's remuneration and certain disbursements contained in the accounts ought not to be allowed out of the assets in priority to his security. Thereupon the District Registrar referred both matters to the Court.

236 The assets were insufficient to satisfy the liabilities secured by the debenture and Dixon J found that it was unlikely that any sum would be available for claims ranking after the debenture.

237 Dixon J explained the relevant legal principle applicable to the liquidator's claim as follows:[120]

The Court cannot overreach or postpone a security in exercising its statutory power "in the event of the assets being insufficient to satisfy the liabilities" to "make an order as to the payment out of the estate of the company being wound up of the costs, charges, and expenses incurred in winding up in such order or priority as the Court thinks just" (sec. 118).

A security even over uncalled capital has prevailed over the claim of a petitioning creditor under an order for his costs (In re Anglo-Austrian Printing and Publishing Union; Brabourne v. Same). If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets (In re Marine Mansions Co).

The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it (In re Oriental Hotels Co.; Perry v. Oriental Hotels Co.) The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun a suit for its realization or had themselves realized it without suit (cf. In re Regent's Canal Ironworks Co.; Ex parte Grissell and see Batten v. Wedgwood Coal and Iron Co.)

In applying this principle, only those expenses appear to have been thrown against the fund belonging to the debenture-holders which have been reasonably incurred in the care, preservation and realization of the property. In the present case the liquidator has employed a material part of his time and energies in recovering moneys, both uncalled capital and debts, which enure for the debenture-holder, and in so far as these services increase the remuneration which he receives, I see no reason why the burden should not be thrown upon the proceeds.

The question is not whether moneys available for unsecured creditors should be relieved at the expense of the security. In such a case it may be said that the service of collecting enough to discharge the debenture must in any event be performed in order that a surplus may then arise in which the unsecured creditors may participate. The question in the present case is whether the liquidator can charge against the fund passing through his hands as between himself and the person to whom it is payable, so much of the remuneration fixed for work done in the winding up as is referable to the calling in and conversion of the assets producing the fund. I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it. (citations omitted)

238 Dixon J thereupon fixed the remuneration of the liquidator. He said that he would make no order as to the costs of the proceeding, but this did not mean that the liquidator may not charge his costs in his accounts, if and when there are assets available to answer them.[121]

....that this order and the passing of such accounts shall be without prejudice to any claim of the official liquidator or his solicitor to rank otherwise in respect of remuneration, costs, charges, or expenses before the claim of the debenture-holder and, except as hereinbefore declared, to the claim of the debenture-holder upon or in reference to such assets. Remit the matter to the District Registrar to proceed with the passing of the accounts consistently with this order.[122]

240 This decision makes clear that the salvage principle applied in favour of the liquidator in a liquidation of an insolvent company alongside the statutory provisions. Dixon J limited his order concerning the liquidator's remuneration to his remuneration "referable to the calling in and conversion of the assets producing the fund."[123]

241 It is now convenient to consider those authorities where a salvage claim is made in respect of costs and expenses incurred in legal proceedings.

242 In Moodemere Pty Ltd v Waters[124] the Full Court of the Supreme Court of Victoria (Murphy J, with whom Kaye J and Tadgell J agreed) held that the lien on the relevant fund "is limited by reference to the interest in the fund that is enjoyed by the beneficiary or beneficiaries for whom the realisation is made or attempted."[125] Murphy J said:

So, where a receiver is appointed by the Court and is working for the benefit of all who have a legitimate interest in the fund, his lien may be correspondingly more extensive than it is in the case where the receiver is appointed out of Court by an individual creditor whose interest in the fund is limited. It must be appreciated, however, that the limitation is expressed not in terms of the quantum of the individual's debt but in terms of his interest in the fund that affords the security for the debt.[126]

243 In Commonwealth Bank of Australia v Butterell[127] Young J of the Supreme Court of New South Wales considered an application by the former administrator of Aldex Distributors Pty Ltd for judicial advice over a claim for a lien and indemnity relating to the sale of goods by the administrator prior to the appointment of receivers and managers of Aldex by the Commonwealth Bank of Australia. The administrator was appointed on 14 February 1994 and the receivers and managers on 18 February 1994. Prior to the appointment of the receivers and managers, the administrator had sold stock of Aldex. The stock sold included stock that was subsequently claimed by Selleys, a supplier of stock to Aldex, to belong to it under a Romalpa clause.

244 The administrator held some $99,000 in the bank being the proceeds of the sale of stock before the appointment of the receiver and manager. The administrator claimed a lien over those moneys for, inter alia, the amount claimed by Selleys from the administrator for the conversion of their goods. At issue, therefore, was whether or not the administrator was entitled to an equitable lien over the proceeds of the sale of the stock that belonged to the company for the reasonable costs and expenses of the administrator in resisting a claim by Selleys for damages for conversion by innocently selling the stock of Selleys, and settling it or meeting it if need be.

245 Young J said of the claim to a lien: [128]

As to the extent of the lien, the principle is clear. The only difficulty is

whether the potential liability to Selleys and other claimants comes within it.

Cases such as Re Oriental Hotels Co; Perry v Oriental Hotels Co; Batten v Wedgwood Coal & Iron Co; Re Universal Distributing Co Ltd (In Liq) and Moodemere Pty Ltd (In Liq) v Waters, make it clear that in the current situation one has to make a distinction between the costs and expenses of realisation, the general costs of the administration and the costs of preservation of the property. If something falls within the general costs of administration because its sole purpose was not to preserve the property or to realise the property, then the secured creditor takes in priority to the person whose efforts brought about the production of the fund. Thus Dixon J said, in the Universal Distributing case: "I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it."

The question in the instant case is how far the indemnity to the

administrator against claims from Selleys and the like is an expense. As to

this, I think one has to go back to Scott v Nesbitt . That case involved what were the necessary expenses of a person managing an estate in Jamaica. Lord Eldon said:

"... the concerns of the estate could not be carried on without

consignees; and all moral justice requires, that for what in the fair

discharge of their duty they became liable to in respect of the

management of the estate they should be indemnified, with priority to

the claim of those, who have interests in the estate, to be so managed,

before any person can have any benefit from it."

Stuart V-C applied the same principle in Morrison v Morrison in the case of a fund brought about by compensation moneys for freeing slaves. It seems to me in the instant case that where an administrator acts in good faith and sells property producing a fund and he is attacked for an innocent conversion in the course of bringing about the fund, then the reasonable costs and expenses of the administrator in resisting the claim and the cost of settling it or meeting it if need be is a matter in respect of which he is entitled to an equitable lien.

