RIL Aviation HL 7740 and HL 7741 Pty Ltd v Alliance & Leicester plc & Ors

Before: Bergin CJ in Eq File Number(s): SC 2010/143563

Judgment 1GILES JA : The complex arrangements are summarised in the reasons of the primary judge ( RIL Aviation HL 7740 and HL 7741 Pty Ltd v Alliance & Leicester plc & Ors [2010] NSWSC 1235). I use the abbreviations used by her Honour and, as did the parties, refer only to the documents relating to aircraft 7740. 2There are three issues on appeal. The first is whether RILA was obliged to pay the monthly management fee to Ladbroke. The second is whether RILA had committed an event of default. The third, if the primary judge's decisions on the second issue is displaced, is a partial challenge to the costs order. All amounts mentioned in the reasons are US$.

The monthly management fee 3This is a question of construction of the RILA Financing Deed, but in a wider context.

(a) The documents 4There were two financing streams in the arrangements, one the borrowing of $88 m from various lenders under the Export Credit Loan Agreement ("the Citibank stream") and the other the payment by ECA of $15 m by RILA ("the RILA stream"). RILA borrowed $15m from A & L under the LC Loan Agreement and AMIL (now Allco JS by substitution) under the Asset Loan Agreement, and paid it to ECA under the RILA Instalment Sale Deed. It had the right to acquire the aircraft when the Head Lease terminated on payment of a further sum. 5The documentation included in two places provision concerning appointment of a Manager. One was in the RILA Financing Deed part of the RILA stream. The other was in the Proceeds and Intercreditor Agreement. 6The RILA Financing Deed was dated 12 July 2005. In broad terms, it dealt with making the borrowed money available and distribution of money in the RILA stream. It made provision in relation to a Manager in cl 8, relevantly - " 8. Manager 8.1 Appointment RILA: (a) appoints the Manager (which accepts its appointment) as its sole and exclusive manager during the term of this deed in connection with the Transactions Document; (b) authorises the Manager to take the action on its behalf and to exercise the rights, powers and remedies and perform the obligations which are specifically delegated to or conferred on the Manager (whether for itself or for the benefit of a party to this deed) by this deed. 8.2 Powers and duties of Manager RILA authorises and requires the Manager to - (a) make or cause to be made all calculations and determinations as and when required under the Transaction Documents and to provide to each of the other parties to the Transaction Documents details of any revised, amended or recalculated schedules, figures, sums, amounts or dates; (b) undertake any other administrative or management tasks on behalf of RILA or the Lessor as the Manager may agree with those entities; (c) prepare and keep or cause to be prepared and kept all accounting records of RILA; and (d) do all acts and things that are reasonably incidental to the acts set out in this clause 8.2, and to sign or execute all such documents and instruments in connections with those duties as may from time to time be required under the Transaction Documents. Save that the Manager has no authority to negotiate and conclude any contracts on behalf of RILA without the express consent of the board as described in clause 8.4 ("Make Recommendations"). 8.3 Ultimate authority of board The Manager acknowledges that its obligations under this deed are at all times subject to the ultimate power of the board of RILA from time to time to make policy decisions and given directions. The Manager also acknowledges that it has no right to make or participate in the making of policy decisions on behalf of RILA. ... 8.6 Termination of manager The Manager may, with the prior written consent of all the parties to this deed, terminate its appointment. 8.7 Removal of Manager (a) RILA may remove the Manager from office immediately by notice in writing on the occurrence of any of the following events: (i) the Manager is insolvent; (ii) the Manager breaches its obligations under this deed; or (iii) the expiration of 3 months after RILA gives notice to the manager that it requires the Manager to cease acting as manager under this deed. (b) The Security Trustee (acting on instructions of the Financiers) may also remove the Manager from office if any of the events in sub paragraphs (a)(i) or (a)(ii) of this clause occur. 8.8 Liability ceases Following removal of the Manager or termination of the Manager's appointment, but without prejudice to the liability of the Manager for any antecedent breach of its obligations under this deed, the Manager ceases to be a party to this deed and incurs no further liability pursuant to this deed, but will be obliged to deliver to the replacement manager [sic] all documents held by the Manager in connection with the Transaction Documents. 8.9 Replacement Manager Neither the termination of the Manager under clause 8.6 ("Termination of Manager") nor the removal of the Manager under clause 8.7 ("removal of Manager") is effective unless and until a replacement Manager has been identified and approved by the Security Trustee and each Facility Agent (acting on the instructions of the Relevant Financiers), and that replacement Manager has executed documents reasonably satisfactory to the Security Trustee to become the replacement Manager for the purposes of the Transaction Documents. 8.10 Management fee In consideration of the Manager entering into this deed RILA agrees to pay the Manager a management fee according to the terms of the Management Fee Letter." 7"Transaction Documents" was defined in cl 26.1 as the Financing Documents and any connected document agreed to be a Transaction Document. "Financing Documents" was widely defined, catching a number of documents of the nature indicated by those words including the RILA Financing Deed itself. The Security Trustee was A & L, the same entity as the lender; in this respect amongst others the documentation had a degree of pro forma appearance. "Lessor", referred to in cl 8.2(b), meant Allco Aviation. 8By the definitions "Manager" had the meaning given to it in the Details. "Details" was defined as the section of the deed so headed, and that section included " Manager Name Allco Management Limited" with some further details of AML. Clause 26.2 provided that unless the contrary intention appeared a reference in a Transaction Document to - "(k) a particular person includes a reference to the person's executors, administrators, successors, substitutes (including persons taking by novation) and assigns". 9In cl 26.1 "Management Fee Letter" was defined as "The fee letter dated on or about the date of this deed between RILA and the Manager". There was no such letter designated as a fee letter. It was common ground that the Management Fee Letter was to be found in a letter dated 13 July 2005 from RILA and Allco Aviation to AML designated "Asiana A330-300 Management Letter". I will refer to it as the Management Letter, although there was dispute whether the Management Fee Letter was the whole of the Management Letter or only the Schedule attached to that letter headed "Management Fee Letter". 10Unless it had been so agreed, of which there was no evidence, the Management Letter did not come within the Transaction Documents. 11The RILA Financing Deed reflected that RILA was a special purpose company, in that - (a) by cl 10.1, its liability to the Finance Parties (essentially, the lenders and their agents/trustee) was limited to the lesser of the amount it owed and the amount it received as repayments from ECA or from the sale of the aircraft; and (b) by cl 14.1(i) it undertook - "not to: (i) engage in any business or other activity (whether of a commercial nature or otherwise) other than as contemplated in the Transaction Documents; (ii) have any liabilities other than those under the Transaction Documents, liability to its shareholders in accordance with its constitution and other liabilities required to maintain its existence or comply with any law relating to companies generally; (iiI) have any assets other than those under or derived from the Transaction Documents and its share capital; (iv) have any employees; and (v) enter into any agreements other than: (A) The Transaction Documents or any other transaction or action necessary to fulfil any of the obligations provided for in the Transaction Documents or done in fulfilment of such an obligation); and (B) in connection with any issue of ordinary or preference shares and agreements with those shareholders;" 12Going to the Proceeds and Intercreditor Agreement, it was dated 12 July 2005 and, in even broader terms, provided for the manner in which proceeds from the use of the aircraft were to be applied. There was again a Security Trustee, in this case a Citibank company. The appointment of a Manager was by Allco Aviation, the lessee of the aircraft from ECA and lessor to Asiana. Clause 15 provided - " 15. MANAGER 15.1 Appointment The Lessor has: (a) appointed the Manager to be its sole and exclusive manager in connection with the Transaction Documents to take action on its behalf and to exercise the rights, powers and remedies and perform the obligations which are specifically delegated to or conferred on the manager under the Management Agreement; (b) the Lessor shall not be relieved of any obligation or liability under any Transaction Document by reason of any action taken by the Manager on its behalf and shall remain responsible for procuring observance of and compliance with all its obligations under the Transaction Documents; and (c) the Manager agrees not to exercise any rights, powers, remedies and discretions nor perform any obligations which are specifically delegated to or conferred on it in accordance with the Management Agreement which are or may be inconsistent with or in breach of any obligations of the Lessor under the Transaction Documents. 15.2 Removal of manager (a) The Manager shall cease to act as manager immediately by notice in writing from the Security Trustee following the occurrence of any of the following events: (i) an Event of Default referred to in Clauses 18.5 (Insolvency), 18.6 (Insolvency proceedings), 18.7 (Creditor's process) and 18.8 (Cessation of Business) of the ECA Loan Agreement occurs in relation to the Manager or if references in those clauses to 'Borrower' were to the Manager; or (ii) the Manager breaches its obligations under this Deed." 13"Transaction Document" was defined in cl 1.1 in different terms from the definition in the RILA Financing Deed: the thrust of the definitions was similar, but in this case the documents were documents in the Citibank stream whereas the Transaction Documents in the RILA Financing Deed were in the RILA stream. "Manager" was not defined, but AML was a party to the Proceeds and Intercreditor Agreement "as Manager". "Management Agreement" was not directly defined, or otherwise referred to in the Proceeds and Intercreditor Agreement, but through cl 1.2 (a) picking up the meaning given in cl 1.1 of the ECA Loan Agreement it meant "the management agreement dated on or about the date of [the ECA Loan Agreement: 12 July 2005] between the Manager, the Lessor and RILA". This was the Management Letter. 14The Management Letter began - "RIL Aviation HL7740 and HL7741 Pty Limited ("RILA") and Allco Aviation A330 2005 Ltd ("Lessor") (together, the 'Companies' and each a 'Company') have requested Allco Management Limited ('Manager') to provide management services in connection with the proposed acquisition and lease arrangements involving the Aircraft. The Lessor enter into this agreement as lessor of the Aircraft and RILA enters into this agreement as future purchaser of the Aircraft." 15Clause 1 provided - " 1. Appointment Each Company: (a) appoints the Manager (which accepts its appointment) as its sole and exclusive manager during the term of this agreement in connection with the Transaction Documents; (b) authorises the Manager to take the action on its behalf and to exercise the rights, powers and remedies and perform the obligations which are specifically delegated to or conferred on the Manager (whether for itself or for the Company's benefit) by this agreement. The Manager agrees to exercise the rights, powers, remedies and discretions and perform the obligations which are specifically delegated to or conferred o nit in accordance with this agreement. The Manager has no obligations except those expressly set out in this agreement. 16Clause 2, headed "Consideration", stated that the Manager acknowledged "that it has received good consideration from the Companies in return for the Manager accepting its appointment and performing its obligations under this agreement". From other evidence, this was a payment of $2 m. The clause continued - "In addition RILA agrees to - (a) pay the Manager on each date shown in Column 1 of the attached Schedule, the corresponding amount shown in Column 2 of the attached Schedule". 17The attached document was not called a Schedule, but (as has earlier been indicated) was headed "Management Fee Letter", beneath which was "Allco fees schedule". It listed in column 1 dates for the 13th of each month from July 2005 to July 2017, and in column 2 varying amounts against each date. 18In cl 9 the Management Letter made its own provision for removal of the Manager by the Companies, on the occurrence of stated events and also at any time at the Companies' absolute discretion. The clause provided - " 9. Removal of Manager The companies may remove the Manager on the occurrence of any of the following events: (a) an order is made or a resolution is passed for the winding up of the Manager except where such resolution is part of the voluntary winding up of the Manager or is made for the purposes of reorganisation or reconstruction in respect of which (in either case) the Companies have each given their prior written consent; (b) an administrator or a receiver, receiver and manager or official manager is appointed to the whole, or any substantial part, of the undertakings, property or assets of the Manager; (c) the Manager enters into any arrangement or reconstruction with its creditors or gives notice (whether to its creditors or otherwise) of its intention to do so; (d) the Manager breaches its obligations under this agreement; (e) a default occurs under any Transaction Document that is solely attributable to a breach by the Manager. The Companies may also, in their absolute discretion, remove the Manager at any time by providing written notice to the Manager, signed by each Company." 19Nothing was said about appointment of a replacement Manager, but by cl 10 the outgoing Manager was obliged "to deliver to the relevant Company all documents held by the Manager in connection with the Transaction Documents" and by cl 11 the Manager agreed to do whatever was reasonably required by a Company "to transfer any rights or benefits held by it or permit its obligations to be assumed by any substitute manager". 20We were informed that under the arrangements $118,779.69 per month was payable by ECA to RILA. By the RILA Intercreditor Deed that money was paid directly to the Security Trustee, A & L, and by cl 2.1 had to be applied by the Security Trustee in an order of priority. The last in order was - "to RILA: (i) the amount set out in column 3 of Schedule 1 for that Payment Date; and (ii) any remainder." 21The Schedule set out in columns 1 and 3 dates and amounts corresponding precisely to those in columns 1 and 2 of the attachment to the Management Letter. Column 2 set out a further varying amount, but the total of the three columns was always $118,777.69.

