(d) How to deal with dissenters.
90 The first of these matters will be discussed in section H. However, it is clear that some clear provision must be made in the orders to ensure that the court's officers are paid and that the investors do not take the assets without the liabilities of the present Scheme.
91 It may be that any order for transfer of rights might be made subject to the payment of the court's officers or that surplus income be quarantined to pay such costs.
92 I should note that Mr Wood put to the court that the making of the orders in the principal proceedings may very well depend on the orders that were made in respect of the accountants' fees and expenses.
93 As to (b), s 601EE of the Corporations Act empowers the court to make such orders as it considers appropriate for the winding up of the scheme.
94 In ASIC v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240, 243, Barrett J noted that the court's powers under s 601EE(2) were very broad.
95 In Mier & Jonsson v FN Management Pty Ltd (2005) 23 ACLC 1,888 at 1,900, the Queensland Court of Appeal generally approved the approach taken by Barrett J and held that "appropriate" in the section meant "appropriate" to the facilitation of the realisation and application of the assets of the scheme. It did not empower the court to make orders with respect to property which was not an asset of the scheme.
96 It has been noted by other judges in previous cases that one of the ways in which a winding up of a scheme might be implemented under s 601EE (2) of the Corporations Act is to take the existing unregistered scheme and make the necessary adjustments to convert it into a duly registered scheme if that is possible: see ASIC v Atlantic 3 Financial (Aust) Pty Ltd (2003) 47 ACSR 52 (QSC). However, Mullins J in that case noted at p 60 that that proposition was subject to the proviso that if an existing investor did not agree to invest in the new scheme, he or she would need to be repaid the existing investment.
97 I followed the first Atlantic 3 case in Crocombe v Pine Forests of Australia Pty Ltd (2005) 219 ALR 692 at 702-3. Mr Wood says that I should follow what I there said. He said that another judge would in comity follow it and that I, "by a mirror principle of comity", should do so. (Unfortunately the transcript at p 152 has recorded this submission as referring to a mirror principle of comedy!). I did not mention the proviso in that case: however, I must say that it accords with principle and I should adopt it.
98 In Re Stacks Managed Investments Ltd (2005) 54 ACSR 466 at 479 [53], RW White J noted that:
"Where the court makes orders under s 601EE for the winding up of an unregistered scheme, it must fashion orders to establish a winding-up regime, in the context of parties having carried on an enterprise unlawfully."
99 I agree with the submission of those counsel who put that one has to consider with some reserve the decisions of single judges in the early days of the operation of s 601EE of the Corporations Act.
100 I have grave doubts as to whether all of the directions sought are within power. Turning to the matters referred to in [20] above, as to direction (b) there would need to be some provision for dissenters. As to (f) it is difficult to see how there can be a transfer of the mortgagor's interest under the mortgage without the mortgagee's consent. Item (g) will be discussed under sections E and F.
101 I will thus leave this matter and come back to it after dealing with the problems in the succeeding sections and when considering the appropriate orders in sections I and J.
102 As to (c), the first defendant's main concern was that the vendor mortgage should be classed as part of the Scheme. The plaintiff agrees that it should be. There was a lot of advocate's submissions from Mr Hayes as to a volte-face on behalf of the plaintiff, but there is no need for me to respond to that.
103 When one gets to the real issues, as pointed out in submissions, one must read "Scheme" in the definition of managed investment scheme in the Corporations Act widely; see eg ASIC v Takaran Pty Ltd (2002) 43 ACSR 46 and Re Aged Care Facility Partnership Scheme; ASIC v Primelife Corporation Ltd (2005) 54 ACSR 536 at 544 and following.
104 However, just because the Scheme includes the vendor mortgage does not necessarily mean that the mortgagees under that mortgage are members of the Scheme. I deal with this under heading D.
105 As to (d), it is clear from what I have said above that dissenters must have the option of being repaid (or of terminating their liability with the appropriate contribution).
