FEDERAL COURT OF AUSTRALIA

Coshott v Prentice [2014] FCAFC 88

THE COURT ORDERS THAT:

1.    The appeal is dismissed subject to orders 2, 3 and 4.

2.    The appointment of the cross-claimant as the trustee for sale is set aside.

3.    Order 11.5 of the orders below is set aside and substituted by the following order:

“Fifthly, and from the proceeds of the sale of the half interest in the property vested in the cross-claimant, in payment of the cross-claimant’s professional and legal costs of the proceedings;”

4.    The matter be remitted to the primary judge to appoint a corporate trustee or individual trustees for sale under s 66G of the Conveyancing Act 1919 (NSW) as applied by s 79 of the Judiciary Act 1903 (Cth).

5.    The question of costs be reserved.

6.    The parties notify the Court within seven days as to whether they wish to be heard on the question of costs or are content for the Court to make orders to the effect of those foreshadowed in these reasons for judgment.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

INDEX

the court:

1.    INTRODUCTION

1    The primary judge held that the 50% interest of Robert Coshott, a bankrupt, in his matrimonial home in Sydney (the Property) vested in Maxwell William Prentice, the trustee in bankruptcy. The principal issue below and on the appeal is whether Robert Coshott’s interest in the Property was held on trust for the Coshott Family Superannuation Fund (the Superannuation Fund) and therefore not divisible among his creditors.

1.1    The issues at trial

2    The Property was purchased by Robert Coshott and his wife, Ljiljana, in June 2003. Mr Coshott became bankrupt on 7 November 2008. Mr and Mrs Coshott’s sons, Michael and James, also reside at the Property. For convenience, and without intending any disrespect, we will generally refer to Robert, Ljiljana, Michael and James Coshott, together with Robert’s brother, Ronald Coshott, by their first names.

3    These proceedings and the way in which the issues arose at trial are quite complex and it is necessary to explain them at the outset with some care.

4    These proceedings were initially instituted in the Supreme Court of New South Wales by James. They were brought against his parents. James applied for a declaration that they held the Property on trust for the Superannuation Fund. By an amended summons filed by consent on 10 July 2009, the then plaintiffs sought:

(a)    declarations that:

i.    Ljiljana and Robert held the Property in trust for the Coshott Family Trust and the Superannuation Fund; and

ii.    that James and Ljiljana are the current trustees of the Trust and the Superannuation Fund; and

(b)    orders that James and Ljiljana be registered as the joint proprietors of the Property.

5    Consent orders were initially made in terms of the relief sought but, after the trustee in bankruptcy became aware of the orders, he applied successfully to have them set aside.

6    Subsequently, Ljiljana was added as a plaintiff and removed as a defendant, Robert became the first defendant, and the trustee in bankruptcy was added as a second defendant. In the statement of claim, the plaintiffs pleaded that Ljiljana was and had been a trustee of the Superannuation Fund since 1 May 2003 and of the Coshott Family Trust (Family Trust) since 3 June 2003. They also pleaded that James had been a trustee of the Superannuation Fund since 7 November 2008 and of the Family Trust since 30 November 2008. Both contentions were disputed by the trustee in bankruptcy. Ultimately, however, no attempt was made to prove either and the application was dismissed by the primary judge as an abuse of process: see reasons below at [9]-[11], [16]-[19] inclusive.

7    The trustee in bankruptcy filed a defence and cross-claim in October 2009. The proceedings were then transferred to the Federal Court of Australia by orders made on 4 November 2009 pursuant to s 5 of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth). By an amended cross claim filed in the Federal Court on 3 August 2014, the trustee in bankruptcy cross claimed against James, Ljiljana, Robert and Schlotzsky’s Nominee Company Pty Limited (together, the Coshott parties) alleging that Robert’s 50% interest in the Property was an asset to be brought to account in his bankrupt estate.

8    The central question run at trial was that raised by the Coshott parties in defence to the cross-claim, namely, whether Robert held his 50% interest in the Property:

(a)    as trustee of the Superannuation Fund; or in the alternative

(b)    pursuant to a resulting trust in favour of Schlotzsky’s Nominee Company Pty Limited (Schlotzsky) on the basis that Schlotzsky was the trustee of the Superannuation Fund.

9    On either view, Robert’s interest would not be property divisible amongst the creditors of the bankrupt estate under s 116(2)(a) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). Conversely, if the Court found that Robert’s interest was held by him beneficially, then the Property vested in the trustee in bankruptcy and was divisible amongst his creditors.

10    At this stage, it is important to note that, while the question of whether Robert held his interest on trust for the Superannuation Fund was a common issue on the application and cross-claim, otherwise the application sought relief on the fundamentally different premise that James and Ljiljana were trustees of the Superannuation Fund.

11    The primary judge held (at [5] of his reasons) that any suggestion or arrangement tending to suggest that Robert purchased the 50% interest in the Property otherwise than beneficially “was and is a sham, as that term has come to be used in the jurisprudence of this Court and the High Court”. Accordingly, the primary judge made declarations to the effect that Robert acquired his interest beneficially, that the joint tenancy was severed by operation of s 58(1) of the Bankruptcy Act and that Robert’s interest vested in the trustee in bankruptcy from the date of the bankruptcy (the declarations). The primary judge also made orders vesting the Property in Mr Prentice as trustee for sale, ordering the sale of the Property by the trustee for sale, for the maintenance and vacant possession of the Property, and for the distribution of the sale proceeds (the orders for sale).

12    Finally, orders for costs were made on an indemnity basis against Ljiljana and James in respect of the original proceedings instituted by them, and against the Coshott parties with respect to the cross-claim brought by Mr Prentice (the costs orders): see reasons below at [107]. Orders were also made for the trustee in bankruptcy’s costs and professional fees to be met from the proceeds of sale of the whole Property, as opposed to the bankrupt’s share alone.

13    At the conclusion of the hearing of the appeal and pending delivery of judgment, these orders were stayed on conditions. While earlier stay applications were unsuccessful (see Coshott v Prentice [2013] FCA 1036; and Coshott v Prentice; Fewin Pty Ltd v Prentice [2013] FCA 1085), vacant possession had not been given.

1.2    The issues on appeal

14    The appellants challenge the declarations and orders for sale. They seek an alternative declaration that Robert’s interest in the Property is held on trust for the Superannuation Fund on the ground that the primary judge ought to have held that Robert’s 50% interest was held on trust for the Fund because it was purchased with Fund monies (ground 1, second further amended notice of appeal). Specifically, the primary judge is said to have erred in the following respects:

(a)    in failing to have regard to “the most probative evidence” in support of the contention that moneys distributed to Robert from his mother’s estate were applied as contributions to the Superannuation Fund, relevantly the evidence of Robert’s brother, Ronald (ground 1(a));

(b)    in giving undue weight to “irrelevant” or “unimportant” considerations relating to the operation of the Superannuation Fund and its bank account at other times (ground 1(b)), namely:

i.    irregularities in the Superannuation Fund’s records and evidence that the Fund’s bank account was sometimes used for other purposes;

ii.    the fact that the purchase of the interest in the Property was not authorised by the trust deed and would have contravened the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act);

iii.    the consideration that Robert could not have been the trustee of the Superannuation Fund; and

iv.    the fact that the solicitor acting for Robert and Ljiljana was instructed to purchase the Property for them as joint tenants;

(c)    in making findings of a sham (ground 1(c)):

i.    without finding fraud or an intention to deceive;

ii.    where a series of events was wrongly characterised as a sham;

iii.    without clear and convincing proof; and

iv.    in circumstances where a contrary inference was equally open; and

(d)    in presuming that the Court would not lightly infer that Robert engaged in illegal or unauthorised conduct where Robert’s conduct affected others who had not engaged in that conduct, namely, the beneficiaries of the Superannuation Fund (ground 1(d)).

15    In the alternative, the appellants challenged the orders for sale in three respects (grounds 3 and 3A), namely:

(a)    the primary judge lacked power to order the sale of the Property because neither s 30 of the Bankruptcy Act nor s 66G of the Conveyancing Act 1919 (NSW) (Conveyancing Act) confer that power and the application for the orders for sale did not constitute part of the same “matter” in the sense in which that term is used in Chapter III of the Constitution;

(b)    even if power existed, s 66G of the Conveyancing Act requires the appointment of at least two individual trustees for sale so that the appointment of one is not effective; and

(c)    the appointment of the trustee in bankruptcy as trustee for sale does not satisfy the requirement that the trustee for the sale of property that is co-owned be independent.

16    Notice was given in accordance with s 79B of the Judiciary Act 1903 (Cth) of the intention to raise the constitutional issue referred to in paragraph 15(a) above and none of the Attorneys-General decided to intervene pursuant to s 78A.

17    Grounds 2 and 5 of the second further amended notice of appeal also challenge the findings that Ljiljana and James lacked standing to bring or maintain the proceedings and that their institution was an abuse of process. Nonetheless, it is clear from the appellants’ written and oral submissions that the challenge to these findings was relied upon to contest the orders for indemnity costs against the appellants. Thus, it was no part of the appellants’ case on the appeal that Ljiljana and James are trustees, as they had contended in their originating application. Rather, the appellants sought to make good the case of a resulting trust in favour of Schlotzsky as trustee which was the case put by all of the Coshott parties in response to the cross-claim.

18    Finally, Robert and James filed submitting appearances save as to costs on which they indicated that they wished to be heard.