I thus advised the liquidator at the end of the oral argument that he would be justified in retaining $7,651.66 being the amount involved in the dispute between Mr Butterell and Selleys until that dispute is resolved. (citations omitted)

246 Young J then considered the issue of the administrator's remuneration after the receiver was appointed. He held that the remuneration would not fall under the equitable lien unless the administrator's time was "exclusively devoted" to the realization of the fund which was passed over to the receivers. He said that the administrator was not entitled to be remunerated for time spent on statutory duties and time spent on a heterogeneous group of problems, including the transfer of assets.[129] He said in relation to the administrator's lien:

Mr Gleeson then calls in aid again the principle of equitable lien. However in this part of the case I do not consider that the doctrine assists him. The administrator's conduct after the announcement of the appointment of the receivers was doubtless spent on a heterogeneous group of problems including transfer of assets, communication with creditors, as well as on the general statutory duties laid on administrators by the Corporations Law. In so far as it can be said that any part of the time was exclusively devoted to the realisation of the fund which was passed over to the receivers the remuneration would be covered by the first part of the judgment. Any other would not seem to me to be the type of expense which has been covered by the cases on equitable liens to which I have already referred.

Accordingly, in my view the administrator is entitled to be indemnified against the Selleys' claim and any other claim that is made against him by suppliers of goods who may have supplied them under a Romalpa clause and is also entitled to an equitable lien in respect of his proper remuneration for time spent exclusively on the matter of realisation of assets. Otherwise, the administrator has no claim on the fund in dispute in this case.

247 In Lockwood v White[130] the Court of Appeal of the Supreme Court of Victoria considered priority entitlements of administrators and a liquidator appointed to a group of companies. Winneke P (with whom Buchanan JA and Gillard AJA agreed) held that:

It seems to me that the authorities to which I have referred make it tolerably clear that where the liquidator creates a fund by realizing the assets of companies which have formerly been under administration, it is the liquidator who has first claim upon the fund for his fees and expenses, subject to those fees being approved by the creditors or the court.[131]

248 Winneke P referred in support of this statement to Carew Counsel Pty Ltd v French[132] which dealt with a solicitor's lien for costs. Winneke P there said:

As a matter of general principle, a solicitor has an equitable lien over the fruits of litigation, whether obtained by way of judgment or compromise, where those "fruits" have been gained, at least in part by the solicitor's exertions on behalf of the client. As Weinberg, J. noted in Colour Point Pty. Ltd. v. Markby's Communication Group Pty. Ltd:

Though it has been said that the `so-called' lien is really only a right to ask for the intervention of the court to protect the solicitor when he finds that there is a probability of the client depriving him of his costs, and though it is correct to say that the solicitor can enforce the lien only by taking court action to prevent the property recovered from being paid or transferred to the client, the `lien' attaches by the recovery of the property. It is not dependent, for its existence, upon the judgment of the court."

The essence of the solicitor's "particular" or "non-possessory" costs lien is that the solicitor has been instrumental in recovering the judgment sum (whether by way of compromise or otherwise) or, put another way, that the monies have been recovered as a result of his exertions. Thus the fund in respect of which the lien arises is the fund represented by the fruits of the labours exercised by the solicitor in recovering it. The charge on the fund represented by the "particular" lien arises immediately upon the recovery of the monies through the exertions of the solicitor and should be distinguished from rights which might arise through a solicitor's exertions in respect of other matters. However, for the right to arise, it must be shown that there is a sufficient causal link between the solicitor's exertions and the recovery of the fund. In each case, that is a question of fact. The costs which are protected by the lien will not only include the costs incurred in recovering the judgment, but also those "immediately incidental thereto". The solicitor's lien will extend to costs incurred on appeal, either in defending the fund or in promoting it, because such costs arise from exertions in "recovering the fund". As Weinberg, J noted in the Colour Point case (supra, at 18), the equitable non-possessory lien of a solicitor has, in some jurisdictions, been supplemented by a statutory lien by providing that the lien will attach to any property, real or personal, "recovered or preserved" through the instrumentality of the solicitor. His Honour further noted the protection conferred by such statutes is greater than that provided by the equitable lien but, in jurisdictions in which it applies, does not purport to abrogate the equitable lien which arises independently. Such a statutory lien used to exist in this State (by virtue of s.104 of the Legal Profession Practice Act 1958) but has not existed since the passage of the Legal Practice Act 1996. (citations omitted)

249 The important aspect of the solicitor's lien is that it is over a fund that represents the fruits of the labour of the solicitor. In ASIC v GDK Financial Solutions (No 3)[133] Finkelstein J said that the a receiver is entitled to be paid out of the proceeds of sale of mortgage property the costs of any work that directly benefits the mortgagee.[134] He said:

There are, of course, several circumstances in which a receiver's costs will stand ahead of the claims of a secured creditor. First of all, a receiver is entitled to be paid out of the proceeds of sale of mortgaged property the cost of any work that directly benefits the mortgagee. So, for example, if the receiver has rendered services in the care, preservation and sale of the mortgaged property he is entitled to those costs as against the mortgagee. In Re Universal Distributing Co Ltd (in liq) Dixon J explained, in relation to a liquidator recovering the uncalled capital and debts of a company, that the charged property had to bear the costs that were incurred by the liquidator because the chargees would have had to pay them if they had realised the debt on their own behalf.

In Shirlaw v Taylor the Full Court said that "where a party has by his efforts brought into court a fund in the administration of which various parties are interested, his costs and expenses [in establishing the fund] should be a first claim upon the fund."

In Moodemere Tadgell J said:

The expense properly attendant upon the realisation of the fund must be borne by it; that is to say, the portion of the proceeds of the realised fund available to the chargee can never exceed what remains after the proper expenses of its realisation have been provided for. ...

It follows that the chargee ranks for payment of his principal and interest after the person who is entitled to be paid out of the fund the proper expenses of its realisation. Thus, where property providing the security is realised in the winding up with the consent of the chargee, the liquidator's costs, charges and expenses of the realisation are the first charge, the encumbrances rank next and the general costs of the winding up are payable only out of the surplus, if any ... (citations omitted)

250 In Re S&D International Pty Ltd (No 1)[135] I set out five principles relevant to a salvage claim as follows:

(a) At equity, an equitable lien arises in favour of a liquidator over the funds realised from the sale of company property for the costs he incurs for the care, preservation and realisation of the property in priority to those otherwise interested in the fund. In re Regent's Canal Ironworks Co. Ex parte Grissell; Re Universal Distributing Company Ltd (in liq); Commonwealth Bank of Australia v Butterell and Dean-Willcocks v Nothintoohard Pty Ltd (in liq).

(b) The costs include those that the liquidator fairly incurs in the discharge of his duty to care, preserve and realise the property. Commonwealth Bank of Australia v Butterell.

(c) The lien may arise whether or not the ultimate sale is affected by the liquidator and entitles the liquidator to be paid in priority out of the fund whether or not he is in possession of the fund. Commonwealth Bank of Australia v Butterell and Dean-Willcocks v Nothintoohard Pty Ltd (in liq).