106 The defendants' objections fall into three categories: (i) that the interests of the members might be given undue preference over the rights of creditors of the scheme; (ii) that the winding up takes insufficient account of the vendor mortgage; and (iii) that the meeting held by Mr Winterbottom is not a good guide as to whether it is appropriate that the TEYS organisation take over as responsible entity.
107 As to the first, it is quite correct that the court must watch the interests of creditors of the Scheme as well as those of members. The creditors, of course, are not so much creditors of the Scheme as the Scheme has no legal personality, they are creditors of Nominees which in turn has a right of indemnity against the Scheme assets.
108 Because the creditors' rights are against Nominees, any transfer of property out of Nominees must preserve Nominee's right of indemnity against the assets and any order must make this clear.
109 As to the second, as I have said in other places in these reasons, there is no longer (if there ever was), any argument but that the vendor mortgage is an obligation which, at least to some extent, binds the Scheme. As to the third, I deal with the problem under heading D.
110 D. The bald proposition is put that as the vendor mortgage is admittedly part of the Peridon Scheme and as Management is the mortgagee under that mortgage and its claim is for at least $14,000,000, it ought to have been accepted by Mr Winterbottom as a person entitled to vote for that sum or greater.
111 I have already considered this point and held that Management was not a member of the scheme, thus it had no right to vote.
112 It follows that Mr Winterbottom properly declined to accept Management's vote and he was correct in putting forward the proposition that the members endorsed the TEYS scheme.
113 E. Mr Wood says that the plaintiff does not seek to extinguish the vendor mortgage, rather, to have the mortgagor's interest transferred to TEYS. However, he seeks an order precluding the third defendant from enforcing its rights to date or for calling up the mortgage because of default, and also precluding the exercise of any rights under the mortgage until there is an inquiry by an Associate Judge as to the misapplication of Scheme property. As detailed in section F, Mr Wood puts that there is abundant evidence to show that there is a prima facie case of such misapplication.
114 As I have already noted, GDK seeks declaratory relief with respect to the vendor mortgage. The declarations it seeks are that: (a) the vendor mortgage is valid, subsisting and enforceable in all its terms; (b) there is secured under such mortgage an amount in excess of any free equity available in or in respect of the property subject to that mortgage; (c) that the vendor mortgage forms part of the interest of the Peridon Scheme; and (d) that the parties to the vendor mortgage and associated transactions are members of the Peridon Scheme.
115 As to (a), even apart from questions of GDK's lack of standing, the declaration, if available to be made, would be of no utility. The term "valid' is ambiguous and "enforceable" is of little meaning unless it is stated, enforceable by whom and against whom and in what circumstances.
116 There does not seem to be any party who is taking the position at this stage that the vendor mortgage does not confer some rights on Management.
117 Accordingly a declaration in terms of request (a) should not be made.
118 As to (b), I do not consider that even with the bulky material that was tendered I could make a determination as to what was secured under the vendor mortgage let alone whether that amount was in excess of the "free equity" available in respect of the charged property whatever that expression might mean. I cannot see anything in GDK's submissions (Z1010) which could assist me in this regard.
119 There does not seem to be any contest about (c), thus no declaration is called for.
120 (d) raises the question as to whether the parties to the vendor mortgage and associated transactions are members of the Peridon Scheme.
121 The submissions in favour of this point are not substantial. In paras 23 and following of Z1010, counsel for the first defendant put that "because the Peridon Scheme must include the vendor mortgage and associated transactional documents, and, a fortiori, because the parties to those documents must be members of the Scheme, their views are relevant to be ascertained as well as the views of the investor members." Further, "the fact that the vendor mortgage must constitute part of the Scheme means that the parties to that mortgage and the associated transactional documents are members of the Scheme … ". No reasons were proffered for these submissions, and with respect, they cannot be right.