1.3    Summary of conclusions

19    For the reasons given below, we consider that the appeal should be dismissed insofar as it challenges the primary judge’s findings that Robert’s share in the Property vested in the trustee in bankruptcy when he was made bankrupt. We respectfully disagree with the primary judge’s conclusion that the circumstances relied upon by the Coshott parties were a sham for the reason that in our view the sham doctrine was irrelevant. The circumstances in question were not such as to enliven the doctrine. Rather, having regard to all of the evidence, we consider that the Coshott parties simply failed to establish that Robert’s 50% interest in the Property was held on trust for the Superannuation Fund. The evidence to the contrary was overwhelming. In those circumstances, it is unnecessary to consider whether there was any deception intended by such acts as the signing of the purported ‘acknowledgement’ that Robert’s interest was held on trust and purchased with trust monies.

20    With respect to the orders for sale, s 30 of the Bankruptcy Act does not confer power to make an order for the sale of the Property in circumstances where such an order would, as here, destroy the interest of a person who is not the bankrupt in the property. In other words, the trustee in bankruptcy has no greater rights against Ljiljana than Robert had before he became a bankrupt. There is power, however, to order the sale of the Property under s 66G of the Conveyancing Act as picked up and applied to these proceedings by s 79 of the Judiciary Act 1903 (Cth), provided that the conditions on the exercise of the power in s 66G are satisfied. As to the latter, we consider that the appellants correctly contended that s 66G requires that, where a corporation is not appointed trustee for sale, there must be at least two trustees. It follows that the appeal against the orders for sale must be allowed in part.

21    Finally, the challenge to the order for indemnity costs against Ljiljana and James ignores the nature of the relief sought in those proceedings, namely declarations that Ljiljana and James hold the whole of the Property on trust. That being a case that was never seriously run at trial, we can see no error in the primary judge’s conclusion that the proceedings were an abuse of process and no reason therefore to disturb the exercise of his discretion to award indemnity costs.

2.    THE PURCHASE OF THE PROPERTY

22    It is convenient to begin by explaining the circumstances in which the Property was purchased and the source of the funds that were used to purchase it.

2.1    Establishment of the Superannuation Fund and its subsequent activities

23    The deed of trust for the Superannuation Fund was executed on 22 September 2000 by the members of the Fund and under the seal of the nominated trustee, Schlotzsky.

24    Schlotzsky was registered on 9 July 1998. Ljiljana and Robert have purportedly been the directors of Schlotzsky since then (notwithstanding that Robert has been an undischarged bankrupt since 2008). Ljiljana has been and remains its sole shareholder. The company was deregistered on 14 January 2007 and reinstated by order of this Court on 30 July 2010.

25    The members of the Superannuation Fund were stated to be Robert and Ljiljana and their two sons, James and Michael. A chartered accountant signed a certificate on 5 October 2000 stating that the Superannuation Fund had elected to become a regulated fund and that the Fund “complies with The Superannuation Entities (Taxation) Act 1987 (formerly the OSS Act 1987) and the Insurance and Superannuation Commission Legislation”. On 6 November 2000, the Australian Taxation Office (ATO) advised that the Superannuation Fund had been issued with a tax file number and confirmed that the fund was “now a regulated superannuation fund”. The election operated relevantly to bring the Fund under the scheme of the SIS Act and was irrevocable: ss 7 and 19, SIS Act; see Attorney-General (Cth) v Breckler (1999) 197 CLR 83 at 100. The Trust Deed is also expressly made subject, relevantly, to the SIS Act and regulations.

26    James and Michael, however, were then minors. For this reason they could not be directors of any company: Corporations Act 2001 (Cth), s 201B(1). It follows that when the Superannuation Fund was purportedly established, it was not possible for the trustee, as a constitutional corporation, to comply with the express requirements of either the trust deed or the SIS Act that all members be directors of the corporate trustee of the Superannuation Fund.

27    A trustee of a regulated fund must, by s 62(1) of the SIS Act, also “ensure that the fund is maintained solely” for one or more of the “core purposes”, namely, for providing benefits to members of the Fund on their retirement, the attainment of a prescribed age or, on their death, to the members’ legal personal representatives and/or dependants (emphasis added). This provision is a civil penalty provision: SIS Act, s 193 and Part 21. The trustee must also ensure that prescribed standards are complied with (SIS Act, s 34(1) and Superannuation Industry (Supervision) Regulations 1994 (Cth), Division 4.2, Part 4); accounting records are kept that correctly record and explain the transactions and financial position of the entity (SIS Act, s 35A; see also the additional requirements for self-managed funds under s 35B); an approved auditor is appointed for each year of income to provide an audit report to the trustee (s 35C) which in turn is to be given to the Australian Prudential Regulation Authority (s 36); and annual returns are lodged with the Commissioner of Taxation (s 35D). The contravention of any of these provisions is an offence.

28    Despite these obligations, the primary judge found that there was no record of any firm or person ever having acted in any capacity for the Fund or the trustee, including ever having acted as tax agent, or conducted any audit function; nor was there any record indicating compliance with the relevant superannuation laws (primary reasons at [24]-[25]). These findings are not challenged on appeal. The primary judge found that “[t]he only conclusion is that the fund remained inactive from the time of its establishment or, if there was any activity at all, no record was ever made of it”.

29    The only activities claimed to have been undertaken on behalf of the Superannuation Fund were transactions reflected in statements from a business cheque account maintained and operated in Schlotzsky’s name from 9 October 2000 until 4 February 2005. Initially that account bore the name “Schlotzsky’s Nominee Company in trust for the Coshott Superannuation Fund” and from 1 August 2001, the name “Schlotzsky’s Nominee Company Account No 2 in trust for the Coshott Family Superannuation Fund.” Throughout these periods, the primary judge found at [49]-[51] that there was a considerable number of transactions, including large deposits and regular withdrawals by cheque, the great bulk of which were unexplained by any evidence, and that, save for a small number relating to the purchase of the Property, there was no suggestion that any of these transactions had anything to do with the Superannuation Fund. There is no challenge to these findings either. The primary judge found at [51] of his reasons that:

Schlotzsky’s activities, which were almost wholly unexplained, were clearly not confined, despite the name of its business cheque account, to acting as trustee for the superannuation fund. Indeed there is no evidence that anything done by or in the name of Schlotzsky related to the superannuation fund in any way.

30    However, as we later explain, the appellants challenge the relevance of the finding at [52] that “the business cheque account in Schlotzsky’s name was conducted by Mr Coshott as his personal account” insofar as the finding relates to transactions other than those relating to the purchase of the Property.

31    The appellants also challenge the finding at [52] that “any appearance that it represented an account reflecting the affairs of Schlotzsky as trustee for the superannuation fund was deceptive.” They suggested that the finding does not amount to a finding of an intention to deceive which would be necessary to sustain his Honour’s conclusion that this was one of the circumstances constituting the sham.

2.2    Agreement to purchase the Property and the acknowledgment

32    Contracts for the purchase of the Property were signed and exchanged on 3 June 2003. The contract identified the purchasers as Robert and Ljiljana Coshott but did not state whether they would take title as joint tenants or as tenants in common.

33    The appellants relied on a document entitled “ACKNOWLEDGEMENT”, which was also dated 3 June 2003 and signed by Robert and Ljiljana (the acknowledgement). It reads:

It is hereby acknowledged that a one half share/interest in property… is purchased by Ljiljana Coshott in her own right and with her own funds and the other one half share/interest is purchased in the name of Robert Gilbert Coshott as trustee for The Coshott Family Superannuation Fund with the funds provided by the Coshott Family Superannuation Fund.

It is also acknowledged that Ljiljana Coshott and her invitees and licensees are entitled to exclusive possession and occupation of the property.

Dated: 3rd June, 2003

34    The acknowledgment contained two signatures, the first was identified as that of “Robert Gilbert Coshott” as the “Trustee for The Coshott Family Superannuation Fund” and the second signature as “Ljiljana Coshott”.

35    The trustee in bankruptcy initially disputed the authenticity of the acknowledgement but that challenge was abandoned after Ronald gave evidence that it was drafted by his staff and signed in his presence at his offices on the date it bore (reasons below at [72]). The relevance and legal effect of the acknowledgement was, however, in dispute. In particular, the acknowledgement comprises part of the evidence on which the appellants rely to challenge the finding of a sham and in support of the declaration that Robert’s interest is held on trust.

2.3    The decision to purchase as joint tenants and its implications for the claim that the Property was to be purchased for the Superannuation Fund

36    Stephen Barry, a solicitor who had previously acted for Robert and Ljiljana, was instructed by them to act on the purchase on about 4 June 2003. The primary judge accepted Mr Barry’s evidence that it was never suggested to him that the Property was being purchased in trust for a superannuation fund or other entity. The primary judge also accepted Mr Barry’s evidence that, if any such suggestion had been made, he would have been concerned about a number of matters. These included (at [60)]) that:

(a)    it would be necessary for the two interests in the Property to be taken as tenants in common in order to avoid them blending by survivorship in the event of the death of one purchaser;

(b)    to his knowledge at the time, a superannuation fund could not own the home in which its members resided; and

(c)    the land tax would be substantially more if a superannuation fund took an interest in the Property because the principal place of residence exemption from land tax would be lost.

37    The primary judge considered these to be powerful circumstances confirming Mr Barry’s recollection that it was never suggested to him that a superannuation fund was involved in the purchase of the Property.

38    Furthermore, Mr Barry’s evidence was that, acting on instructions from Robert, he directed that the words “joint tenants” be typed on the transfer form and signed the transfer on behalf of the purchasers. Importantly, absent those words, the purchasers would have been deemed to take their interests as tenants in common by operation of s 26 of the Conveyancing Act. Thus, the primary judge found at [61] that “[i]t was the fact that the transfer expressly nominated that they would take their interests as joint tenants which altered the legal relationship. That was a conscious and deliberate act done on behalf of the purchasers” (emphasis added).