(d) The costs and expenses secured by the lien must be incurred exclusively for the care, preservation or realisation of the property and not otherwise expended in the general administration of the mortgagor. Re Universal Distributing Company Ltd (in liq) and Commonwealth Bank of Australia v Butterell

(e) The costs and expenses include the liquidator's reasonable remuneration. Re Universal Distributing Company Ltd (in liq); Moodemere Pty Ltd (in liq) v Water and Commonwealth Bank of Australia v Butterell (citations omitted).

251 In addition to a liquidator's right to a Universal type lien, as discussed above in certain circumstances, there is also a line of authority on a liquidator's right to indemnify himself from the trust assets of a company in liquidation that acts as a trustee which overlaps with a Universal type lien. As indicated above, however, this lien is subject to competing prior securities unlike the Universal lien.

252 As referred to above, in Re Suco Gold Pty Ltd (in liquidation)[136] the Full Court of the Supreme Court of South Australia (King CJ, Jacobs and Matheson JJ) dealt with an application by a liquidator for directions that he could apply moneys from the sale by him of assets held by the company as trustee of two unit trusts in paying and discharging, inter alia, the liquidators costs, expenses and remuneration incurred by him in the course of or for the purpose of winding up the company.

253 They held that s 252 of the Companies Act 1962 (SA) (a forerunner to s 556 of the Act) implies that the costs and expenses of a winding up, including the liquidator's remuneration, are debts of the company. They held that those expenses incurred in discharging the duties imposed by the trust on the company in liquidation were covered by the trustee's right of indemnity out of the trust assets.

254 As discussed above, in reaching that conclusion the court referred to the fact that equity implied into every trust deed a right in the trustee to be indemnified out of the trust property in respect of liabilities incurred in the performance of the duties of his office.

255 The liquidator contended that the right of indemnity of the trustee entitled the trustee to transfer trust property sufficient to meet the unpaid debts encompassed by the right of indemnity. The liquidator then contended that the assets cease to become trust property and that if liquidation intervenes before payment of the debts then the transferred property is divisible amongst the general body of creditors, not merely those whose debts were incurred in the performance of the trust. Further the liquidator argued that if the right of indemnity had not been exercised before liquidation the liquidator was entitled to property of the trust equal in amount to the liabilities incurred in the performance of the trust, notwithstanding those liabilities have not been paid, and that that property is divisible among the general body of creditors. The court rejected this argument. King CJ said:

It was argued, following the reasoning in Re Enhill Pty Ltd, supra, that the proposition affirmed by the High Court in Octavo's case that the trustee's right of indemnity is a beneficial interest in the trust property which passes to the trustee in bankruptcy or liquidator, leads to the conclusion that the trust assets, to the extent of the trust liabilities, pass to the trustee in bankruptcy or liquidator for the benefit of the general body of creditors. I do not think that Octavo's case leads to that conclusion. The right of indemnity, it is true, exists for the trustee's own benefit and it passes to the trustee in bankruptcy or the liquidator. The proceeds of that right of indemnity are therefore part of the estate divisible among the creditors.

It seems to me, however, that the right of indemnity can only produce proceeds for division among the creditors generally if the trustee has discharged the liabilities incurred in the performance of the trust and is therefore entitled to recoup himself out of the trust property. If he has not discharged the liabilities, the right of indemnity entitles him to resort to the trust property only for the purpose of discharging those liabilities. He may apply the trust moneys directly to the payment of the trust creditors or he may take it into his own possession for that purpose. If he takes trust property into his possession to satisfy his right to be indemnified in respect of unpaid trust liabilities, it seems to me that that property retains its character as trust property and may be used only for the purpose of discharging the liabilities incurred in the performance of the trust. The exercise of the right of indemnity is for the benefit of the trustee in that it relieves him of liability for the trust debts. If the trustee is bankrupt, or being a company is in liquidation, the trustee in bankruptcy or liquidator can exercise the right of indemnity which vests in him as part of the property of the bankrupt or insolvent company. If the trust liabilities have been discharged, the trustee in bankruptcy or liquidator is entitled to recoup the bankrupt estate out of the trust property and the proceeds of the right of indemnity become part of the property divisible among the creditors. If the liabilities have not been discharged, the trustee in bankruptcy or liquidator may, by reason of the right of indemnity which vests in him, apply the trust property to the payment of the trust liabilities, thereby exonerating the bankrupt estate to the extent of the value of the available trust assets. In the latter circumstances there cannot be proceeds of the right of indemnity which are available for distribution among the general body of creditors.[137]

256 King CJ also referred to the trustee company's lien on the property in support of the right of indemnity, which passes to the liquidator in the winding up. He said:

The trustee's lien is an equitable lien which confers on him a charge over the trust property, whether in his possession or not, for the purpose of protecting and enforcing the right of indemnity. It also confers on the trustee a right to possession of the trust property for the purpose of protecting and enforcing the right of indemnity, Jennings v Mather [1902] 1 KB 2. The right of possession of the trustee, until his right of indemnity is exercised, is superior to those of a new trustee or the cestuis que trust. The rights conferred by the lien passed to the liquidator. They would enable him to obtain and retain possession of the trust property until the right of indemnity has been exercised, and to realize the trust property in the course of exercising it. The lien is ancillary to the right of indemnity. When the right of indemnity has been exercised by recoupment of any amounts which the trustee has paid in connection with the trust and by payment out of the trust fund of any outstanding liabilities, the lien ceases and the balance of the trust property becomes available to a new trustee or the cestuis que trust as the case may be.[138]

257 King CJ then turned to consider how these principles applied to the matters before him. He said:

How then are these principles to be applied in the present case? The company traded as trustee of two distinct trusts. All its liabilities were incurred in the course of performing those trusts. Its only assets are the rights of indemnity against the property of each trust. They are, of course, distinct rights of indemnity and therefore distinct assets. One such asset is the right of the company to be indemnified out of the assets of Daisy-Milano Goldfields Unit Trust in respect of liabilities incurred in the performance of that trust. The other is the right of the company to be indemnified out of the assets of Santa Claus Goldfields Unit Trust in respect of liabilities incurred in the performance of that trust.