122 First, Gzell J, in his order, designated the members of the Scheme as the investor members. Mr Hayes puts that Gzell J's declaration did not articulate what constituted the Peridon Scheme, though he conceded there was an assumption implicit in it. As I have already indicated, his Honour's declaration has more significance.
123 Secondly, this seems to me clearly to be what the Act contemplates. Section 9 of the Corporations Act defines "member" in relation to a managed investment scheme as a person who holds an interest in the scheme.
124 The definition of "managed investment scheme" in the same section speaks of people who contribute money or money's worth as consideration to acquire rights to benefits produced by the scheme. These people are said to be members in paragraph (a)(iii) of the definition.
125 In Part 5C of the Act, s 601ED speaks of a scheme with more than 20 members. This must denote more than 20 investors, not mortgagees or the like.
126 Thus, I decline to make suggested declaration (d) on the merits.
127 The remaining matter concerning the vendor mortgage is whether under the TEYS proposal, there may be an assignment as proposed by the plaintiff whereby Nominees' rights, obligations and liabilities are transferred to TEYS, Nominees transfer the land in the top and bottom contracts for nil consideration to TEYS with TEYS becoming the mortgagor under the vendor mortgage, and Management be restrained from exercising any rights under, inter alia, the vendor mortgage, at least until after an inquiry by an Associate Justice.
128 Mr Hayes says that all this is quite unfair to both GDK and Management. He says that the orders proposed by the plaintiff would mean that the investors would benefit in TEYS restructuring the investment. And they would maintain their tax deductions. However, Management would lose the present value of the vendor mortgage.
129 Mr Hayes says that transferring the interest of the mortgagor from nominees to TEYS or an associated entity would effectively prevent the enforcement of the mortgage.
130 Interestingly, Mr Hayes makes few submissions on whether an order transferring the mortgagor's interest is within power. The submission of Nominees did offer submissions on this issue and I will need to deal with the point in due course.
131 Mr Hayes makes it quite clear that GDK and Management wish to enforce the mortgage as soon as possible.
132 The riposte is that the vendor mortgage does not have any present value.
133 Under the loan agreements as already noted, the vendor mortgage is for the residue plus certain authorised accretions. There was a general restriction on recourse of the lender such that Management was confined to the Village and the property.
134 Plaintiff's counsel submit in para 89 of Z1001A:
"The structure therefore, of the two loan agreements … the two contracts for sale of land … and the Vendor Mortgage was to provide a significant limitation upon the entitlement of … Management to repayment of the Debt by limiting the source from which repayment had to be made, together with a 15 year sunset period, in addition to the general limitation on recourse. The source limitation, operating by reference to fees received from incoming residents under loan/licence agreements and profit share on existing and new developments, was critical to the structure of the arrangements …".
135 I would generally agree with those thoughts.
136 Plaintiff's counsel say that if these thoughts are correct, Management is not entitled to anything like the nineteen million dollars it claims under the vendor mortgage. Although there is no reliable evidence as to the possible amount due, it would seem to be closer to $461,999.
137 There is then the further problem that Nominees is said to be a "bare trustee". I will deal with that problem in detail in section G.
138 The intent of the promoters was that the members of the partnerships or sub-partnerships were to be the mortgagors. It is hard to see how the documents operate to bring this about or even if it were possible to bring this about.
139 The definition of "Mortgagor" in the vendor mortgage is Nominees and "the persons named in the schedule to each document constituting the Loan Agreement". This brings in as mortgagors each of the persons in sub-partnerships listed in the loan agreements re the top contract and the bottom contract.
140 These persons never signed the mortgage. They are not parties to this litigation. This litigation should neither decide their rights nor make any order which might prejudice their rights.
141 Thus, it would seem to me to be prudent for the reasons set out in section F as well as preservation of rights pending determination in the proper way, to grant an injunction to prevent the mortgagee from enforcing any rights it may have under the vendor mortgage, but, otherwise, not at this stage making any order for transfer of the land or Nominee's interest in the land or the mortgage.