(b) The events 22The issue arose because AML ceased to be Manager under the RILA Financing Deed. 23AML went into receivership on 4 November 2008. This was insolvency within cl 8.7 of the RILA Financing Deed. 24On 16 June 2009 RILA and Allco Aviation wrote to the receiver giving "notice of termination of [AML's] appointment as manager in accordance with clause 8.7 of the RILA Financing Deed and clause 9(b) of the Management Letter", and stating that - "The effective date of the termination will be the date on which a replacement manager is identified and approved by the Security Trustee each Facility Agent (acting on the instructions of the Relevant Financiers), and that replacement manager has executed documents reasonably satisfactory to the Security Trustee to become the replacement manager for the purposes of the Transaction Documents in accordance with clause 8.9 of the RILA Financing Deed." 25On 17 November 2009 RILA and Allco Aviation wrote to AML giving notice that "pursuant to clause 9 of the Fee Letter, AML is removed as Manager on and from the date of this letter for the purposes of the Fee Letter". An identical letter appears to have been sent on 20 November 2009. 26On 12 April 2010 A & L wrote to AML referring to the RILA Financing Deed, to AML's insolvency and to RILA's (sic) letter of 16 June 2009, and stating that "[t]o the extent that AML has not been removed from office as Manager" it "removes AML from office as Manager pursuant to clause 8.7(b) of the Financing Deed". 27Also on 12 April 2010 Ladbroke executed a "Deed of Accession in respect of appointment as replacement Manager Clause 8.9 of the RILA financing deed ... ". It was executed as a deed poll, and was addressed to AML but expressed to operate "as a deed Poll given to all parties to the Transaction Documents". It included - "In accordance with clause 8.9 of the Financing Deed, Ladbroke has been identified and approved by each of the Security Trustee and each Facility Agent (acting on the instructions of the Relevant Financiers) as the replacement Manager. ... With effect on and from the date of this accession deed, Ladbroke covenants with all other parties to the Transaction Documents as follows:

1. Ladbroke assumes the obligations towards each of the other parties to the Transaction Documents which are identical in character to the obligations which the Manager had in respect of the Transaction Documents;
2. Ladbroke is taken to be a party to the Transaction Documents and to observe, perform and be bound by their terms;

(c) Consideration 33RILA contended that "Manager" in cl 8.10 of the RILA Financing Deed meant AML and AML alone. It did not mean a replacement Manager, and did not mean Ladbroke. 34Some references to the Manager in cl 8 of the RILA Financing Deed must mean AML alone. The reference in cl 8.7(a) must be to AML, since it was the entity which RILA appointed and which (being a party to the RILA Financing Deed) accepted the appointment. Similarly as to the reference in cl 8.3, since AML was the entity which acknowledged the ultimate power of RILA's board. The first reference to the Manager in cl 8.10 is to AML, since it entered into the deed. 35However, the parties clearly contemplated that AML might cease to be Manager, by its own termination of its appointment (cl 8.6) or by removal by RILA or the Security Trustee (cl 8.7), and that there would be a replacement Manager (cll 8.8, 8.9). By cl 26.2(k), unless the contrary intention appeared a reference to "a particular person" included a reference to the person's "successors" and "substitutes", in ordinary use of language apt for a replacement Manager. While in some of its uses (see above) there is a contrary intention, the contemplation of a replacement Manager is not consistent with a contrary intention in other uses of "Manager". With one exception, apparently a mistake, cll 8.8 and 8.9 refer to a Capitalised "replacement Manager", using the defined word and regarding the replacement Manager as stepping into the shoes of the existing Manager. The stepping into the shoes of the existing Manager is emphasised first, because the termination or removal of the Manager is not effective until the replacement Manager has "become the replacement Manager for the purposes of the Transaction Documents" (cl 8.9); and secondly, because there is a process whereby the replacement Manager must be "identified and approved" and must have executed documents "reasonably satisfactory to the Security Trustee" to become the replacement Manager (ibid). 36The process last mentioned is material to whether the replacement Manager is within the agreement to pay the Manager as secondly referred to in cl 8.10. The RILA Financing Deed does not clearly provide for how a replacement Manager is appointed. RILA made the original appointment (cl 8.1), and cl 8.9 is starkly short of giving a power of appointment to the Security Trustee or the Facility Agents, whose roles are ones of approval and satisfaction. The implication is that RILA again makes the appointment. The process is one of RILA identifying a replacement Manager, which is then approved and if approved executes documents whereby it becomes the replacement Manager. This all occurs within the existing cl 8: that is, the replacement Manager is an entity which steps into the extent of and limitations on authority in cll 8.1-8.3, the potential for termination and removal in cll 8.6 and 8.7 and the receipt of a management fee in cl 8.10, and the documents it executes are documents which have that effect. 37As I have indicated, it may be unclear whether the deed poll executed by Ladbroke had the necessary effect; that need not be considered, since an effective appointment was accepted, and it may be that RILA's acceptance of that fact suffices as an appointment by it. On any view, cl 8 deals with a replacement Manager in a difficult way, the difficulties starting with continuance of the existing Manager until the appointment of a replacement Manager is effective - how could that work if the existing Manager is wound up or a replacement Manager being a natural person dies? However, when there is a replacement Manager it is as a result of a process whereby in the documents by which it becomes the replacement Manager there is taken up RILA's agreement in cl 8.10 to pay a management fee "according to the terms of the Management Fee Letter". By the RILA Financing Deed, RILA covenanted with the other parties to the deed to pay that management fee not just to AML, but to the duly appointed Manager from time to time. 38RILA submitted, against this conclusion, that the RILA Financing Deed was to be construed as one of the "suite" of documents recording the arrangements in relation to the aircraft, and that regard to the additional appointment of AML as Manager by the Management Letter as recognised in the Proceeds and Intercreditor Agreement told conclusively against cl 8.10 obliging RILA to pay the monthly management fee to a replacement Manager. 39One would ordinarily endeavour to construe related documents together, to give a commercial operation and "a congruent operation to the various components of the whole": Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 at [16] per Gleeson CH and McHugh, Gummow and Kirby JJ. However, the presumed intention that the documents in the present case should operate harmoniously is diminished by the fact that there is not consistency of the parties to the documents, and by the signal failure to frame the arrangements for Manager(s) in accordance with such an intention. Clause 8.10 is not well fulfilled, since there is no Management Fee Letter as defined. The Management Letter was an amalgam of appointment by Allco Aviation, being the appointment referred to in cl 15.1 of the Proceeds and Intercreditor Agreement, and (it seems) by RILA and Allco Aviation as contemplated by cl 8.2(b) of the RILA Financing Deed. It was not consistent with either the RILA Financing Deed or the Proceeds and Intercreditor Agreement, notably but not only in its statement of the Manager's authority and in relation to removal of the Manager. When the arrangements in this respect were not satisfactorily documented, commercial and congruent operation loses much of its force as a consideration. 40RILA's submissions were to the following effect. Because of the appointment as Manager under the Management Letter, AML was performing extended managerial duties pursuant to cl 18.2(b) of the RILA Financing Deed and managerial duties for the purposes of the Proceeds and Intercreditor Agreement in return for the one indivisible management fee. Clause 2.1 of the RILA Intercreditor Deed required that the $118,779.69 per month received from ECA (save it seems for $2) be paid by the Security Trustee to the lenders and to RILA, and because of its covenants not to have any other business, assets or liabilities (cl 14.1(i) of the RILA Financing Deed) RILA could not pay a Manager otherwise than from the part that it was entitled to receive each month from the $118,779.69. A replacement Manager would not have to perform the extended managerial duties, or the managerial duties for the purposes of the Proceeds and Intercreditor Agreement. It would not be a commercial construction of cl 8.10 of the RILA Financing Deed, or one congruent with the documents as a whole, if RILA were obliged to pay the replacement Manager the same amount for performing only some of the managerial duties performed by the existing Manager, and to pay again (which it could not do) for the performance of the further managerial duties. 41A short answer is that, pursuant to the process earlier described, the replacement Manager would undertake all the existing Manager's managerial duties including any extended duties by reason of an agreement pursuant to cl 8.2(b). The existing Manager would already be performing them for the stated fee; RILA would have to find another entity prepared to do the same. To the extent that this is uncommercial because RILA is exposed to market forces and might have difficulty in doing so, that is inherent in the contemplation of a replacement Manager at all: indeed, even on RILA's construction of cl 8.10 it would be left to find a replacement Manager which it could afford. 42Although in the Management Letter RILA alone promised to pay the amounts in the attachment to the Management Letter, as consideration for management services requested by both RILA and Allco Aviation, the underlying appointment in the Citibank stream was by Allco Aviation as recorded in cl 15.1 of the Proceeds and Intercreditor Agreement. Clause 8.2(b) of the RILA Financing Deed refers to agreement with RILA or Allco Aviation. Whatever was the reason for RILA undertaking an obligation for the benefit of Allco Aviation, the fact that it did so did not detract from its obligation to pay the full management fee to AML pursuant to cl 8.10 of the RILA Financing Deed. Nor does it detract from its obligation to pay the full management fee to a replacement Manager. Allco Aviation is not obliged to appoint a Manager, and can take care of any replacement Manager in the Citibank stream. In any appointment by Allco Aviation it should pay the management fee, and RILA does not have to find more money. I do not see such uncommerciality, or incongruence in operation of the documents, in RILA being obliged to pay the cl 8.10 management fee to a replacement Manager as to affect the conclusion stated above. 43In my opinion, the first issue should be decided against RILA, and the primary judge correctly so decided it.