The liquidator is bound by the provisions of s 292 with respect to the payment of the company's debts. He must therefore endeavour to pay the debts in accordance with the order of priority set out in that section. To the extent that each priority debt has been incurred in the performance of a particular trust he should have recourse to the property of that trust for the purpose of paying it. If there is a residue of assets of a particular trust after payment of the priority debts incurred in the performance of that trust, that residue should be applied to the payment of the other debts applicable to that trust. If there is a deficiency in the assets of a particular trust, the non-priority debts applicable to that trust would have to rank pari passu. The unpaid balance would, of course, rank for dividend out of the general assets of the company, but as there are no such assets that is an academic consideration.[139]

258 King CJ then continued to address the directions sought by the liquidator as to his cost expenses as remuneration. He said:

It is now necessary to consider the position of the liquidator's costs, expenses and remuneration in the light of the above principles. Although I have not found myself able to agree with certain of the reasoning in Re Enhill Pty Ltd, it is, as a decision of the Full Supreme Court of Victoria, a highly persuasive authority for the proposition that the liquidator's costs, expenses and remuneration may be paid out of the trust property. There are clearly strong practical considerations in favour of such a course. Unless that course can be followed, the liquidation of a trustee company without assets of its own cannot proceed. It seems to me that that course can be justified by reference to the obligations of the trustee company arising out of the carrying on of the business authorized by the trusts. It is part of the duty of the trustee company to incur debts for the purposes of the trust businesses and, of course, to pay those debts. Upon winding up, those debts can only be paid in accordance with the provisions of the Companies Act. This requires necessarily that there be a liquidator and that he incur costs and expenses and be paid remuneration. Section 292 provides that there be paid the costs and expenses of winding up, the taxed costs of the petitioner and the remuneration of the Liquidator "in priority to other unsecured debts" (emphasis mine). The expression "other unsecured debts" appears to imply that the costs and expenses of winding up, the petitioner's costs and the liquidator's remuneration are regarded by the statute as debts of the company. As the company's obligation as trustee to pay the debts incurred in carrying out the trust cannot be performed unless the liquidation proceeds, it seems to me to be reasonable to regard the expenses mentioned above as debts of the company incurred in discharging the duties imposed by the trust and as covered by the trustee's right of indemnity. If that reasoning is wrong, I would, like Lush J in Re Enhill Pty Ltd, be prepared to rely on the principle enunciated by Dixon J in Re Universal Distributing Co Ltd [1933] HCA 2; (1933) 48 CLR 171 at 174-5.

On these principles which I have discussed, the liquidator is entitled to have recourse to the property of each trust for the purpose of meeting the costs and expenses of winding up, the petitioner's costs and the liquidator's remuneration, so far as they are incurred in relation to each trust. As there are no non-trust assets or liabilities, all the expenses are attributable to one or other of the trusts and must be appointed between them. The liquidator will be able to make an estimate of the work and expense involved in the liquidation so far as it relates to each trust. Where no apportionment is possible, the maxim that equality is equity should provide the solution to the problem of apportionment.

(a) The trustee company had a right of indemnity over the trust assets for debts incurred on behalf of the trust. That right of indemnity arose whether the liability had been paid or merely incurred by the trustee.

(b) The trustee had an equitable lien over the trust property in support of the right of indemnity whether in his possession or not, for the purpose of protecting and enforcing the right of indemnity.

(c) The cost, expenses and remuneration of the liquidator of the trustee company (where there were only trust assets) are debts of the company in liquidation and are incurred in carrying on the trust as the trust cannot can not be performed unless the liquidation proceeds.

(d) The liquidator was entitled to have recourse to the property of the trust for the purpose of meeting the costs, expenses and remuneration of the liquidator.

(e) The liquidator's entitlement to have recourse to the property of the trust for the purpose of meeting the costs, expenses and remuneration of the liquidator is also supported by the principle enunciated in the Universal case.

260 In Re Enhill Pty Ltd,[140] the Full Court of the Supreme Court of Victoria held that that the proceeds of a trustee's lien were available for division amongst the creditors of a trustee in liquidation generally and were not limited to being available for distribution to the creditors of the trustee incurred in carrying on the trust business. The court held that accordingly the moneys realised under the lien could be used to pay the liquidator's costs, expenses and remuneration in accordance with the then Companies Act in priority to other unsecured creditors.[141] Lush J also supported his decision on the principle in Re Universal Distributing Co Ltd[142] and said:[143]

Lastly, if the views which I have expressed are wrong, by analogy to the treatment in Re Universal Distributing Co. Ltd. [1933] HCA 2; (1933) 48 CLR 171, at 174-5, by Dixon, J., of the right of a liquidator to deduct, before transmitting to debenture holders the proceeds of realization of assets covered by a debenture, the costs of calling in and converting the assets, I would consider the liquidator here to be entitled to the costs of identifying and realizing the trust assets.

261 In order to determine whether the fund is charged, by way of an equitable lien, with payment of the liquidator's remuneration, costs and expenses associated with the litigation it is necessary to examine what the liquidator did to care for, preserve, or realise the fund. To distinguish the lien against the lien in support of the trustee's right of indemnity, I will call it a Universal lien.

The plaintiffs proceedings against MIG and Mr Vartelas

262 I found on a preliminary basis that the costs and expenses of the liquidator directed exclusively towards recovering the funds out of the hands of MIG and Mr Vartelas and delivering them into the safety of the Court did constitute a lien over the fund, in priority to all other claimants to the fund (save for MIG and Mr Vartelas).

263 I also found those costs would be limited to the costs of and incidental to the application taken in this Court up until the Court order made in September 2008 was complied with, including the liquidator's reasonable remuneration incurred exclusively for that purpose.

264 My preliminary view was that I did not consider that the prior actions of the liquidator in investigating and making inquiries into the quantum of the fund and general correspondence with MIG, Mr Vartelas and their solicitors, should be included within the lien.

265 Originally I heard submissions from MIG and Mr Vartelas on these issues. I have since received submissions from Mr Malhotra, Mr Velos and Mr Tiwari. The sixth and seventh defendants have had notice of this claim and not sought to make any submissions.

266 The declaration sought by the liquidator will encompass the costs, expenses and remuneration the subject of my preliminary determination.

267 By their Further Amended Originating Process of 2 February 2009,[144] the plaintiffs sought to recover from MIG and Mr Vartelas possession of the Hillside property and also sought to recover the residue of the proceeds of sale of the Footscray property from MIG and Mr Vartelas. The plaintiffs also sought to recover costs and expenses that MIG had sought to bring under the mortgage. In particular, the plaintiffs successfully challenged MIG charging the costs of litigation with Colonel Naresh Malhotra against the mortgage debt. The plaintiffs also successfully challenged Mr David Mond charging his own personal remuneration against the mortgage debt. I found that MIG's arrangements with Mr Mond was merely a device to seek to throw onto the mortgage compensation that would not otherwise have been reasonably and properly incurred.[145]

268 For their part, MIG and Vartelas sought a wide range of relief.[146] They sought a declaration that MIG may proceed to exercise its rights as mortgagee under the Footscray Mortgage, the Hillside Mortgage and Equitable Mortgage to satisfy the liability of S&D to the extent necessary. They also sought the payment out to them of the moneys in court. They also sought an order that they may proceed to pay Mr Tiwari moneys due under the ANZ mortgage in priority to the claims of the plaintiffs and Mr Malhotra and the seventh defendants.

269 In my opinion, in undertaking the proceedings against the MIG and Mr Vartelas and resisting the cross claim of MIG and Mr Vartelas, the liquidator was acting for the exclusive purpose of preserving and protecting the fund.