39    Neither Robert nor Ljiljana gave evidence in the proceedings and Mr Barry’s evidence was therefore not contradicted. The primary judge held that the fact that no evidence to the contrary was given “raises an inescapable inference that any evidence which might have been given by Mr Coshott or Ljiljana Coshott would not have assisted their position with respect to the applicants’ case or with respect to the cross-claim.”

40    The types of concerns that Mr Barry would have held if it had been suggested that Robert’s interest was to be taken on behalf of the Superannuation Fund but held as a joint tenant were well-founded. By virtue of the “in–house” rules in s 71 of the SIS Act, a superannuation fund may own property with a related party only as a tenant in common and only provided that the Property is not subject to a lease or lease arrangement between them. It follows, as the primary judge held, that the claim that Robert’s 50% interest in the Property was held in trust for the Superannuation Fund effectively asserted a breach of the “in-house” rules at two levels: first, by reason of his taking the interest as a joint tenant; and secondly by reason of the fact that the arrangement for habitation of the Property would constitute a lease arrangement for the purposes of the SIS Act. By s 84 of the SIS Act, the trustee of a regulated superannuation fund must take all reasonable steps to ensure that the in-house asset rules are complied with and, while the validity of a transaction is not impugned by a contravention, civil and criminal penalties may nonetheless apply.

41    Furthermore, the trustee was prohibited by the trust deed from making or permitting an investment in breach of the in-house asset rules or in any way other than on an arms-length basis as a result of which neither the trustee nor its directors had power to authorise or participate in the purchase of the Property (reasons below at [43]; cll 3.4 and 3.5, Coshott Family Superannuation Fund Deed of Trust). Thus, the primary judge observed that if funds belonging to the Superannuation Fund had been used by Robert to purchase his interest, he would have been liable to restore them.

42    None of those findings were challenged. However, the appellants did challenge the relevance of Mr Barry’s instructions that they would take their interests as joint tenants. They did so on the ground that, if the monies used to purchase the Property were impressed with a trust, those instructions could not have destroyed the trust. In this regard, the appellants also relied on s 84(3) of the SIS Act providing that a failure by the trustee to take all reasonable steps to ensure compliance with the in-house rules does not affect the validity of the transaction. Nonetheless, they still required an assumption to be made that the trustee was acting without authority and unlawfully. As such, this ground cannot be considered separately from the appellants’ challenge to the primary judge’s finding at [42].

43    At [42] of his reasons, the primary judge found that, apart from the fact that the evidence as a whole is against the conclusion that the Property was purchased on trust contrary to the in-house asset rules, “I would not lightly draw an inference or make an assumption of illegal conduct by a party so that the party could rely upon that illegal conduct to make out its case.” As his Honour pointed out, the illegal conduct which the Coshott parties invited the Court to find was of a most serious kind, namely that “Schlotzsky as trustee of the superannuation fund and [Robert] as its director engage in systematic, deliberate and ongoing breach of the in-house asset rules, apart from all the other failures to comply with the provisions of the [SIS] Act”. The appellants contended that this “presumption” should not have been applied because it not only affected Robert, but also the other beneficiaries of the Superannuation Fund who had not engaged in any illegal or unauthorised conduct. As expanded upon in their written submissions, the complaint was that the presumption as applied by the primary judge:

…operated to deny the beneficiaries of the Super Trust an interest in property that they contended had been purchased with trust monies to which they were beneficially entitled. To apply such a presumption in these circumstances is to violate the clear policy of the law of trusts that the misconduct of a trustee cannot rob the beneficiaries of the beneficial interest in the trust property. Yet that is precisely the effect of the presumption that the trial judge applied.

44    The submissions are misconceived. First, the appellants’ submission assumes the existence of a trust whereas in the passage of which they complain, the primary judge is addressing the anterior question of whether a trust over Robert’s interest in the Property has been established on the evidence in the first place. The policy of the law of trusts to which the appellants refer has no relevance to that issue.

45    Secondly, while Schlotzsky and Robert sought to rely upon their purported ‘admissions’ of illegal conduct, they did so in furtherance of their own interests in a particular outcome which is in dispute. In the context of the present case, therefore, this is not an admission against interest. In such circumstances, the Court cannot simply accept the admission. Furthermore, in determining whether the finding urged should be made, the Court can properly have regard to factors which bear on the likelihood that such conduct was in fact undertaken. As Dixon J observed in Briginshaw v Briginshaw (1938) 60 CLR 336 at 362, “[t]he seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved”. So much may be said as a matter of common sense.

46    It follows that no error is exposed in his Honour’s reasoning at [42].

2.4    Payment of the deposit

47    The deposit to be paid on the exchange of contracts on 3 June 2003 was $222,500. The next day, an amount of $220,000 was deposited in the Schlotzsky business cheque account, although the source of those funds was not identified by the evidence. On 5 June 2003, a cheque corresponding to the amount of the deposit was drawn on the account and the primary judge found that it was likely that this cheque was used to obtain a bank cheque in the same amount. However, the primary judge found at [65] of his reasons that the passage of the deposit through the Schlotzsky business cheque account within one day did not indicate that the funds belonged to the Superannuation Fund or to Schlotzsky. His Honour further found, in any event, that the deposit related to the whole of the purchase, being 10% of the total purchase price, and was not referable to a particular 50% interest.

2.5    Payment of the remainder of the purchase price from the distributions to Robert from his mother’s estate through Schlotzsky’s account

48    Robert and Ronald were the trustees and beneficiaries of their mother’s deceased estate.

49    The primary judge relevantly found that distributions were made to Robert as a beneficiary of the estate on 26 May 2003 in the sum of $800,000 and on 14 July 2003 in the sum of $400,000. The cheques were made out to Schlotzsky at Robert’s direction and the primary judge inferred at [54] that a term deposit of about $700,000, held by Schlotzsky and rolled over weekly until 14 July 2003, represented the bulk of the first distribution.

50    The amount of $711,000 (representing the value of the term deposit) was transferred to Schlotzsky’s business cheque account on 14 July 2003, together with the second distribution of $400,000. On the same day, a withdrawal of $1,102,463.95 was made from that account in cash to provide a bank cheque. The primary judge found at [55] of his reasons that the withdrawal corresponded broadly to 50% of the balance of the purchase price of the Property which was $1,001,250, on which stamp duty was also payable.

51    The primary judge at [69] rejected the proposition that funds for the purchase were provided from assets of the Superannuation Fund. His Honour explained at [67]-[68] that:

The balance of the purchase price for the 50 percent interest taken in Mr Coshott’s name was provided from the Schlotzsky business cheque account in the manner indicated earlier. First, the balance of a term deposit, which appeared to have its origins in the first distribution to Mr Coshott from his mother’s estate, was deposited to the business cheque account. The term deposit was held in Schlotzsky’s name but not purportedly as trustee for the superannuation fund. The same day, the second distribution to Mr Coshott from his mother’s estate was deposited to the business cheque account. The same day a cheque was made out to cash for $1,102,463.95. That was used to obtain a bank cheque from the Rose Bay branch of Westpac in the same amount. The balance payable for Mr Coshott’s 50 percent interest in the [Property] was $1,001,250. Mr Barry gave evidence that the funds for this amount, and for stamp duty on the purchase, was provided by bank cheque.

In my view, the picture is a very clear one. The funds to pay for the 50 percent interest taken by Mr Coshott in his own name in the [Property] came directly from the first and second distributions to him from his mother’s estate. They passed through Schlotzsky bank accounts including, very briefly, the business cheque account purportedly operated by Schlotzsky as trustee for the superannuation fund. There is no evidence of any kind that the distributions were applied as contributions to the superannuation fund, and such inferences as are available are that the superannuation fund never had assets of this kind.

(Emphasis added)

2.6    Subsequent representations as to ownership of the Property

2.6.1    The application for a loan by Michael and James Coshott secured against the Property

52    After he was made bankrupt, Robert and other members of his family sought to raise funds on the security of the Property to obtain an annulment of the bankruptcy. Not only was no suggestion made at that time that Robert’s title in the Property was held on trust, the evidence was to the contrary. In support of an application for a loan from the Commonwealth Bank of Australia secured against the Property by Michael and James, it was proposed that Robert and Ljiljana would transfer their title to James and Michael. To that end, Robert and Ljiljana signed a document dated 9 August 2010 confirming that “we shall, when requested, deliver a duly executed Memorandum of Transfer of [the Property] vesting the fee simple in the property in James Coshott and Michael Coshott”. This proposal, the primary judge held, “is consistent in my view only with a belief by each of them that Mr and Mrs Coshott held their respective interests in the [Property] for their own benefit.” There is no challenge to these findings.

2.6.2    Representations made in relation to the reassessment of land tax on the Property following the consent orders made by the New South Wales Supreme Court

53    Finally, apparently upon learning of the consent orders in the Supreme Court, in July 2009 the New South Wales Land Tax Office (LTO) reassessed land tax on the Property and lodged a caveat. In response, Robert maintained to the LTO that the Property “has been and remains the primary (only) place of residence for my wife and I” and seriously misstated the effect of the orders made by this Court suggesting that the proceedings were dismissed when they were, in fact, continuing. In this regard the primary judge held that the statements that the Property was the principal place of residence and that there was no basis for reassessing land tax “are consistent only with the fact that the beneficial interest in the property was not held by him for the superannuation fund”. Again, these findings are unchallenged.

2.7    Conclusions of the primary judge

54    It will be recalled that in response to the cross-claim, the Coshott parties relevantly contended that Robert held his 50% interest in the Property on trust for the benefit of the Superannuation Fund. The premise for this contention was that he became trustee in substitution for Schlotzsky at some time before 3 June 2003.

55    In the alternative, the Coshott parties contended that Robert held his 50% interest pursuant to a resulting trust in favour of Schlotzsky as trustee of the Superannuation Fund.

56    With respect to the first contention, the primary judge held that, under s 19(3) of the SIS Act and the terms of the trust deed, the trustee of the Superannuation Fund was required to be a “constitutional corporation” and the substitution of a corporate trustee by an individual was not permitted. Nor did the trust deed permit a sub-trustee or other trustee. The primary judge found at [29] that those matters “are destructive… of any assertion in the present proceedings that [Robert] was the trustee of the superannuation fund in 2003.” These findings are unchallenged.

57    Both contentions were also rejected as equally unmeritorious (at [5]) on the ground that:

any suggestion or arrangement tending to suggest that Mr Coshott purchased the 50 percent interest in the [Property], which was registered in his name, otherwise than in his own interest, was and is a sham, as that term has come to be used in the jurisprudence of this Court and the High Court.

58    More specifically, at [92] his Honour held that, when the evidence is carefully sifted, the only evidence that the Superannuation Fund had an interest in the Property reduces to two matters:

(a)    the monies used for the purchase of Robert’s 50% interest in the Property, and perhaps stamp duty pursuant to the contract of sale, passed through Schlotzsky’s business cheque account, the name of the account at the time being “Schlotzsky’s Nominee Company No 2 in Trust for Coshott Family Superannuation Fund”; and

(b)    Robert and Ljiljana had signed the acknowledgement in which they stated that Robert held his interest “as trustee” for the Superannuation Fund “with the funds provided from” that Fund.

59    His Honour had “no hesitation in branding each of those circumstances as a sham to the extent that they are relied upon to support the contention that the superannuation fund took any interest in the [Property].” His findings at [42] and [73] are to similar effect.

60    Equally, in rejecting the proposition that Mr Coshott held his interest pursuant to a resulting trust for Schlotzsky, the primary judge held that “[t]he chain of events… is wholly consistent with Mr Coshott retaining full title and interest in his inheritance and simply causing it to be passed through a bank account on its way to its final destination, which was represented by his 50 percent interest in the [Property].” The submissions by the Coshott parties presupposed that the purchaser was Schlotzsky but there was no evidence that Schlotzsky set out to purchase an interest in the Property or had the resources to do so. Nor did the directors, Robert and Ljiljana, give any evidence of intention that might be attributed to Schlotzsky and no other evidence of intention was led.

3.    THE CHALLENGE TO THE FINDING THAT ANY ARRANGEMENTS SUGGESTING THAT THE 50% INTEREST WAS PURCHASED OTHERWISE THAN BY ROBERT BENEFICIALLY IS A SHAM

3.1    Basis of the appellants’ challenge

61    The appellants do not take issue with the primary judge’s description at [88]-[91] of the relevant principles by which it is determined whether a document is a sham. The passages cited in those paragraphs emphasise, in line with the appellants’ submissions, that an intention to deceive third parties is an essential element of the concept of a sham as legally understood.

62    The appellants’ principal complaint is that the primary judge nonetheless failed to make the findings necessary to hold that the acknowledgement and other circumstances relied upon constituted a sham and were therefore ineffective to create a trust over Robert’s 50% interest in the Property. The appellants submitted that the primary judge did not make any finding that, in executing the acknowledgement, Robert intended to deceive anyone, bearing in mind that it is the parties’ subjective intention at the time which is determinative of whether or not a transaction is a sham. Nor could such a finding be inferred from the primary judge’s reasons. To the contrary, the appellants submit that an alternative explanation was available on the evidence and (relying on Lewis v Condon (2013) 85 NSWLR 99 (Lewis)) that the evidence directly about the purchase itself was the most probative. That evidence was said to consist of:

(a)    the acknowledgement which was signed contemporaneously with the sale;

(b)    the source of the funds used by Robert to purchase the 50% share in the Property; and

(c)    the evidence of Ronald who is a trustee, with Robert, of their mother’s estate, as to Robert’s subjective intention to purchase his 50% share of the Property on trust.

3.2    What is meant in law by a sham?

63    While the term “sham” may be ambiguous and its meaning and application uncertain, it has a clear and well understood legal meaning: Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 CLR 516 (Raftland) at 531-532 [35] (Gleeson CJ, Gummow and Crennan JJ). As Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ explained in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 (Equuscorp) at 486 [46] in a passage cited by the primary judge at [88], when employed as a legal term, the word “refers to steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences”. In other words, as Leeming JA (with whose reasons McColl JA and Sackville AJA agreed) recently explained in Lewis at 112 [59]:

…it is essential that there be an intention that the true transaction is different from that which would ordinarily be attributed to the transaction on the face of the documents. As Lord Wilberforce put it, ‘to say that a document or transaction is a ‘sham’ means that while professing to be one thing, it is in fact something different’: WT Ramsay v Inland Revenue Commissioners [1982] AC 300 at 323.

64    Thus, the element of deliberate deception lies at the heart of the legal concept of a sham. The seriousness of the allegation of a sham thus mandates that the Court act with much care and caution before finding that it is established, as the appellants contend. More fundamentally, it is this element of intentional deceit which justifies the Court taking the exceptional step of determining the legal effect of a document, such as a contract or trust instrument, on the basis of the parties’ subjective intentions, including by reference to extrinsic material, as opposed to the objective meaning of the document: Raftland at 561 [140]-[142]; Lewis at 112-115 [60]-[72]. This is the rationale for the sham doctrine. As Professor Matthew Conaglen explained in ‘Sham Trusts’ (2008) 67(1) Cambridge Law Journal 176 at 180 (in an analysis approved by the NSW Court of Appeal in Lewis):

Where parties have chosen to ‘channel’ their relations through certain legal forms, the courts necessarily apply a two-stage process when construing that arrangement: first, ascertaining what rights and obligations the parties intended to create, and second, categorising that set of rights and obligations as a matter of law… The doctrine of sham is crucially relevant at the first stage of the process, in that it identifies the material to which a court can and cannot have regard when ascertaining what rights and obligations the parties intended to create.

(Emphasis in original)

65    However, for the reasons set out below, in our opinion it was unnecessary for the primary judge to consider whether the acknowledgement constituted a sham in this sense.

3.3    Absent the finding of a sham, what was the legal effect of the acknowledgement?

66    It follows from the principles explained above that the appellants correctly submitted that “each case of shamming intent involved a finding of intentional deception as to the effect of a document” (emphasis in original). The first step therefore in addressing the appellants’ contention that the primary judge wrongly found that the acknowledgment was a sham is to consider what would have been the legal effect of the acknowledgement absent the finding of a sham.

67    As earlier explained, the appellants have not appealed against the finding below that Robert was not, and could not have been, trustee of the Superannuation Fund: see [56] above. It was, therefore, no part of their case on appeal that the acknowledgement was effective to create a trust over Robert’s half share in the Property, even leaving aside the difficulties that such a submission might otherwise have faced. Rather, the appellants’ case was that the half share was held by Robert on a resulting trust for the Superannuation Fund.   To this end they relied on the statement contained in the acknowledgement that Robert’s 50% interest would be purchased with funds provided by the Superannuation Fund. That statement is, at its highest, merely a representation as to future intentions.

68    In these circumstances, it was unnecessary for the primary judge to find that the acknowledgement was a sham. With respect, his Honour’s findings at [73] that the acknowledgment constituted part of a sham speak not to the legal effect of the document but rather to the correctness of the representations made in the document. The acknowledgement could not have any legal effect. As such, the question was not whether the acknowledgment formed part of a sham but rather what weight should be given to it as evidence of the existence of a resulting trust in respect of Robert’s interest in the Property, as against all of the other evidence – in other words, as evidence that the funds that were used to pay for Robert’s interest in the land were funds which belonged to Schlotzsky as trustee of the Superannuation Fund.

69    The same error is apparent in the appellants’ submissions. They conflate the question of whether a document has legal effect, on the one hand, with the question of the accuracy of representations made in a document, on the other hand, in stating for example that “[t]he question that the trial judge was obliged to address in order to find that the acknowledgement was a sham was the question whether the words ‘with the funds provided by the Coshott Family Superannuation Fund’ were written with a deliberate attempt to deceive and were was [sic] not intended at the time to have their stated effect: Lewin v Condon at [69]”. (emphasis added)

3.4    The findings of a sham with respect to the bank account

70    Crucial to the appellants’ case at trial and on the appeal was their contention that the deposit of Robert’s distribution into Schlotzsky’s business cheque account should be characterised as a contribution by him to the Superannuation Fund. Apart from the acknowledgement, the only evidence of that was the name of the account. Again, that evidence does not raise the question of whether or not there is a sham in the narrow sense in which that legal concept is understood. Rather the question is what weight should be attached to the representation of the account as a trust account against all of the evidence.

71    Nonetheless, to the extent to which these circumstances might be thought to have legal effect so as potentially to engage the sham doctrine (albeit in some manner not clearly articulated by the appellants), the primary judge found at [52] that “any appearance that [that account] represented an account reflecting the affairs of Schlotzsky as trustee for the superannuation fund was deceptive”. Read in the context of the matters which led his Honour to that view, we consider it is sufficiently clear that this was a finding of an intention to deceive.

4.    WAS THE PROPERTY ACQUIRED BY ROBERT COSHOTT BENEFICIALLY?

72    Our conclusion that the primary judge mischaracterised the matters to which we have referred as a sham in the legal sense does not mean that he was in error in the factors to which he had regard in concluding that the moneys applied in the purchase of the Property were not trust monies. Nor do we consider that he erred in reaching that conclusion and, therefore, in rejecting the basis on which the Coshott parties contended that the Property was held on a resulting trust for the Superannuation Fund. The evidence as a whole against that conclusion was overwhelming.

73    First, the contract for the purchase of the Property was signed by Robert and Ljiljana without reference to any trust and was registered in due course in their own names. Nor was it ever suggested to the solicitor acting for Robert and Ljiljana that the Property was being purchased in trust for a superannuation fund or other entity. To the contrary, he was instructed by Robert to arrange for the transfer of the Property to them as joint tenants. None of the findings about these matters are challenged. The instructions to the solicitor represented a conscious decision by the purchasers and were inconsistent with Robert’s interest being held on trust for the Superannuation Fund because the transaction would then have been in breach of the in-house asset rules and in breach of the Superannuation Fund Trust Deed. Bearing in mind Robert’s position as a director of the trustee for the Superannuation Fund and the serious consequences of such a finding, the primary judge correctly held that the finding should not lightly be made for the reasons explained earlier at [43].

74    Secondly, there is no record that Schlotzsky as trustee of the Superannuation Fund held any interest in the Property.

75    Thirdly, and related to the last point, there was no evidence of any activities by Schlotzsky as trustee of the Superannuation Fund or of its compliance with any of its statutory obligations. In particular, none of the obligations imposed by the SIS Act for the operation of regulated superannuation funds was met by Schlotzsky or its directors at any time: primary reasons at [37]. Nor is there any record of any contribution made to the Superannuation Fund by any person, any asset ever held by it, or any interest held by or on its behalf. Notwithstanding the appellants’ contentions to the contrary, these matters are neither irrelevant nor unimportant. While the Superannuation Fund Trust Deed may have been validly executed, there is no evidence that it was ever implemented. It was in effect a ‘shelf’ deed.

76    Fourthly, it is true that the evidence establishes that the funds for the deposit and purchase of Robert’s interest in the Property were withdrawn from the account which represented that it was held by Schlotzsky as trustee for the Superannuation Fund. However, save in relation to the transactions relating to the purchase of the Property, the primary judge’s finding that the account in Schlotzsky’s name was in fact operated for Robert’s personal benefit is unchallenged. Aside from the allegations with respect to the purchase of the Property, nor is the finding at [51] that there is no evidence that anything done by Schlotzsky or in its name related to the Superannuation Fund.

77    These findings are damning of the appellants’ case. Given the obligation under s 62(1) of the SIS Act upon a trustee of a regulated fund to ensure that the fund is maintained solely for one or more of the specified core purposes, there is nothing other than a name to suggest that the account should at any time be taken to have constituted the Fund. That being so, the fact that the distributions to Robert from his mother’s estate passed briefly through the account before being applied to purchase the Property is very weak evidence upon which to conclude that they should be taken thereby to be trust monies. This is all the more so in circumstances where there is no record by the trustee of the monies being received as a contribution or, indeed, any records at all despite the trustee’s statutory obligations to maintain such records.

78    Fifthly, there is no challenge to the primary judge’s findings that Robert and Ljiljana agreed to transfer the Property to James and Michael in support of their loan application to the Commonwealth Bank and that the evidence was consistent only with Robert having taken his interest beneficially. Equally, the primary judge’s finding that the statements by Robert to the LTO in response to its reassessment of land tax on the Property were consistent only with that conclusion is unchallenged: see further at [53] above.

79    Robert’s conduct, therefore, both before and after the acknowledgement was purportedly made, was consistent only with him having taken his interest beneficially. Viewed against the evidence as a whole, the evidence relied upon by the appellants, including the acknowledgement, is simply insufficient to establish the contrary.

80    We are reinforced in this view by the fact that the onus lay upon the Coshott parties to establish that Robert’s interest was held on trust and that it was within their ability to have led evidence explaining the acknowledgement and passage of monies through Schlotzsky’s account to purchase the interest which was relied upon in support of that case. In this regard, reliance may properly be placed upon the principle tracing back to the remarks of Lord Mansfield in Blatch v Archer (1774) 1 Cowp 63 at 65 that “all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted”. As Hodgson JA (with whose reasons Beazley JA agreed) explained in Ho v Powell (2001) 51 NSWLR 572 at 576 [14]-[15]:

[I]n deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision.

In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so. (citations omitted)

81    Thus, where the evidence relied upon by a party bearing the onus of proof does not itself clearly discharge the onus, the failure by that party to call or give evidence that could cast light on a matter in dispute is relevant to determining whether the onus is being discharged: Hampton Court Ltd v Crooks (1957) 97 CLR 367 at 371 (Dixon CJ); Shalhoub v Buchanan [2004] NSWSC 99 at [71] (Campbell J). This principle is therefore wider than that in Jones v Dunkel (1959) 101 CLR 298. As Austin J in Australian Securities and Investments Commission v Rich (2009) 236 FLR 1 explained at 93 [440], “[w]hereas Jones v Dunkel reinforces an inference drawn against the party who has not called evidence, to the effect that the evidence would not have assisted that party’s case, Blatch v Archer leads either to the drawing of such an inference, or to some other assessment of the weight of evidence, unfavourable to the party against whom the principle is applied.” (emphasis added).

82    In short, the Coshott parties bore the onus of proving the trust over Robert’s interest but failed to call or give evidence explaining the documents and transactions on which they rely. Yet Robert, in particular, was in the best position to explain them. This cannot be ignored when weighing the limited evidence they relied upon to support their case with all the other evidence which tended to undermine it.

83    The evidence of Ronald Coshott, which is the subject of ground 1(a) of the second further amended notice of appeal, does not take the matter any further. The passage on which the appellants rely is as follows:

THE WITNESS [Ronald Coshott]: … My brother and myself went up to do an inspection on the property that he was proposing on buying and asked me to look at it and have a general conversation with him about, you know, whether it would be a fair price for it and other matters as to the financing and arrangement of the purchase.

MR SPENCER: So this is the property [at address]. Yes.

And what advice did you give or did you say to your brother?…

…

…--I said to him, “Yes. That’s okay but make sure we’ve got the structure in place for the self-managed – self-managed super fund and the family trust and claim it through those”.

And I appreciate the fact that it’s now going back 10 years. Can you say more about that – about the proposed structure? So – you said it was to do with the Coshott Family Trust?---Family trust, yes. And to get the family superannuation fund off and running, too.

And did you say anything further about that at the time?---No. Not really. I mean, it was already agreed that that would be the best structure to go through.

Did you have any conversations with Ljiljana Coshott ---?---Yes I did.

--- regarding the purchase of the purchase of the property?---Yes.

And what were those conversations?---The same vein as what I just said then in putting property in the family trust and setting up the superannuation fund, accordingly.

And what did Robert Coshott say to you?---Oh, he agreed.

And Ljiljana Coshott?---Yes. Agreed wholeheartedly.

And what did you – once that agreement was in place what happened then?---I then contacted my accountants who… Me for 20-odd years… and asked them on behalf of my brother and his family to obtain a suitable self-managed super trust deed to set up a regulated fund.

(Emphasis added)

84    As is apparent from this passage, Ronald merely gave advice. He was not involved in the transaction. Furthermore, his advice was unequivocally for the Property to be held on trust by the Coshott Family Trust, not the Superannuation Fund. As such, his evidence does not support the appellants’ case that the Property was purchased on trust for the Superannuation Fund. Furthermore, consistently with the lack of evidence suggesting that the Superannuation Fund was ever in fact operational, his evidence was that there was still a need to set up the Fund and get it “off and running” notwithstanding that the structure was in place for the Fund.

85    Finally, while we reject the acknowledgement and inferences sought to be drawn from the deposit of monies used to purchase the Property in Schlotzsky’s account as sufficient to establish that Robert’s interest in the Property was purchased with trust funds belonging to Schlotzsky as trustee of the Superannuation Fund, it is unnecessary for us to embark upon a consideration of whether or not there was any fraud or intent to deceive involved in the acknowledgement or other conduct. Nor do we consider, as the appellants submitted, that it would have been appropriate for this Court to embark upon a consideration of such questions beyond reviewing the findings of the primary judge.

5.    POWER TO MAKE THE ORDERS FOR SALE

5.1    The appellants’ submissions

86    Having reached the view that the primary judge correctly held that Robert’s interest was acquired by him beneficially and therefore vested in the trustee in bankruptcy, it is necessary to address the appellants’ contention that this Court had no power to make an order for the sale of the Property because it was not held solely by Robert. This argument has three primary limbs.

87    In the first place the appellants contended that:

(a)    properly construed, s 30 of the Bankruptcy Act does not confer power on the Federal Court to make an order against a person who was not the bankrupt;

(b)    nor can the power conferred by s 66G of the Conveyancing Act to make such an order be invoked in any event in these proceedings because:

i.    the power to make an order under s 66G is, in terms, conferred on the Supreme Court of New South Wales and not on the Federal Court;

ii.    the question of whether an order for sale against the non-bankrupt and associated orders for the appointment of a trustee in sale arose under State jurisdiction and was not part of the same ‘matter’ for the purposes of Chapter III of the Constitution, that is, it did not fall within the accrued jurisdiction of the Federal Court; and

iii.    section 79 of the Judiciary Act 1903 (Cth) did not operate to pick up and apply s 66G of the Conveyancing Act.

88    Secondly, the appellants submit that, in any event, there would have been no power to make the orders under s 66G of the Conveyancing Act. That provision is preconditioned upon the trustee being in possession, whereas the trustee for sale could be in possession only upon his interest in the Property being registered, which had not yet occurred.

89    In the third place, the appellants submitted that, even if there was power to make the orders, s 66G of the Conveyancing Act required the appointment of at least two individual trustees whereas only one individual trustee had been appointed.

90    Finally, and in any event, the appellants contended that the trustees appointed must be independent. In this regard it was submitted that, notwithstanding that the trustee in bankruptcy and the co-owner of the Property, Ljiljana, shared a common interest in obtaining the best price for the Property, their interests may still conflict in other ways, such as how to proceed with the sale. As such, the appellants submit that the appointment of the trustee in bankruptcy also as the trustee for sale would not satisfy the requirement that the trustee for sale of property that is co-owned be independent.

5.2    Section 30, Bankruptcy Act

91    Section 30(1) of the Bankruptcy Act provides that:

(1)    The Court:

(a)    has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and

(b)    may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.

92    As is apparent, the power to make orders under s 30(1)(b) must be exercised for the purposes of carrying out or giving effect to the Act in the particular case. Those purposes, in common with any modern system of bankruptcy law, are to provide for the appropriation and equitable distribution of the assets of the insolvent debtor, and upon this, the debtor’s release from future liability in respect of his or her existing debts: Storey v Lane (1981) 147 CLR 549 (Storey) at 556 (Gibbs CJ).

93    In line with these objects and the breadth of the language in s 30(1), it has been held that the provision should not be construed narrowly. As Neaves J observed in Re Bilen; Ex parte Sistrom (unreported, Federal Court of Australia, Neaves J, 11 April 1985) in a passage quoted with approval by the Full Court in Talacko v Talacko (2010) 183 FCR 311 (Talacko) at 321, s 30(1):

is a facultative provision giving the court full power, within the limits of its jurisdiction to be found elsewhere, to make such orders as it considers should be made in order to carry out and give effect to the Act. The words used are not words of limitation but of extension.

94    Thus, the section has been held to provide sufficient power to make orders against a bankrupt for the vacation of property, issuing a warrant of possession and for the sale of a property in circumstances where the bankrupt is not complying with his or her obligations under the Act: see, eg, Vince (Trustee), in the matter of Sopikiotis (Bankrupt) v Sopikiotis (No 2) [2012] FCA 1298 at [4] (Bromberg J); Pattison v McKinnon [2008] FCA 1624 at [2] (Jessup J); Official Receiver v Fall (2008) 5 ABC(NS) 772 at [10]-[12] (Lucev FM (as his Honour then was)). It also expressly extends to ancillary relief such as injunctions and other equitable remedies to prevent the scheme of the Act from being defeated. Such ancillary orders are, as the Full Court observed in Talacko at 321 [17], “neither novel or unusual”: see also Storey at 557 (Gibbs CJ).

95    Furthermore, it can be envisaged that orders might be made under s 30(1) against a non-bankrupt where that person has failed to comply with his or her obligations under the Bankruptcy Act. An example may be where an accountant withholds possession of the books of account as against the trustee in bankruptcy contrary to s 129(3). This is not, however, a case of this kind. There is no obligation which the trustee in bankruptcy seeks to enforce against Ljiljana. Rather, the relief sought would permanently extinguish her rights in real property in order to facilitate the recovery of monies owed by the bankrupt to his creditors solely on the ground that Ljiljana is a co-owner of the Property, the sale of the Property as a whole being the best means of realising Robert’s interest.

96    The question whether s 30(1) of the Act extends to orders in such a case must be approached by applying the principle of statutory construction that the Parliament may not be assumed to infringe rights without expressing its intention with irresistible clearness. As Mason CJ, Brennan, Gaudron and McHugh JJ said in Coco v The Queen (1994) 179 CLR 427 at 437:

The insistence on express authorization of an abrogation or curtailment of a fundamental right, freedom or immunity must be understood as a requirement for some manifestation or indication that the legislature has not only directed its attention to the question of the abrogation or curtailment of such basic rights, freedoms or immunities but has also determined upon abrogation or curtailment of them. The courts should not impute to the legislature an intention to interfere with fundamental rights. Such an intention must be clearly manifested by unmistakable and unambiguous language. General words will rarely be sufficient for that purpose if they do not specifically deal with the question because, in the context in which they appear, they will often be ambiguous on the question of interference with fundamental rights.

97    In approving this passage in Coco, Gleeson CJ in Electrolux Home Products Pty Ltd v Australian Workers’ Union (2004) 221 CLR 309 at 329 [21] accepted that the presumption is an aspect of the principle of legality which governs the relations between the Parliament, the executive and the courts. As his Honour then explained, “[t]he presumption is not merely a common sense guide to what a Parliament in a liberal democracy is likely to have it intended; it is a working hypothesis, the existence of which is known both to Parliament and the courts, upon which statutory language will be interpreted. The hypothesis is an aspect of the rule of law.”

98    These principles were applied by Spender J in Re Bayliss: Ex parte Hadotone Pty Ltd v Official Trustee in Bankruptcy (1987) 15 FCR 91 (Bayliss) to hold that the general power in s 30(1)(b) of the Bankruptcy Act did not extend to the issue of certain warrants of search and seizure against third parties to assist in the investigation and realisation of the bankrupt’s property. His Honour held at 99-101:

There is no express provision in s 30(1)(b) abrogating the common law right of a person to his premises and his property. The question then becomes whether it is a necessary intendment of that section that such rights be abrogated.

In my opinion, the answer must be ‘no’.

…

In my opinion, there is no latent power in the Act to authorise the issue of warrants of search and seizure of the property of strangers in aid of the investigative function of a trustee in bankruptcy to identify and realise the property of the bankrupt. This is particularly so since the power to authorise search and seizure is a drastic power, and the legislature has in s 130 of the Act specifically provided the circumstances in which such a power might be exercised in relation to the property of the bankrupt.

99    This decision was cited with apparent approval by the Full Court in Talacko at 322 [21], albeit that it held that Bayliss was distinguishable on the ground that it was concerned with the impact upon rights of third parties rather than the impact upon rights of the bankrupt. In Talacko the question was whether the power in s 30(1) extended to an order that a person against whom a bankruptcy notice has been issued be restrained from leaving the jurisdiction and required to deliver up his or her passport. The Court held that it did, notwithstanding its impact upon the right of an Australian citizen freely to leave and re-enter Australia. However at 322 [22], the Full Court accepted in conformity with Bayliss that “it may be an altogether different issue as to whether s 30(1) would empower passport delivery orders being made against parties other than the bankrupt but that is not the issue before us.”

100    In line with these authorities, in our opinion it must equally be the case that the general power in s 30(1) of the Bankruptcy Act does not extend to the making of orders for the sale of property which is co-owned by a person who is not the bankrupt thereby destroying their rights in that property. There is no express power to make such an order, nor obligation imposed upon such a person by the Bankruptcy Act from which Parliament’s intention to destroy such rights by an order under s 30(1) might emerge with the clarity required. Rather, the trustee in bankruptcy has against Ljiljana, as the co-owner of the Property, the same rights as the debtor, Robert, before he was made bankrupt.

101    Equally and for the same reasons, the general powers vested in the Court to grant relief under ss 21, 22 and 23 of the Federal Court of Australia Act 1976 (Cth) and, in the exercise of its appellate jurisdiction, under s 28 of that Act, take the matter no further. Those powers must also be construed by applying the same established presumption with the same result. The submission to the contrary by the trustee in bankruptcy must be rejected.

102    Finally, in considering whether there was power to make the orders for sale under s 30 of the Bankruptcy Act, the Court was taken to the decision in Pascoe v Smith [2011] FMCA 528 (Pascoe) which purported to follow, in particular, the decision in Horne (as trustee of the Bankrupt Estate of Sekulovski) v Sekulovski [2009] FCA 1164 (Horne). Yet, neither decision ultimately provides support for the view that the Court’s power under s 30 extends to orders of the kind sought against Ljiljana.

103    In Horne, Tracey J made orders under the Bankruptcy Act against two non-bankrupt persons who resided at a property vested in the trustee in bankruptcy. The orders sought were for those persons to vacate the property so that it could be sold and to remove any personal property and rubbish not vested in the trustee in bankruptcy. The short reasons given by his Honour do not, however, suggest that those persons had any proprietary interest in the property. To the contrary, they state that the property was vested in the trustee in bankruptcy. As such, the case raised questions of a very different nature from those raised here.

104    Nor does the decision in Pascoe assist the trustee in bankruptcy. In that case, Barnes FM (as her Honour then was) held that the Federal Magistrates Court had power under s 30 of the Bankruptcy Act to make orders for the sale of property against the non-bankrupt co-owner. In so doing, her Honour purported to follow the decision in Horne at [53] as a case directly in point. With respect, however, her Honour reached that conclusion on the erroneous basis that in Horne orders were made against the bankrupt and co-owner: at [52].

5.3    Does the Federal Court have power under s 66G, Conveyancing Act, as applied to the proceedings by s 79, Judiciary Act?

105    In the alternative, the trustee in bankruptcy contended that s 79 of the Judiciary Act operates so as to pick up and apply s 66G of the Conveyancing Act as a source of power for the orders for sale.

5.3.1    Relevant principles

106    Section 66G(1) confers power to appoint trustees for the sale of certain property in the following terms:

Where any property (other than chattels) is held in co-ownership the court may, on the application of any one of more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition.

107    ‘Property’ is defined in s 7(1) of the Conveyancing Act so as to include, relevantly, any estate or interest in real property. “Co-ownership” is defined in s 66F(1) to mean “ownership whether at law or in equity in possession by two or more persons as joint tenants or as tenants in common” and the term “co-owner” has a corresponding meaning.

108    Section 66F(2)(a) obliges the trustee for sale to sell the property and provides for the application of the proceeds of sale in the following terms:

Property held upon the ‘statutory trust for sale’ shall be held upon trust to sell the same and to stand possessed of the net proceeds of sale, after payment of costs and expenses, and of the net income until sale after payment of costs, expenses, and outgoings, and in the case of land of rates, taxes, costs of insurance, repairs properly payable out of income, and other outgoings upon such trusts, and subject to such powers and provisions as may be requisite for giving effect to the rights of the co-owners…

109    The power to appoint trustees for sale is conferred upon the “court”. That term is defined in s 7(1) of the Conveyancing Act to mean the Supreme Court. On its face, the power conferred by s 66G does not extend to this Court. Nor in any event could a State law operate directly and of its own force in the exercise of federal jurisdiction: APLA Ltd v Legal Services Commissioner of New South Wales (2005) 224 CLR 322 at 406 [229] (Gummow J); Re Wakim; Ex part McNally (1999) 198 CLR 511 (Re Wakim) at 558 [59], 559 [61].

110    It is at this point that s 79 of the Judiciary Act comes into play. The section provides that:

The laws of each State or Territory, including the laws relating to procedure, evidence, and the competency of witnesses, shall, except as otherwise provided by the Constitution or the laws of the Commonwealth, be binding on all Courts exercising federal jurisdiction in that State or Territory in all cases to which they are applicable.

111    The High Court has held that s 79 operates to pick up and apply both procedural and substantive State law as a surrogate federal law, thereby enabling courts exercising federal jurisdiction to provide remedies afforded otherwise only under State law in the exercise of State jurisdiction. To the extent that it was pressed, the appellants’ argument that s 79 is limited to procedural laws must be rejected. As Gleeson CJ, Gaudron and Gummow JJ explained in Australian Securities Investment Commission v Edensor Nominees Pty Ltd (2001) 204 CLR 599 (Edensor) at 591-592 [68]:

It is well established from the decisions under s 79 of the Judiciary Act, most recently that in Austral Pacific Group Ltd (In liq) v Airservices Australia [(2000) 203 CLR 136 at 143 [13]], that a State statute may be applicable as a source of rights and remedies in federal jurisdiction even though, on its own terms, that law identifies only the courts of the enacting State as the courts to provide those remedies.

(Emphasis added)

112    Their Honours continued to explain that, if s 79 did not operate in this way:

…the operation of Federal jurisdiction might readily be stultified. There might be withdrawn from courts exercising federal jurisdiction (including this Court) the effective authority to quell controversies in respect of which, by reason, for example, of the identity of parties, s 75 of the Constitution had conferred original jurisdiction upon this Court and s 77 empowered the Parliament to grant authority to the other federal courts and to State courts exercising federal jurisdiction. An attempt by State law to achieve that result would, as to this Court, be repugnant to s 75 of the Constitution. Where jurisdiction was conferred by a law made by the Parliament in exercise of its powers under s 77 of the Constitution, the State law also would be invalid for inconsistency under s 109 of the Constitution.

113    Thus, while s 79 of the Judiciary Act does not enlarge the reach of State laws as a matter of construction of the State law, the fact that the State law provides only for State courts to enforce its provisions is no impediment to the operation of s 79. As McHugh J explained in Edensor at 612 [137], “The fact that a State statute either expressly or as a matter of construction provides only for State courts to enforce its provisions does not mean that it cannot be ‘picked up’ and applied by s 79 of the Judiciary Act in the exercise of federal jurisdiction.”

114    The position is different, however, if the State law is not applicable for some other reason. As McHugh J also explained, “courts exercising federal jurisdiction should operate on the hypothesis that s 79 will apply the substance of any relevant State law in so far as it can be applied”: Edensor at 613 [141] (emphasis added).

5.3.2    The appellants’ contention that s 66G of the Conveyancing Act does not apply because the power under s 66G is vested only in a State court

115    The appellants contend that this is a case where s 79 of the Judiciary Act cannot be called in aid.

116    First, insofar as the appellants pressed the submission that s 66G of the Conveyancing Act does not apply because its remedies are conferred only on the State Supreme Court, the argument must be rejected for the reasons given above. Section 79 ensures, relevantly, that the remedy that would be available to a co-owner in a matter within state jurisdiction in the State Supreme Court is equally available in proceedings in this Court, ‘amending’ to this extent the terms of s 66G of the Conveyancing Act when applied as a surrogate federal law (assuming that the section otherwise applies).

117    The decisions in Re Lynn: Lynn v White (2000) 171 ALR 217 at 220 [13] and Sheahan v Cooper [1998] FCA 1531, on which the appellants sought to rely, take the matter no further. In Re Lynn and Sheahan v Cooper, orders for sale and partition respectively were made by the Federal Court at first instance against a bankrupt and a non-bankrupt co-owner in the application of State laws in reliance on legislation that purported to cross-vest State jurisdiction in the Federal Court. Subsequently, in Re Wakim, the High Court held that the cross-vesting legislation was invalid on the ground that there was no power in the States or the Commonwealth to vest State judicial power in the Federal Court.

118    On appeal, the respondent trustee in Re Lynn therefore conceded (at 220 [12]) that the orders purportedly made under State law were made without jurisdiction. Nonetheless, the Full Court held that the orders were valid by force of s 6 of the Federal Courts (State Jurisdiction) Act 1999 (Vic) which was remedial legislation enacted to ensure the validity of orders made before Re Wakim under the cross-vesting legislation. Equivalent legislation was enacted in all other States and its validity was upheld in Residual Assco Group Ltd v Spalvins (2000) 202 CLR 629. The important point for present purposes is that no party in either Re Lynn or Sheahan v Cooper apparently raised the question of whether the orders might have been made in any event under s 79 of the Judiciary Act and the Court did not, unsurprisingly, consider that issue. As such, the decisions cannot be taken as authority that s 79 cannot pick up and apply State laws for the sale of property co-owned by the trustee in bankruptcy with a non-bankrupt person. Rather, they affirm the principle which underpins s 79 that State laws vesting power in State Courts do not apply of their own force in the exercise of federal jurisdiction by the Federal Court.

5.3.3    The appellants’ contention that the “matter” does not include the Orders for Sale

119    Secondly, the appellants deny that the Court has jurisdiction to make the orders for sale. They contend that the “matter” properly before the Court in the sense in which the term is used in Chapter III of the Constitution was ownership of Robert’s interest in the Property and that the orders for sale comprised no part of that matter. Specifically in their written submissions they asserted that:

The justiciable controversy that the Court was asked to quell related to the ownership of Mr Coshott’s interest in the Property. The question whether the property should be sold is, relevantly, completely disparate. It involved different considerations, and a different substratum of fact. Importantly, it also involves different parties, including parties not presently joined such as the company Fewin Pty Ltd which holds a registered mortgage over the property.”

120    In this regard, there is no doubt that the declaratory relief sought by the trustee in bankruptcy falls within federal jurisdiction because the interest is said to have vested in the trustee under a law of the Commonwealth, namely, s 58 of the Bankruptcy Act. The issue arises because s 66G of the Conveyancing Act is a State law, and s 79 of the Judiciary Act will pick up and apply s 66G in these proceedings only if the claim for the orders for sale comprises part of the same “matter”.

121    In support of their submission that the application for the orders for sale in the cross-claim are not a part of the same “matter”, the appellants relied upon the statement of established principle by Gummow and Hayne JJ in Re Wakim at 585 [140] that:

What is a single controversy ‘depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships’. There is but a single matter if different claims arise out of ‘common transactions and facts’ or ‘a common substratum of facts’, notwithstanding that the facts upon which the claims depend ‘do not wholly coincide’. So, too, there is but one matter where different claims are so related that the determination of one is essential to the determination of the other, as, for example, in the case of third party proceedings or where there are alternative claims for the same damage and the determination of one will either render the other otiose or necessitate its determination. Conversely, claims which are ‘completely disparate’, ‘completely separate and distinct’ or ‘distinct and unrelated’ are not part of the same matter.

(Citations omitted)

122    Applying these principles, the appellants’ submission must be rejected. The trustee in bankruptcy’s claim for declarations as to his interest in the Property as an asset to be brought to account in the bankrupt estate is essential to the determination of his claim for orders for the sale of the Property. In other words, the orders for sale were dependent upon the trustee establishing his interest in the Property. Further, both orders are sought by the trustee in bankruptcy in the discharge by him of his duties to bring to account and realise the assets of the bankrupt. The fact that the property is co-owned with a non-bankrupt person does not logically break the connection between the issues. Nor can complaint be made that not all necessary parties were joined. Ljiljana was a respondent to the cross-claim. Otherwise there was no evidence led below and none sought to be led on appeal that any other party held a registered mortgage over the Property or other interest. In the circumstances of the present proceedings, therefore, the realisation of the bankrupt’s 50% interest in the Property in the administration of the bankruptcy through the making of the orders for sale cannot seriously be said to constitute a “completely disparate matter”.

123    Before concluding our reasons on this point one matter cannot pass without comment. That is the proposition made in the appellants’ written submissions that this aspect of the proceedings involves “different parties, including parties not presently joined such as the company Fewin Pty Ltd which holds a registered mortgage over the Property.” Apart from Fewin Pty Ltd (Fewin) no third parties were identified. As to Fewin the proposition is misleading in two respects.

124    First, it implies that Fewin is unaware of the present proceedings. Yet, Fewin applied (albeit unsuccessfully) for a stay of the primary judge’s orders pending the hearing and determination of this appeal: Coshott v Prentice; Fewin Pty Ltd v Prentice [2013] FCA 1085 (Fewin v Prentice). Furthermore, Ronald Coshott is Fewin’s sole director and shareholder. He gave evidence for the Coshott parties at trial and was present when the primary judge delivered his judgment: Fewin v Prentice at [63] and [72]. The irresistible inference is that Fewin chose not to intervene in the appeal to protect whatever interest it claimed to have.

125    Secondly, Perry J found in Fewin v Prentice at [62] that the mortgage allegedly held by Fewin is an unregistered mortgage. Her Honour noted that the parties agreed that, if the mortgage was bona fide, it would be regarded as being in the nature of an equitable mortgage and enforceable in the same way.

126    We would note, however, that none of this is intended as criticism of counsel for the appellants, who did not appear at the interlocutory hearing.

5.3.4    The appellants’ contention that the trustee in bankruptcy is not a co-owner for the purposes of s 66G of the Conveyancing Act

127    Thirdly, the appellants submitted that s 66G of the Conveyancing Act does not apply because the trustee in bankruptcy is not a co-owner for the purposes of s 66G. Specifically, they contended that he does not have an interest in possession because his interest in the property would vest at law only upon registration. The appellants relied in this regard upon s 58(2) of the Bankruptcy Act to the effect that property will not vest in the trustee in bankruptcy at law until it is registered in accordance with State law, even though it has vested in equity in the trustee by virtue of s 58.

128    The appellants’ submission must be rejected. It overlooks the fact that the definition of co-owner in s 66F(1) of the Conveyancing Act includes ownership “whether at law or in equity in possession” (emphasis added). Insofar, therefore, as the submission assumes that the co-owner must have possession in law, it is contradicted by the clear words in s 66F(1). It is sufficient for the co-owner to have ownership in equity in possession and therefore if “each co-owner is as of right as much entitled to possession of any part of the property as the others”: Commonwealth Bank of Australia v MacDonald (2000) 10 BPR 18,111 at 18,115 [36] (Young J) (in equity). No argument was put that the trustee did not have a right to possession in this sense.

5.4    Would the trustee in bankruptcy, if appointed also as a trustee for sale, lack the requisite degree of independence?

129    The appellants also challenged the order appointing the trustee in bankruptcy as the trustee for sale on the basis that it was necessary for the trustee for sale to be independent. It was said that requirement was not met because a conflict may exist between the interests of the trustee in bankruptcy and those of Ljiljana as co-owner.

130    We accept the importance of ensuring that the trustee for sale is independent. As Young J held in Dixon v Roy (1991) 5 BPR 11,655, one of the obligations upon trustees for sale appointed under s 66G is that they “must hold the scales equally between the beneficiaries.” In that case, the Court found that the requirement was not met where the trustee had retained the same solicitors as one of the principal beneficiaries. It held that an impartial observer would believe, if there were a “showdown” between the beneficiaries, that the solicitors would prefer the interests of that beneficiary and, therefore, if the trustees sought advice, the solicitors would be biased in this regard.

131    No conflict of interest was identified by the appellants with any specificity in this case. However, given that we consider that the appointment of the trustee in bankruptcy as the trustee for sale did not comply with s 66G because it required the appointment of at least two individual trustees, it is unnecessary for us to decide this issue. The appropriate course is for the question of who should be appointed as trustee in sale to be remitted to the trial judge. However, we note that the trustee in bankruptcy appropriately indicated at the hearing of the appeal that he accepted that a decision as to who might be appointed as the trustees for sale was a matter for the Court and not one on which he took a particular position. In all of the circumstances, the primary judge may well consider it prudent not to appoint the trustee in bankruptcy as one of the trustees for sale.

6.    THE CHALLENGES TO THE ORDERS FOR COSTS AND REMUNERATION OF THE TRUSTEE

6.1    The orders that costs be paid out from the proceeds of sale of the Property and as to the trustee’s remuneration

132    By order 11.5, the primary judge ordered that the proceeds of the sale of the Property should be distributed (fifth in priority) “in payment of the cross claimant’s professional and legal costs of the proceedings”. That order, as the appellants contend, applies to the proceeds of sale of the whole Property, including those due to Ljiljana. The remaining proceeds of sale after distribution in the manner and priority set out in order 11 were to be divided equally between the trustee in bankruptcy and Ljiljana subject to any charge or lien (Order 11.6).

133    We accept the appellants’ submissions that there are a number of difficulties with these orders. First, we cannot see any basis on which the trustee in bankruptcy could be entitled to recover his professional fees from Ljiljana’s interest in the Property. The primary judge’s reasons do not deal with the point. Nor did the trustee identify the basis for any such entitlement. The trustee’s fees can be taken only from the bankrupt estate. To this extent, order 11.5 cannot be sustained.

134    Secondly, we can see no justification for the order requiring Mr Prentice in his capacity as trustee for sale to pay the legal fees incurred by him in his capacity as trustee in bankruptcy from the proceeds of the sale of Ljiljana’s interest in priority to their distribution to her as a co-owner. To uphold this order would be, in effect, to afford Mr Prentice security for costs by lien over the proceeds of sale. It would permit Mr Prentice to benefit from the fact that (under the orders of the primary judge) he holds the funds on trust as trustee for sale. It follows that, to this extent, order 11.5 was also made in error.

6.2    The order for indemnity costs should be upheld

135    No issue is taken with the primary judge’s summary of the principles which guide the Court in the exercise of its discretion to award indemnity costs. Those principles are well established and identified correctly by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225. As Sheppard J explained at 233 (in the passage quoted by the primary judge at [104]), there should be some special or unusual feature in the case to justify the Court departing from the ordinary practice of awarding costs on a party and party basis. Examples of circumstances identified by Sheppard J which may justify an order for indemnity costs include:

the fact that the proceedings were commenced or continued for some ulterior motive… or in wilful disregard of known facts or clearly established law… the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions: Colgate Palmolive at 233 [5].

136    The primary judge found at [106] that those circumstances were features of both aspects of the present proceedings and that an award of costs on an indemnity basis against Ljiljana and James on the dismissed application was warranted. This order is challenged by the appellants. However, no challenge is made to the orders for indemnity costs insofar as it relates to the cross-claim.

137    Notwithstanding that James did not appeal the decision, the appellants did not limit their submissions to the order for indemnity costs against Ljiljana and it is convenient to deal with the argument in the terms in which it was put. The appellants challenge the order on the ground that it was made on a false premise, namely that the equity proceedings were an abuse of process because neither Ljiljana nor James had standing to institute the proceedings in circumstances where the trustee of the Superannuation Fund, Schlotzsky, had been deregistered at the time that the proceedings were instituted. The appellants submitted that their rights were not limited in such circumstances to requiring the appointment of a new trustee. Rather, they submitted that their interest as beneficiaries was sufficient to give them standing to seek declaratory relief as to the status of property allegedly held by the Superannuation Fund.

138    The submission must be rejected. The primary judge did not find that Ljiljana and James lacked standing to institute the proceedings simpliciter. Rather, his Honour found that Ljiljana and James failed to take any reasonable steps to establish that they were, as they alleged, trustees of the Superannuation Fund and the Family Trust and, therefore, that they had the standing or interest to seek the relief claimed, namely, that the Property vest in them as trustees. As the primary judge reasoned (at [16]-[19]), that failure supports only the conclusion that there was never any prospect that they could do so and therefore that their claim for relief was doomed. It is these matters which his Honour took into account in finding that the proceedings were an abuse of process and must be dismissed irrespective of the outcome of the cross-claim. Thus, in deciding to award indemnity costs he concluded (at [103]) that:

The position taken by the applicants, by Schlotz[s]ky and by Mr Coshott in the present proceedings was, as I have said, without any merit and represented an attempt to mislead the Court in serious ways. It is not going too far to describe the proceedings commenced in the Supreme Court, and the attempted surrender to the declarations sought in those proceedings, as an abuse of process of that court. Maintenance of the contentions upon which the applicants’ statement of claim depended represented an abuse of process of this Court. Contrary to the foundation upon which those proceedings were commenced, it rapidly became clear that the applicants had no standing to maintain them. Contrary to the ‘admissions’ in his defence it became clear also that Mr Coshott’s attempted surrender to the applicants’ case was based on a falsehood.

139    It follows that the question of whether Ljiljana and James had a sufficient interest to bring the proceedings by reason of their status as beneficiaries of the Superannuation Fund, even if established, does not undermine the basis on which the primary judge exercised his discretion to award indemnity costs on their dismissed application. That was not the basis on which they claimed relief and does not do justice to the primary judge’s reasons for reaching that decision. Furthermore, the proposition that Ljiljana and James had standing as beneficiaries because Schlotzsky was deregistered when the proceedings were instituted is directly inconsistent with the basis on which they sought relief on their application. Nor does it explain why Schlotzsky was not joined as an applicant upon being reregistered. As such, no error is shown in the primary judge’s exercise of discretion.

7.    CONCLUSION

140    For the reasons set out above, the appeal is dismissed save insofar as:

(a)    the primary judge failed to appoint two trustees in line with the requirements of s 66G of the Conveyancing Act as applied by s 79 of the Judiciary Act; and

(b)    order 11.5 provided for the costs and professional fees of the trustee in bankruptcy to be paid from the proceeds of sale referable to Ljiljana Coshott’s half share in the Property.

141    The matter will be remitted to the primary judge to determine who is to be appointed as trustee or, in the event that a corporate trustee is not selected, trustees for sale.

142    We reserve the question of costs to give the parties an opportunity to be heard. Our preliminary view is that the appellants should pay 90% of the costs of the trustee in bankruptcy on the appeal but that otherwise there should be no order as to costs. We would not disturb the order for costs below. In the event that any party wishes to contend for a different or additional order, we will direct that submissions be filed and served within 10 days and that there be a corresponding right of reply.

Associate:

Dated:    23 July 2014