Event of default 44On 28 May 2010 A & L served on RILA notice of events of default, relevantly alleging default - (a) in breaking a negative pledge in the RILA Security Deed; and (b) in failing to pay Ladbroke the management fee for April 2010 and May 2010. 45The primary judge held that there had not been an event of default in non-payment of the management fee, because RILA was not told of Ladbroke's appointment until after the date for payment of the April fee and the date for payment of the May fee was extended and it was paid. There is no appeal in this respect. 46The relevant negative pledge was in parts of cll 4.1 and 4.2 of the RILA Security Deed. They provided - " 4.1 Restricted dealings with any of the Secured Property Without the consent of the Chargee and subject to clauses 4.2 ('Restricted dealings with Secured Property over which charge is fixed') and 4.3 ('Restricted dealings with Secured Property over which charge is floating'), the Chargor may not, and may not agree, attempt or take any step to , do any of the following: (a) sell or dispose of the Secured Property (except that the Chargor may in the ordinary course of the Chargor's business sell or dispose of Secured Property over which the Charge is floating); (b) create or allow to exist another Security Interest in connection with the Secured Property except for Permitted Security Interests; or (c) deal in any way with this deed or any interest in it , or allow any interest in it to arise or be varied. 4.2 Restricted dealings with Secured Property over which charge is fixed Without the consent of the Chargee, the Chargor may not, and may not agree, attempt or take any step to , do any of the following in respect of Secured Proeprty over which this deed is fixed: (a) allow a set-off or combination of accounts; (b) change the nature of the Secured Property; (c) waive any of the Chargor's rights or release any person from its obligations in connection with the Secured Property; (d) deal in any other way with the Secured Property or any interest in it, or allow any interest in it to arise or be varied." 47I have italicised the parts on which reliance was place. 48The breach was said to have been by a letter dated 15 April 2010 from RILA to A & L as Security Trustee, part of the correspondence from November 2009 earlier mentioned, in which RILA directed A & L to pay all amounts to which RILA was entitled under the RILA Intercreditor Deed to a particular bank account. Although not identified in the letter, the account holder was KVM Management Pty Ltd ("KVM"). 49The money in question was RILA's money, payable by ECA and paid to A & L as the Security Trustee. It was common ground that it was part of the Secured Property. It was contended that, because the KVM bank account was not RILA's bank account, RILA attempted or took steps to deal with it or dispose of it or allowed an interest in it to arise. Cl 4.1(c) may be put aside: so far as it was also contneded that RILA had dealt with the RILA Security Deed or any interest in it, there was no attempt etc to do anything with the document, and whatever else cl 4.1 meant breach of para (c) was not pursued. 50There was dispute before the primary judge over whether the charge in favour of the Security Trustee was fixed (cll 4.1, 4.2) or floating (cl 4.3). A & L had purported to make the initially floating charge a fixed charge. Her Honour found it unnecessary to decide (at [81]). 51Before the primary judge the issue was disposed of according to whether KVM would have held the money on trust for RILA. The primary judge found, principally on the evidence of Mr Lennox, the solicitor for one of the directors of RILA, Mr Kinghorn, that "it was Mr Kinghorn's intention that KVM hold the Secured Property on trust for RILA when A & L paid money into the KVM account" (at [138]). So far as the finding was credit-based, there is no reason to displace it. At its heart was that Mr Lennox gave advice about the KVM account being a custodian account. Mr Lennox also asked Mr Veal of KVM to confirm "that you are proceeding with a custodian arrangement", and Mr Veal said that he was. Although no custodial formalities were put in place (understandably when the money was not paid), her Honour accepted that it was intended to create a trust. 52For reasons which will appear, in my view the answer to the suggested breach of the negative pledge does not lie in whether KVM would have held the money on trust for RILA. However, I should say something of the submissions as to the primary judge's dealing with that matter. 53It was submitted that the primary judge erred because she had regard to subjective intentions, not objective manifestations of intention ( Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253). That is not correct. The intention to create a trust was found from its manifestations in the advice of Mr Lennox and in direct and inferential evidence that it was to be acted upon. 54It was also submitted that the evidence did not support an intention to create a trust, principally because, in brief, Mr Lennox advised that a custodial document was necessary, which was not done, and the account-opening form did not designate the KVM account as a trust account. Neither these nor the other matters put forward persuade me that her Honour's finding was incorrect - it is clear, in my opinion, that if the money had been paid into the KVM account it would have been held on trust for RILA. 55It must be asked what RILA was attempting or taking steps to do. No money was in fact paid by A & L into the KVM account, and there was not a trust of which KVM was trustee with the money as trust property. RILA was seeking to have the money paid into the bank account of KVM as bare trustee for RILA. The beneficial interest would have remained with RILA. 56There would not have been a disposal of the money, or a dealing with it for the purposes of cl 4.2(d). Even without regard to the heading to cl 4, which was "Dealings - such as selling or mortgaging", the disposal or dealing prohibited by cl 4.2(d) was one such as to deprive the Chargee of its security, which the interposition of a bare trustee would not do. In a more precise analysis, RILA began with a chose in action, its entitlement to be paid by A & L. If the money were paid into RILA's bank account, it would instead have the chose in action of a debt owing by its banker, but no one would suggest that there was a disposal or dealing in contravention of the negative pledge. There would not have been a disposal or dealing any more alien to the Chargee's security if the money were paid into KVM's bank account to be held on trust for RILA. 57It could be more arguable that an interest in the money would arise, in that if the money were paid into KVM's bank account to be held on trust for RILA there would arise separate legal and beneficial interests in the money. The submissions barely touched on this, which is a matter of some complexity; nor was due attention given to "allow" in cl 4.2(d). These matters should not be decided without better argument, and need not be decided since there is a different answer to the suggested breach of the negative pledge provisions. 58A & L was the Chargee as well as the Security Trustee. Payment as directed by the letter of 15 April 2010 could only occur with the consent of the Chargee. In seeking to have the money paid into the bank account of KVM, then, whether or not as trustee for RILA, so far as it was attempting or taking steps to do anything RILA was attempting or taking steps to do something of which the consent of the Chargee was part. It would be nonsense to regard this as a breach of cll 4.1 and 4.2, each of which begins "Without the consent of the chargee ... ". 59It may be added that it was submitted that RILA had dealt with or disposed of Secured Property because KVM would be entitled to be indemnified for account-keeping fees. RILA would incur account-keeping fees for a bank account of its own. The amounts would be de minimis, and on no sensible view of the negative pledge clauses would there be a breach for that reason. The submission should not be accepted. 60The primary judge's decision of this issue in favour of RILA was correct.

The costs orders 61The partial challenge to the primary judge's costs orders was conditional upon the appeal as to an event of default. It does not arise.

Orders 62I propose that each of the appeal and the cross-appeal be dismissed with costs. 63CAMPBELL JA : There is a distinct oddity in the present proceedings in that there are separate proceedings in relation to whether AML was effectively removed as Manager under the Management Agreement, yet the primary judge in the present case made an express assumption that AML had been so removed: [62]. Whether AML has indeed been removed as Manager under that agreement appears to be central to the questions that are involved in this appeal. Written submissions noted that this case was decided on the basis that the termination of the Management Agreement was valid, even though the validity of the termination is in issue in separate proceedings. However, neither party questioned the correctness of the case being decided when an apparently central matter was the subject of assumption rather than decision. When neither party has questioned it, I will proceed, though with some reservations about the correctness of doing so, on the same basis. 64This appeal relates to two questions of substance concerning the construction and application of a complex group of documents relating to the purchase and leasing of two aircraft, and a question of costs concerning the litigation that arose from those questions of substance.