270 In Universal Distributors Dixon J refers to expenses incurred in caring for preserving and realising the trust property. I see no material distinction in preserving and caring for property before it is realised and expenditure incurred in preserving and caring for the property after it has been realised. The expenditure is still being incurred for the benefit of the fund. As Finkelstein said in ASIC v GDK Financial Solutions (No 3)[147] the expenditure directly benefits the security holders over that fund.

271 Accordingly, in my view the costs expenses and reasonable remuneration of liquidator in pursuing the proceedings against MIG and Mr Vartelas and in defending the claims of MIG and Mr Vartelas constitute an equitable Universal lien over the fund in court and the funds recovered by the proceedings. This lien will have priority over the lien of the trustee and the equitable proprietary interests of Mr Malhotra, Mr Velos and Mr Tiwari.

272 As indicated above, eventually the only claim made against Mr Velos was to establish Mr Malhotra's equitable interest in half of the fund and that it had priority over the interest claimed by Mr Velos over the whole of the fund. The plaintiffs did not seek to realise or recover any property from Mr Velos.

273 On the other hand, Mr Velos claimed that Mr Malhotra and by analogy Mrs Tiwari did not have a proprietary equitable interest in the trust properties. Initially, the plaintiffs sought directions as to the priorities of the respective claimants to the funds in court. In the proceedings as between the plaintiffs and Mr Velos that were heard and determined the plaintiffs upheld the proprietary interest of Mr Malhotra, and resisted Mr Velos claim that Mr Malhotra (and by inference Mrs Tiwari) had no interest in the trust properties.

274 In my opinion, the proceedings brought by the plaintiffs against Mr Velos did not preserve and protect the fund as such. Rather, the proceedings determined priorities to the fund. Accordingly, the liquidator does not have a Universal lien in relation to expense incurred in the claim against Mr Velos.

275 Mr Tiwari contends that in the second trial, the plaintiffs sought orders that Mr Velos charge took priority after Mr Malhotra and sought damages and compensation from Mr Tiwari for the benefit of S&D as trustee.

276 Mr Tiwari contends that none of these matters were relevant to preservation of the fund in Court, being the property over which the liquidator now claims his lien. Legal action claiming declaratory relief and orders for the payment of further money after preservation of the money comprising the fund in Court is not legal action for the preservation of that fund. Mr Tiwari says that the prosecution of claims by the liquidator seeking declarations as to the validity of securities and orders for the payment of money was not legal action for the care, realisation or preservation of the fund in Court. I accept that submission.

277 Mr Tiwari asserts that the claims against MIG, Vartelis and Tiwari stood independently of the existence of the fund in Court and would have been made regardless of whether the fund in Court existed. For example, the statutory and general law claim against Mr Tiwari for compensation/damages for breach of his duties as a director would have been made regardless of whether Tiwari made a claim on the fund in exercise of his rights as assignee of the ANZ mortgages.

278 Mr Tiwari contends that it follows that the proceeding was not commenced and conducted by the liquidator for the sole purpose of getting the fund into Court or preserving that fund. Mr Tiwari submits that nor was it conducted for the sole purpose of protecting Mr Malhotra's interest in the fund against the claims of MIG, Vartelis, Tiwari and Velos.

279 Mr Tiwari says that at best Mr Malhotra was entitled to half the proceeds of the fund in Court. He asks, for whose benefit was the case prosecuted in respect of the other half? He asks, whose interest in the fund in Court was being protected by the legal action of the liquidator? He says Not MIG, Vartelis, Tiwari or Velos as security holders. The liquidator did his best to attack and defeat their claims.

280 Mr Tiwari contends that, for the reasons set out above, the sole purpose of the proceeding was not to enable the liquidator to defend the fund in Court from attacks by the security holders.

281 Mr Tiwari says that in any event, the validity and enforceability of the MIG mortgage was not in issue, money having been deducted from the MIG mortgage before payment into Court. The money claims by the liquidator against Mond and Vartelis were for costs, expenses and the like as a form of misappropriation based on their unlawful conduct.

282 He says that the securities held by Mr Tiwari and Mr Velos were held to be valid and enforceable. Mr Tiwari contends that this case was brought by the liquidator not only as a shield but also as a sword and a major purpose was to seek orders for the payment of money by MIG, Mr Vartelis, and Mr Tiwari to be received in addition to the fund in Court.

283 He argues that for these reasons, the "salvage costs" ought to be limited to the costs of "preserving" the fund in Court. The Court ought not order that the liquidator (or S&D) have a lien over that fund in respect of any further or other costs, expenses, remuneration or the like.

284 In this instance, the plaintiffs were seeking to resist Mr Tiwari's claims to defeat the interest of the beneficiaries and to advance Mr Tiwari's interest as a subsequent equitable interest holder. The plaintiffs were also seeking to recover damages or property akin to a chose in action for the beneficial owners of those damages to compensate the trust for the diminution in the value of the trust properties.

285 In my opinion the applicable costs, expenses and remuneration of the liquidator were not incurred exclusively for the purpose of caring for, preserving or realising the funds in court. The costs in part were incurred in seeking to recover damages. The liquidator may have a lien over those funds if recovered. That is not a matter in issue before me in this matter. The trustee may have a trustee's lien as well over these moneys if recovered. That also is not a matter in issue before me. The costs in part were also incurred in determining the priority of Mr Malhotra and Mr Tiwari to the moneys in court. Those costs were not incurred in caring for, preserving or realising the fund.

286 Accordingly, in my opinion, the liquidator is not entitled to an equitable Universal lien in relation to the costs, expenses and remuneration incurred in relation to the proceedings between the plaintiffs and the fifth defendant.

287 As indicated above, the plaintiffs initially denied and opposed Mr Malhotra's claim. The plaintiffs did not support his claim until 3 June 2009. On and after 3 June 2009, the plaintiffs supported Mr Malhotra's claim to priority to the moneys in court save as to the question of the plaintiffs' claim to be indemnified for its costs of the proceedings out of the moneys in court.

288 The plaintiffs did not support Mr Malhotra's contentions that he held an equal joint beneficial interest in the moneys in court flowing from his equal joint beneficial interest in the properties. Rather, the plaintiffs argued that Mr Malhotra's equal joint beneficial interest in the units in the unit trust gave him a proprietary interest in the moneys in court.

289 As discussed above, on and after 2 June 2009, S&D as trustee sought to make claims for the benefit of Mr Malhotra as a beneficiary of the trust estate held by S&D and on his right to the moneys in court.

290 The plaintiffs' proceedings whereby they sought directions as to the priority of the respective claimants to the fund were not exclusively undertaken to preserve, protect or realise the fund. Rather the proceedings were taken to determine the priority of various claimants to the fund.

291 As to the amended proceedings, where the plaintiffs supported Mr Malhotra's claims as against Mr Velos and Mr Tiwari, those costs, expenses and remuneration related to the claims against Mr Velos and Mr Tiwari which I have dealt with above. These costs were not incurred exclusively to preserve, protect or realise the fund in court.

