SIF Holdings Pty Ltd v CRC Gosford Pty Ltd

Court of Appeal (NSW)|2021-06-09|Before: Payne JA, White JA, Brereton JA, Rein J

HEADNOTE [This headnote is not to be read as part of the judgment] SIF Holdings Pty Ltd ("SIF") and CRC Gosford Pty Ltd ("CRC") are unitholders in the Gosford Ownership Trust ("GOT"), which in turn owns all of the units in the Gosford Landholding Trust ("GLT"). GLT had an investment in a commercial property in Gosford ("the Property"). The trustee of both GOT and GLT is Columbus Investment Services Limited ("CIS"). The rights and obligations of the various parties are governed by a suite of agreements dealing with financing, securities and indemnities. In December 2007 as part of a restructuring of GOT, CRC redeemed all its A Units in GOT for $31,466,315.60. In early 2008 CRC purchased B Units in GOT with funds provided by Max Realty Pty Ltd ("Max") secured against the assets of GOT and GLT. From 2009 the entities within the structure were subject to various iterations of receivership. On 15 November 2016, CIS as trustee for GLT sold its interest in the Property for $37,500,000. Of this sum, $23,878,235.43 was paid in discharge of CRC's debt to Max, and the remaining $9,482,988.98 together with the deposit of $3,750,000 was paid to CIS as trustee for GLT. CRC's B Units are redeemable for $34,210,002 ("Withdrawal Amount"). SIF disputes CRC's entitlement to the difference between the Withdrawal Amount and the amount paid by CIS to Max in partial discharge of CRC's indebtedness (approximately $10.33 million), as that entitlement was offset by "accumulated liabilities of CRC to GOT". Those liabilities were said to arise from excess distributions previously made to CRC by CIS as trustee for GOT, or alternatively, because GLT was subrogated to CRC's right under the "GLT Indemnity" to receive those amounts from GOT. The primary issue on appeal was whether CRC was entitled to all of the distributions made to it by CIS. This turned on whether the GOT Constitution conferred a discretion on CIS to determine "Distributable Income" and, if so, whether CIS had exercised that discretion in assessing the amount of distributions to CRC. On the alternative argument, the issue was whether GLT was subrogated to CRC's rights under the GLT Indemnity. This turned on whether the GLT Indemnity is an indemnity against loss, and whether CIS is entitled to be subrogated to CRC's rights under that agreement. The Court held (Payne JA, White JA and Brereton JA agreeing), dismissing the appeal: 1. CRC did not receive any excess payments to which it was not entitled, and which offset CRC's right to the balance of the Withdrawal Amount: 1. The GOT Constitution did not confer a discretion on CIS as trustee of GOT to determine the amount of "Distributable Income" paid to CRC. CIS was required to calculate the proper Distributable Income in accordance with trust accounting principles and did not pay CRC any more Distributable Income than it was entitled: [77], [86] (Payne JA), [126] (White JA), [127] (Brereton JA). 2. However, if the GOT Constitution did confer a discretion on CIS to determine the amount of "Distributable Income", then CIS exercised that discretion to distribute to CRC the full amount which it received: [90] (Payne JA), [126] (White JA), [127] (Brereton JA). 1. Even if CRC did receive excess payments, CIS could not deduct the value of those payments from the Withdrawal Amount on the basis that GLT was subrogated to CRC's rights against GOT under the GLT Indemnity: 1. The GLT Indemnity was not an indemnity against loss which gives rise to a right of subrogation. The GLT Indemnity was merely a promise to make a defined payment upon a contingency, and was not a true indemnity against loss: [103], [109]-[116] (Payne JA), [126] (White JA), [127] (Brereton JA). Considered: Transport Accident Commission v CMT Construction of Metropolitan (1988) 165 CLR 436; [1988] HCA 46; Burnand v Rodocanachi Sons & Co (1882) 7 App Cas 333; Insurance Commission (WA) v Kightly (2005) 30 WAR 380; [2005] WASCA 154 1. Even if GLT were subrogated to CRC's rights, those rights were limited to CRC's right to receive Distributable Income and did not extend to CRC's right to the Withdrawal Amount: [123] (Payne JA), [126] (White JA), [127] (Brereton JA).

Judgment

PAYNE JA: These proceedings arise out of a dispute between two groups of unitholders in a trust known as the Gosford Ownership Trust ("GOT"). The dispute concerns entitlement to the balance of funds held by the Trust.

Overview

GOT owns all of the units in another trust known as the Gosford Landholding Trust ("GLT"). GLT invested in a commercial property at 92-100 Donnison Road, Gosford ("the Property") from 2002 to 2016.
GOT originally had three categories of units. The first class was known as Cashflow Return A Units ("A Units") and the second class as Residual Return Units ("Residual Units"). The third class was known as the Class C Units ("C Units") and were issued to RR Funding Pty Ltd. The C Units were redeemed at an early stage and are of no significance in this case.
When GOT was established the first respondent, CRC Gosford Pty Limited ("CRC"), owned all the A Units and no Residual Units. There was a restructuring in 2007 whereby all of the A Units (which were all held by CRC) were redeemed and a new class of units called Cashflow Return B Units ("B Units") was created, all of which were issued to CRC. At the same time an additional number of Residual Units were issued.
The appellant, SIF Holdings Pty Limited ("SIF"), currently owns a significant portion of the Residual Units and it represents the interests of several other Residual Unitholders.
The trustee of both GLT and GOT is the third respondent, Columbus Investment Services Limited ("CIS") (formerly known as Record Funds Management Limited). CIS, as trustee of GOT, holds all of the units in GLT. The terms of GLT and GOT are set out in Constitutions, last amended on 29 October 2002 and 9 January 2008 respectively. CIS as trustee of GLT held a Lease over the Property from October 2002 until November 2016 when the Property was sold. CIS entered a submitting appearance before the primary judge and in this Court.
The debt financing for the scheme was initially provided by Australia and New Zealand Banking Group Limited ("ANZ"), which lent the funds to CRC. CRC used all the proceeds of the loan from ANZ to subscribe for the A Units in GOT and pay related borrowing costs. The second respondent, Max Realty Pty Limited ("Max"), refinanced the ANZ loan in December 2007. As part of the refinance, Max lent money to CRC in 2008 to fund the purchase of the B Units (CRC having redeemed the A Units as part of the refinancing).
By virtue of the ANZ security arrangements and subsequently the Max security arrangements, CRC's debt was secured against the assets of GLT and GOT. Through a combination of guarantees and indemnities, each of those trusts was ultimately liable for CRC's debt. The security arrangements prescribed that all lease cashflows from the Property were to be paid directly by the lessee to bank accounts secured in favour of the lenders.
The entities within the structure were subject to various iterations of receiverships from 2009 and, from that date, the various receivers collected all net lease cashflows and applied them towards accelerating the repayment of CRC's secured loan obligations.
CIS, as trustee for GLT, sold its interest in the Property on 15 November 2016 for a total purchase price of $37,500,000. From the settlement sum: 1. $23,878,235.43 was paid to BNY Trust Company of Australia Limited as security trustee for Max; and 2. $9,482,988.98 was paid to CIS as trustee for GLT. The deposit of $3,750,000 was also released to CIS as trustee for GLT.
It was common ground that under the GOT Constitution CRC was entitled to receive $34,210,002 for the redemption of its B Units. However, CIS asserted that it was not required to pay to CRC the difference between that $34.21 million and the $23.87 million already paid to BNY Trust Company of Australia to discharge CRC's liability to Max (an amount of approximately $11.2 million).
The reason the transaction underlying the trust scheme proved successful, notwithstanding the financial crisis of CRC that precipitated the appointment of receivers in 2009, is that all monies obtained from GLT (and in turn received by GLT from the tenants) were applied to the accelerated repayment of CRC's loan obligations. This led to a reduced level of interest payable by CRC to Max, because principal was being repaid earlier than expected. In addition, the market interest rate was dropping dramatically from that forecast at the time of the refinancing, while rents received on the Property were steady or improving.
As at 30 April 2020, the amount held by CIS was $12,266,603. The former receiver of GLT, Mr Timothy Heesh, also held a sum of approximately $2,382,074 which was derived from lease payments made directly to him by the tenant of the Property. Mr Heesh held that sum pending the outcome of these proceedings. If CRC is not entitled to these funds, they will be available for distribution by CIS, as trustee of GOT and in accordance with the terms of the Trust, to SIF and the other Residual Unitholders.
On 7 December 2017, CIS notified CRC and SIF that it proposed to make various determinations about the entitlements of the unitholders if neither commenced proceedings in the Court within 14 days to dispute those proposed determinations. The trustee's position as expressed was that: 1. CRC was not entitled to the funds held by the trustee because "accumulated liabilities of CRC to GOT" equalled the total amount due to CRC as Taxable Income and the Withdrawal Amount; and 2. CRC was not entitled to funds held by Mr Heesh.
On 21 December 2017, CRC commenced proceedings in the Equity Division contesting the trustee's proposed determinations.