142 F. Plaintiff's counsel say that the orders of preclusions by way of injunctions are against exercise of the rights of the defendants founded upon their promotion of an unlawful scheme, their breaches of obligations under various constituent documents and the best interests of various of members of the scheme; see eg ASIC v Chase Capital Management Pty Ltd [2001] WASC 27 at [75].
143 Counsel put that the reports of each of the investigating accountants, Messrs Parbery, Pogroske, Billingham and Winterbottom has identified apparent misuse of Scheme assets which were mortgaged by Nominees to secure borrowings by Management that were not utilised for the purpose of or benefit to the Peridon Scheme.
144 If one were to look at the position as at 9 March 2000, there were a number of mortgages over the subject land though precise details are not known. What is known, however, is that these debts were debts of management or Group. They were not debts of Nominees which was a special purpose company called into existence for the purposes of the scheme. Clause 12 of the top contract and clause 10 of the bottom contract each permitted registration of a new security on the property the subject of the sale on a refinancing of debts. It is claimed by the plaintiff that in their terms, they only permitted the granting of mortgages for one refinancing of debts which existed at 9 March 2000.
145 On or about 6 July 2000 Management obtained $3,000,000 from Champion Mortgage Services repayable on 5 July 2002 which was secured by a mortgage granted by Nominees over the land in the top contract. On the same day, Nominees provided the St George Bank with two mortgages over the land in the bottom contract. These were stamped to secure $1,540,000 and appear to have been used to secure then existing borrowings of Management.
146 Plaintiff's counsel say that, whilst the above mortgages may have been within the terms of clause 12 of the top contract and clause 10 of the bottom contract, there was no way in which those contracts could be said to have authorised the mortgage given by Nominees to Challenger in 2004 for $1,124,000 nor for the $6,827,000 mortgage given by Nominees to the Bank of Western Australia nor for the $360,000 mortgage to the National Australia Bank in 2001.
147 It is put that these three mortgages were a breach of trust. It is noted that not only were only part of the proceeds used to further refinance previous borrowings. Further, the expenses that were paid out of the refinancing should not be at the cost of the investors and that there were other serious breaches of trust or fiduciary duty.
148 The material before me shows that there is a serious question as to breaches by Management and its associates. There are gaps in the evidence which make it impossible to rule finally on the matter, but certainly an enquiry is justified.
149 However, one important matter which was not canvassed before me was how provision should be made for the costs of such an enquiry.
150 It is strange how many people who feel they have been defrauded expect the court to conduct some sort of enquiry and vindicate their right without cost. Unfortunately, government funding does not provide for that to happen. If there is to be an enquiry, someone has to pay for it. The State will provide a judge and courtroom, but much of the cost of investigation, the cost of preparation for the enquiry, advocate's costs and the like will, at least in the first instance, have to be borne by the persons requesting those services.
151 This matter, when added to the real dispute as to whether there is 19 million dollars due under the vendor mortgage or merely $462,000, makes me think that it would be wise to preserve the status quo by making an order in the winding up as per paragraph (g).
152 G. I now need to consider various matters which impinge on the result of both the principal litigation and the second piece of litigation.
153 The first of these is the status of Nominees as a "bare trustee".
154 The expression "bare trustee" derives from the cases on the Statute of Uses 1535 (Imp) under which the statute executed a bare use, but did not execute an active use that is one where the feoffee to uses, now called the trustee had duties to perform in and about the relevant property as well as holding it on behalf of another person.
155 If in fact and in law the mortgagor was a bare trustee, then it may be that there is not the same objection to a substitute mortgagor being appointed as there is no personal obligation on the mortgagor and the substitution will have no more significance than the appointment of a new trustee.
156 I have already referred to the reports of the accountants as to the activities of Nominees in and about this scheme. They do not seem to be the activities of a "bare trustee". However, the plaintiff says that it is significant that the accountants never identify the precise way in which they allege that Nominees so involved itself.