An Outline of the Commercial Arrangements 65The documents relating to the purchase and leasing of the aircraft had been drafted at a time when it was envisaged that throughout the time that the arrangements established by the documents were in operation Allco Finance Group Ltd (" Allco ") and companies related to it would continue to play a role in those arrangements. The questions of substance arose from Allco and the relevant related companies entering receivership before the arrangements established by the documents had run their course. The documents failed to make clear express provision for all the consequences of that situation arising. 66Though the questions involved in this litigation arose under just two of the many documents that were involved in the acquisition and leasing of the aircraft, understanding the questions requires a little understanding of the role that the parties who are in dispute played in the overall transaction. 67In the broadest terms, the aircraft were purchased using borrowed money, and then were leased. The periodical payments made by the lessee of the aircraft were intended to be used to meet the periodical payments that were required to be made to the lenders of the borrowed money, and certain of the costs of establishing and managing the arrangement for borrowing and leasing. 68The aircraft were purchased by a company called ECA, using money borrowed through two channels. ECA borrowed the larger part of the money, of the order of $88M, from a group of European lenders that was co-ordinated by a Citigroup company. ECA borrowed the smaller part of the money, of the order of $15M, from the Appellant. The Appellant was a special purpose company, whose sole business was to carry out the transaction relating to the purchase of the two aircraft. 69The Appellant itself raised the money that it lent to ECA from two sources. One was by a borrowing from the First Respondent, Alliance & Leicester PLC (" A&L "). The other was from a related company of Allco, Allco JS Pty Limited. 70Insofar as money for the purchase of the aircraft was borrowed from the European lenders, or from A&L, each arrangement was a mere loan. If the relevant agreements were performed according to their terms, the respective lenders would receive nothing but repayment of their principal, and periodic payments of interest. However the Appellant had a right to purchase the aircraft at the end of the lease term, for a fixed price. 71ECA leased the aircraft to another related company of Allco, Allco Aviation HL 7740 and HL 7741 Pty Limited ("Allco Aviation"). Allco Aviation in turn leased the aircraft to the airline that proposed to use them. That airline agreed to pay a monthly rental to Allco Aviation, which in turn paid a monthly rental to ECA. ECA was obliged to pay to the financiers from whom it had borrowed the money to purchase the aircraft an amount equal to the monthly rental that it was entitled to receive from Allco Aviation.

How Much Is Ladbroke Entitled to be Paid as Replacement Manager? 72The first of the questions of substance arose because one of the related companies of Allco, Allco Management Limited (" AML ") had a role as the Manager concerning both of the streams of finance that were used for the leasing of the aircraft. That role arose, or was recognised, under three different documents. 73The first of the documents that gave AML a role concerning the administration of those streams of finance was called the Management Letter. It is dated 13 July 2005. It is sometimes also referred to as the Management Fee Letter. The parties to the Management Letter were the Appellant, Allco Aviation and AML. Under it, Allco Aviation (as lessor) and the Appellant (as future purchaser of the aircraft) appointed AML as the Manager, with tasks to perform concerning the administration of documents called the Transaction Documents. They appear to have all been documents relating to the larger stream of finance. The Management Letter entitled AML to be paid a monthly fee of an amount identified in a Schedule to the letter. The amounts there set out varied significantly each month, with the highest fee that was payable being a little over $83,000. 74The second of the documents that related in any way to AML having functions to perform as Manager was a document called the Proceeds and Intercreditor Agreement, made on 12 July 2005. It was one of the documents identified as Transaction Documents by the Management Letter. It had many parties, including the Appellant, AML, Allco Aviation, ECA, and various other companies that were involved in providing the larger of the streams of finance for the purchase of the aircraft. It did not contain any provision that made an appointment of a Manager, or conferred on anyone a power to appoint a Manager for the purposes of that agreement. However clause 15.1 of that document recognised that Allco Aviation had appointed AML to be its sole and exclusive manager concerning certain of the documents under which the larger stream of finance had been raised. Clause 15.2 was a covenant by AML to cease to act as manager in certain events, including the occurrence of an event of default under certain of those documents. Giles JA sets out relevant parts of clause 15 in full at [12]. 75One of the functions that the Proceeds and Intercreditor Agreement performed was to create obligations concerning which of the various entities involved in the financing and leasing arrangements were entitled to receive monthly payments. Clause 5.1(c) entitled the Appellant to receive from the Security Trustee (which in that document appears to mean a Citibank company) a monthly amount of $118,777.69. Quite how that apparent obligation of a Citibank company to pay that amount to the Appellant fits in with the rest of the documentation has not been explored. It may be that clause 5.1 obliged the Citibank company to make payments only to extent it received money, and the obligation to pay the Appellant was third in a list of priority of payments. At least for the month of April 2010 the Citibank company would not have received enough money to make any payment to the Appellant. By the Management Letter, the Appellant authorised AML to receive amounts that included any amount payable to it under the Proceeds and Intercreditor Agreement. 76The third of the documents that related to AML having functions to perform as Manager was a document called the RILA Financing Deed. That document was between the Appellant, A&L, AML, and some other companies. Clause 8 of that Deed is at the heart of the first of the questions in dispute on this appeal. All relevant parts of it are set out in full at [6] of the judgment of Giles JA. Under clause 8 the Appellant appointed AML as Manager, and gave AML various tasks to perform concerning the administration of the smaller of the streams of finance by which the aircraft had been purchased. There was a procedure for the Manager to be removed and replaced. But the only provision contained in that document concerning payment of the Manager was that contained in clause 8.10, to the effect that the Appellant agreed to pay the Manager the amount identified in the Management Fee Letter. Clause 8.10 imposed on the Appellant a contractual obligation that it owed to, in particular, A&L, to make that payment to "the Manager" . 77After it became insolvent AML was purportedly removed as Manager concerning both streams of finance. Ladbroke Management Pty Ltd (" Ladbroke ") was purportedly appointed as the replacement Manager concerning the smaller stream. The first of the questions of substance is whether the Appellant is bound by clause 8.10 to pay Ladbroke the monthly amount identified in the Management Letter for acting as Manager concerning that stream. The Appellant contends that Ladbroke is not "the Manager" within the meaning of clause 8.10, and thus its remuneration should be calculated on a quantum meruit basis. 78On that question, I agree with the reasons of Giles JA.

The Alleged Act of Default 79The second of the questions of substance concerns whether the Appellant has breached a negative pledge obligation that it had under one of the security documents that related to the smaller of the streams of finance. The document in question is called the RILA Security Deed. It is dated 12 July 2005. The parties to it are the Appellant (called the Chargor) and A&L (called the Chargee). Under it, the Appellant charged certain property, called the Secured Property, with the repayment of the money it had borrowed from A&L. Amounts payable to the Appellant under a document called the RILA Intercreditor Agreement, that I mention below at [82], were part of the Secured Property. The charge was initially a floating charge, but there was a power for A&L to convert the charge to a fixed charge in certain circumstances. 80The clause that is at the heart of the second question on this appeal is the negative pledge contained in clause 4.1 and clause 4.2 of the RILA Security Deed. So far as presently relevant, clause 4.1 provides: "Without the consent of the Chargee ... the Chargor may not agree, attempt or take any step to ... (a) ...dispose of the Secured Property ..." 81So far as presently relevant, clause 4.2 provides: "Without the consent of the Chargee, the Chargor may not, and may not agree, attempt or take any step to, do any of the following in respect of the Secured Property over which this deed is fixed: ... (d) deal in any other way with the Secured Property or any interest in it, or allow any interest in it to arise or be varied." Clause 4.1 applies whether the charge is fixed or floating. 82A document to which A&L, AML and representatives of the financiers who had contributed the smaller facility were party, but to which the Appellant was not a party, was the RILA Intercreditor Agreement. A&L was party to that agreement in various capacities, one of which was as Security Trustee. Clause 2.1 of that document obliged A&L, in its role as Security Trustee, to pay a certain monthly sum to the Appellant. That monthly sum was identified in a Schedule to the RILA Intercreditor Agreement. It was an amount that varied month by month, in a range from a little over $85,000 to a little over $95,000. However it was always greater than the amount that the Appellant was obliged to pay to the Manager under the Management Letter for the corresponding month. 83The Management Agreement of 13 July 2005 authorised AML to receive certain amounts that were payable to the Appellant. The first suggestion that AML had been removed as Manager for the purpose of performing any of its functions was in November 2009. Once that occurred, the Appellant notified A&L that the authority of AML to receive payments on behalf of the Appellant was revoked. On 30 November 2009 A&L informed the Appellant and AML that it had converted its floating charge to a fixed charge. The judge did not decide whether that purported conversion was effective. 84For some months thereafter the payments that A&L (in its capacity as the Security Trustee of the smaller stream of finance) was required to make to the Appellant were retained by it in a suspense account. As the trial judge found at [33], A&L wrote to the appellant on 7 December 2009: "A&L advised that it was of the view that the Manager had not been removed as Manager for the purposes of the RILA Financing Deed and that the Manager continued to be obliged to provide the relevant written notices. A&L emphasised that the amounts payable to RILA under the RILA Intercreditor Deed were subject to a fixed charge and RILA was not able to deal with such amounts without the consent of A&L. It also advised that it would continue to pay amounts due on each Payment Date in accordance with the relevant provisions of the RILA Intercreditor Deed and that the disputed amount would be deposited into a suspense account pending resolution of the issue as to whom that amount should be paid." 85Eventually, by 15 April 2010, the Appellant accepted that AML had been effectively removed as Manager concerning the smaller funding stream. By that time Ladbroke had been appointed as alternative Manager. There might be room for argument about the full extent of Ladbroke's responsibilities as Manager, but they clearly related to, at the least, responsibilities concerning the smaller funding stream. A&L had never retreated from its clear assertion that the amounts that it as the Security Trustee was obliged to pay to the Appellant were subject to the fixed charge in its favour. 86It was at that stage that the Appellant wrote to A&L on 15 April 2010 directing it to make the payments that were due to the Appellant into a particular bank account. That bank account was identified only by stating the institution with which it was maintained, and the account number. As it happened, the account was not one in the name of the Appellant. 