Relevant facts

Before the primary judge, the only lay witness called was Mr Veal, a director of CRC since 15 August 2016. Mr Veal's ability to give probative evidence about CRC's affairs in the relevant period was limited. CRC also called expert evidence from Mr Allan Blaikie, an experienced tax solicitor and accountant. SIF called no lay or expert evidence. There was also a Statement of Agreed Facts dated 27 May 2020.
On 4 June 2002, Allco Holdings Pty Ltd ("Allco") established GOT with CIS as the trustee. GOT was registered as a managed investment scheme under the Corporations Act 2001 (Cth) on 12 September 2002. The terms of GOT were set out in the GOT Constitution, which has been amended on a number of occasions. The most recent version of the GOT Constitution is dated 9 January 2008.
On 28 June 2002, AFG Pty Ltd (a related company of Allco) established GLT with CIS as trustee. The terms of GLT were set out in the GLT Constitution, which was last amended on 29 October 2002. In around June 2002, CIS as trustee of GLT issued units in GLT to CIS as trustee of GOT. CIS, as trustee of GOT, was and is the only holder of units in GLT.
Between October to December 2002, CIS, as trustee of GOT, issued: 1. the A Units in GOT to CRC; 2. the Residual Units to CIS, in its capacity as trustee and responsible entity for the Record Realty Trust ("RRT"); and 3. the C Units to RR Funding Pty Ltd. On 17 December 2002, the C Units were redeemed.
On 29 October 2002, CIS, as trustee of GLT, acquired an interest in the Property. The Property was owned by McRoss Developments Pty Ltd (later Walker Corporation Ltd) ("McRoss Developments") and was, at that time, subject to a 10 year lease (with two five year options) in favour of the Crown. CIS, as trustee of GLT, acquired a concurrent 99 year lease over the Property (with an option to renew for 99 years) for a rental premium of $38.5 million.
The funding to acquire the interest in the Property came from the issue of units in GLT to CIS, as trustee of GOT. CIS, as trustee of GOT, in turn sourced the funds to buy its units in GLT from the issue of A Units in GOT to CRC and the issue of Residual Units. CRC borrowed the money required to acquire the A Units from ANZ under the Gosford Syndicated Facility Agreement dated 28 October 2002 ("SFA").
On the same day, by Security Trust Deed, ANZ established the Gosford Security Trust under which ANZ, as security trustee, was to hold the securities granted to it on trust. CRC entered into a "CRC Security Deed" with ANZ, as security trustee, under which CRC gave security (in various forms) over all of its assets to secure the money owing, or which would become owing, by CRC under the transaction documents, which included the SFA. The security given included an equitable mortgage over all of CRC's present and future rights in GOT, and an equitable mortgage over the "Deposit Account".
The "Deposit Account" was defined in cl 24.2 of the CRC Security Deed to mean "the account so described in the Details" and was an account over which CRC granted an equitable mortgage to ANZ.
Under cl 18.2 of the SFA, CIS (as trustee for GOT) gave a guarantee to ANZ of CRC's liability to pay money under the relevant transaction documents. On 28 October 2002, to secure this guarantee, CIS entered into the "GOT Security Deed" whereby CIS gave security (in various forms) over all of its assets to ANZ. In addition, on 28 October 2002 CIS (as trustee for GLT) and CRC entered into a deed titled "GLT Indemnity" under which, among other things, CIS agreed to "indemnify" CRC for certain amounts. This "indemnity" was secured by, among other things, a charge in favour of CRC over all of the assets of GLT granted under the "GLT Security Deed".
By separate instrument of mortgage ("CIS Mortgage of Lease"), CIS as trustee for GLT granted CRC a mortgage over all of CIS's interest in the Property and the concurrent lease over the Property. This mortgage was to secure money payable by CIS as trustee for GLT to CRC under, relevantly, the GLT Indemnity. In turn, CRC then granted a mortgage of all of its interest in the CIS Mortgage of Lease to ANZ under the "CRC Mortgage of Lease".
On 28 October 2002, McRoss Developments, as owner of the Property, gave notice to the Crown tenant (WorkCover NSW) to pay rent directly into the Deposit Account.
On 11 November 2002, CRC gave a notice to CIS, as trustee of GLT, irrevocably authorising and directing CIS to pay into the Deposit Account "all amounts which are or at any time become due" to CRC under the GLT Indemnity, GLT Security Deed or CIS Mortgage of Lease.
Both parties accept that between October 2002 and May 2009: 1. the tenant of the Property made regular payments of rent into the Deposit Account; 2. expenses related to the Property were paid from the Deposit Account; and 3. regular loan repayments were made from the Deposit Account to satisfy CRC's obligations under the SFA.
In late 2007, the loan provided by ANZ to CRC was refinanced by Max. Max obtained the finance to pay ANZ out by issuing "Gosford Series" notes to the "Max Noteholders". Max's obligations under the notes were secured by a charge given over its assets in favour of BNY Trust Company of Australia Limited (formerly JP Morgan Trust Australia Limited) as security trustee of the Max Realty Security Trust.
As part of the refinancing, minor amendments were made to the various security and transaction documents, as set out in the "Global Amending Deed No 1" dated 18 December 2007. By cl 14.14(b) of the SFA (as amended by the Global Amending Deed No 1), CRC undertook that as at 31 December 2008, the ratio of the loan balance to its assets ("LVR") would be no less than 77%. Failure to remedy a breach of the undertaking within 30 days was an "Event of Default": see cll 15.1(b) and 15.2(b) of the SFA.
On 18 December 2007, as part of the refinancing, CRC's A Units were redeemed for $31,762,788. This was the amount owing under CRC's loan from ANZ and was paid by CRC to ANZ to discharge that remaining debt. At about the same time, an amount of approximately $5 million was paid by GOT to the Residual Unitholders, and $1.6 million approximately was lent by GLT to RRT.
By the Fifth Supplemental Deed to the GOT Constitution dated, stamped and lodged with ASIC on 30 June 2004, amendments were made to Schedule 2 of the GOT Constitution concerning the amount due to CRC under the redemption provisions ("Withdrawal Price") which was payable at redemption. At the time of redemption in December 2007, CRC held 34,374,696 A Units. According to the Fifth Supplemental Deed, the specified amount per unit at the time of redemption in December 2007 was $0.91481. As a result, the Withdrawal Price payable was 34,374,696 x $0.91481 = $31,446,315.60. Thus, as part of the refinancing CRC received approximately $300,000 more than it was entitled to receive from GOT for redemption of the A Units.
In summary, the relevant overall effect of the refinancing was that: 1. ANZ was replaced as the security trustee of the Gosford Security Trust by BNY Trust (Australia) Registry Ltd ("BNY"); 2. ANZ was replaced as the Agent and Financier by Max; and 3. the Max Noteholders obtained all of the rights previously held by ANZ to enforce the loan and securities.
In early 2009, CRC breached the LVR covenant and was given until 26 February 2009 to remedy the breach. In order to remedy the breach, it was necessary for an additional amount of $912,935 in principal to be paid to Max. CIS paid the additional amount of $912,935 to Max on 25 February 2009. Entries in the Gosford cashbooks record the payment of $912,935 as being a partial repayment of the loan from RRT to GLT made during the refinancing. The same amount was in turn loaned by GLT to GOT, which loaned the money to CRC. It is not clear how this further loan by GOT to CRC was repaid but neither party submitted it was relevant in either the primary proceedings or this appeal.
On 20 and 23 March 2009, there was a change in shareholding in CRC's ultimate holding company, Allco Australian Holdings Ltd. This triggered an Event of Default under the security arrangements.
On 20 April 2009, Max wrote to CRC notifying it that in Max's view the change in control had led to an Event of Default and that Max intended to instruct BNY, as security trustee, to appoint a receiver. CRC disputed that there had been an Event of Default. On 27 April 2009, Max demanded payment from CRC of the total amount owing under the SFA (at that time being $35,781,050.02).
On 29 April 2009, Mr Peter Hedge was appointed receiver and manager of CRC pursuant to the CRC Security Deed. Mr Hedge remained receiver and manager of CRC until 23 May 2012. On 24 May 2012, Mr Heesh replaced Mr Hedge as receiver and manager of CRC and remained in that position until 11 August 2017.
On 14 May 2009, Mr Hedge was also appointed receiver and manager of the secured property under the GLT Security Deed. Mr Hedge remained receiver and manager of the GLT secured property until 1 June 2012, when he was replaced by Mr Heesh. Mr Heesh ceased to be receiver of the GLT secured property on 5 March 2013.
The appointment of the receivers led to changes in the account into which the tenant of the Property made rental payments. Section 421 of the Corporations Act 2001 (Cth) required the receiver to open a receivership bank account and for the rent received by the receiver to be deposited into that account. Mr Hedge, as receiver appointed over the Property, established a GLT receivership account with BankWest (BSB 302-100, Account Number 1502122; Account Name "PJ Hedge as Receiver & Manager of 92 Donnison Street") and from at least August 2009 until June 2012 rent was paid into this account. It appears that the receivership account was changed when Mr Hedge was replaced by Mr Heesh as receiver of the GLT secured property in June 2012.
In January 2011, the Residual Units were purchased from CIS, in its capacity as trustee of the RRT. The only units on issue in GOT are the B Units, held by CRC, and the Residual Units. Apart from a single Residual Unit held by CIS, the Residual Units are currently held by four entities: 1. SIF; 2. Stark Gosford Ltd; 3. Credit Suisse (Singapore) Limited; and 4. Makira SP6 Limited.
In late February 2013, the account into which the tenant of the Property paid rent was altered again. The tenant was directed to make payments into a CRC receivership account with Macquarie Bank (BSB 184-446, Account Number 255157141). That account was closed in November 2013, after which time rental payments were made into a separate Macquarie Bank receivership account for CRC (BSB 182-222, Account Number 285421434). Monthly rental payments were made into this account until November 2016 when the Property was sold.
CIS, as trustee for GLT, sold its interest in the Property on 15 November 2016 for a total purchase price of $37,500,000. From the settlement sum, as set out at [10] above, $23.8 million was paid to BNY Trust Company of Australia Limited, as security trustee for Max, in discharge of CRC's indebtedness to Max. The remaining part of the purchase price along with the deposit was remitted to CIS as trustee for GLT.
In addition, at settlement CRC and BNY gave a release of some of the securities previously given by CIS.
Clauses 11.1 to 11.3 of the GOT Constitution are in the following terms: "11.1 The Trustee must determine the Distributable Income, the Taxable Income and the Capital Gains of the Trust for each Financial Year. 11.2 Distributable Income for a Financial Year will be the amount the Trustee determines to be the distributable income being: (a) Taxable Income, excluding Taxable Capital Gains; (b) Capital Gains; (c) the additional amount (if any) which if distributed in cash to Members for the period would prevent the Trustee being liable to tax on the Taxable Income of the Trust under section 99 or section 99A of the Tax Act for the Financial Year; and (d) any further amount, whether income or capital, which the Trustee considers appropriate for inclusion in Distributable Income. 11.3 The Trustee may decide the classification of any item as being on income or capital account and the extent to which reserves or provisions need to be made."
"Distributable Income" for a Financial Year is defined as "the amount determined by the Trustee under clause 11.2". "Taxable Income" for a Financial Year is defined as "the amount the Trustee determines to be the 'net income' of the Trust under section 95(1) of the Tax Act for the Financial Year". "Financial Year" means the year ending 30 June. "Capital Gains" is also a defined term.
Clauses 11.1 to 11.3 of the GLT Constitution are in identical terms.
I have referred to the GLT Indemnity. The following terms are relevant: "2 Indemnity 2.1 Consideration GLT acknowledges that CRC is acting in reliance on GLT incurring obligations and giving rights under this indemnity. 2.2 Indemnity - Finance GLT indemnifies CRC from time to time if and to the extent that CRC does not receive from the GOT Trustee by way of distribution in respect of the CRC Units any amount due by CRC to the Agent, the Security Trustee or a Financier under the Facility Agreement on the due date ('Indemnity Amount'). GLT agrees to pay amounts due under this clause on demand from CRC. 2.3 Indemnity - Tax If and to the extent that any sum constituting a distribution to CRC in respect of the redemption of CRC Units ('Redemption Amount'), is treated as subject to tax in the hands of CRC, GLT will pay CRC an amount sufficient to reimburse CRC for any tax incurred by it in respect of the Redemption Amount if and to the extent that CRC does not receive an equivalent amount from GOT Trustee by way of distribution in respect of its CRC Units. In calculating this reimbursement amount, GLT may deduct from the amount of tax incurred by CRC in respect of the Redemption Amount, the balance of the Sinking Fund and the value of any other Authorised Investments. 7 No merger This indemnity does not merge with or adversely affect, and is not adversely affected by, any of the following: (a) any other guarantee, indemnity, or Encumbrance, or other right or remedy to which CRC is entitled; or (b) a judgment which CRC obtains against GLT, the GOT Trustee or any other person in connection with the Indemnified Amounts, or any amount payable by GOT Trustee in respect of the CRC Units. CRC may still exercise its rights under this indemnity as well as under the judgment, Encumbrance or right or remedy. 8 GLT's right suspended As long as any Indemnity Amount remains unpaid or may become owing, GLT may not, without CRC's consent: (a) reduce its liability under this indemnity by claiming that it or the GOT Trustee or any other person has a right of set-off or counterclaim against CRC or any other person; or (b) exercise any legal right to claim to be entitled to the benefit of another guarantee, indemnity, or Encumbrance given in connection with or any amount payable under this indemnity. (For example, GLT may not try to enforce or require the enforcement of any Encumbrance CRC has taken to ensure payment of an Indemnity Amount.)"
The GOT Constitution provides the framework for distributions to both Cashflow Return Units (being the A Units and later the B Units) and also the Residual Units. Recital C of the GOT Constitution refers to the "Residual Return Units in the Trust" issued to "the Residual Return Member" and "Cashflow Return Units in the Trust" issued to CRC who together with the Residual Return Member are "the Members". Clause 4.4 provides that the Cashflow Return Units, the Residual Units (and the other class of units known as the C Units) are each a separate class for the purposes of cl 4.3.
The Withdrawal Price for both Cashflow Return Units and Residual Units are as set out in the relevant schedule for these classes of units: see Schedule 3 for Residual Units and Schedule 4 for B Units.
Residual Units have "the rights, obligations and restrictions as set out in schedule 3". Schedule 3 provides, relevantly: "1. While there are Cashflow Return Units on issue carrying income entitlements, Residual Return Units will entitle the holder to Income Distributions in accordance with clause 11.5."
Clause 11.5(a) provides relevantly that: "(a) if no Taxable Capital Gains are included in the Taxable Income of the Trust for the Financial Year and the Member who held the Cashflow Return Units during the Financial Year holds those Units at midnight on the Year End Date, that Member will be entitled to the Distributable Income for the Financial Year."
The parties are agreed that "Taxable Capital Gains" were not included in the "Taxable Income". A distribution of Distributable Income to Residual Unitholders can be made only when the Cashflow Return Unitholders (in the present case, CRC) hold these Units. Clause 11.5(c) provides: "(c) if during a Financial Year either: (i) the Member registered as holding the Cashflow Return Units ceases to hold those Units; or (ii) all the Members registered as holding Residual Return Units cease to hold their Units, the Trustee must apportion the Distributable Income for the Financial Year between each person who was a Member during the Financial Year as the Trustee reasonably calculates having regard to clause 11.5, clause 11.6 and the time during the Financial Year at which the relevant Member or Members ceased to hold their Units."
Schedule 3 also provides: "3. After the redemption of all of the Cashflow Return Units and the Class C Units, any amounts payable under this constitution (including amounts payable under clauses 8, 11 and 23) to the holder of a Residual Return Unit are to be paid in priority to all amounts payable under the constitution to all other Members."
Schedule 4 sets out the entitlement for B Units in the event that, inter alia, the trustee of GLT sells the Property. The Withdrawal Price is defined in Schedule 4 as the aggregate of: "(a) the Specified Amount for the relevant Withdrawal Date; and (b) an amount (which may be negative) equal to the tax liability incurred or which will be incurred by the holder of the [B Unit] as a result of the redemption of the [B Unit] less any amounts held in reserve by the holder of the [B Unit] in respect of this tax liability to the extent that the reserve is attributable to the [B Unit] on the Withdrawal Date."
In Schedule 4 there then follows a table detailing specified amounts of the Withdrawal Price per B Unit at particular dates.
It is agreed between the parties that: 1. under the redemption provision of the GOT Constitution CRC was entitled to receive an amount of approximately $34 million, as the Withdrawal Price for its B Units. This sum was also referred to as the "Withdrawal Amount"; 2. only approximately $23.8 million of the Withdrawal Amount has been paid for CRC's benefit, when that amount was applied from the proceeds of the sale of the Property to partly discharge CRC's indebtedness to Max, leaving a shortfall of approximately $10.33 million claimed by CRC. This was referred to by the primary judge as the "the balance of the Withdrawal Amount". It was common ground that the balance of the Withdrawal Amount was correctly identified as being $10,331,766.57.