157 Secondly, it is clear on basic principles of the construction of deeds, that a tag given to a party has some significance, but is not of overwhelming significance. As Lewison says in the 3rd edition of The Interpretation of Contracts (Thomson, London, 2004) para 9.07:
"The nature of the relationship between the parties is to be determined by the substance of the obligations into which they have entered; and if their contract is described by a label inconsistent with that substance, or if the parties incorrectly state what they believe to be the effect in law of their contract, the label or the statement will be rejected."
158 Mr Wood argues that the tag "bare trustee" correctly describes Nominee's role. He notes that the structure of the various interlocking agreements constituted Management as the manager of the village and constituted GDK and not Nominees as the person responsible for supervising Management as the manager.
159 Mr Robinson for Messrs Billingham and Pogroske, the liquidators of Nominees, says that whilst the expression "bare" in cl 12.2 of the head partnership agreement ("Any partnership property held by the Bare Nominee is held by it as bare trustee for the partnership and Investor Partners") is not precise, neither is the meaning obscure.
160 Mr Robinson referred me to the decision of Gummow J when a member of the Federal Court in Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271, especially at 281 et seq where his Honour discusses the concept of a bare trustee. See also Corumo Holdings Pty Ltd v C Itoh Pty Ltd (1991) 24 NSWLR 370 at 398 per Meagher JA.
161 In Herdegen, Gummow J accepted the view of Professor Waters in a passage that now occurs on p 33 of the 3rd edition of Waters Law of Trusts in Canada (Thomson, Canada, 2005) that a bare trustee has no active duties prescribed by the settlor over the trust property, even though, the trustee may have duties to exercise reasonable care of the trust property.
162 Mr Robinson put that actually the classification of bare or active trustee might not take one very far as both types enjoyed the right of indemnity out of the trust assets.
163 However, he asserted that, when one looked at the way in which the scheme was documented and implemented, Nominees was deploying assets with a view to earning income and was doing far more than approving a budget, which seemed to be the limit of the plaintiff's assertion of its role. Nominees was fulfilling its object in conducting the enterprise to provide a return for the benefit of the investors and the promoters. Although there was a manager, the management of the enterprise was not committed exclusively to the manager and Nominees itself carried out management functions.
164 I am reluctant to make a finding on this point as I am not at all sure that I have all the material that all persons interested in the point might have wished to place before a decision maker.
165 If I was asked to make a decision on the present material alone, it would be that Nominees was a bare trustee, however, it took on itself, at the request of GDK or Management tasks over and above that of bare trustee.
166 The other matter to which I must advert is Mr Hayes frequent request for me not to do anything which would affect the tax deductions that investors had received because of their investments in the scheme.
167 I do not think I need pursue this matter for three principal reasons. First, Mr Hayes in reply told me that since there was no attack on the vendor mortgage, I did not have to consider the point further. Secondly, the plaintiff is an investor and has raised none of the same fears. Thirdly, whilst the obtaining of tax deductions may be a motive for a person investing in this sort of scheme, the investors' tax position is to my mind almost irrelevant when considering how an unregistered managed investment scheme should be wound up.
168 H. I now turn to the claims made in the second piece of litigation.
169 The plaintiffs, Messrs Billingham and Pogroske (called in this section "these plaintiffs") are the administrators and now liquidators of Nominees.
170 These plaintiffs' fees were approved by creditors on 15 August 2005 in the amount of $233,233. In addition they claim costs as administrators of $240,000 approximately and costs accruing after 15 August 2005. However, Mr Warne notes, as I will consider in due course, that there was not put before the creditors the detailed break up of fees that the court requires before making an order for payment of or security for a liquidator's costs.
171 These plaintiffs say that on 15 August 2005, they entered into a deed with GDK whereby GDK acknowledged that these plaintiffs would be paid in priority to GDK.