87A&L did not act in accordance with that direction. On 5 May 2010 A&L wrote to the Appellant and the directors of the Appellant. A&L required that , pursuant to clauses of the documentation that it identified, it be given further information about that bank account. A&L also required an explanation of why the Appellant's instruction to pay money into the nominated bank account would not amount to a breach of clause 4.1 and 4.2 of the RILA Security Deed. It demanded details of the Appellant's bank account, so that A&L could pay the April 2010 fee into that account. It directed the Appellant to then pay that amount to a nominated account of Ladbroke. It stated that if the Appellant did not do so, or alternatively did not direct A&L to make that payment direct to Ladbroke, it would regard that as an Event of Default. 88In response the Appellant wrote to A&L on 6 May 2010 explaining that the Appellant did not have any bank account, and that the bank account in question was to be a "special purpose custodian account of KV Management Pty Ltd (KVM) which if the funds had been deposited as requested would have been held by KVM as a custodian for [the Appellant]." 89A few days later, on 12 May 2010, the Appellant backed down in part. It directed A&L, as the Security Trustee, to pay the fee specified in the Management Fee Letter for May 2010 to Ladbroke. By 18 May 2010 the backdown of the Appellant was complete - it complied with a direction given by A&L and gave a direction to A&L (as the Security Trustee) for the money that had been held in the suspense account to also be paid to Ladbroke. 90Notwithstanding the backdown, on 28 May 2010 A&L served a notice on the Appellant contending that had it had breached the negative pledge by its actions in April 2010. 91Subject to one qualification, I agree with the reasons of Giles JA for why no breach was involved. That qualification is that in my view the fact that it was intended that KVM hold the payment in trust is part of the reason why no breach was involved. 92I will state more fully why I come to the same conclusion as Giles JA. Notwithstanding the inadequate drafting of various of the documents, and the poor fit that there is between various of them, the negative pledge needs to be construed with as much of an eye to commercial reality as is possible in the circumstances. When no money was ever paid into the account that had been opened in the name of KVM, there is no question of there having been any actual disposal of, or dealing with, the Secured Property, or any interest in it. Likewise there is no question of any interest in it having actually arisen or been varied. There is no evidentiary basis for there having been an agreement to do anything that falls within clause 4.1 or clause 4.2. The most that the Appellant could even arguably have committed is an "attempt or take any step to" do an act that falls within clause 4.1 or clause 4.2. 93In other legal contexts it has been recognised that an attempt to do an act requires more than the doing of an act that is merely remotely connected to that act, or preparatory to the commission of it: Haughton v Smith [1975] AC 476 at 492; Trade Practices Commission v Tubemakers of Australia (1983) 47 ALR 719 at 736 per Toohey J; Trade Practices Commission v Parkfield Operations Pty Ltd (1985) 62 ALR 267 at 272 per Bowen CJ, Smithers and Morling JJ. Concerning the construction of a clause like clause 4.1 and 4.2 that can give rise to a unilateral right to terminate a commercial agreement, I see no reason to take a different approach to the construction of "attempt", or to the construction of "take any step to". There is a readily understandable commercial justification for a lender having rights that protect its interest in the property that constitutes its security. However, there is considerably less commercial justification for a lender having significant rights concerning events that do not actually harm its interest in the security. As well, when a clause like clause 4.1 or 4.2 uses expressions of imprecise denotation like "attempt" and "take any step to" it is appropriate to construe the clause contra proferentem. When there was an intention that any sums paid to the account in the name of KVM would be held in trust for the Appellant, and when the alleged "attempt or take any step to" took the form of a direction made to A&L that it take action, I am not persuaded that the Appellant made an "attempt or [took] a step" that is prohibited by clause 4.1 or clause 4.2. 94The fact that the direction was made to A&L is of fundamental importance. Not every "attempt" to do an act that falls within the words of para (a) of clause 4.1 or para (d) of clause 4.2 constitutes a breach of the negative pledge. Nor does the taking of any "step to do" such an act. The opening words of clauses 4.1 and 4.2, are both "Without the consent of the Chargee..." . These words are an essential element of the prohibition in the respective clauses. There might have been ways in which the Appellant could have dealt with its rights to receive money connected with the financing transaction that it could have carried out behind A&L's back, like purporting to make an equitable assignment of the debts due to it. Performing those acts, or attempting to do so, might well have been a breach of clause 4.1 or clause 4.2. However, the particular act that the Appellant tried to bring about was that A&L itself make a payment to the account in the name of KVM. At the risk of stating the obvious, it was impossible for such a payment to be made to the account that had been opened in the name of KVM without the active co-operation of A&L. By 15 April 2010 A&L had already, by its letter of 7 December 2009, made clear that the amounts that were payable to the Appellant could not be dealt with without its consent. When the direction to pay that the Appellant gave on 15 April 2010 was given to A&L, and A&L was the Chargee, it was fairly obvious that if A&L acted on that direction it would be giving consent. 95For all these reasons I am of the view that the judge came to the right conclusion concerning the second question that arises in the litigation.

Costs and orders 96The question concerning costs arises only if the judge's conclusion concerning the second question is disturbed. Thus it does not arise. 97I agree with the orders proposed by Giles JA. 98YOUNG JA: This is an appeal from a decision of the Chief Judge in Equity who construed a series of complex interlocking documents relating to the financing of aircraft. The judgment medium neutral citation is [2010] NSWSC 1235. 99The case concerns the financing of two aircraft (HL 7740 and HL 7741) for a South Korean airline, Asiana Airlines Inc ("Asiana"). The documentation is the same for each aircraft and counsel wisely ran the case with respect to HL 7740 alone. 100The finance required of just under $104,000,000 was provided in two lots. The majority ($88,180,000) was provided by MARS ECA Finance Ltd ("ECA") from monies it had borrowed from others (the "senior lenders") and the balance of $15,640,000 from monies ECA borrowed from the plaintiff below, now the appellant ("RILA"). 101The essential transaction was that ECA purchased the aircraft from Airbus SA for $100,654,715 in accordance with a Purchase Agreement Assignment. ECA leased the aircraft to Allco Aviation A330 2005 Limited ("Allco Aviation") in accordance with the Master Head Lease and the Head Lease Schedule. Under the Head Lease Schedule, Allco Aviation pays rent of $908,670 each month to ECA. 102Allco Aviation has in turn sub-leased the aircraft to Asiana in accordance with the Master Operating Lease and the Master Operating Lease Schedule. 103Under the Master Operating Lease Schedule, Asiana pays rent of $908,870 each month to Allco Aviation. The flow of payments in relation to the monthly rents are therefore the payment of $908,870 by Asiana to Allco Aviation and the payment of $908,670 by Allco Aviation to ECA. 104ECA then pays out that sum, $789,892.31 per month to the senior lenders and $118,777.69 to RILA. 105RILA is a special purpose company established on 23 June 2005 to facilitate the financing and leasing arrangements of the aircraft. 106Alliance & Leicester plc ("A&L") and Allco JS Pty Limited ("Allco JS") provided secured loans to RILA in connection with the financing and leasing arrangements. RILA obtained its funds to make its loan by virtue of these two agreements: (1) the "LC Loan Agreement" (A&L was the LC Lender); and (2) the "Asset Loan Agreement" (Allco JS was the Asset Financier). 107Under the LC Loan Agreement RILA is obliged to make monthly repayments in accordance with clause 3.8 and Schedule 5 which for the month of April 2010 was an amount of $25,203.32. RILA is obliged to make monthly repayments under the Asset Loan Agreement in accordance with clause 3.1, 3.2 and Schedule 3 which for the month of April 2010 was an amount of $14,529.36. RILA is also obliged to make a payment to the Manager pursuant to clause 8.10 of the RILA Financing Deed and the Schedule of the Management Fee Letter which for the month of April 2010 was $79,045. 108RILA was thus obliged to pay for the month of April 2010: $25,203.32 (under the LC Loan Agreement); $14,529.36 (under the Asset Loan Agreement); and $79,045 (Manager's fee) totalling $118,777.69. 109The only other party to the appeal, Ladbroke Management Pty Limited ("Ladbroke"), was appointed as RILA's Manager in the financing and leasing arrangements after the original Manager's appointment was terminated. 110These arrangements were structured and organised by Allco Finance Group Ltd ("Allco") or subsidiaries and businesses owned and controlled by Allco that were placed into receivership in 2008 and restructured and/or sold in 2009/2010. 111The RILA Financing Deed is dated 12 July 2005. The parties to it are RILA, A&L (as the Security Trustee, the LC Facility Agent and the LC Lender), Allco Managed Investments Limited as trustee of the Aircraft Holdings Trust ("AMIL") (and Allco JS by substitution on 28 July 2007) as Asset Facility Agent, each person defined as an Asset Financer, and Allco Management Ltd ("AML") (as the Manager). "Asset Financier" is defined as each person named as such in the Asset Loan Agreement and any person who becomes a financier under that agreement by way of assignment and substitution: cl 26.1. The Asset Financier named in the Asset Loan Agreement is AMIL as trustee of the Aircraft Holdings Trust. 112As I noted earlier, the suite of documents was complex. Unfortunately they did not anticipate the difficulties that would arise if Allco became insolvent. I set out below a diagram which goes a long way to clarifying the position of the various parties. This diagram was prepared by the appellant for the first instance proceedings, agreed to by the respondents and adopted by the primary judge. 113The following flow chart depicts the arrangements: 114The Financing Deed records AML as the "Manager" and the provisions relevant to the appointment and removal of the Manager are in clause 8. This includes provisions authorising the Manager to: (a) make or cause to be made all calculations and determinations as and when required under the Transaction Documents and to provide to each of the other parties to the Transaction Documents details of any revised, amended or recalculated schedules, figures, sums, amounts or dates; (b) undertake any other administrative or management tasks on behalf of RILA or the Lessor as the Manager may agree with those entities; (c) prepare and keep or cause to be prepared and kept all accounting records of RILA; and (d) do all acts and things that are reasonably incidental to the acts set out in this clause 8.2, and to sign or execute all such documents and instruments in connection with those duties as may from time to time be required under the Transaction Documents. 115Clause 8.7 empowers RILA to remove the Manager if, inter alia, it becomes insolvent. However, cl 8.9 specifies that the removal is not to become effective unless and until a replacement Manager has been identified and approved by the Security Trustee and each Facility Agent (acting on the instructions of the Relevant Financiers), and that replacement Manager has executed documents reasonably satisfactory to the Security Trustee to become the replacement Manager for the purposes of the Transaction Documents. 116Clause 8.10 is a key clause and I will set it out in full: 8.10 Management Fee In consideration of the Manager entering into this deed RILA agrees to pay the Manager a management fee according to the terms of the Management Fee Letter. 117The parties below agreed that the central issue for determination was whether RILA is obliged to pay, or give a direction to pay, a monthly Management Fee to Ladbroke pursuant to clause 8.10 of the RILA Financing Deed. 118It is only if RILA is so obliged that it will be necessary to consider whether RILA has committed the Payment Events of Default set out in the Notice of Default. 119I should at this stage refer to that Notice of Default. The loan through A&L was secured by way of a floating charge. That charge could become fixed if RILA committed default and A&L served a Notice of Default. On 28 May 2010, A&L served RILA with what purported to be such a notice. I will refer to this document as the "Notice of Default". 120It is not necessary at this point to set out its terms in detail. I need only note that it was based on two grounds: (A) (Paras 4-11) that RILA had breached the negative pledge obligations laid on it by the documents in respect of property on which its loan was secured; and (B) a breach caused by the non payment of the Management Fee, clause 8.10 of the Financing Deed, is an Event of Default pursuant to clause 15(a) of the Financing Deed. 121The learned primary judge ruled at [143] that RILA is obliged to pay Ladbroke the Monthly Management Fee in the Schedule in the Management Agreement headed "Management Fee Letter" and that the respondents were not entitled to rely on the Notice of Default. 122The question of costs was the subject of a subsequent hearing. In it a notice of motion was filed which sought, inter alia, that KV Aviation Holdings Pty Ltd ("KVM"), which is RILA's holding company, pay costs to the respondents. It was put that RILA was a company of no substance and that KVM should be responsible to pay any costs ordered against RILA. 123In her second judgment, [2011] NSWSC 34, the primary judge ordered that each party should bear its own costs. Her Honour found it unnecessary to consider whether the non-party (KVM) ought to pay costs, but noted at [30], with reference to the principles laid down by the High Court in Knight v FP Special Assets Ltd [1992] HCA 28; 74 CLR 178, 192-3, that RILA was the equivalent of a "man of straw" and that KVA had played an active role and had an interest in the litigation. 124RILA appeals against the first part of the original determination. A&L, Allco JS and Ladbroke cross appeal in respect of the latter part of that determination and against the order that each party bear its own costs. They also press the claim against KVM which they name as the second cross respondent. RILA has filed a notice of cross contention contending that the determination the subject of the cross appeal should be upheld as well on other grounds. 125The appeal was heard on 20 October 2011, Mr S D Robb QC, Ms S Chrysanthou and Mr J Emmett appeared for the appellant and Mr A J Bannon SC and Mr R M Foreman of counsel appeared for the respondents. 126The structure of these reasons is dictated by the way the case was presented below. Part 1 focuses on the appeal, Part 2A on the cross appeal with respect to the Notice of Default, Part 2B on the notice of cross contention, Part 3 on the question of costs and Part 4 on the result of the appeal. 1271. Unfortunately, it is necessary to refer in some detail to a number of documents and some care has to be taken in doing this as not all parties to the appeal are parties to each and every document. 128As noted earlier, there were two streams of finance, the major stream, approximately 88 million US dollars, came from European investors and was under the aegis of ECA, the minor stream of 15.5 million US dollars was under the control of RILA's directors. 129I have referred to the Financing Deed of 12 July 2005 in some detail. The other principal agreement was the Management Agreement which was signed the day after the Financing Deed. 130The minor stream of financing also involved the RILA Intercreditor Deed of 12 July 2005. 131Additionally there were the documents dealing with the major lending. These included the ECA Loan Agreement of 12 July 2005, the ECA Intercreditor Agreement of 12 July 2005, the Instalment Sale Deed of 12 July 2005 between Mars ECA and RILA, the Head Lease and Operating Lease of the aircraft between Mars ECA and Allco Aviation and the Management Agreement of 13 July 2005 between RILA, Allco Aviation and AML. 132The parties appear to agree, as the primary judge recorded at [55], that: a suite of commercial contracts should be interpreted having regard to what a reasonable person would have understood the language used by the parties to mean: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22]; Toll ( FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40]; International Air Transport Association v Ansett Australia Holdings Limited [2008] HCA 3; 234 CLR 151 at [53]. It will be necessary to give a business like interpretation to the contracts with attention being given to the language used by the parties, the commercial circumstances which the documents address and the objects intended to be secured: McCann v Switzerland Insurance Australia Limited [2000] HCA 65; 203 CLR 579. 133The parties seem to accept also that the contracts should be construed, if at all possible, as a group of interlocking agreements where inconsistencies are to be kept to a minimum. 134It is an accepted principle of the interpretation of contracts that, where there are a series of contracts, but, in essence, one transaction, it is appropriate to read them together for the purpose of determining their legal effect: Smith v Chadwick (1882) 20 Ch D 27, 62; Manks v Whiteley [1912] 1 Ch 735, 754. 135We were also reminded of the oft repeated principle that the construction of commercial contracts needs to be approached against the matrix of facts which underpinned the agreements and in no narrow way, but as business people would have understood the words in the surrounding circumstances: ( Di Dio Nominees Pty Ltd v Brian Mark Real Estate Pty Ltd [1992] 2 VR 732, 741-2). 136The principles referred to in the preceding two paragraphs need to be held in tension against: (a) where there is a fact situation that appears not to have been contemplated by the parties; (b) where the parties appear to have spent a large sum on commercial solicitors to put their agreement into the best possible form; and (c) where there are companies incorporated in tax havens involved (as part of the explanation for what is stated in the documents may be for foreign forensic purposes). 137Point (c) is significant as ECA is a Cayman Islands company and a number of the Allco companies were incorporated in Eire. 138There is a further complication. One should not speak too glibly about a "suite of documents". That expression conveys the flavour that the set of documents is internally consistent and that all relevant parties are parties to all documents. At least the latter matter, if not both, are not the case with the documents in the present case. Indeed, the drafter seems to have deliberately chosen not have all relevant parties execute each document in the so-called "suite". The best defence that Mr Robb could make of the situation was to describe the documentary regime as holding together though frayed at the edges. 139Whilst generally accepting the approach to construction taken by the primary judge, the appellant says that her Honour did not consider another important principle of construction of documents: that a construction which would lead to an absurd, unreasonable or capricious result is to be avoided: see Australian Broadcasting Commission v Australasian Performing Right Association [1973] HCA 36; 129 CLR 99 at 109; JP Morgan Australia Ltd v Consolidated Minerals Pty Ltd [2011] NSWCA 3 at [96]. 140Although I was curious, we did not press for answers as to why the present proceedings were commercially purposeful. One answer may be that, whilst Allco was in the picture, its subsidiary ALM was the intended recipient of considerable monthly sums as management fees. With ALM out of the picture, both the appellant and the respondents are making claim to those monies as an unexpected windfall. 141It does appear that somehow or other out of the mass of documents, if all works out as intended, RILA will end up after the end of the lease of the aircraft with the ability to acquire the aircraft at an advantageous price. 142It is RILA's case that "Manager" in clause 8.10 means AML and does not include a "replacement Manager" and therefore RILA is not obliged to pay Ladbroke a Management Fee pursuant to that clause. However RILA accepts that it is obliged to pay Ladbroke a "reasonable" fee for its services as Manager. 143The primary judge noted at [60] that AML held two appointments relevant to the present dispute: (1) as the Manager under the Management Agreement in respect of the $88 million ECA transaction; and (2) as the Manager under the RILA Financing Deed in respect of the $15 million RILA transaction. 144Thus, the primary judge said at [61], there were two separate relevant appointments and two separate ways of terminating or removing the Manager from those appointments. Under the Financing Deed, RILA and A&L were able to remove the Manager for, inter alia , breaches of the Manager's obligations under the Financing Deed. Both RILA and Allco Aviation were able to remove the Manager for breaches of the Management Agreement. A&L was not able to remove the Manager in respect of the ECA transaction as it was not a party to the Management Agreement and had no rights in respect of the appointment of the Manager under that Agreement. 145The question as to whether AML was validly removed as Manager under the Management Agreement was the subject of separate proceedings. Her Honour said at [62] that she was going to assume that AML was removed from its appointment as Manager under the Management Agreement by the letters to it from RILA and Allco Aviation on 17 and 20 November 2009. It was not clear, at least on the documentary material, on what particular basis RILA and Allco Aviation removed AML as Manager. 146Her Honour then noted at [63] that clause 8.9 of the RILA Financing Deed refers to a "replacement Manager", an expression that is not defined in the Deed. The removal of a Manager under clause 8.7 of the Deed is not effective unless and until the replacement Manager has been identified and approved by A&L and each Facility Agent and the replacement Manager has executed documents to become the replacement Manager for the purposes of the Transaction Documents that are "reasonably satisfactory" to A&L. She further noted that all of the steps necessary to give effect to the removal of AML and the appointment of Ladbroke occurred by 12 April 2010. On 13 April 2010, A&L wrote to AML confirming AML's removal and Ladbroke's appointment as replacement Manager on 12 April 2010. 147The primary judge referred to part of the Dictionary in the Financing Deed where cl 26.2 provides: Unless the contrary intention appears, a reference in a Transaction Document to: ... (k) a particular person includes a reference to a person's executors, administrators, successors, substitutes (including persons taking by novation) and assigns; 148The primary judge reached her conclusion on this issue in [69] and [70] of her reasons: 69 RILA submitted that had the parties intended that the term "Manager" was to be understood to include a reference to "replacement Manager" they would have included such a provision. The expression "substitutes" in clause 26.2(k) includes the words "(including persons taking by novation)". Far from limiting the expression "substitutes" to the "Substitute Financier", who takes by novation under the Substitution Agreement, it expressly includes them by these words in parentheses. If the expression is limited to a Substitute Financier taking by novation then there would have been no need for the words in parentheses. The words in parentheses make it clear that it is intended that the expression "substitutes" includes a larger category of persons than merely the Substitute Financier. 70 The expression "substitutes", as the plural of "substitute", has a number of ordinary meanings including "replace (someone or something) with another": The New Oxford Dictionary of English ; and "to put (one person or thing) in the place of another; to take the place of; replace": The Macquarie Dictionary Federation Edition. Clearly the parties to the RILA Financing Deed contemplated that the Manager would have a substitute or a replacement having regard to the regime set out in clause 8 of the Deed and, in particular, the use of the expression "replacement Manager". I see no material difference between the expression "replacement Manager" and "substitute" Manager in the context of the RILA Financing Deed as a whole. I am satisfied that a replacement Manager is a substitute. It follows that the expression "Manager" in clause 8.10 refers to Ladbroke from 12 April 2010 onwards. Even if that were wrong, I am satisfied that Ladbroke can reasonably be described as a "successor" to AML having regard to the ordinary meaning given to that expression: "one who or that which succeeds or follows; one who succeeds another in an office, position, or the like": The Macquarie Dictionary Federation Edition. 149The primary judge thus ruled that a replacement Manager was a substitute for or a successor to AML and was entitled to receive the fee under cl 8.10. She also rejected the submission that the fee was not payable because the Management Agreement had been terminated. 150Mr Robb says that it is too simplistic to take this approach. 151He puts that the commercial reality of the situation is that AML, which is part of the Allco group of companies was appointed as Manager under documents relating to each of the two funding streams. It had different duties under two different documents, but it was entitled to be paid the one indivisible "Management Fee". What would happen if one of the appointments was terminated and the other was still on foot was not specifically dealt with and would need to be resolved in a way that was equally effective no matter what the alternative outcomes in relation to the timing and replacement of the Managers. 152Counsel puts that the primary judge's solution means, in effect, that the minor lender can nominate the Manager to handle the duties required to be performed for the major lenders. This can hardly be what the parties had in mind. 153As to the Management Fee, Mr Robb puts that the monthly Management Fee was clearly for management even though it was expressed as consideration for the Manager entering into the agreement. 154This means that one cannot escape from the complications by saying only AML could be said to be the person who took remuneration for entering into the agreement. One can always give evidence as to the real consideration for a promise no matter what is recorded as being the consideration. Whilst one can understand a once and for all fee payable by instalments, a continuous income stream, as here, shows that the fee was really for ongoing management. 155The fee is an ongoing one payable out of the monthly lease repayments. This fact alone points to Mr Robb's submission being correct. Thus, I accept that it is too simplistic a solution to say that, because AML was the only Manager of whom it could be said that it was being paid for entering into the agreement, it alone was entitled to the fee. 156The primary judge also focused on cl 26.2(k) of the Financial Deed which provides that reference to a particular person includes reference to (inter alios) the person's successors or substitutes. 157The primary judge said that clearly the parties to the Financing Deed contemplated that the Manager would have a substitute or a replacement having regard to the regime set out in clause 8 of the Deed, in particular, the use of the expression "replacement Manager". She saw no material difference between the expression "replacement Manager" and "substitute" Manager in the context of the RILA Financing Deed as a whole and was satisfied that a replacement Manager is a substitute or, if this were wrong, that Ladbroke could reasonably be described as a "successor" to AML. 158Mr Robb puts that this reasoning is flawed and does not provide a solution. He says that her Honour did not analyse in sufficient detail what it means to say that one person is a substitute for another in relation to the first person's role and obligations under a complex series of Transaction Documents. 159Mr Robb says that it is inadequate just to look at dictionary definitions. One must determine what, in context, is actually required for one person to be a substitute for another. In the present case, the question as to whether Ladbroke is a substitute for AML does not depend on whether it has assumed the title of Manager and has assumed some of AML's obligations. To be a substitute requires, substantially, total assumption of AML's obligations. 160Likewise, Ladbroke cannot be properly classed as a "successor" to AML. 161I accept Mr Robb's submissions as the true construction of "substitute" and "successor". 162The appellant's written submissions (para 57) summarise its argument as to why there should be a negative answer to the question as to whether a management fee remains payable. It makes 21 points: 57.1 RILA and Allco Aviation have rights and obligations in relation to the $88 million loan under the ECA Transaction Documents for which they require the assistance of management services where inadequate performance or failure of performance by the manager will put them in default. 57.2 RILA has different but comparable rights and obligations in relation to the $15 million loan under the RILA Transaction Documents for which it requires the assistance of different management services where inadequate performance or failure of performance by the manager will put it in default. 57.3 The Management Agreement is the tripartite agreement which is defined in the ECA Loan Agreement as the "Management Agreement", and its terms clearly impose obligations on AML to manage RILA's and Allco Aviation's rights and obligations under the ECA Transaction Documents. 57.4 Clause 8 of the Financing Deed creates a management relationship between RILA and AML in relation to RILA's rights and obligations under the RILA Transaction Documents. 57.5 Clause 8.2(b) of the Financing Deed expressly contemplates that AML's management duties may include additional duties in favour of both RILO and Allco Aviation as may be agreed. 57.6 The Financing Deed and the Management Agreement are effectively contemporaneous documents. 57.7 Both the Financing Deed and the ECA Loan Agreement expressly identify AML as the Manager. 57.8 Clause 2 of the Management Agreement obliges RILA to pay the amounts set out in the Schedule to AML as a management fee for the services set out in the Management Agreement. 57.9 The Schedule to the Management Agreement takes the form of a document called "Management Fee Letter". The columns in that document correspond with what is required by clause 2 of the Management Agreement. 57.10 Clause 8.10 of the Financing Deed requires RILA to pay the Manager a management fee according to the terms of the Management Fee Letter. 57.11 The Management Fee Letter is defined in the Financing Deed as the "the fee letter dated on or about the date of this deed between RILA and the Manager". 57.12 The obligation referred to at 57.10 cannot be a reference to the Schedule to the Management Agreement alone, because the Management Fee Letter lists dates and different amounts in different columns, and it is necessary to have regard to clause 2 of the Management Agreement to know which sums are payable in which circumstances. 57.13 If the Management Fee Letter referred to in clause 8.10 of the Financing Deed is the Management Agreement as a whole, then the effect is that RILA is separately required by clause 2 of the Management Agreement and clause 8.10 of the Financing Deed to pay the same indivisible amounts to the respective managers for the provision of different management services under the two agreements. 57.14 The amounts set out in the Schedule to the Management Agreement as being the management fees payable to AML constitute the entirety of the money which will be received by RILA in relation to the two funding streams to pay management fees. 57.15 RILA and Allco Aviation have the power to terminate the Management Agreement at any time. It follows that they will be free to appoint a replacement Manager to provide the management services required by the Management Agreement. 57.16 Under clause 15.2 of the ECA Intercreditor Agreement the Security Trustee can terminate the appointment of AML under the Management Agreement for breach, but cannot appoint a replacement. 57.17 Under clause 8.7 of the Financing Deed RILA and the Security Trustee can in different circumstances terminate the appointment of AML as Manager under the Financing Deed. 57.18 The effect of clause 8.9 is that a termination under clause 8.7 will not be effective until a replacement manager has been appointed in accordance with clause 8.9. 57.19 Consequently, AML may be terminated as Manager under one or both of the Management Agreement and the Financing Deed. Terminations may be made at the same time, or different times, and in any order. 57.20 The parties who are entitled to appoint replacement Managers under the two agreements may agree to appoint the same party as replacement Manager, or different parties. 57.21 Whatever the outcome may be the only money available to pay management fees will be the amounts already listed in the Schedule to the Management Agreement. 163The argument presented seems plausible. Two points must be made. First, with respect to the drafters, the documents are, in hindsight, not well drawn and do not deal with what might follow from the insolvency of the Allco companies, particularly AML. Thus, it is not surprising that problems like those mentioned in the appellant's 21 points arise. Secondly, the difficulties mentioned by the appellant have to be assessed and balanced against other difficulties noted in the respondents' submissions, which arise if the appellant's submissions are accepted. 164Alternatively, the appellant puts that cl 8.10 of the Financing Deed must be construed having proper regard to the place and function of cl 8 in that agreement in relation to the Transaction Documents which relate to two separate funding streams. Thus, such construction should achieve as effective and fair an outcome as can be achieved equally in relation to all possible permutations of terminations, timing of terminations and choices of replacement Managers under the Management Agreement and the Financing Deed. 165The respondents' counsel cite the decision of the Full Federal Court in Leveraged Equities Ltd v Goodridge [2011] FCAFC 3; 191 FCR 71, 109, where it was held that a contract may provide for it to be novated by a unilateral act. This is a decision of a full court and is not clearly wrong, it must be followed, though it seems to me that there is little in the way of authority to support it. 166The basic question is whether cl 8.9 of the Financing Deed has that effect. 167The clause is as follows: Replacement Manager Neither the termination of the Manager under clause 8.6...nor the removal of the manager under clause 8.7...is effective unless and until a replacement Manager has been identified and approved by the Security Trustee and each Facility Agent...and that replacement Manager has executed documents reasonably satisfactory to the Security Trustee to become the replacement Manager for the purposes of the Transaction Documents. 168The respondents put that cl 8.9 impliedly authorised the Security Trustee (A&L) to effect a substitution of the RILA Manager upon it being removed under cl 8.7. It is difficult to see how this is so. The clause speaks in terms of the Security Trustee approving an appointment rather than being the person to make the appointment. 169Mr Bannon puts that, although it would have been better had more words been supplied, there are sufficient words to show that the Security Trustee's role in identifying and approving the replacement Manager and the fact that RILA is not mentioned at all, mean that the Security Trustee can make the appointment, at least if necessary, to fill in a defect in the process. 170In the Deed Poll (called a "Deed of Accession") that Ladbroke executed, it covenanted to observe the obligations of the Manager. It is suggested that this completed the process. 171The Deed Poll is said to be for the benefit of the other parties to the financing. Whilst this is odd in a deed poll, it is of no moment as any person can sue on a deed poll: Sunderland Marine Insurance Co v Kearney (1851) 16 QB 925; 117 ER 1136; Chelsea and Walham Green Building Society v Armstrong [1951] Ch 853. 172The point goes nowhere because the parties have agreed that Ladbroke was properly appointed the replacement Manager for the RILA stream. 173Mr Robb submits that it was clearly not the parties' intention that whoever was the replacement Manger on the RILA side from time to time would be entitled to 100% of the money that was available to pay Managers. 174One construction of the Financing Deed is that, once a replacement Manager is appointed under 8.9, that Manager has all the duties that AML originally had, so that that Manager is truly a "substitute". 175Mr Robb rejects this construction. He puts that this would be to foist on the major lender a Manager of its side of the transaction without that side's consent. Further, cl 8.2 acknowledges that the Manager under the Deed is essentially a person to act for RILA and that the Manager has no obligations except those expressly set out in that Deed. 176Mr Bannon argues that Mr Robb's approach is also commercially absurd. He says you would then have a system which requires there to be a Manager who can never leave until there is a replacement Manager, but the replacement Manager's remuneration is left open. 177If one focuses on a scenario where an existing Manager wants to or needs to get out, its ability to do so is seriously affected because it cannot until a new Manager is appointed. No new Manager will take the position until it is reasonably assured that there is sufficient remuneration there to make it worthwhile to accept the appointment. It might not wish to bargain with RILA or to be forced into court or arbitration. 178Again, it might be asked: why should RILA get an increased monthly payment merely because the appointed Manager becomes insolvent or wishes to resign? 179Further, commercially, it is essential that the Manager be replaced quickly. The whole agreement requires that a Manager always be in place. The agreements do not deal with the case of a Manager who is a natural person dying or a corporate Manager going into liquidation. However, the implication is there that the situation must be remedied quickly. 180We have here a problem that the drafter evidently did not foresee and the Court has to construe what is in the documents to discover what the parties intended to happen in the events which have in fact occurred. 181Both sides of the argument rely on commercial viability and reject the more technical approach favoured by the primary judge. At least up to a point I agree with this approach as the strictly technical construction leads to an over simplistic result as to the parties' intention. 182Even in commercial contracts, the intention of the parties must be gleaned from the words they have used in their contract. Time and time again, courts have given little endorsement to arguments that, despite what is written, commercial reality means that the Court should apply some different approach to contractual interpretation. However, where the basic documents do not contemplate the event which has happened, the Court has greater liberty to consider commercial realities, particularly when both parties accept that it should do so. 183It seems to me that it is at the heart of the parties' agreement that there must always be a Manager in place. It is common ground that the Manager would be remunerated. I consider that, whilst there is considerable validity in Mr Robb's submissions, Mr Bannon's more rationally fit in with the basic principles of the conjoined agreements. 184Accordingly, I agree with the result reached by the primary judge. 1852A. I now turn to the Notice of Default. 186The respondents relied below on two discrete acts or failures by the appellant as justifying the issue of the Notice. In summary these were: A. RILA's conduct in pressing for payments otherwise due to AML to be paid into KVM's bank account (Paras 4-11 of the Notice); and B. (Which is no longer an issue) that RILA did not pay management fees pursuant to cl 8.10 in April and May 2010. 187As to A, the primary judge held at [139] that the facts showed that RILA had not breached the negative pledge and that its conduct did not constitute an Event of Default. 188The cross appellants say that the primary judge's analysis was flawed in a number of respects. 189First, the primary judge erred in concluding at [137] that RILA formed the intention to create and did create an immediately operative trust. 190Secondly, the primary judge erred by determining whether an Event of Default occurred by reference to the December 2009 conversation 191Thirdly, if a trust was created, the primary judge erred by failing to consider whether the creation of that trust was itself an Event of Default. 192Fourthly, the primary judge erred by failing to consider whether RILA's conduct amounted to an attempt to allow an interest to arise in respect of the Secured Property, because an equitable lien was created over that property which would vest in the trustee. 193The decision on the allegation that RILA breached its negative pledge requires an analysis of cl 4.2 of the RILA Security Deed which is as follows: Without the consent of the Chargee, the Chargor may not, and may not agree, attempt or take any step to, do any of the following in respect of Secured Property over which this deed is fixed: ... (d) deal in any other way with the Secured Property or any interest in it, or allow any interest in it to arise or be varied. 194The allegation is that some monies, part of the Secured Property, were to be paid into a "custodian" bank account in the name of KVM. The account was opened, but no monies were ever paid into it. However, it is put that what occurred constituted an attempt or the taking of a step to deal with an interest in the Secured Property or to allow an interest in it to arise. 195The vital document is a letter which RILA wrote to the Security Trustee on 15 April 2010. That letter read, so far as is relevant: Given the Removal Letter, AML has now been removed for the purposes of the Financing Deed. To this end, we hereby direct you to comply with our letter to you entitled "Payment Instruction" ... dated 20 November 2009 and to pay RILA all amounts from the date of this letter to which RILA is entitled under the Intercreditor Deed into the following account: Bank: Australia and New Zealand Banking Group Limited Swift Code: [Provided] Account No: [Provided] (same account number as in letter of 3 February 2010) We note that the date of the Removal Letter is 12 April 2010. We hereby direct that the payment due to RILA on or around 13 April 2010 pursuant to the Intercreditor Deed be paid into the account detailed above. RILA reserves its rights in relation to all other amounts retained by you in the "suspense account" referred to in the Escrow Letter. 196The account number provided was for an account whose holder was KVM. 197There was some correspondence between the parties. On 6 May 2010, RILA wrote that RILA did not have a bank account and that the KVM account nominated was "a special purpose custodian account....which if the funds had been deposited as requested would have been held by KVM as a custodian for RILA. Given that no funds have been received no such custodian arrangement has in fact been entered into...". 198Mr Bannon says that there was an attempt to convert a book debt into cash in the account of KVM: the only reason this would not be a breach is if there was a trust over that account in favour of RILA; but there was no such trust. 199The primary judge found no breach basically because she found that a trust had been created on 3 December 2009. 200On 23 November 2009, the controllers of RILA approached the ANZ Bank to open a US dollar account for RILA. The bank obliged. On 3 December, the controllers asked that that account be closed and a fresh account opened for KVM. The RILA account was closed on 3 December, the KVM account was opened on 7 December. This latter is the account referred to in the 15 April letter. 201The evidence which the primary judge accepted was that Mr Lennox, solicitor for RILA, was nervous about RILA opening a bank account as that may have been taken as breaching a term of one of the agreements. He advised that a custodian account be opened. On 3 December 2009, Mr Veal, an officer of RILA, accepted that advice in a telephone conversation. 202The primary judge said at [136] to [138]: 136 Mr Lennox gave evidence that he gave advice to Mr Veal about the specific structure that could be put in place to establish a custodian arrangement. His evidence was that it would operate by way of "deed poll" (tr 163). He also gave evidence that he was not asked to prepare a custodian agreement. The letter from RILA to A&L dated 6 May 2010 advised that the KVM account was to be a special purpose custodian account and that the funds, that is the Secured Property, if deposited "would have been held by KVM as a custodian of RILA". That letter also included the statement that, "Given that no funds have been received no such custodian arrangement has been entered into". 137 I do not regard these statements as evidence of an intention to create a trust at a later date.... The intention to create the trust was formed when Mr Lennox gave his advice in December 2009 and Mr Veal agreed on 3 December 2009 that RILA had decided to proceed with the custodian arrangement. The subject matter of the trust was the Secured Property and clearly the objects of the trust were to hold the money for RILA to enable RILA to comply with its obligations under the Transaction Documents. The fact that there was a dispute over whether Ladbroke was entitled to the Management fee that had previously been paid to AML does not change these conclusions. 138 I am not satisfied that the absence of any written custodian agreement in the circumstances that I have described establishes that Mr Kinghorn [a director of RILA] decided not to take Mr Lennox advice so that the Secured Property could pass to KVM. I have no doubt that Mr Kinghorn intended to follow Mr Lennox' advice. I also have no doubt that it was Mr Kinghorn's intention that KVM hold the Secured Property on trust for RILA when A&L paid money into the KVM account. I am not satisfied that RILA intended to deal with the Secured Property as alleged. 203Mr Bannon says that the fundamental flaw in this approach is that, at the time of the December 3 conversation, there was no trust property and one cannot set up a trust unless one has trust property. There was no attempt to make the book debts trust property. What they had in mind was that monies would come in from time to time and it was proposed that when they did, they would be held in trust. That does not set up a trust: one cannot have a trust of future property. 204Jacob's Law of Trusts , 7 th ed [2404] says that equity regarded a purported assignment of future property as a covenant to assign the property when it came into existence. The authors continue: However, since there was no property in existence at the time of the purported creation of the trust, there could not be an immediately existing trust. 205I respectfully agree with that statement and thus must agree that the primary judge fell into error. However, as subsequently appears, this was only a technical error and does not affect the validity of her decision. 206Jacobs continues by noting that, if there is consideration, equity will seize upon property as soon as it does come into existence and a completely constituted trust will then arise. That statement is supported by the reasons of Jessel MR in Collyer v Isaacs (1881) 19 Ch D 342, 351. 207In Federal Commissioner of Taxation v Everett (1978) 38 FLR 26, 51, Deane J, in a dissenting judgment in the Full Federal Court, put the proposition this way: The relevant principle is that equity considers as done that which ought to be done. The consequence is that the beneficial interest in the property the subject of the assignment never vests in the assignor when the property is acquired by him. He holds it immediately in trust for the assignee. 208There is no doubt that RILA gave consideration for the arrangement: it was its monies that were the subject of the arrangement. 209Thus, whilst no trust was created on 3 December, on the facts found by the primary judge, such equities were created that immediately any of the book debts turned into cash, they would have been held on trust for RILA. 210There was thus no attempt to breach the negative pledge. 211A subsidiary argument was put by Mr Bannon that, by having the monies paid into such an account, RILA would be breaching the negative pledge because there must inevitably be created an indemnity for expenses in operating the account supported by an equitable charge in the trustee. 212There is probably some technical validity in this argument. However, it is an absurd proposition commercially to construe the negative pledge clause in such a way as would preclude RILA from using a bank account to clear money. Even if it used its own bank account, there would be a small deletion of funds by bank fees, etc. 213Thus, I would dismiss the cross appeal. 2142B. The notice of cross contention raises two issues: (a) that the relevant Secured Property was a floating rather than a fixed charge; and (b) that the primary judge made some factual errors in her costs decision which errors are only significant if this court needs to reconsider the question of costs below. 215As to (a), I consider that the assumption made by the primary judge that the charge was fixed is correct. On that basis, the cross appeal should be dismissed. If the charge was floating the same result would follow. 216As to (b), as I propose that the costs order below not be disturbed, the point does not arise. 2173. The need to examine the orders as to costs in detail only arises if the cross appellants are successful in their cross appeal about the Event of Default. This has not occurred. 2184. It follows that the appeal and the cross appeal must each be dismissed. 219It also follows that the respondents are entitled to their costs of the appeal and the cross respondent to the costs of the cross appeal. 220Thus, in my view, the result of the appeal is: 1 Appeal and cross appeal dismissed. 2. Appellant to pay the respondents' costs of the appeal. 3. Cross appellants to pay cross respondent's costs of cross appeal.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 December 2011