Decision of the primary judge

Clause 11 of the GOT Constitution is set out above at [44]. The principal issues before the primary judge were whether that clause imported a discretion on the part of the trustee and, if so, whether that discretion had in fact been exercised.
The parties agreed that the determinations required of the trustee in cll 11.1 and 11.2(a), (b) and (c) were not discretionary, however SIF asserted that cl 11.2(d) imported a discretion. SIF also argued that there was no evidence that CIS, as trustee of GOT, exercised that discretion.
CRC contended that cl 11.2(d) was not in a different category to cll 11.2(a), (b) and (c). In the alternative, CRC contended that if a discretion was required by cl 11.2(d), then the inference should be drawn that it was exercised by CIS as trustee of GOT in favour of the distributions made, from: 1. the fact that it is agreed that CIS as trustee of GLT distributed all of GLT's income to GOT and that distribution did not involve any overpayment by GLT to GOT; 2. the fact that CIS was also the trustee of GOT in making distributions to CRC; 3. the absence of any notification by CIS to CRC that it was making payments to CRC beyond the amount it was required to make pursuant to the GOT Constitution, in a context where by agreement all of the income distributed by GLT to GOT was deposited to the nominated Deposit Account to which the financier had access; 4. the absence of any claim by CIS as trustee of GOT to entitlement to recover the alleged excess payment until 2016 when the Property was sold, even where the A Units were redeemed in December 2007; 5. the fact that none of the accounts of GOT as exist record that amounts beyond Taxable Income were paid to CRC as a loan or "excess" payment; 6. the absence of any evidence from any officer or employee of CIS that a determination was not made that the amount paid to CRC should be distributed to CRC pursuant to the GOT Constitution, and that amounts were paid to CRC in excess of its entitlement; and 7. Note 5 in the accounts of GOT, which states: "Cash flow return units Cash flow return units are issued by the Trust to fund the acquisition of the investment in the landholding trust. The cash flow return units attributable to each investment property are secured on that property. Under the terms of the units, the holders of the cash flow return units are entitled to all income from the property after the payment of property management expenses. The original term of the cash flow return units is normally up to the first lease renewal date for the underlying property. The cash flow return units become fully redeemable in certain circumstances. These include: • the underlying asset being sold, • refinancing of the cash flow return units, • cash flows not being received under the cash flow return units as and when required by the constitution for the relevant property Ownership Trust; or • the underlying loan requiring payment. The amount payable upon redemption of the cash flow return units is fixed in advance under the terms of the constitution. The Trust provides an indemnity to the owner of the cash flow return units ('CRC company') for any loss or liability arising from an increase in the company tax rate."
The primary judge concluded that cl 11.2(d) imported a discretion: "[79] I accept SIF's contention that cases such as Dundee General and Finch are not relevant here at all. I think it is important that cl 11.2(d) is only giving a power to the trustee to add an amount to what is already required to be distributed under one of cll 11.2(a), (b) or (c). Thus the trustee is not empowered to reduce "Taxable Income" or to reduce payment of an amount which would otherwise be taxable. That there is no guidance given to the trustee as to the matters to which the trustee should have regard does not tell against the subclause granting the trustee a discretion. In my view the words "considers appropriate" carries with it the implication of a discretion, and that unlike cll (a) to (c) that does not involve merely a calculation."
The primary judge found that CIS had exercised the discretion under cl 11.2(d). His Honour gave nine reasons at [81] for this conclusion (references omitted): "(1) There is no dispute that the monies were paid by GLT to the various deposit accounts, and that those payments constituted distributions to GOT in accordance with the GLT Constitution. GOT acquiesced in the payment of all distributions due to it from GLT into an account that effectively operated as a payment to CRC or its lenders. If CIS, as trustee of GOT, did not intend the payment to be distributed in accordance with the GOT Constitution to CRC then it would be expected that CIS would advise CRC of that fact. CRC had no role in how the distributions were determined by the trustee and whether amounts were being included because of cll 11.2(a)-(d), and it would have no knowledge that any amount paid by GLT to GOT (and inferentially by GOT to CRC) was not a distribution in accordance with cl 11 unless CIS told it that was so. (2) If CIS as trustee of GOT had determined that CRC was not entitled to all of the funds that GOT had received from GLT or had not made a determination pursuant to cl 11 that all of the funds deposited were distributions to CRC, then … one would expect that CIS would at the very least record in its books the overpayment and notify CRC of that fact. Not only has no record been produced, but there is nothing in the audited accounts of GOT (such as exist) which reflect any loan by GOT to CRC or liability to GOT by CRC. SIF contended that there was no requirement for the trustee to make a formal written determination, but in a context where it was entirely clear that all of the net income due to it from GLT was being paid to an account over which CRC's financiers had control, the absence of any written record or notation supports the inference that CIS had determined that all of the net income of GOT was to be distributed in accordance with cl 11 of the GOT Constitution. (3) There were tendered by SIF some documents prepared in 2016 by a Mr Timothy Rich (see the email dated 5 August 2016), but these are drafts and appear to involve an attempt by Mr Rich, who is a former director of CRC, to prepare alternative accounting scenarios or 'versions', two of which included the $3.8M as a loan and one which did not. Mr Rich in his email describes one of the issues that 'he is trying to get to the bottom of' as 'in the loan'. He was not called by SIF to explain the documentation and the role that he was, at August 2016, undertaking and for whom and on whose behalf, and I accept Mr Braham's submissions that they are of no probative value whatsoever. (4) CIS as trustee of GLT in fact determined pursuant to an identical clause, it is agreed, that all of the net income received from the tenants was to be distributed to [GOT]. That conclusion is not based on any particular information or evidence that is present in the case of GLT but absent in the case of GOT. The fact that GOT was the only unitholder under that trust does not affect the position that cl 11.2 is in identical terms in both the GOT and GLT Constitutions and the Residual Unitholders under the GOT Constitution were not entitled to income from the Trust. SIF accepts that it was open to CIS as trustee of GOT to distribute more than the Taxable Income by way of distributions pursuant to cl 11.2 of the GOT Constitution. It seems inherently unlikely that, having exercised a discretion as trustee of GLT, CIS failed to consider and exercise its discretion as trustee of GOT, and SIF's contentions seek a finding that CIS, in breach of its duties as trustee, failed to make a determination required of it. (5) No evidence has been called by SIF from CIS (or anyone who was an officer, director, or employee of CIS) to support the contention advanced by SIF that CIS did not, in accordance with its obligations, carry out the determinations required of it pursuant to cl 11.2 of the GOT Constitution (whether involving a discretion or not). (6) There is a note in the audited financial statements and reports for GOT. This note is referred to in at [ 67 ] above. These audited account statements are signed by the company secretary and contain the following statement: 'This financial report was authorised for issue by the directors of [CIS] the responsible entity of [GOT].' (7) When CRC became entitled to payment on redemption of its A Units in 2007, CIS as trustee of GOT paid CRC its full entitlement and did not seek then to reduce by any amount what was paid on redemption of those units by asserting a right to deduct excess payments. Indeed according to SIF's submissions CIS paid CRC a slightly higher amount than that to which it was strictly entitled on redemption…. (8) If the amounts in excess of the Taxable Income were not distributed in accordance with cl 11.2 and had the character of a loan (as SIF contends) then that would have constituted a breach of GOT's obligations (and those of CRC) under the SFA. (9) Whilst it might well be expected in other circumstances that the trustee would record the fact of its determination under cl 11.2(d) (which on SIF's submissions prejudiced the Residual Unitholders), I have already referred to the context which is that all of the net income due to GOT was being put into an account to which the financiers had access and that fact and Note 5 set out at [ 57 ] above makes the absence of any express statement of a determination less significant. In my view in a context where the net income was being entirely passed over to CRC's financiers the absence of any recording by CIS that only a portion of it was a distribution supports, with the other matters to which I have referred, the inference that a determination was made by the trustee to distribute all of the net income to CRC."
Beyond the matter of the trustee's discretion under cl 11, there were a few additional issues raised in the primary proceedings. On the assumption that SIF was unsuccessful on its claim that "excess" monies (in the sense that they exceeded what was required to be distributed in the period from 1 July 2007 onward) were paid to CRC, SIF argued that in the financial year ending 30 June 2007, CIS, as trustee of GOT, made a loan of $3.6 million to CRC. The primary judge rejected SIF's claim and no issue was taken with that decision on the appeal. Before the primary judge CRC also advanced a claim of estoppel in answer to the whole of the appellant's case. That claim was rejected by the primary judge and is also not an issue on the appeal.
Finally, there was an issue concerning subrogation. CRC maintained that if, contrary to its primary position, some monies that were paid to it were not distributions made pursuant to cl 11 of the GOT Constitution, then those monies were due to it as payments required from GLT pursuant to the GLT Indemnity. The primary judge dealt with this issue on the contingent basis that he was wrong in finding that CIS had exercised a discretion under cl 11(2)(d) to distribute all of the income from the Property, excluding expenses of the Property, as GOT's Distributable Income to the B Unit holder, CRC. His Honour summarised the appellant's argument this way (references omitted): "(1) Under the GLT Indemnity GLT promises to indemnify CRC to the extent that CRC does not receive from GOT by way of distribution any amount due on a particular date to its financer, i.e. relevantly now Max. Clause 2 of the GLT Indemnity should be viewed as an indemnity because the essence of an indemnity is a promise by the promisor that he will keep the promisee harmless against loss as a result of entering into a transaction with a third party which is a primary, independent obligation: see Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 at 254 per Mason CJ with whom Deane, Dawson, and Toohey JJ concurred, and Canty v Paperlinx Australia Pty Ltd [2014] NSWCA 309 at [39] per Gleeson JA, with whom Barrett JA and Emmett JA concurred. SIF contends that the promise in the GLT Indemnity was one to keep CRC 'harmless from loss'. (2) CRC has repaid all the monies due to Max (leaving aside the Max debt issue). (3) If a portion of the distributions paid to CRC was not distributed in accordance with the GOT Constitution, as SIF contends, then the excess amount must be recognised as payment by GLT under its GLT Indemnity obligations - i.e. the lower level of distribution produced a shortfall between what was due to Max from CRC and what CRC received from GOT. (4) In answer to CRC's contention that an unpaid debt to Max is not a loss, SIF contends: (a) that the loss is CRC's liability to Max and; (b) being unable to meet a liability or the continued burden of a liability is as much a loss as the creation of one. (5) Having indemnified CRC for its loss, GLT is entitled to the benefit of any amount otherwise available to CRC that will reduce the loss that CRC has suffered and for which GLT has indemnified CRC. GLT therefore 'steps into the shoes' of CRC to recover from GOT what GOT owes CRC. (6) SIF contends that GLT's claimed entitlement to recoup the equivalent of amounts paid under the GLT Indemnity from monies due to CRC from GOT is in accordance with basic principles relating to subrogation. (7) SIF draws attention to the terms of cl 8 of the GLT Indemnity which precludes a right of subrogation before indemnity is given which, SIF contends, implies that there is a right of subrogation when the indemnity has been paid as is the case here (on the assumptions relevant to this part of the case). (8) SIF contends that had the monies not been paid under the GLT Indemnity then CRC would have had to have paid the money owing to Max out of the Withdrawal Price. (9) [SIF's closing submissions] refer to the proposition that contracts of indemnity are to be construed in accordance with ordinary principles of construction save that any ambiguity should be resolved in favour of the indemnifier: see Coghlan v SH Lock (Australia) Ltd (1987) 8 NSWLR 88, 92 and see BI (Contracting) Pty Ltd v AW Baulderstone Holdings Pty Ltd [2007] NSWCA 173 [19] and [25], and Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424."
The primary judge rejected SIF's subrogation claim. His Honour expressed considerable doubt about whether cl 2.2 of the GLT Indemnity is an indemnity against "loss" in the sense of "actual ascertainable loss": Perry v Anthony [2016] NSWCA 56 at [40]. The primary judge did not, however, think it was necessary to form a concluded view about that question.
That was because, in his Honour's view, the clear answer to SIF's claim was that, assuming in SIF's favour that the shortfall between distributions from GOT to CRC and what CRC owed Max constituted a "loss" for which GLT agreed to indemnify CRC, the amount to which CRC was entitled as the Withdrawal Price following the sale of the Property and redemption of B Units was discrete and separate from the right to receive distributions of income from GOT, which derived ultimately from what the tenant paid GLT.
His Honour found that the payment of the Withdrawal Amount for redemption of the units did not diminish or reduce the shortfall on distributions to CRC. There was also no double indemnity because CRC was entitled to both the shortfall on the distributions promised to be met by GLT and the balance of the Withdrawal Amount payable by GOT. The obligation to pay any shortfall on distributions and the obligation to pay the Withdrawal Amount were separate obligations imposed on different entities. The primary judge could see no basis to conclude that it would be unconscionable or unjust for CRC to receive both the shortfall on distributions from GLT and the Withdrawal Amount from GOT.
The fact that CRC would (or might) have had to use part of the Withdrawal Amount to repay monies to Max if GLT had not met its obligations under the GLT Indemnity could not support a right of subrogation in GLT any more than in a hypothetical scenario where A, the insured in a car insurance claim, would have had to access loan monies to be repaid to him by B to repair his vehicle if the insurer, C, did not indemnify him under the policy.
If GOT, in breach of its obligations, had not paid an amount due to CRC as a distribution and GLT had paid that difference, then GLT might well be entitled to pursue GOT in CRC's name for the shortfall which it had met. However, the primary judge found that that was not the present situation because: 1. the foundation for the present subrogation claim was the assumption that GOT had paid everything required of it to CRC; and 2. GLT was not asserting a right against GOT to recover from GOT what GLT paid to CRC.
The primary judge also found that cl 7 of the GLT Indemnity excluded the subrogation claim since it expressly provided that the indemnity is not to be adversely affected by "any other right or remedy to which CRC is entitled". The clause was found to be inconsistent with the right of subrogation claimed, and the effect of SIF's claimed right would be to render the GLT Indemnity of extremely limited value. His Honour did not accept SIF's contention that the right to indemnity was unaffected because CIS will have already paid what is due under the indemnity before the right of subrogation accrues and observed that in any event this contention did not address the impact of the indemnity (on SIF's case) on CRC's right to receive the full Withdrawal Amount. His Honour rejected the submission that cl 7 is ambiguous and should be read down.
SIF also put its case a second way, namely that SIF was entitled to be subrogated to the rights of Max. This alternative argument was also rejected by the primary judge and not pressed on appeal.
The primary judge made the following orders: "(1) An order that CIS as trustee of the Gosford Ownership Trust be restrained from giving effect to its determination set out in its letter dated 7 December 2017; (2) An order that, within fourteen days of the date of the order, CIS as trustee of the Gosford Ownership Trust pay CRC the amount of $10,331,766.57 in further and final payment of the Withdrawal Price payable following its redemption of the [B Units] issued to CRC (plus CRCs proportional share of any interest that has accrued on that amount since the date of redemption); (3) An order that, within fourteen days of the date of the order, Timothy Heesh is to pay to CRC the amount of $2,367,102.48 plus accrued interest (a total as at 30 April 2020 of $2,382,074) which he is holding pending the resolution of the proceedings; (4) An order that SIF pay the Plaintiffs' costs of the proceedings as agreed or assessed."