Conclusion on liquidator's claim to an equitable lien

292 Accordingly, I propose to declare that the fund is charged first, by way of equitable lien in favour of the first plaintiff, with payment of the first plaintiff's reasonable remuneration, costs and expenses occasioned by the litigation involving the first and second defendants.

293 I have already dealt with the issues of costs and liens. I deal with priorities below. As to the declarations concerning the conduct of Mr Tiwari, I will make the orders sought by the plaintiffs in paragraphs 11-15 of their suggested orders as they give effect to my findings in paragraphs 60-69 of my judgment of 2 September 2011.

294 What moneys is Mr Malhotra entitled to? There is no issue that he is entitled to half the proceeds from the sale of the Footscray and Hillside properties (after expenses of sale).

295 He is also entitled to half of the balance to be paid by MIG.

296 Mr Tiwari has been ordered to compensate S&D for amounts paid to Velos & Davis and the amount S&D is liable to pay Velos & Davis in relation to the litigation between Mr Malhotra and Sheela Tiwari. The orders of Balmford J provide that Mr Malhotra is the joint beneficial owner of the business conducted by S&D. Mr Malhotra had a half interest in the moneys paid to Velos & Davis by S&D in relation to the litigation.

297 The plaintiffs have not included these moneys in what they define as the fund. It may be appropriate that the compensation relating to the litigation should be added to the fund to which Mr Malhotra is entitled to a half share (subject to any liquidator's or trustee's lien as referred to above in paragraph 285). As to the moneys which are to be paid to Mr Velos for outstanding fees, the effect of the orders is that these payments will not come out of Mr Malhotra's share of the fund and accordingly any compensation therefore should not form part of the fund to which he is entitled to a half share.

298 Mr Velos seeks a declaration that the amount secured by the Velos & Davis charge is $225,645.29 as at 12 November 2010 plus interest continuing to accrue at a rate of $27.17 per day thereafter.

299 I am prepared to make this order. In his initial points of claim, Mr Velos sought an order that the amount then owing ($210,596.09) be paid to Mr Velos out of the monies held in Court.[148]

300 I have already dealt with the cost applications sought by Mr Velos.

301 Mr Tiwari seeks an order that the amount secured by the ANZ mortgages is $398,609.12 as at 12 November 2010.

302 Mr Tiwari's points of claim of 19 December 2008, sought an order that the moneys in court be paid out in payment of moneys owing or payable under the ANZ mortgage. No sum was pleaded as being owed.[149] The outline of argument of Mr Tiwari dated 7 February 2009 did not refer to any amount as being secured.[150]

303 In his affidavit of 11 February 2009 Mr Tiwari deposes to paying the ANZ $353,402.73 together with legal costs of $2,677.83 making a total of $356,080.56 and that upon payment obtaining an assignment of the ANZ mortgage. He calculates the interest since 10 July 2008 to 11 February 2009 as $20,286.28.[151] His closing submissions concludes by submitting the claims by the plaintiffs and Mr Malhotra ought to be dismissed and Mr Tiwari's equity ought to have priority over the Velos equity.

304 There was no challenge to the evidence of Mr Tiwari as to the amount he paid to the ANZ for the assignment of the ANZ mortgage.

305 I therefore propose to make the order sought by Mr Tiwari on quantum.

306 As discussed above, the liquidator's lien under the Universal Distributor's principle gives right to a lien that has priority over prior securities. The trustee's lien in support of the trustee's right of indemnity does not have priority over prior securities. On the other hand the lien constitutes a first charge as against the beneficiaries. Accordingly, the liquidator's lien will have priority against the prior securities of Mr Velos and Mr Tiwari. The liquidator's lien will also in effect constitute a first charge as against the trust fund before the beneficiaries interests are met. In this case, therefore, the liquidator's lien will have priority over the interest of the beneficiaries and the secured claims of Mr Velos and Mr Tiwari.

307 The trustee's lien in support of its right of indemnity is subject to the prior securities of Mr Velos and Mr Tiwari. Mr Malhotra's half should bear its proportionate share of the trustee's lien. The trustee's right of indemnity is therefore to be met from the balance of the fund calculated as follows. The fund as a whole should meet the liquidator's lien. The balance of the fund should be divided into two. The securities of Mr Velos and Mr Tiwari should be deducted from the half not going to Mr Malhotra. The trustee's indemnity (that has not otherwise been recovered under the liquidator's lien or orders for costs) should be then thrown equally against Mr Malhotra's portion and the portion outstanding after payment of the securities of Mr Velos and Mr Tiwari.

308 If the trustee's indemnity is not fully satisfied by the application of this method, then I propose to order that the trustee may seek further directions if it is so minded.

310 The application of the sixth and seventh defendants is still to be heard. Also orders for the disposition of the moneys in court have yet to be made. These may have to wait until the position of Mrs Tiwari is known, any appeals are resolved and the application of the sixth and seventh defendants is resolved. Accordingly, I propose to adjourn the further hearing of the proceedings to a date to be fixed.

1 (a) The funds paid in Court representing surplus proceeds of sale of the Footscray Property (including moneys recovered by the plaintiffs from Mr Vartelas) and the Hillside Property, together with the interest accrued thereon;

(b) any funds recovered by the plaintiffs from MIG pursuant to the orders of the Court made on 5 October 2009;

(collectively, "the fund"), is charged by way of equitable lien with payment of the first plaintiff's reasonable remuneration, costs and expenses occasioned by the first plaintiff in the litigation against the first and second defendants including the first plaintiff's defence of the first defendant's appeal in Court of Appeal proceeding no. 3800 of 2009.

2 The second plaintiff, as trustee of the Footscray Property and the Hillside Property, is entitled to be indemnified out of the fund for its reasonable costs and expenses, including the reasonable remuneration, costs and expenses of the first plaintiff, occasioned by:

(a) the sale of the Hillside property and the payment of the proceeds from that sale into Court;

(b) the plaintiffs' prosecution of claims against, and defence of claims by, the first and second defendants in this proceeding with respect to the fund;

(c) the plaintiffs' prosecution of claims against, and defence of claims by, the fourth and fifth defendants in this proceeding with respect to the fund;

(d) the plaintiffs' defence of the first defendant's appeal in Court of Appeal proceeding no. 3800 of 2009; and

(e) the plaintiffs' recovery of any moneys from the first defendant pursuant to the orders of the Court made on 5 October 2009;

3 The fund is charged by way of equitable lien with payment of the second plaintiffs' right of indemnity as trustee.

4. Subject to the declarations of priority in paragraph 13 below, the third defendant is beneficially entitled to one half of the fund.

5 The charges granted by the second plaintiff over the Footscray Property and the Hillside Property in favour of Velos & Davis on 8 October 2004 are valid and effective.

6 The fund is charged with payment of the amount or amounts secured to the fourth defendant under the Velos & Davis charges. The amount secured by the Velos & Davis charge is $225,645.29 as at 12 November 2010 plus interest continuing to accrue at a rate of $27.17 per day thereafter.