172 These plaintiffs seek priority by virtue of ss 443D, 443E, 443F and 556(1) of the Corporations Act, 2001 (Cth) or under the general law. They rely on Nominees' rights of indemnity against trust assets. They also say that in the case of a company which only conducts a trust business, the liquidators' costs, expenses and remuneration are to be paid out of the trust assets: they rely on Re Suco Gold Pty Ltd (1983) 7 ACLR 873.
173 The defendants to the proceedings are Mr Parbery, Mr Winterbottom and Management. Mr Warne was added as a party to the proceedings on the first day of hearing. The first two are defendants because they also claim priority for their fees and disbursements.
174 Mr Parbery was appointed Investigator in the principal proceedings on 16 October 2004. Order 10B of the set of orders made that day appointing him was as follows:
"Order that the Independent Accountant's reasonable costs and expenses be payable in the first instance and subject to further order by the First, Second and Third Defendants and further that within 10 days of the making of this Order, the First, Second and Third Defendants pay into Court the sum of $50,000.00 on account of the fees of the Independent Accountant."
175 The $50,000 was paid in advance as ordered, but Mr Parbery has never seen the balance.
176 Mr Parbery says that he is entitled to an order that he is entitled to be paid in priority to any claim of GDK, Management, Messrs Billingham and Pogroske, Mr Winterbottom and all other unsecured creditors.
177 No-one disputes that Mr Parbery is entitled to be paid. No-one now disputes the quantum of the fees charged by Mr Parbery ($177,711.04) or by his solicitors $128,483.08.
178 Mr Parbery says that the court ordered his report, that he has duly reported after an expensive investigation, his report has been made available to Mr Winterbottom as liquidator of the Peridon Scheme and the liquidator was ordered to make the report available to all members of the Scheme. He says the court should see to it that he is paid for his work.
179 Mr Parbery relies on the decision of Mullins J in the second ASIC V Atlantic 3-Financial (Aust) Pty Ltd [2004] 1 Qd R 591.
180 Mr Winterbottom was appointed liquidator of the Peridon Scheme and says that his claim for costs and disbursements as the court's officer winding up the scheme has absolute priority.
181 He relies on statements like those made by Needham J in Re Central Commodities Services Pty Ltd [1984] 1 NSWLR 25 at 27 that when a receiver is appointed by the court, he or she has an indemnity over the assets and a lien over them. In Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552, Powell J noted that, whilst it was not the invariable practice, it was the general practice of the court to give the claim for such indemnity. See also Shirlaw v Taylor (1991) 31 FCR 222 at 230.
182 Mr Wood says that there are a number of answers to the claims of these plaintiffs.
183 First, it needs to be realised that there is no automatic right for administrators/liquidators to get their costs out of trust assets regardless of individual circumstances: Re Sutherland; French Caledonia Travel Service Pty Ltd (2003) 59 NSWLR 361 at 429.
184 Secondly, he submits that the court would not make an order for such costs until they have been properly particularised, which has not yet happened; see Re Sutherland at 429 and the exposition of Finklestein J in 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (1999) 30 ACSR 377 at 385 which his Honour reformulated in Re Korda; In the matter of Stockford Ltd (2004) 140 FCR 424 at 442 [48].
185 Thirdly, it is put that the second point is particularly relevant in the instant cases because the evidence shows that Mr Pogroske and his advisers misunderstood their limited role. They knew that Nominees was purportedly a bare trustee or was at least some sort of trustee, yet, he and his partner spent considerable time and effort in and about the business of the trust and endeavouring to find purchasers for it, all of which was beyond their proper activities.
186 In my view this criticism should be upheld.
187 Fourthly, he says that insofar as the claims of the various accountants depend on a right of indemnity that Nominees may have over the assets of the scheme, it faces a major obstacle. Nominees had participated in a serious breach of trust and would not be entitled to any indemnity until the loss occasioned by the breach had been made good; see eg General Credits Ltd v Tawilla Pty Ltd [1984] 1 Qd R 388.