Issues on appeal

The issues on the appeal based on the Notice of Appeal filed by CIS and the Notice of Contention filed by CRC are: 1. First, did the primary judge err in his construction of cl 11.2(d) in concluding that cl 11.2(d) of the GOT Constitution confers a discretion on CIS, as trustee of GOT. CRC's position was that the reference to "any further amount … which the Trustee considers appropriate for inclusion in Distributable Income" does not give the trustee a discretion to exclude from Distributable Income any income that is properly "distributable income" (meaning "income that is capable of distribution"). Rather, it allows the trustee to form a judgement that an amount that it holds, whether income or capital, is not properly "capable of distribution" and is not therefore "appropriate for inclusion in Distributable Income": Ground 1 of the Notice of Contention. 2. Secondly, if cl 11.2(d) does confer a discretion on the trustee, did the primary judge err in concluding that CIS as trustee of GOT exercised its discretion under cl 11.2(d) of the GOT Constitution to distribute to CRC more than GOT's Taxable Income: Grounds 1 and 2 of the Notice of Appeal. 3. Thirdly, was the GLT Indemnity an indemnity against loss. The primary judge considered it unnecessary to determine this issue: Ground 2 of the Notice of Contention. 4. Fourthly, did the primary judge err in concluding that CIS was not entitled to be subrogated to CRC's right to be paid the balance of the Withdrawal Price to the extent of $7,080,409: Ground 3 of the Notice of Appeal.

Distributions (Ground 1 of the Notice of Contention; Grounds 1 and 2 of the Notice of Appeal)

There was no dispute between the parties about the principles of construction to be applied. An inter vivos trust such as GOT is construed according to the same principles that apply to the interpretation of contracts: Segelov v Ernst & Young Services Pty Ltd (2015) 89 NSWLR 431; [2015] NSWCA 156 at [83] (Meagher JA, Gleeson and Leeming JJA agreeing); Lewski v Commissioner of Taxation (2017) 254 FCR 14; [2017] FCAFC 145 at [119] (the Court). As a commercial trust, the relevant principles are those that apply to commercial contracts. A clause of the GOT Constitution must be construed having regard to its text, context and purpose: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46] (French CJ, Nettle and Gordon JJ), approved in Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 at [51]. The Court should approach the task of construction on the assumption that the parties intended to produce a commercial result, and should avoid a construction which gives rise to commercial nonsense or works a commercial inconvenience: Electricity Generation Corp v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] (French CJ, Hayne, Crennan and Kiefel JJ).
The first issue on the appeal relates to CRC's entitlement to distributions under the GOT Constitution, and was framed in the Statement of Issues in Dispute before the primary judge as follows: "1. During the period 1 July 2002 to 16 November 2016, what was the Distributable Income of GOT? In particular, was the Distributable Income of GOT: a. the Net Cash Flow received by GLT in respect of the Property; or b. only the Taxable Income of the GOT. 2. If the answer to issue 1(b) is 'yes', what was the legal character of payments in excess of Taxable Income that were made before 7 May 2009?"
This issue is to be determined upon the proper construction of cl 11 of the GOT Constitution which I have set out at [44] above. By Ground 1 of its Notice of Contention, the respondents challenged the primary judge's finding that the clause conferred a discretion on the trustee, who then exercised that discretion so as to distribute the whole Net Cash Flow received in respect of the Property to CRC. Instead, the respondents contended that a determination under cl 11 did not involve a discretion to determine what income was distributable, but rather required the trustee to determine the amount of distributable income in accordance with proper trust accounting principles, on the basis that it would include at least the taxable income of the trust but may include other appropriate amounts.
The appellant supported the conclusion of the primary judge on this issue and submitted that: "The fundamental problem with the respondents' submission at RWS [21] is that it is at odds with the plain language of cl 11.2(d). Indeed, the respondents' construction involves a complete re-writing of cl 11.2(d). On the respondents' construction, cl 11.2(d) should be read as follows: 'any further amount, whether income or capital, all further amounts of income, unless which the Trustee considers those amounts not appropriate for inclusion in the Distributable Income.' Apart from the obvious problems with this approach, the respondents' construction cannot accommodate the fact that cl 11.2(d) allows for the distribution of capital, not merely income."
I have concluded that Ground 1 of the Notice of Contention should be upheld. GLT and GOT were established as part of detailed financing arrangements in relation to the Property, and in which the rights and obligations of the unitholders and financiers were fully and carefully set out. Clause 11.1 is identical across both the GLT Constitution and the GOT Constitution. In each Constitution, cl 11.1 provides that for each "Financial Year" the trustee "must determine" the "Distributable Income", the "Taxable Income" and the "Capital Gains" of the relevant trust. The parties agree that in context "determine" means "calculate". Therefore, under cl 11.1, every Financial Year the trustee must calculate the amount of each of these three components.
Clause 11.2 of the GLT Constitution and cl 11.2 of the GOT Constitution are also identical. Each provides that "Distributable Income … will be the amount the Trustee determines to be the distributable income". Here, "determines" has the same meaning of "calculates" as it does in cl 11.1. The reference to "Distributable Income" should be read as "income that is capable of distribution" which is then comprised of the four components set out in cll 11.2(a) to (d).
The critical question is the operation and effect of cl 11.2(d). The reference to "any further amount … which the Trustee considers appropriate for inclusion in Distributable Income" does not give the trustee a discretion to exclude from Distributable Income any income that is properly "Distributable Income". Rather, it allows the trustee to form a judgement that an amount that it holds, whether income or capital, is not properly "capable of distribution" and is not therefore "appropriate for inclusion in Distributable Income".
The use of the word "appropriate", and the absence of any reference to "discretion" which is usually present where it is intended that a trustee have a discretion in respect of distributing income, are both significant.
This construction is supported by cl 11.3, which allows the trustee to decide the classification of any item as income or capital and "the extent to which reserves or provisions need to be made". If a reserve or provision is required for an anticipated outgoing, that would provide a basis for concluding that the amount of presently available income equivalent to that reserve or provision is not appropriate for inclusion in Distributable Income.
The commercial structure and purpose of the GOT and the GLT also tends against the conclusion that cl 11.2(d) confers a discretion on the trustee. That commercial structure and purpose was clearly to ensure that the Cashflow Return Unitholders (holders of A Units and B Units) would be entitled to all income other than capital gains.
Clauses 11.5 and 11.6 of the GOT Constitution set out the entitlements of the different classes of unitholders. As I have said, cl 11.5 applies while "Cashflow Return Units carrying an income entitlement" are on issue. That is, that clause applies while the A Units or B Units are on issue, which each have income entitlements as identified (in cl 6 of Schedule 2 for the A Units and cl 4 of Schedule 4 for the B Units). Clause 11.6 applies if there are no "Cashflow Return Units carrying an income entitlement" on issue.
Clause 11.5(a) provides that if there are no Taxable Capital Gains included in the Taxable Income, then the holders of Cashflow Return Units (i.e. either the A Units or the B Units) "will be entitled to the Distributable Income". If, however, the Taxable Income includes Taxable Capital Gains, then the distribution between the holders of Cashflow Return Units and the holders of Residual Units is determined by formulas set out in cll 11.5(b)(i) and (ii). It was common ground that there were no Taxable Capital Gains in this case, so cl 11.5(b) was never engaged.
The artificiality of the appellant's submissions in support of the existence of a discretion in cl 11.2(d) is highlighted by its own observation that exercise of that discretion could prejudicially benefit one class of unitholders at the expense of another and cause the trustee of the GOT to breach its duty to afford fair treatment to each of the different classes of unitholders. The GOT Constitution does not give the trustee any discretion as to the allocation between the two classes of unitholders, exercise of which could constitute such a breach. That allocation is driven by the existence or otherwise of Taxable Capital Gains and the operation of a specified formula. The phrase "will be determined" in the chapeau to cll 11.5 and 11.6 simply means "will be calculated". Clause 11.9 provides that any share of Distributable Income that a unitholder becomes entitled to under cll 11.5 and 11.6 is "absolutely vested" in the unitholder who "cannot be defeased of that interest".
In context, the income entitlement attaching to the B Units is not limited to the Taxable Income and no more. The integers "Taxable Income", "Capital Gains" and "Taxable Capital Gains" are used in a formula to determine the income that is "capable of distribution" for the relevant period. The trustee was not required to exercise a discretion, but to calculate what was the proper Distributable Income in accordance with trust accounting principles. In practice, this meant that the net cash flow, not merely the Taxable Income of GOT, comprised the Distributable Income.
I am not persuaded that the fact the Distributable Income turned out to exceed the sum owing by CRC to Max gives rise to any different conclusion. If the distributions under cl 11 of the GOT Constitution and the amount received as the Withdrawal Price following sale yield more than what CRC was required to repay to ANZ, and later Max, there is nothing in the detailed suite of transaction documents to indicate that CRC was not entitled or expected to retain that difference.
The contemporaneous legal advice of Mallesons Stephen Jaques, who acted for Allco in the establishment of the trusts and advised on the taxation implications, supports the construction I prefer. The advice contains a statement that: "As the CRC class unitholder will be presently entitled to all of the income of GOT up to, but not including, the earlier of the income year in which its units are redeemed or the underlying property is sold, those unitholders will include in their assessable income all of the net income of the trust for the particular income year, provided that there is trust law income in each particular income year in which it is a unitholder. [In] consequence, the trustee should not be taxed on the net income of GOT in these years."
Counsel for the appellant conceded that should Ground 1 of the Notice of Contention be upheld, the appeal must fail, as it was not suggested that CRC had received anything which was not "Distributable Income" understood in the way I have described. Since I have concluded that cl 11.2(d) does not confer any discretion on the trustee, the remaining issues on the appeal do not strictly arise.
If, however, the construction of cl 11.2(d) I prefer is incorrect, and cl 11.2(d) did involve a discretion, the primary judge was correct to hold that the trustee had exercised that discretion to distribute to CRC all amounts which were paid to it or for its benefit. The factors to which the primary judge referred support that conclusion. Without repeating each of the matters referred to by his Honour which I have set out at [ 61 ], I conclude in particular that: 1. it was common ground that all of the monies in dispute were paid by GLT to the various deposit accounts and that those payments constituted distributions to GOT in accordance with the GLT Constitution. GOT acquiesced in the payment of all distributions due to it from GLT into an account that effectively operated as a payment to CRC or its lenders. If CIS, as trustee of GOT, did not intend the payment to be distributed to CRC in accordance with the GOT Constitution then it would be expected that CIS would have advised CRC of that fact. CIS did not; 2. if CIS as trustee of GOT had not made a determination pursuant to cl 11 that all of the funds deposited were distributions to CRC, then CIS would have recorded any amount additional to the "true" distribution as an overpayment in its books. There was nothing in the audited accounts of GOT in evidence which reflected any loan by GOT to CRC or liability to GOT by CRC. In a context where it was entirely clear that all of the net income due to GOT from GLT was being paid to an account over which CRC's financiers had control, the absence of any written record or notation supports the inference that CIS had determined that all of the net income of GOT was to be distributed in accordance with cl 11 of the GOT Constitution; 3. CIS as trustee of GLT in fact determined, pursuant to an identical clause, that all of the net income received from the tenants was to be distributed to GOT. That conclusion is not based on any particular information or evidence that is present in the case of GLT, but rather absent in the case of GOT. I agree with the primary judge that it seems inherently unlikely that, having exercised a discretion as trustee of GLT, CIS failed to consider and exercise its discretion as trustee of GOT; 4. when CRC became entitled to payment on redemption of its A Units in 2007, CIS as trustee of GOT paid CRC the Withdrawal Amount and did not seek then to reduce by any amount what was paid on redemption of those Units by asserting a right to deduct "excess" payments; and 5. in a context where all of the income from the Property was entirely passed over to CRC's financiers, the absence of any recording by CIS as trustee of GOT that only a portion of it was a distribution strongly supports the inference that a determination was made by CIS as trustee of GOT to distribute all of the net income to CRC.
The conclusion I prefer is reconcilable with the accounts which were in evidence, as explained by Mr Blaikie: "Q. So the recognition of deferred income and surplus cash flows you say is only consistent with actually the CRC being entitled to all of the cash? A. That's correct Q. So those entries were misleading? A. I think it's best to be understood that these accounts, particularly the GOT accounts, have been prepared on a premise that treats the cash flow return units as liabilities, and the rest is that they poorly express the true underlying legal nature of what occurred, that the CRC units are entitled to all of the cash flows."
That evidence was not contradicted or qualified by any other expert evidence. As Mr Blaikie explained, the available GOT accounts are consistent with "the true underlying legal nature of what occurred, that the CRC units are entitled to all of the cash flows". SIF relied heavily upon statements of cashflows in the 2006 accounts. SIF submitted that these statements of cashflows, and certain notes to those accounts, were consistent with GOT treating payments made on behalf of CRC to the financiers as entitlements of GOT. Mr Blaikie explained, however, that the accounts were in fact prepared on a basis consistent with CRC's case being that CRC, not wishing to write down its investment in GOT, would treat what SIF submitted was a "surplus" as a deferred amount: "Q. Now, do you want something clarified? A. I wish to expand upon what I was seeking to explain to Mr Prince about how these accounts have been prepared and the first an [sic] critical factor is that in the non-current assets, in the 2006 accounts, and in the comparables for 2005, the investment in the unit trust remains the same. So, there has been no attempt to treat any of the surplus cash flows that are recorded in the statement of cash flows as a reduction in the carrying value of the investment in the unit trust .At the same time, the current liabilities, year on year, and the long-term liabilities in aggregate, as far as the interest-bearing liabilities have been reduced. So, if the CRC Gosford was not wishing to write down its investment in the unit trust, it would treat that surplus as a deferred amount and that deferred amount would potentially, because of what I advanced, what my understanding of these transactions, the specific amount, over time might diminish the value, the investment in the unit trust. It may not be entitled to recover all of it, depending on the agreement between the parties and so, that amount that you identified in note 8, is not necessarily something that is the entitlement of GOT, one simply doesn't know and the fact that there's been no writing down of the investment in the unit trust only goes to confirm that."
It is not correct, as the appellant submitted, that Mr Blaikie "could offer no explanation for why CRC Gosford could defer the recognition of trust income". Mr Blaikie's explanation was detailed and based on the decision of the High Court in Arthur Murray (NSW) Pty Ltd v Federal Commissioner of Taxation (1965) 114 CLR 314; [1965] HCA 58. Mr Blaikie said in relation to that case: "Q. You understand the difference between a liability and a fund though, don't you? A. Yes, but you commenced using the term, fund, I did not. Q. So, the liability recognised here that grows each year from 2005 to 2006 to 2007 recorded in these accounts, a liability to GOT, correct? A. No, it is deferred income, it is not a liability. If it was a liability, the fund statement would show it as a liability. Q. Deferred income, we accept is income to which CRC is not entitled, that is the concept of deferred income? A. No-- HIS HONOUR: Presently entitled. WITNESS: With respect, Mr Prince, again, it is not the concept of deferred income. I'll give you the basic example, goes back in history. The High Court had to examine whether Arthur Murray, in its dance studios, where it received monies from people prepaying for lessons was to be taxed and accounted for it. Arthur Murray didn't, it treated it as deferred income, it was legally and absolutely entitled to that and it didn't pay tax on it until the day the dancing lessons had been held. PRINCE Q. But wasn't that because the contingency could arise that required it to be paid back? A. There's a direct finding of the High Court, Mr Prince, that there was no legal obligation to pay it back to the students. It's the same as the case in the United States with the same-- Q. With respect, Mr Blaikie, I think we're at cross-purposes. A. No, I'm trying - you asked me whether deferred income always resulted in the amount being paid out. I simply put that to you, that deferred income may be simply a matter of timing as to when the entity that has got this liability in it, recognises the amount as income."
Again, despite the best efforts of counsel, Mr Blaikie's expert evidence was not contradicted or qualified by any other expert evidence. No error has been shown in the way the primary judge addressed that evidence. Mr Blaikie's evidence supports the conclusion about the exercise of cl 11.2(d) which I prefer. The only alternative would have involved creating a loan by GOT to CRC, and no such loan appears in the accounts of GOT or CRC. Further, as Mr Blaikie explained, the creation of a loan would have resulted in significant adverse taxation consequences: "They assimilate but it can't be the case that as a matter of general law that it was a borrowing because otherwise this structure was fundamentally unsound because it would have breached section 51AD of the Income Tax Assessment Act 1936, and that's all referred to in the Mallesons' opinions."
The appellant's submission that no amounts were ever paid by the trustee of GOT to the Deposit Account rather missed the point. It is true that prior to 2009, the payments to or for the benefit of CRC were in fact made by the tenant of the Property directly to the Deposit Account, pursuant to directions to pay given under the security agreement which was one of the suite of transaction documents. It is also true that there is no evidence of any resolution of GLT or GOT to determine the amount of distributable income. However, in this Court the appellant accepted that GLT had made distributions to GOT which included the whole Net Cash Flow and not merely Taxable Income for the period until 2009, and also that GOT had made distributions at least of Taxable Income to CRC. These were notional distributions in the sense that they were payments made pursuant to the directions, but which were treated as payments made between GLT, GOT and CRC. Essentially, while made under the security documents, they were treated as trust distributions. It is implicit in accepting those propositions that CIS, as trustee of both GLT and GOT, made determinations of what the Distributable Income was. That there had been determinations made by CIS in each capacity is to be inferred from the facts, not unlike the circumstances in which the existence of a contract may be inferred from the conduct of parties notwithstanding the absence of any specific evidence of offer and acceptance.
On the basis, which was common ground, that GLT had made distributions to GOT which included the whole Net Cash Flow and not merely Taxable Income for the period until 2009, the inference that CIS, as trustee for GOT, would make the same determination it made as trustee for GLT is a strong one, especially given the commercial purpose and context.
So too is the inference that the same practice continued after 2009. The demand under the GLT Indemnity did not change the flow of cash in any relevant way. It provided an additional basis on which the payments were made as they were, but it did not remove the pre-existing basis (the directions to pay). There was no reason for GLT, GOT and CRC to treat them differently and there is no evidence that they did.
There was some suggestion in SIF's submissions to the effect that CRC was merely a vehicle for the project by which the financier was to make money by virtue of lending, and CRC itself was not intended to make any profit. I reject such a suggestion. Whilst it is clear that CRC was established for the purpose of the scheme involving the acquisition and use of the Property and had no assets other than units in the GOT, given that the scheme originally had ANZ as the lender, the appellant's suggestion cannot be sustained. In any event, even if CRC was characterised as "a vehicle for the project by which the financier was to make money" there is nothing in the GOT Constitution that precludes CRC from making a profit out of the purchase of A Units and later, B Units.
For these reasons I have concluded that there were no "excess payments" to CRC. The issue of recovering those payments, whether by way of subrogation or otherwise, simply does not arise. Grounds 1 and 2 of the appeal should be rejected.

Subrogation (Ground 2 of the Notice of Contention; Ground 3 of the Notice of Appeal)

On the contingency that I am wrong about Ground 1 of the Notice of Contention and Grounds 1 and 2 of the Notice of Appeal, I will consider the alternative argument based on subrogation: Kuru v New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12] (Gleeson CJ, Gummow, Kirby and Hayne JJ).
The foundation of the subrogation claim was the appellant's contention that during the life of the trusts CRC received substantially more than it was entitled to receive by way of trust distribution. That is, the total payments made by the tenant of the Property into the Deposit Account (and later into the receivership accounts) exceeded GOT's Taxable Income and were to that extent paid to CRC not as Distributable Income under the GOT Constitution but as "excess payments". The basis upon which the "excess payments" were said to be recoverable was by way of subrogation. The appellant's case on subrogation had two sperate limbs. The first, in respect of the pre-receivership period from 1 July 2002 to May 2009 (Ground 3(a)) and the second, in respect of the period from May 2009 onwards (Ground 3(b)). The appellant abandoned Ground 3(a) at the hearing of the appeal.
As for Ground 3(b), in respect of the period from May 2009 onwards, the appellant submitted that the "excess payments" were made by GLT to CRC under the GLT Indemnity to make up any shortfall between CRC's repayments to Max and the distribution CRC received from GOT. Having indemnified CRC for that "loss", CIS as trustee of GLT is then subrogated to CRC's rights against GOT, whose failure to provide sufficient distributions caused that shortfall or "loss". The primary judge rejected the appellant's argument on other grounds and did not determine whether the GLT Indemnity was an indemnity against loss in respect of which the principles of subrogation could arise. The respondents contended, by Notice of Contention Ground 2, that cl 2.2 of the GLT Indemnity was not an indemnity against loss, but a promise to pay upon a contingency. I have concluded that the respondents are correct.
Subrogation is unavailable in this case as the GLT Indemnity is not an indemnity against loss. Subrogation is available in a number of distinct categories, with different considerations for each: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (5th ed, 2015, LexisNexis) at [9-040] (footnotes omitted): "The law of trusts presents a primary field for the application of subrogation. Thus creditors of a so-called trading trust may make a claim, in priority to the beneficiaries, to the trust assets. This is done by subrogation to the lien or right of indemnity held by the trustee over the assets to support its personal liability to creditors upon engagements properly made in performance of the trust. Further, subrogation or principles analogous to it have been applied in at least seven areas: (a) vendor's lien; (b) payment out of prior securities; (c) indemnity insurance; (d) guarantees; (e) executors and receivers carrying on ultra vires business; (f) unauthorised or unenforceable borrowings by married women, infants, partners and companies; and (g) marshalling. These will now be considered in turn. But one should first note the statement by the editors of White and Tudor's Leading Cases in Equity: 'It is difficult to deduce from the authorities any principle which will at the same time account for all the cases in which subrogation has been granted and explain its denial in other cases'. This reflects the tensions already observed, to which this chapter will return in its conclusion."
The category relied upon by the appellant in this case is where a person indemnifies another for a loss. For subrogation to be available in that category, the existence of a loss on the part of the putative subrogor is both the precondition to, and the measure of, the availability of subrogation: Burnand v Rodocanachi Sons & Co (1882) 7 App Cas 333 at 339, 341, 342; State Government Insurance Office (Qld) v Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228; [1969] HCA 59 at 242-3.
In Transport Accident Commission v CMT Construction of Metropolitan (1988) 165 CLR 436; [1988] HCA 46, Wilson, Dawson, Toohey and Gaudron JJ stated at 442 (footnotes omitted): "The argument that an insured must account for a benefit, notwithstanding that the benefit does not reduce or extinguish the liability insured against, was put in terms of subrogation. The argument is contrary both to authority and principle. Contrary authority is to be found in Burnand v Rodocanachi. In that case an insured had received payment for loss under a valued policy of marine insurance. The sum paid was less than the actual loss. The insured later received payment of the difference between his actual loss and the sum insured from a compensation fund created by Act of Congress of the United States. An action by the insurer to have that money brought to account was unsuccessful, the crucial question being identified in the speech of Lord Blackburn as whether the sum was or was not 'paid so as to be a reduction or diminution of [the] loss'? As a matter of principle, whether the doctrine of subrogation is put in terms of equity (as, e.g., by Lord Denning M.R. in Morris v. Ford Motor Co.) or on the basis of implication of contractual terms (as put by Diplock J. in Yorkshire Insurance Co. Ltd. v. Nisbet Shipping Co. Ltd.), it rests on the proposition stated in Castellain by Brett L.J. that an insured 'shall be fully indemnified, but shall never be more than fully indemnified'. An insured is not fully indemnified in respect of loss or liability if required to account for benefits not touching that loss or liability."
In the authority referred to by the plurality, Burnand v Rodocanachi Sons & Co (1882) 7 App Cas 333, Lord Blackburn said at 339: "The general rule of law (and it is obvious justice) is that where there is a contract of indemnity (it matters not whether it is a marine policy, or a policy against fire on land, or any other contract of indemnity) and a loss happens, anything which reduces or diminishes that loss reduces or diminishes the amount which the indemnifier is bound to pay; and if the indemnifier has already paid it, then, if anything which diminishes the loss comes into the hands of the person to whom he has paid it, it becomes an equity that the person who has already paid the full indemnity is entitled to be recouped by having that amount back."
Whether cl 2.2 of the GLT Indemnity is a true indemnity against loss, or merely a contingent promise to provide CRC with funds to the extent of any shortfall from GOT, is a question of substance. The use of the terms "indemnity" and "indemnifies" is not determinative. Subrogation is unavailable where the promise is properly characterised as a promise to make a defined payment upon a contingency, rather than a true indemnity. In Insurance Commission (WA) v Kightly (2005) 30 WAR 380; [2005] WASCA 154, Steytler P said at [29]: "[29] The doctrine has sometimes been said not to apply to accident policies (see, for example, Bradburn v Great Western Railway Co [1874-80] All ER Rep 195; National Insurance Co of New Zealand Ltd v Espagne (1961) 105 CLR 569 at 588 per Windeyer J, obiter (relied on by the trial judge); and Wollington v State Electricity Commission (Vic) (No 2) [1980] VR 91 at 97 per Young CJ and Menhennitt J, also obiter). This may be because many of the earlier forms of accident policy provided for the payment of a fixed sum in the case of the loss of a limb or death and for fixed weekly sums in the case of injury, regardless of the existence of actual financial loss: Glynn v Scottish Union & National Insurance Co Ltd (1963) 40 DLR (2d) 929 at 938 and Morgan (ed), Porter's Laws of Insurance (8th ed, 1933), p 449. In more modern times, at least, it would be more accurate to say that the doctrine does not ordinarily apply to accident policies (see Mitchell, The Law of Subrogation (Clarendon Press, Oxford) (1994), p 75; and Tarr, Liew and Holligan, Australian Insurance Law (2nd ed, 1991), pp 281-282), but that is because such policies have not ordinarily been indemnity policies (MacGillivray (at [22-26]); Mitchell (at p 75) and Tarr (at p 282); and see also Kimball and Davis, The Extension of Insurance Subrogation (1962) 60(7) Mich L Rev 841 at 859). A personal accident policy which provides for a specified lump sum compensation in the case of the loss of a limb, varying with the nature of the limb lost, while it could be said to compensate the person for the event, could not sensibly be said to do so by way of indemnification of a loss (although cf Hasson (at p 418) and Mitchell (at p 75). The same could be said of a policy which provides for the payment of a weekly or monthly sum during a period of incapacity arising from an accident, where the payment is made regardless of any financial loss (a provision found in many of the earlier forms of accident policy: Porter's Laws of Insurance (at p 449)). However, a policy which compensates the insured for actual financial loss suffered as a consequence of an injury caused by accident is one of indemnity. This is so regardless of the generic name given to that type of policy (cf Derham, Subrogation in Insurance Law (The Law Book Co Ltd) (1985), p 32). Even where the policy is a so-called 'valued' policy in which the parties to it agree what shall be paid on the happening of an event it may be one of indemnity if the agreement is that the insured is still required to prove the fact of his or her loss notwithstanding that the parties have agreed in advance what shall be the amount thereof in the event insured against: Glynn (at 937); British Traders' Insurance Co Ltd v Monson (1964) 111 CLR 86 at 93. Indeed, the one policy might, in some respects, be an indemnity policy and, in others, not: see, for example, Theobold v Railway Passengers Assurance Co (1854) 10 Ex 45, which, on one view (see Glynn (at 939-940)), dealt with a policy providing for both forms of insurance, and Orion Insurance Co Ltd v Hicks (1972) 32 DLR (3d) 256 at 258."
I have already set out the terms of cl 2.2 of the GLT Indemnity at [47] above.
A number of matters lead me to conclude that cl 2.2 is not a true indemnity against loss. The first matter is that cl 2.2 does not use the word "loss". The clause does not describe the obligations of GLT by reference to any loss suffered by CRC. In context, the phrase "GLT indemnifies CRC" means "GLT promises to pay CRC". The qualification, "if and to the extent that" makes that clear. Those words speak of a fixed amount. The remainder of the clause identifies that fixed amount as the difference between what CRC has received from GOT and what is due from CRC to Max. So characterised, that obligation is not an obligation to indemnify against a loss.
The second matter that leads me to conclude that cl 2.2 of the GLT Indemnity is not a true indemnity against loss is the commercial purpose of the clause. The clause ensures that, whatever determination of Distributable Income is made by the GOT trustee from time to time, CRC will always have recourse to the full amount of the net rental income in order to meet its payment obligations to Max. The clause is drafted not so as to indemnify CRC against a loss suffered, but so as to prevent that loss from arising in the first place. This may be contrasted with cl 18.4 of the SFA which contains an indemnity against identified losses that might arise from non-payment under the guarantee: "18.4 Indemnity The Guarantor indemnifies the Beneficiary against any liability or loss arising, and any Costs they suffer or incur: (a) if the Company does not or is unable to pay the Guaranteed Money in accordance with the Transaction Documents; or (b) if an obligation of the Company would otherwise have to pay the Guaranteed Money is found to be unenforceable; or (c) if an obligation the Guarantor would otherwise have under clause 18.2 ('Guarantee') is found to be unenforceable; or (d) if the Beneficiary is obliged, or agrees, to pay an amount to a trustee in bankruptcy or liquidator (of an Insolvent person) in connection with a payment by the Guarantor or the Company. (For example, the Beneficiary may have to, or may agree to, pay interest on the account); or (e) if the Guarantor defaults under this Guarantee; or (f) in connection with any person exercising, or not exercising, rights under this Guarantee. The Guarantor agrees to pay amounts due under this indemnity on demand from the Agent."
The decision of the contracting parties to the GLT Indemnity not to identify particular losses in cl 2.2 is a strong indicator that cl 2.2 is not concerned with indemnifying against losses at all. The GLT Indemnity is a gateway to CRC having recourse to GLT's secured assets. This is reflected in cl 4(b) of the GLT Indemnity, which recognises that payment to CRC under the Indemnity can occur by way of "amounts realised by CRC by the exercise of any of its rights under the GLT Security [Deed]". This is in turn reflected in cll 1.3 and 24.2 of the GLT Security Deed, which read together with the GLT Indemnity, enable CRC to exercise all its rights in connection with the Secured Property once it has made a demand under the GLT Indemnity.
The third matter that leads me to conclude that cl 2.2 is not a true indemnity against loss is the context supplied by the terms of cl 2.3 which provides: "2.3 Indemnity - Tax If and to the extent that any sum constituting a distribution to CRC in respect of the redemption of CRC Units ('Redemption Amount'), is treated as subject to tax in the hands of CRC, GLT will pay CRC an amount sufficient to reimburse CRC for any tax incurred by it in respect of the Redemption Amount if and to the extent that CRC does not receive an equivalent amount from GOT Trustee by way of distribution in respect of its CRC Units. In calculating this reimbursement amount, GLT may deduct from the amount of tax incurred by CRC in respect of the Redemption Amount, the balance of the Sinking Fund and the value of any other Authorised Investments."
Clause 2.3, whilst similarly styled as an "Indemnity", is not a true indemnity. That clause requires GLT to pay CRC an amount sufficient to reimburse it for any tax incurred by it in respect of a Redemption Amount, if and to the extent it does not receive that amount by way of distribution from GOT. In calculating the amount to be so paid, GLT may deduct any amounts held in the Sinking Fund and the value of any other Authorised Investments. The ability to make deductions shows that the amount paid to CRC to "indemnify" it for its notional "loss" (in the case of cl 2.3, its obligation to pay tax) may be less than the measure of that loss. That is a top-up payment, consistent with the construction I prefer of cl 2.2.
The fourth matter that leads me to conclude that cl 2.2 is not a true indemnity against loss is that the obligation in cl 2.2 is absolute once a valid demand is made. GLT is not relieved of its obligation to pay CRC on demand under cl 2.2 even if, after the demand is made, GOT subsequently makes a distribution to CRC so that the payment from GLT is no longer required to make up any shortfall in CRC's obligation to Max. Rather, the Indemnity Amount is calculated as at the due date, and GLT's obligation to pay that amount becomes unconditional from the date that CRC makes a demand for that sum. The clause fixes the amount payable by GLT at the time that a demand is made; it does not enable GLT to pay a lesser amount (or recoup an amount paid) by reference to subsequent events.
The fifth matter that leads me to conclude that cl 2.2 is not a true indemnity against loss is that the clause appears in an interlocking suite of agreements comprising hundreds of pages, in which little is left to chance. If the parties intended that GLT, upon making a payment under the GLT Indemnity, should have an immediate right to recover that payment from GOT, one might expect such a right to be referred to. It is not.
There was no amount which CRC was entitled to receive, the non-receipt of which was the subject of indemnity. Rather, GLT promised to "top up" any deficiency between amounts received from GOT and amounts payable to Max. The acceleration of the principal debt was not the subject of the indemnity and was not the loss or liability indemnified. Clause 2.2 of the GLT Indemnity was not an indemnity against loss; it was a promise to pay upon a contingency. It does not attract the doctrine of subrogation.
It follows that on the contingent hypothesis that the appellant's subrogation claim is being addressed, I would reject it.
I have also concluded on the same contingent basis that even if cl 2.2 of the GLT Indemnity was an indemnity against loss, the primary judge was right to hold that: 1. subrogation was excluded by cl 7; 2. the right to which GLT claimed to be subrogated (CRC's right to receive the Withdrawal Price) was separate and discrete from the indemnity.
Clause 7 of the GLT Indemnity is set out at [47] above. The relevant words are that the "indemnity does not ... adversely affect ... any ... other right or remedy to which CRC is entitled". To permit GLT to step "into CRC's shoes" as the appellant submitted is plainly an adverse effect on a "right or remedy to which CRC is entitled" since, in doing so, GLT would appropriate CRC's right to its own benefit.
I reject the appellant's submission that cl 7 has "nothing to do with subrogation", on the basis that it is directed to situations such as CRC taking a higher and better security. Clause 7 should not be read through the lens of an assumption about its characterisation and effect. The actual terms of the clause must be applied, and those terms operate to exclude any right of subrogation.
If I am wrong in my characterisation of the legal effect of cl 2.2, and the GLT Indemnity is a true indemnity against loss giving rise to rights of subrogation, it remains to consider the question: to which rights is GLT entitled to be subrogated? The answer to this question is that the right must be one that diminishes the loss against which the indemnity has been provided. The primary judge correctly held that while CRC's right to be paid Distributable Income by GOT is such a right, CRC's right to receive the Withdrawal Price from GOT is not.
On the assumption that subrogation is available, the conclusion that the right to be paid Distributable Income is a relevantly subrogable right is reached by reference to cl 2.2. The quantum of the Indemnity Amount is expressly defined as "the extent that CRC does not receive from the GOT Trustee by way of distribution in respect of the CRC Units any amount due by CRC to [Max]". Clause 2.2 itself thus defines the "loss" in a way that sets up a direct inverse relationship between the amount of the "loss" indemnified against, and the Distributable Income that CRC receives from GOT in respect of its units.
By submitting that GLT can also be subrogated to CRC's right to receive other amounts such as the Withdrawal Price from GOT, the appellant impermissibly looks beyond Distributable Income for other sources of funds that are practically capable of being applied by CRC to pay its debt to Max. The mere fact that other funds might be so applied, or even have historically been so applied, does not mean that the right to those funds are subrogable. GLT can only be subrogated to those funds if they are capable of diminishing CRC's loss. This requires a clear understanding of what the "loss" is. Clause 2.2 defines the loss, relevantly, as a shortfall in distributions from GOT. A shortfall in the Distributable Income received by CRC is not a loss which can be made good by taking an equivalent sum from the Withdrawal Price.
For the reasons set out above, I would reject Ground 3(b) of the Notice of Appeal, relating to subrogation in the period from May 2009.

Conclusion and Orders

For the foregoing reasons I propose the following orders: 1. Appeal dismissed; 2. Appellant to pay the costs of the first and second respondents.
WHITE JA: I agree with Payne JA.
BRERETON JA: I agree with Payne JA.

Amendments 23 August 2021 - [61] - changed "CRC" to "CIS" 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 August 2021

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