7 The unregistered real property mortgages granted by the second defendant over the Footscray Property and the Hillside Property in favour of the Australian and New Zealand Banking Group Ltd on 29 July 2002 ("ANZ Mortgages") are valid and effective.

8 The fund is charged with payment of the amount or amounts secured to the fifth defendant under the ANZ Mortgages. The amount secured by the ANZ mortgages is $398,609.12 as at 12 November 2010.

9 The first plaintiff's interest in the fund as declared by paragraph 1 has priority over the interests of the second plaintiff and the third, fourth and fifth defendants.

10 The second plaintiff's interest in the fund as declared by paragraph 2 is subject and subordinated to:

(a) the equitable proprietary interest of the fifth defendant as declared in paragraph 8 above;

(b) the equitable proprietary interest of the fourth defendant as declared in paragraph 6 above.

(c) the equitable proprietary interest of the first plaintiff as declared in paragraph 1 above.

11 The third defendant's equitable proprietary interest in the fund, as declared in paragraph 4 above, is subject and subordinated to the interest of the first plaintiff declared in paragraph 1 above and half the interest of the second plaintiff declared in paragraph 3 above.

12 The fourth defendant's interest in the fund, as declared in paragraph 6 above, is subject and subordinated to:

(a) the equitable proprietary interest of the third defendant as declared in paragraph 4 above; and

(b) the equitable proprietary interest of the first plaintiff as declared in paragraph 1 above.

13 The fifth defendant's interest in the fund, as declared in paragraph 8 above, is subject and subordinated to:

(a) the equitable proprietary interest of the third defendant as declared in paragraph 4 above;

(b) the equitable proprietary interest of the first plaintiff as declared in paragraph 1 above; and

(c) the equitable proprietary interest of the fourth defendant as declared in paragraph 6 above.

Further declarations as against Pradeep Tiwari

14 By giving the Velos & Davis charges and incurring liability for Velos & Davis's fees and expenses in connection with Sheela Tiwari's and the second plaintiff's defence of the action in proceeding no. 6869 of 2002 ("the Malhotra v Tiwari proceeding), the second plaintiff breached its duties as trustee of the Footscray Property and the Hillside Property.

15 The fifth defendant knowingly assisted the second plaintiff's said breach of its duties as trustee of the Footscray Property and the Hillside Property.

16 The fifth defendant is liable as constructive trustee to compensate and indemnify the second plaintiff for any loss and damage suffered by it as a result of the said breaches of its duties as trustee of the Footscray Property and the Hillside Property.

17 By authorising and facilitating the second plaintiff's giving of the Velos & Davis charges and its incurring of liability for Velos & Davis's fees and expenses in connection with the Malhotra v Tiwari proceeding, the fifth defendant contravened his duties as a director of the second plaintiff under sections 180, 181 and 182 of the Act.

18 The fifth defendant is liable, as constructive trustee and pursuant to section 1317H of the Act, to compensate and indemnify the second plaintiff for any loss and damage it has suffered as a result of the said breaches of the fifth defendant's duties as a director of the second plaintiff.

19 In default of agreement, the assessment of each of:

(a) the amount of the first plaintiff's remuneration, costs and expenses of this proceeding;

(b) the amount of the second plaintiff's costs as trustee;

is referred to an Associate Judge for hearing and determination.

20 The assessment of the quantum of the loss and damage suffered by the second plaintiff as a result of the breaches of the fifth defendant's duties as a director of the second plaintiff is referred to an Associate Judge for hearing and determination.

21 The plaintiffs' costs of the proceeding as between the plaintiffs and the first defendant, including any reserved costs, be taxed and paid by the first defendant.

22 The fourth defendant's costs thrown away by reason of the amendment of the plaintiffs' claim ordered on 16 October 2009, including any reserved costs, be taxed and be paid by the plaintiffs. The fourth defendant's costs thrown away by reason of the adjournment on 5 and 16 October 2009, including any reserved costs, be taxed and be paid by the plaintiffs.

23 The plaintiffs' costs of the proceeding on and after 17 October 2009 as between the plaintiffs and the fourth defendant, including any reserved costs, be taxed and paid by the fourth defendant.

24 There be no order as to costs in relation to the proceeding as between the plaintiffs and the fifth defendant.

25 The fourth defendant's costs of the proceeding as between the fourth defendant and the fifth defendant relating to the issue of priority as between the ANZ mortgage and the Velos & Davis charges, including any reserved costs, be taxed and paid by the fifth defendant.

26 The third defendant's costs of the proceedings until 3 June 2009 as between the third defendant and the plaintiffs, including any reserved costs, be taxed and be paid by the plaintiffs. There be no other order as to costs as between the plaintiffs and Mr Malhotra.

27 The third defendant's costs of the proceedings as between the third defendant and the fourth defendant, including any reserved costs, be taxed and be paid by the fourth defendant.

28 The third defendant's costs of the proceedings as between the third defendant and the fifth defendant, including any reserved costs, be taxed and be paid by the fifth defendant.

29 The plaintiffs are directed to serve a copy of these orders on Sheela Tiwari.

30 Liberty is reserved to Sheela Tiwari to apply within 30 days hereof to vary these orders as she may be advised.

31 Should the second plaintiff's reasonable costs and expenses as set out in paragraph 2 above not be met through the application of these orders, liberty is reserved for the second plaintiff to apply for further directions in relation to their costs.

34 The further hearing of the proceedings is to be adjourned to a date to be fixed.

I certify that this and the 92 preceding pages are a true copy of the reasons for Judgment of Robson J of the Supreme Court of Victoria delivered on 14 February 2011.

[1] Re S&D International Pty Ltd (No 4) [2010] VSC 388.

[2] Many of these facts were recited in Re S&D International Pty Ltd [2009] VSC 235 and Re S&D International Pty Ltd (No 2) [2010] VSC 388.

[3] [2009] VSC 225.

[4] Affidavit of Bill Velos of 16 October 2008, Court file 22 [7].

[7] Exhibit PV-1, Court Book ("CB") A 7, 2507 (hereafter Court Book references will follow the format: CB, letter designating Court Book series, volume number, page number. Court Books B and C are one volume each only so have no volume number).

[9] Affidavit of Paul Vartelas of 3 February 2009, CB A 7, 2474 [19].

[10] Points of cross claim of the fifth defendant, 19 December 2008, Court file 33A [5].

[11] Tiwari's points of claim refer only to the mortgage over the Footscray property (Court file 33A [1]). Since these were delivered the Hillside property has been sold and the proceeds paid into court. I have assumed that Tiwari makes a similar claim in respect of the ANZ Bank mortgage over the Hillside property.

[12] Writ of summons dated 23 May 2008 in matter no 6325 of 2008.

[13] Number 7807 of 2008, Court file 1.

[14] Plaintiffs contentions of fact and law, 13 October 2008, Court file 19C; Contentions of the first and second defendants, 13 October 2008, Court file 19B; Third defendant's contentions of fact and law, 21 January 2010, Court file 34A; Points of cross claim of the fifth defendant, 17 October 2008, Court file 33A; Statement of contentions (sixth and seventh defendants), 14 October 2008, Court file 19D.

[15] Orders of Judd J, 28 November 2008, Court file 30.

[20] Court file 41, expressed to be pursuant to order of 12 December 2008.

[21] Court file 34A. Expressed to be pursuant to the order of Judd J made on 28 November 2008. In fact, on 28 November Judd J had ordered that each party file and serve points of claim and any cross-claim by 10 December 2008 and the order for contentions of fact and law was made on 26 September 2008.

[24] Ibid [83]; Court file 30A [23].

[25] Court file 35; (pursuant to the order of 12 December 2008, the document incorrectly refers to the order of 11 December 2008).

[27] Court file 36, dated 28 January 2009.

[29] Court file 41, dated 22 December 2008.

[30] (1874) LR 9 Ch App 244.

[34] Affidavit of Mr Malhotra of 27 November 2008, Court file 27.

[36] In my ruling I referred to the observations of Bell J in Tomasevic v Travaglini where [2007] VSC 337, [139]-[142] on the duty on a trial judge to ensure a self represented litigant receives a fair trial.

[40] Transcript 23 April 2009, 486-488.

[41] Re S&D International Pty Ltd (No 1) [2001] VSC 225.

[42] Points of Claim of 22 December 2008, CBB, 5. Further relief is sought in the plaintiffs' written submissions and in oral address under sections 423(1), 424 and 425.

[43] [2010] VSC 388.

[47] [2005] VSC 496 at [236].

[50] Court file 26A (missing from file).

[71] Plaintiffs' Closing submissions Against Fourth & Fifth Defendants of 27 April 2010, Court file 103.

[72] Plaintiffs' further amended response and cross claim to fourth defendant's point of claim, Court file 74, [7].

[75] CB C.1; Balmford J judgment, [178].

[76] Malhotra and Sheela were, of course, the only beneficiaries of the Unit Trust and sui juris at the time of the purchase of the Hillside property.

[83] Exhibit DM 3 to the affidavit of David Mond affirmed 11 November 2010, Court file 110.

[84] Transcript, 12 November 2010, 122-123.

[87] [1992] 2 Qd R 452

[90] Plaintiffs' Further Amended Originating process filed 2 February 2009, Court file 43, [1C(c)]; Plaintiffs' Further Amended Response and Cross Claim to Fourth Defendant's Points of Claim of 5 October 2009, Court file 74, [4]; and Plaintiffs' Further Amended Points of Response and Cross-Claim to the Fifth Defendant's Claim dated 13 October 2009, Court file 75, [3].

[91] Plaintiffs' submissions filed in accordance with the orders of Robson J made on 16 November 2010, Court file 117, [10].

[92] [1893] 1 Ch 547, 558.

[93] [1992] VicRp 34; [1992] 1 VR 485, 503.

[94] O'Brien v Tracy (1907) 24 WN (NSW) 44.

[95] [1992] FCA 368; (1992) 37 FCR 201.

[98] (1983) 7 ACLR 873.

[99] [1802] EngR 342; 8 Ves 4, 8 (per Lord Eldon); [1802] EngR 342; 32 ER 250, 252.

[100] (1983) 7 ACLR 873, 878.

[101] [1981] MelbULawRw 1; (1981) 13 MULR 1.

[102] (1983) 7 ACLR 873.

[103] Court file 55, [249-276]; An order with respect to the second plaintiff's costs of procuring payment of the surplus proceeds of the Footscray Property into Court has already been made.

[104] The plaintiffs rely on principally, the judgment of Dixon J in Universal Distributing Company Limited (in liq) [1933] HCA 2; (1933) 48 CLR 171, see also Shirlaw v Taylor [1991] FCA 415; (1991) 102 ALR 551, 558l; Re Universal Distributing Co Ltd (in liquidation) [1933] HCA 2; (1933) 48 CLR 171 (174-5); Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64; Dean-Willcocks v Nothintoohard Pty Limited (in liq) [2006] NSWCA 311; and Lockwood v White [2005] VSCA 30; (2005) 11 VR 402, Hewett v Court [1983] HCA 7; (1983) 149 CLR 639; 46 ALR 87; Collie v Merlaw Nominees Pty Ltd (in liq) [2001] VSC 39; (2001) 37 ACSR 361, 370; Australian Securities and Investments Commission (ASIC) v John McKenney Consulting Pty Ltd [2002] VSC 527; (2002) 43 ACSR 458, [27]; Re Berkeley Applegate (Investment Consultants) Ltd (in liq); Harris v Conway [1989] Ch 32 (50-1).

[105] [1933] HCA 2; (1933) 48 CLR 171 (Universal case).

[106] [1979] HCA 61; (1979) 144 CLR 360.

[107] [1984] 1 Qd R 576.

[109] Ford, H A J, Principles of the Law of Trusts, 2nd edition, [1403.1].

[110] [2001] VSC 39; (2001) 37 ACSR 361.

[112] [1979] HCA 61; (1979) 144 CLR 360 at 367 and 369-370.

[113] (1992) 8 WAR 42 at 53.

[114] (1887) 22 Ch D 255 at 262.

[115] (1999) FCA 745 at [33]- [55].

[116] [1902] 1 KB 1, 6-7.

[117] [1933] HCA 2; (1933) 48 CLR 171 (Universal case).

[118] [1933] HCA 2; (1933) 48 CLR 171 (Universal case).

[119] [1933] HCA 2; (1933) 48 CLR 171 (Universal case).

[124] [1988] VicRp 31; [1988] VR 215.

[125] Ibid 229 per Tadgell J (with whom Kaye J agreed).

[127] (1994) 35 NSWLR 64.

[130] [2005] VSCA 2005.

[131] Cf. the "Solicitor's lien"; Carew Counsel Pty Ltd v French [2002] VSCA 1; [2002] 4 VR 172, 187.

[132] [2002] VSCA 1; [2002] 4 VR 172.

[133] [2008] FCA 448; (2008) 246 ALR 580.

[135] [2009] VSC 225.

[136] (1983) 7 ACLR 873.

[140] [1983] VicRp 52; (1982) 7 ACLR 8.

[141] Ibid, 564 per Young CJ and Lush J, 569.

[142] [1983] VicRp 52; (1983) 1 VR 561; (1933) 48 CLR 171.

[145] [2009] VSC 225, [74]-[85].

[146] First and second defendants' cross claim of 15 December 2009, Court file 31.

[147] [2008] FCA 448; (2008) 246 ALR 580.

[148] Fourth defendant's points of cross claim dated 28 January 2009, Court file 36.