188 Needham J in Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207 at 214, and Brooking J in RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385 at 396 et seq proposed a more lenient rule for trustees; see also the decision of Giles J in Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439.
189 Mr Wood, adopting the argument in S R Derham The Law of Set-Off 3rd ed (Oxford University Press, 2003) p 849, submits that those cases if not distinguishable are wrong, because they are inconsistent with the basic principle underlying Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171. He further submits that, even if correct, these authorities do not give any comfort to Nominees in the present context.
190 In case this matter should go further, I should note that the case continually noted in the transcript at p 135 as "Terry v Backby" is actually a reference to Cherry v Boultbee.
191 Mr Wood says that, even if this approach were correct, a great problem with it is that in the present case no proper balance may be struck on the accounts until after the mortgages have been discharged or the loss to the trust estate made good (by somebody) and that this may take some time.
192 McPherson SPJ writing extracurially in Finn, Essays in Equity (Law Book Co, London, 1985) at p 149 rightly pointed out that (omitting reference to authority):
"It is sometimes said that a trustee may lose his right of indemnity if he is in default or until his default is made good. It is submitted that these statements are to be understood as meaning that there is no right of indemnity in respect of liabilities arising from trading that is not authorised by the trust instrument; or that there is, by reason of misapplication of trust assets, no balance in favour of the trustee that is capable of attracting the right of indemnity. The trustee's rights to resort to the trust funds in order to discharge liabilities may be suspended while his accounts are investigated; but, subject to this, default of a trustee will not produce forfeiture of his right of indemnity unless the degree of misconduct involved is very serious."
193 McPherson SPJ relies as his authority for the point about suspension on the decision of the English Court of Appeal in Jennings v Mather [1902] 1 KB 1 at 9. However, the point was only mentioned in obiter dicta.
194 Those dicta and the passage quoted make me consider that it is good practice to assume that the trustee (whether bare or active) has a prima facie right of indemnity, but to order accounts if there is doubt about the entitlement of the trustee because of a default, and suspend the right of the claimant whilst those accounts are taken.
195 Fifthly, it is put that the plaintiffs in the second proceedings gain no further advantage if they rely on agency law principles to provide a right of indemnity. An agent does not get an indemnity for payments made or acts done outside its instructions; see eg Islamic Republic of Iran Shipping Lines v Zannis Compania Naviera SA (The Tzelepi) [1991] 2 Ll Rep 265.
196 Sixthly, insofar as Messrs Billingham and Pogroske rely on ss 443D, 443E, 443F and 556(1) of the Corporations Act, 2001 (Cth) any priority or lien would only cover the administration period and would only apply to Nominee's assets, which seem to be non-existent unless there is a right of indemnity against the trust assets: see Godfrey v Scottish Pacific Business Finance Pty Ltd (2004) 51 ACSR 272.
197 Seventhly,Mr Wood puts that to make the sort of order that these plaintiffs seek would be to conflict with the order that should be made in the principal proceedings that Nominees be restrained from implementing any action to discharge any right of indemnity.
198 The accountants receive no further comfort from decisions such as Re Suco Gold Pty Ltd because they also rely on the right to indemnity.
199 GDK submits that the accountants' fees are to be paid from the assets of Nominees including the assets over which it has a right of indemnity and that some of them may have a charge over those assets. That charge is to be satisfied in priority to any claim by the plaintiff or the other defendants. However, it submits that whilst such charge has priority over the vendor mortgage, it does not prevail over any registered mortgage.
200 The accountants rely on the milder version of the indemnity principle as in the RWG case. Additionally, the accountants say that any loss to the trust estate will be made good by other parties before Nominees will be called upon to make good any loss.
201 It seems to me that there is sufficient doubt as to the availability to these plaintiffs of a right of indemnity from the trust assets in favour of Nominees, that it would be inappropriate to make any order for payment to these plaintiffs at this stage.
202 Alternatively, an order could be made that, subject to it being established to the court's satisfaction that such a right of indemnity existed, these plaintiffs should be paid. However, this is of limited utility as it will only be after a proper enquiry or full litigation that it will be established one way or the other whether Nominees has been involved in such breaches as would remove its right of indemnity against the trust assets.
203 Accordingly, whilst I feel comfortable in making a declaration that the accountants generally have a lien or charge over Nominee's assets, this really begs the question as to whether the declaration is meaningless in practical terms if Nominees is without assets or right of indemnity. However, the declaration should be made so that, if the enquiry finds that there is a right of indemnity, the lien or charge will take effect.
204 In particular, Mr Winterbottom is the court's appointee to superintend the winding up and the court must see to it that he is paid for his proper fees and expenses.
205 In Mr Parbery's case, he was appointed by the court to do a specific task. Just as in a receivership when the court appoints a person to assist it, the court ensures that he or she is paid, the same must happen with an appointee such as Mr Parbery.
206 Mr Wood says that the plaintiff accepts that Mr Parbery must be paid, but says that before any other orders are made the orders of Gzell J that such costs be payable in the first instance and subject to further order by GDK, Nominees and Management, should be enforced. Apart from the position of Nominees, there is no reason shown why the costs have not been paid by GDK and Management.
207 Order 10B as set out earlier is clearly a joint and several order. If it be relevant, this conclusion is reinforced by the fact that "in equal shares" or like expression is crossed out twice.
208 I consider that there is great force in Mr Wood's argument. The making of any further order with respect to Mr Parbery's costs should stand over pending the issue and satisfaction of statutory demands against GDK and Management or such other method of enforcement of Gzell J's order as may be considered appropriate.
209 If Mr Parbery's costs cannot be otherwise paid it may well be appropriate to order them paid out of the assets of the Peridon Scheme.
210 I. The result of the litigation is that the plaintiff in the principal proceedings basically succeeds. However, the TEYS scheme cannot be implemented unless some way of funding the interim administration is found including putting Mr Winterbottom in a position where his proper fees and expenses are assured. There will also need to be some provision for the satisfaction of investors who do not wish to participate in the TEYS scheme.
211 Because the investors generally are not parties to the present proceedings, I cannot adjudicate as to whether or not they personally, or their partnerships or sub-partnerships are liable under any of the mortgages.
212 I do not consider that I can make any order transferring the mortgagor's interest under the mortgages or transferring the land subject to the mortgages at least until there has been a proper opportunity for the investors to be heard.
213 I agree that there should be an enquiry and the taking of appropriate accounts. However, this is an expensive exercise and I would not order it without some plan as to who in the first instance is going to pay the cost.
214 I also consider that the residents should be informed by Mr Winterbottom what is happening in general terms. That the residents are concerned is confirmed by the fact that, whilst judgment was reserved, I received two letters on behalf of residents (which I merely filed).
215 It may well be that the difficulties I have just noted are such that there is no viable alternative to realising the assets and providing some plan of distribution.
216 As to the second suit, Mr Parbery must be paid in accordance with Gzell J's order of October 2004. Mr Winterbottom is entitled to an indemnity out of the assets of the Peridon Scheme if other proper orders for costs are not productive of cash funds.
217 I consider that there is sufficient doubt about the right of indemnity against the trust assets not to make any order for payment of Messrs Billingham and Pogroske's fees at this time. That decision should await the result of taking the accounts.
218 J. The orders that must be made must be along the lines of those set out in the following paragraph. Because of their complexity and because some orders may have an impact other than those I currently perceive, it would be best if counsel for the plaintiff were to bring in short minutes.
219 I should add that it may be that, inadvertently, I have omitted to deal with a submission which really needs to be the subject of decision. If such be the case, this should be drawn to my attention when short minutes are brought in.
220 In the outline following, I will, for brevity merely refer to the order sought in the short minutes filed by the plaintiff in the principal proceedings which was coded Z1001A.
221 The short minutes should provide for orders such as the following: