FEDERAL COURT OF AUSTRALIA

Ridge Estate Pty Ltd v Fairfield Pastoral Holdings Pty Ltd [2024] FCAFC 17

ORDERS

THE COURT ORDERS THAT:

1.    Application for leave to appeal costs order dismissed.

2.    The applicants pay the respondents' costs of the application to be taxed if not agreed.

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

ORDERS

THE COURT ORDERS THAT:

1.    Order 4 of the orders made 4 January 2022 in SAD 312 of 2018 be varied so that it reads:

Of the sums held by the Court in the Litigants' Fund in relation to this Action, $273,178.36 together with the interest accrued on that amount, be paid out to FPH in part satisfaction of its claim to indemnity (as to $192,741.95) and otherwise in its capacity as trustee of the PRT.

2.    The appeal is otherwise dismissed.

3.    The appellants pay the respondents' costs of the appeal to be taxed if not agreed.

4.    The moneys paid into Court by way of security for the respondents' costs of the appeal pursuant to the order of Registrar Colbran made 25 May 2022 be paid to the respondents.

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

REASONS FOR JUDGMENT

BANKS-SMITH J:

1    This appeal concerns the fallout from the breakdown in the relationship between friends who had undertaken certain business ventures together. That breakdown led to litigation the subject of an 11-day trial before the primary judge.

2    Although the primary judge determined multiple causes of action, the appellants' challenges to the orders can properly be collected by reference to three claims: first, the fraudulent conveyance claim (Part A of these reasons); second, the secret commissions claim (Part B); and third, the indemnity calculation error claim (Part C). The respondents filed a notice of contention with respect to the secret commissions claim.

3    The appellants by separate application for leave to appeal also seek to challenge the costs order made by the primary judge. The application for leave was heard at the same time as the main appeal. In order to determine the application, it will be necessary to refer briefly to other claims determined by the primary judge that are not the subject of the main appeal. The costs application is addressed in Part D.

The parties

4    At the time of the trial before the primary judge, the first appellant, Ridge Estate Pty Ltd, was relevantly the successor trustee of the Piney Ridge Trust (PRT), a trust that had various assets including real estate, chattels and choses in action.

5    The second, third and fourth appellants are Steven, Philip and Brenda Van Niekirk. As they share the same surname, I will refer to them by their first names, in accordance with the convention of the parties. Philip and Brenda are Steven's parents. Another son, Andrew, also had some involvement. Philip is the sole director of Ridge Estate. Andrew holds the one share issued. Steven was bankrupt between June 2014 and June 2017.

6    The first respondent, Fairfield Pastoral Holdings Pty Ltd (FPH) holds all the shares in the second respondent, Fairfield Pastoral Holdings No 1 (FPH No 1). At the time of the trial, FPH was the former trustee of the PRT. Dr Andrew Hamilton is the sole director of both FPH and FPH No 1. The principal shareholders of FPH are Dr Hamilton and Cradle Estate Pty Ltd, a company controlled by Steven.

7    The trial, expressed generally, related to disputes between the Van Niekirk camp on the one hand, and Dr Hamilton's camp on the other. Prior to falling out, Steven and Dr Hamilton together pursued forms of land investment and speculation.

Summary of questions raised by the appeal

8    The central question that arises with respect to the fraudulent conveyance claim is whether a former trustee, in circumstances where its removal as trustee has hindered or delayed its access to trust assets, can rely on s 86 of the Law of Property Act 1936 (SA) (LPA) to have the deed effecting its removal and underlying conveyances declared void (grounds 1-5).

9    The secret commissions claim centres on an argument about procedural fairness. The appellants contend that the primary judge should not have relied upon an unpleaded deed of assignment, by which FPH No 1 was found to have standing as assignee to pursue secret commissions received by Steven during his management of a project. But for the deed of assignment, the primary judge determined that FPH No 1 would not have had standing, having regard to its position as agent rather than principal. The procedural fairness argument rests on the manner in which the existence of the deed of assignment was disclosed and utilised during the proceeding (grounds 6-10).

10    The calculation claim is a discrete claim of mathematical error (ground 11).

Outcome

11    For the reasons that follow, I have determined that the appeal is to be dismissed.

PART A - THE FRAUDULENT CONVEYANCE CLAIM

The statutory provision - s 86

12    Section 86 of the LPA provides:

86    Voluntary conveyances to defraud creditors

(1)    Every conveyance of property made with intent to defraud creditors shall be voidable at the instance of the party prejudiced thereby.

(2)    This section shall not extend to any estate or interest in property conveyed for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the conveyance, notice of the intent to defraud creditors.

13    Similar provisions are found in other State and Territory legislation: for example, s 37A of the Conveyancing Act 1919 (NSW); and s 89 of the Property Law Act 1969 (WA). They are modern equivalents of the Statute of Elizabeth (Fraudulent Conveyances Act 1571, 13 Elizabeth 1, c 5), enacted for the protection of creditors against fraudulent conveyances and dispositions of property. That statute provided to the effect that any conveyance of property was void if made with intent to 'delay, hinder or defraud' creditors.

14    Section 172(1) of the Law of Property Act 1925 (UK) ultimately replaced the Statute of Elizabeth and re-stated the requisite intention in an abbreviated form as being one to 'defraud' creditors. The modern Australian State and Territory legislation follows its text.

15    It is established that the abbreviated term was intended to re-state and reproduce the meaning of the expression 'delay, hinder or defraud' used in the Statute of Elizabeth: PT Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515 at 522 (Wilcox, Gummow and von Doussa JJ); Marcolongo v Chen [2011] HCA 3; (2011) 242 CLR 546 at [19] (French CJ, Gummow, Crennan and Bell JJ); Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1 at [505]-[512] (Lee AJA) (Westpac v Bell); and Super Vision Resources Ltd v AC Holdings Co Pty Ltd [2020] NSWCA 319 at [3]-[4] (Basten and Meagher JJA), [141] (White JA agreeing).

16    Accordingly, the reference to an intention to defraud in s 86 of the LPA is to be read as a reference to 'delay, hinder or [otherwise] defraud': Marcolongo at [19]. It will be necessary to return to the significance of this in due course.

17    The provision should receive a liberal construction, having regard to its purpose of suppressing fraud: Marcolongo at [20].

The context and the pleaded case

18    In September 2013 Ridge Estate acquired Lot 1, 252 Piney Ridge Road. In around early 2016 the adjoining property, Lot 2, 252 Piney Ridge Road, came on the market. Steven wished to acquire the property but was bankrupt at the time. He asked Dr Hamilton, and through him FPH, to assist Ridge Estate to purchase Lot 2. Steven and Dr Hamilton reached an agreement, summarised at [30]-[31] of the primary judgment (Fairfield Pastoral Holdings Pty Ltd v Ridge Estate Pty Ltd (No 4) [2022] FCA 1 (PJ)), to the following effect:

(a)    a trust (the PRT) would be established;

(b)    FPH would be the initial trustee of the PRT;

(c)    FPH, in its capacity as trustee of the PRT, would:

(i)    enter into a contract to purchase Lot 2 for a purchase price of $750,000;

(ii)    pay a deposit of $30,000 from its own funds;

(iii)    provide a further amount of $59,500 from its own funds towards the purchase price; and

(iv)    borrow $525,000 from NAB secured by a mortgage over Lot 2 to complete the purchase price.

19    FPH was also to raise $182,130 from NAB by way of an equipment loan and goods mortgage, and Dr Hamilton was to provide a personal guarantee to NAB in respect of FPH's indebtedness to it (PJ [31]).

20    FPH as trustee of the PRT purchased Lot 2. Settlement was completed on 8 April 2016.

21    Consistent with the agreement, the purchase price was $750,000 with a deposit of $30,000. FPH paid the deposit of $30,000 (borrowed from FPH No 1), borrowed $525,000 from NAB secured by a mortgage over Lot 2, provided $59,500 from its own funds and borrowed $182,130 from NAB secured by a mortgage over equipment. In addition, Dr Hamilton provided NAB with his personal guarantee (PJ [357]). Steven apparently had the responsibility for pursuing the financing arrangements (PJ [359]).

22    After settlement, FPH as trustee of the PRT owned Lot 2 and equipment the subject of the equipment mortgage (as to the equipment, PJ [645]-[652]).

23    The primary judge accepted that Steven had agreed that Ridge Estate would effect a refinancing within 90 days in order to repay to FPH the amounts which it had advanced to the PRT (PJ [357]).

24    The refinancing did not occur, and FPH remained the registered proprietor of Lot 2 (PJ [361]).

25    By late 2018 the relationship between Steven and Dr Hamilton had broken down.

26    On 4 October 2018 Brenda, as the named appointor under the deed establishing the PRT trust (Trust Deed), executed a document entitled 'Deed of Appointment and Removal of Trustee' that removed FPH as trustee of the PRT and appointed Ridge Estate as the successor trustee (Removal Deed).

27    Before the primary judge, FPH sought a declaration that the Removal Deed is a conveyance made with intent to defraud creditors within the meaning of s 86 of the LPA and an order that it is void.

28    The respondents contended by their pleaded case (para 110 of the fifth amended statement of claim) that 'The Removal Deed was made with an intent to defraud creditors and therefore is voidable at the instance of [FPH], as a party prejudiced thereby, pursuant to s 86 of the [LPA]'.

29    In particulars to this plea, it is said that the Removal Deed was made by Brenda at the direction of Steven, with the intention of defrauding FPH and Dr Hamilton by preventing them from taking action in relation to the monies owed to FPH in respect of the deposit on Lot 2 of $30,000, the contribution of $59,500 to the settlement on Lot 2 and the other payments it made to meet the Lot 2 purchase price of $750,000, and otherwise to prejudice any attempted recovery of those sums against the assets of the PRT.

30    In other words, insofar as the position of FPH is concerned, it was alleged that its removal as trustee denied it the self-help or other remedies it would otherwise have had as trustee of the PRT with respect to claims to be indemnified against the trust assets for amounts incurred as trustee.

31    The appellants denied the allegation, pleading in their defence that the Removal Deed was not a conveyance of property and FPH was not prejudiced as it retained its right of indemnity over the trust assets. It is apparent from the primary judge's reasons that the appellants put in issue whether FPH was a creditor within the meaning of s 86 (PJ [369]-[373]).

32    After the execution of the Removal Deed, the appellants directed FPH to convey Lot 2 to Ridge Estate. FPH refused to do so, relying on the argument that the Removal Deed is voidable. FPH was the source of funds for mortgage payments to NAB, and asserted its right to exercise its right of indemnity against the trust assets. Accordingly, it sought to direct the sale of Lot 2. This led to further disputes between the parties as to whether FPH was entitled to exercise any power of sale. In the meantime, the liability to service the NAB loan continued and FPH continued to borrow funds in order to meet its obligations as bare trustee with respect to the trust property. FPH could not simply transfer Lot 2 to Ridge Estate, because it was unlikely that NAB, as mortgagee, would have consented to a transfer without a release of its securities. It appears that the respondents did not take any steps to secure the discharge or replacement of NAB's securities. In the end FPH sought an order for judicial sale of Lot 2, with the proceeds to be paid into its solicitor's trust account or into Court to abide the further order of the Court. The primary judge was satisfied that it was appropriate to make orders for judicial sale under s 59B of the Trustee Act 1936 (SA): see generally Fairfield Pastoral Holdings Pty Ltd v Ridge Estate Pty Ltd (No 3) [2021] FCA 292 (Fairfield (No 3)) at [60]-[63], [66], [70], [81], [101].

33    FPH remained the registered proprietor of Lot 2 until 5 July 2021, when it was sold pursuant to the orders made in Fairfield (No 3). The amount of $375,178.36 by way of the proceeds of sale of Lot 2 was paid into Court.

The Trust Deed and the Removal Deed

34    The Trust Deed is relatively conventional. As noted, the appointor under the Trust Deed is Brenda. The 'initial trustee' is FPH. The primary beneficiary is Brenda. The category of general beneficiaries is broad and includes the family members, relatives and associated entities of the primary beneficiary that are commonly seen in such trust deeds.

35    Relevantly, under cl 9.1 of the Trust Deed, Brenda, as the appointor, has the power to appoint 'a new or additional Trustee at any time by written statement to that effect'.

36    Under cl 9.3(a) of the Trust Deed, Brenda has the power to remove a trustee by disqualifying it from holding office by signing a statement to that effect.

37    Clause 9.5 of the Deed of Trust provides:

9.5    Transfer of Fund

A Trustee shall on retirement or removal take all actions necessary to transfer the Fund or cause it to be transferred to any new or continuing Trustee or Trustees and shall deliver to the new or continuing Trustee or Trustees all books, documents, records and other Property of and relating to the Fund and do everything reasonably required by the new Trustee or Trustees to inform the new Trustee or Trustees of the full state of affairs of the Trust. Any continuing Trustee shall take all actions reasonably necessary to cause title to any assets of the Fund to be amended to include any additional Trustee.

38    On 4 October 2018, Brenda executed the Removal Deed, by which she removed FPH as the trustee of the PRT and appointed Ridge Estate in its place. The following clauses are relevant:

1    REMOVAL OF OUTGOING TRUSTEE

The Appointor in exercise of her powers contained in clause 9.3(a) of the Deed and in the exercise of every other power enabling the Appointor in that behalf hereby removes the Outgoing Trustee from the office of trustee of the Trust as and from the date of this deed.

2    APPOINTMENT OF NEW TRUSTEE

The Appointor in exercise of her powers contained in clause 9.1 of the Deed and in the exercise of every other power enabling the Appointor in that behalf hereby appoints the New Trustee to the office of trustee of the Trust and the New Trustee hereby consents to act as trustee of the Trust and undertakes to be bound by the terms of the Deed as and from the date of this deed.

3    TRANSFER OF TRUST FUND

3.1    Outgoing Trustee and New Trustee

The New Trustee hereby agrees to do forthwith all such acts, matters and things and to sign, execute and deliver all such documents as may be necessary or desirable to vest the legal estate of the trust fund of the Trust in the New Trustee solely and exclusively.

3.2    Appointor

The Appointor hereby declares and directs that all the estate and interest of the Outgoing Trustee in those parts of the Trust to which section 16 of the Trustee Act 1936 (SA) (as amended) extends, shall henceforth vest in the New Trustee upon the trusts affecting the same respectively by virtue of the Deed as amended otherwise.

…

5    INDEMNITY

Nothing expressed or implied in this deed shall prejudice the right of the Outgoing Trustee to indemnity from the trust fund of the Trust for costs and expenses incurred by the outgoing Trustee in the proper administration of the Trust on or before the execution of this deed.

(original emphasis)

Effect of s 16 of the Trustee Act 1936 (SA)

39    The scope of vesting under cl 3.2 of the Removal Deed is governed by s 16 of the Trustee Act. Section 16(3) in effect carves out the automatic vesting of real property in a new trustee. Section 16 relevantly provides:

16    Vesting of trust property in new or continuing trustees

(1)    Where a deed by which a new trustee is appointed to perform any trust contains a declaration by the appointor to the effect that any estate or interest in any land, subject to the trust, or in any chattel so subject, or the right to recover and receive any debt or other thing in action so subject, shall vest in the person or persons who, by virtue of the deed, become and are the trustee or trustees for performing the trust, that declaration shall, without any conveyance or assignment, operate to vest in that person or those persons, as joint tenants if more than one, and for the purposes of the trust, that estate, interest, or right.

(2)    …

(3)    This section does not extend to land under the Real Property Act 1886 or to land conveyed by way of mortgage for securing money subject to the trust, or to any such share stock, annuity, or property as is only transferable in books kept by a company or other body, or in manner directed by or under Act of Parliament.

(4)    For purposes of registration of the deed in the General Registry Office the person or persons making the declaration shall be deemed the conveying party or parties, and the deed shall be deemed a conveyance made by him or them under a power conferred by this Act.

…

Findings of the primary judge

40    The primary judge rejected the appellants' submission that a trustee could not be a 'creditor' for the purpose of s 86, finding that the word encompasses a range of persons who may be owed money, the recovery of which may be thwarted by the conveyance of property (PJ [371]-[373]).

41    The primary judge also found that because of the operation of s 16(1) of the Trustee Act with respect to real property, the Removal Deed did not operate as a conveyance of Lot 2, but the Removal Deed otherwise operated as a conveyance of trust assets (various chattels and choses in action), by vesting them in the new trustee, Ridge Estate (PJ [376]-[384]). There was no appeal from this finding. Nor was any notice of contention filed with respect to the scope of property or rights that may have been conveyed.

42    His Honour had regard to a number of admissions made by Steven as to the purpose of the Removal Deed in finding that Steven asked Brenda to execute the Removal Deed with the intention of at least hindering or delaying FPH and Dr Hamilton (as creditors of the PRT) in realising their entitlements (PJ [395]-[401]).

43    His Honour found that FPH was a person prejudiced by the fraudulent conveyance and was entitled to bring the claim under s 86, stating that there was no submission to the contrary (PJ [402]).

44    Accordingly, the primary judge made declarations that: first, the Removal Deed was a conveyance made with the intent to defraud creditors within the meaning of s 86 of the LPA; second, the Removal Deed was void; and third, all conveyances effected by the Removal Deed were void.

Relevant grounds of appeal (1 to 5)

45    Grounds 1 to 5 of the notice of appeal are relevant to the fraudulent conveyance claim. By ground 1, the appellants made the general assertion that the primary judge erred in declaring that the Removal Deed was a transaction made with the intent to defraud creditors and in making consequential declarations.

46    By ground 2, the appellants asserted that the primary judge erred in finding that FPH was a creditor 'in any relevant sense' so as to enliven the Court's jurisdiction under s 86.

47    By ground 3, the appellants asserted that the primary judge erred in having regard to Dr Hamilton's position as a creditor in circumstances where he was not a party to the proceeding. The appellants contended that s 86(1) by its terms requires the applicant, and not a third party, to be a creditor and to have suffered prejudice as a result of the conveyance.

48    By ground 4, the appellants contended that the primary judge erred in fact by finding that the requisite intention to defraud was made out.

49    By ground 5, the appellants contended that the primary judge erred in fact and in law in finding that FPH was a person prejudiced by the Removal Deed, in circumstances where its right of indemnity remained unaffected by its removal as trustee.

Preliminary - the nature and characteristics of a trustee's right of indemnity

50    The challenge made by ground 2 to whether FPH was a creditor goes to the issue of standing. Although s 86 speaks of defrauding creditors, a conveyance is voidable 'at the instance of the party prejudiced thereby'. The application to have the Removal Deed declared void was made only at the instance of FPH. As developed below, the question of how the term 'creditor' is to be understood in this context relates to both whether FPH was a defrauded creditor and whether it was a person prejudiced within the meaning of the section.

51    Whether a trustee can properly be considered a creditor directs attention to the nature of a trustee's indemnity.

52    It is well-established that a trustee who in the discharge of a trust incurs debts by entering into transactions is personally liable for such debts. However, the trustee is entitled to be indemnified out of trust assets for expenses and liabilities properly incurred.

53    The trustee's right of indemnity has two aspects, commonly described as the right of reimbursement (or recoupment) and the right of exoneration.

54    The right of reimbursement entitles a trustee to be reimbursed for liabilities properly incurred in the execution of the trust which it has paid from its own resources. The right of exoneration entitles the trustee to pay or seek payment of such liabilities from the trust assets without first making payment out of its own resources.

55    The nature and characteristics of the right of indemnity have been the subject of a long line of authorities in Australia and the following propositions are well-established.

56    First, a trustee's right of indemnity generates an equitable proprietary interest in the trust property: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 370; Chief Commissioner of Stamp Duties for New South Wales v Buckle [1998] HCA 4; (1998) 192 CLR 226 at [47]-[48]; and Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth of Australia [2019] HCA 20; (2019) 268 CLR 524 at [32] (Kiefel CJ, Keane and Edelman JJ).

57    The majority judgment in Carter Holt is that of Bell, Gageler and Nettle JJ, with whom Gordon J agreed in a concurring judgment. Having restated the position in Australian law (at [80]), the majority stated (at [83]) that until the trustee's right of indemnity has been satisfied:

… the beneficiaries cannot compel the trustee to exercise the trustee's powers as legal owner of the trust assets for their benefit. A court of equity will assist the trustee to realise trust assets to satisfy the trustee's right of indemnity, in priority to the beneficiaries' interests, and thus it is said that the trustee has an equitable charge or lien over the trust assets. It is not, however, a charge or lien comparable to a synallagmatic security interest over property of another. It arises endogenously as an incident of the office of trustee in respect of the trust assets.

(footnotes omitted)

58    The majority continued at [84]:

Possibly, the trustee's right of indemnity could be as well described as conferring a personal power (as Professor Ford argued it should be) as a proprietary interest. But the choice of description should conform to, rather than dictate, the application of fundamental principles to 'solving a concrete legal problem'. The trustee's right to apply trust assets in satisfaction of trust liabilities is proprietary in that it may be exercised in priority to the beneficial interests of the beneficiaries. To describe it as constituting a beneficial interest in the trust assets, and so as property, thus acknowledges the characteristic blending of personal rights and obligations with proprietary interests which is the 'genius' of the trust institution. Such a beneficial interest falls naturally and ordinarily within the definition of 'property' in s 9 of the Corporations Act.

(footnotes omitted)

59    Second, as is apparent from Carter Holt at [84], the trustee's beneficial interest takes priority over the claims of beneficiaries.

60    Third, the trustee's beneficial interest in trust assets survives the transfer of assets to a successor trustee: Rothmore Farms Pty Ltd v Belgravia Pty Ltd [1999] FCA 745 at [36]-[37]; Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484 at [10]; Glazier Holdings Pty Ltd (in liq) v Australian Men's Health Pty Ltd (in liq) [2006] NSWSC 1240 at [38]; Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation [2009] HCA 32; (2009) 239 CLR 346 at [43]; and Re Glenvine Pty Ltd (In Liq) [2020] NSWSC 866 at [44]. This position has now been resolved by the Judicial Committee of the Privy Council consistently with the Australian position, in Equity Trust (Jersey) Ltd v Halabi [2022] UKPC 36; [2023] AC 877 at [64], [164].

61    Fourth, although a trustee in possession of funds may apply it in exercise of its right of indemnity without judicial intervention, the right of indemnity does not of itself confer a power of sale. An incumbent trustee may be able to exercise powers of sale under the trust instrument or statute. However, a trustee who has been removed from office but remains in possession of property, or remains the legal owner of property, will not have such powers and will have to apply to court for an order for sale or the appointment of a receiver with a power of sale: Apostolou v VA Corporation Aust Pty Ltd [2010] FCA 64 at [38]-[48]; Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40; (2018) 260 FCR 310 at [35]-[36], [44]; and Holden v Kukuy (No 2); Re Jay Invest Property Pty Ltd (in liq) [2023] VSC 54 at [54].

62    Fifth, equity will grant relief to protect a former trustee to ensure that its successor does not take steps which will destroy, diminish or jeopardise the former trustee's right of exoneration, which subsists in the trust assets after their transfer to the new trustee: Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550 at [50]; Pitard Consortium Pty Ltd v Les Denny Pty Ltd [2019] VSC 614; (2019) 58 VR 524 at [9]-[11]; and Jaken Properties Australia Pty Ltd v Naaman [2023] NSWCA 214 (Jaken (FC)) at [4] (Bell CJ), [116] (Leeming JA, Kirk JA agreeing).

63    I should add that two of these recent decisions have added to the discourse in this area. In Equity Trust the Privy Council endorsed the Australian line of authorities as to the nature of the trustees' indemnity, but also considered the further question of competing rights of indemnity and determined that the interests of successive trustees in the trust assets are competing or equal, rather than ranked by priority in time (at [177]). And in Jaken (FC), the majority of the New South Wales Court of Appeal held that a successor trustee did not owe a predecessor trustee a fiduciary duty to not impair the former trustee's right of indemnity (the High Court has granted special leave to appeal).

64    The particular controversy agitated by ground 2 in this case as to the trustee's indemnity is different again. As noted above, the particular controversy is whether the nature of a trustee's right of indemnity is such that a former trustee is a 'creditor' as that term is understood for the purpose of s 86 of the LPA.

Ground 2 - standing as a creditor

65    The primary judge held (at [373]) that FPH was a creditor:

First, the term 'creditor' in s 86 is not a word of fixed and rigid meaning: Gibb v Lombank Scotland Ltd [1962] SLT 288 at 290. The amplitude of the term is evident from the reasons of Young JA in Chen v Marcolongo [2009] NSWCA 326, (2009) 260 ALR 353 at [179]-[189]. I do not understand this part of the reasons in Chen v Marcolongo to have been disturbed on appeal. The term includes present, contingent, future and prospective creditors: Chen v Marcolongo at [13]; Hall v Poolman [2007] NSWSC 1330, (2007) 215 FLR 243 at [536]. It is not confined to creditors whose entitlements arise from contract. Those who have tortious claims may be a creditor. In the context of, and having regard to the evident purpose of s 86 of the [LPA], the term 'creditor' is capable of encompassing a range of persons who are, or may be, owed money, the recovery of which may be frustrated by the conveyance of property.

Summary of submissions

66    The appellants submitted that the primary judge failed to consider properly the nature of the trustee's indemnity: that a trustee is not owed money by anyone in respect of its indemnity and that there is no debtor-creditor relationship in that context.

67    The respondents submitted that 'at the most basic level' FPH was owed money and was a creditor in the relevant sense, because it is open to a former trustee to enforce its right against a new trustee, and the new trustee could be compelled by orders to pay amounts of money to FPH. The respondents embraced the primary judge's reference to creditors encompassing 'a range of persons who are, or may be, owed money'. They accepted that any claim by FPH as the former trustee was not for a debt in the ordinary sense, nor for tortious damages, but said it was 'a claim for money which can either be accepted by way of a right of exoneration or the right of reimbursement'.

Discussion of the authorities

68    The reasons of Young JA in Chen v Marcolongo [2009] NSWCA 326 at [193]-[205] provide a convenient starting point. The case involved relief under s 37A of the Conveyancing Act, the NSW equivalent to s 86 of the LPA, and his Honour expressly addressed whether a person must be a creditor to have standing as a person prejudiced, and considered the breadth of the word 'creditor' in this context.

69    Citing Cadogan v Cadogan [1977] 1 WLR 1041, Young JA referred to debate as to whether the words 'any person thereby prejudiced' extended beyond creditors. At first instance, Slade J indicated that the two categories of people who were obviously persons prejudiced are (a) persons who were creditors of the disponor at the date of the conveyance and whose debts remain wholly or partially undischarged at the date of the hearing; and (b) persons who became creditors after that date but whose debts remain wholly or partially undischarged at the date of the hearing. Although Slade J postulated that a person who has a claim which could result in that person becoming a creditor may also be a person prejudiced, his Honour preferred a narrower view and rejected that proposition.

70    On appeal in Cadogan, Buckley LJ considered it was clearly arguable (for the purpose of a strike out argument) that people could come within the category of persons prejudiced even though they were not properly described as creditors and were not prejudiced in the capacity of creditors. Lord Goff considered that 'persons prejudiced' must refer to a member of the class of creditors, having regard to the language of s 172 of the Law of Property Act (UK) which makes the transaction void against creditors and nobody else (earlier statutes had referred to defrauding creditors 'and other persons'). Lord Shaw's brief concurring reasons did not take matters further either way.

71    Having considered the various approaches in Cadogan, Young JA concluded in Chen v Marcolongo as follows:

[203]    As to locus standi, whilst there is a grey area, which may include claims by liquidators, may include claims by remaindermen etc, it seems to me the authorities support the general proposition that at the date of hearing or at the date of filing the summons, a person prejudiced is a person who is owed a debt, (Cadogan v Cadogan at 1048). I have not seen any case where this has not been so.

[204]    In my view the person seeking an order under s 37A of the Conveyancing Act must show that he or she is a person prejudiced, whatever the width of that expression, as at the date of the hearing (or perhaps the filing of the application); see eg Griffiths v Falck [2008] NSWSC 998; 220 FLR 278 at 281 [24], a decision of my own on a different factual situation. This is in accordance with what Slade J said in Cadogan's case.

[205]    In his oral submissions, Mr Pritchard clearly distinguished between the two parts of the section. To show that creditors have been defrauded, one takes into account prospective contingent and other persons including people who have unliquidated claims in tort. That is what happened in Bishopp's case, supra. However, for the purpose of working out who is prejudiced, there needs to be an actual debt as at the date of the action or filing of the statement of claim.

72    Whilst Young JA considered that there must be an actual debt for s 37A to be invoked, Allsop P (at [27], Giles JA agreeing) took a broader view:

On the question of the meaning of the phrase 'any person thereby prejudiced', the evidence disclosed that Mrs Marcolongo had a bona fide claim for unliquidated damages and that Mr Mao (a director, or erstwhile director, of Lym International) accepted that the claim had force. I do not think that s 37A requires the proof, by a trial within a trial, that the claim will necessarily or even probably succeed. In advance of a hearing a party with a bona fide claim is prejudiced if a disposition of property by the defendant would leave the claimant without a likely adequate fund against which to proceed. This is consistent with the proposition that prospective creditors are included in the concept of creditors: Green v Schneller [2001] NSWSC 897; 189 ALR 464 at 468 [16]. The statute should be read liberally as one for the suppression of fraud.

73    Standing was also considered in HP Mercantile Pty Ltd v Dierickx [2012] NSWSC 1005. White J referred to Chen v Marcolongo and considered that a person with a damages claim might be a person prejudiced within the meaning of s 37A of the Conveyancing Act, stating:

[86]    Further, I agree with the submission of HPM that Mr and Mrs Dierickx are not 'persons interested' within the meaning of s 37A. In Chen v Marcolongo; Chan v Lym International Pty Ltd [2009] NSWCA 326; (2009) 260 ALR 353 Young JA observed (at [203]) that at the date of hearing or at the date of filing the summons, a person prejudiced is a person who is owed a debt. The Court of Appeal's decision was overturned on appeal to the High Court (Marcolongo v Chen [2011] HCA 3; (2011) 242 CLR 546). However, the question of standing was not addressed.

[87]    Prima facie, Mr and Mrs Dierickx as debtors of TROM, would not be 'persons thereby prejudiced'. It may be that if Mr and Mrs Dierickx could also claim as creditors of TROM entitled to prove in the administration or winding-up of TROM, for example, as having claims to damages for breach of the Farming Agreement, then they might be persons prejudiced by an assignment in fraud of creditors. However, in these proceedings Mr and Mrs Dierickx did not assert such a claim. …

74    The issue was also considered in Sutherland v Jot Property Solutions Pty Ltd [2015] QSC 249; [2016] 1 Qd R 353. On a strike out application, Henry J considered whether a liquidator had standing to bring a claim under s 228 of the Property Law Act 1974 (Qld) as a 'person prejudiced by the alienation of property', concluding (at [31]) as follows:

Three main difficulties with the plaintiff's argument were raised. Firstly, while s 228 contains no express temporal limitation it is well established that as at the time of the proceeding the person prejudiced must at least allegedly be owed a debt [citing Young JA in Chen v Marcolongo]. It was submitted there is no evidence that the plaintiff is owed a debt by Blue Chip. To the contrary it was submitted the filed evidence showed the liquidator's fees have been paid. …

(footnotes omitted)

75    In Israel Discount Bank Limited v ACN 078 272 867 Pty Ltd (in liq) (formerly Advance Finances Pty Ltd) [2019] FCAFC 90, it was claimed that amounts said to represent payments of principal and interest were paid by the disponor plaintiffs to third parties, and that those payments were voidable transactions under s 37A of the Conveyancing Act. Relevantly, the Full Court considered whether the plaintiffs had standing to bring a claim for relief under s 37A. Having referred to the passages in Chen v Marcolongo, HP Mercantile and Sutherland to which I have referred above, it said that a person prejudiced within the meaning of the section is a person who is owed a debt at the time of the hearing or the filing of the proceedings, and said that the plaintiffs are not in this category. The Full Court determined that in the circumstances of that case, on no view were the disponor companies persons prejudiced. However, it also considered whether the standing problem faced by the plaintiffs might be met by joining the liquidator of the plaintiff companies or a third party creditor. Relevantly, the Full Court said:

[67]    In response, the plaintiffs submit that there is authority for the proposition that a disponer company in liquidation, via its liquidator, is a party prejudiced by the alienation, because its assets have been disposed of to the detriment of its creditors. The plaintiffs rely, in particular, on Williams v Lloyd (1934) 50 CLR 341, which concerned claims by the Official Receiver that certain dispositions were void against him under both s 37A of the Conveyancing Act and s 94 of the Bankruptcy Act 1924 (Cth). In that case, Starke J (at 362) rejected the suggestion that the Official Receiver could not avail himself of s 37A of the Conveyancing Act, stating that the 'official receiver represents the creditors, and dispositions void against creditors are void against trustees or receivers lawfully appointed'. The plaintiffs also rely on Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557 at [11], where Brennan CJ and McHugh J referred to the avoidance of transactions by the official receiver or a liquidator. The plaintiffs also rely on a number of cases that have applied or followed Williams v Lloyd. Although the liquidator of the plaintiffs is not a party to the present proceeding, the plaintiffs indicated that they would be willing to add the liquidator as a plaintiff.

[68]    In our view, there is merit in the Banks' submission regarding standing. As presently constituted, the plaintiffs to the proceeding are the disponer companies and not the liquidator of those companies. On no view is the disponer company in the present circumstances a 'person thereby prejudiced' by the disposition. It is the grantor of the transaction to be set aside. For this reason, the Banks' submission regarding standing is correct.

[69]    The question then is whether, if the liquidator of the plaintiff companies were added as a plaintiff, this would overcome the problem. This is a difficult question. We incline to the view that the answer is 'No'. A liquidator is not directly to be aligned with a trustee in bankruptcy, unless a statutory provision so provides: cf s 565 of the former Corporations Law. Of course, a liquidator can be given standing to pursue statutory Corporations Act claims, but we are not dealing with such provisions. But the matter is arguable and the plaintiffs only have to establish a prima facie case on standing (among other things) as part of establishing a prima facie case on relief. …

[70]    Further, and in any event, the matter can be put beyond doubt by the plaintiffs joining a creditor (eg, the DCT) as a plaintiff.

76    These cases indicate, consistent with the appellants' argument, that the question of whether a person seeking to have a conveyance declared void is a creditor for the purpose of standing under s 86 has generally been tethered to whether they are a creditor by way of a debt, whether due or contingent or by way a bona fide unliquidated claim.

77    However, I do not consider that the category of creditors with standing must be limited in the manner described by Young JA in Chen v Marcolongo. Nor did the appellants submit that a claim must have distilled to a debt by the time of hearing for the claimant to have standing. Rather, the appellants accepted that Allsop P's reasoning in Chen v Marcolongo was correct, submitting that a person can be a claimant and be prejudiced at the commencement of trial, albeit that the claim has not distilled to a liquidated debt. I consider it clear that persons prejudiced may include persons who are contingent creditors, in the sense that they have a bona fide unliquidated or contingent claim against the disponor, as anticipated by Allsop P in Chen v Marcolongo and by White J in HP Mercantile. As Allsop P observed, those persons have claims which fall within the conventional notion of a creditor as that term is understood more generally for the purpose of the statutory fraudulent conveyance provisions.

78    Further, the above decisions did not require the court to consider the position of a trustee who has an entitlement to be paid from trust assets. In order to assess whether the term 'creditor' might be understood more broadly, it is useful to consider further authorities.

79    For completeness, I will start with certain authorities and commentary relied upon by the respondents, although I do not consider they take matters further. The respondents referred to passages from Lane (Trustee), in the matter of Lee (Bankrupt) v Deputy Commissioner of Taxation [2017] FCA 953; (2017) 253 FCR 46; Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26; and Lewin on Trusts, Vol 1, Twentieth Edition.

80    In Lane, Derrington J at [36] did no more than describe a trustee in bankruptcy's right of recoupment in an orthodox manner, noting that where a trustee is entitled to be indemnified from trust funds then moneys are transferred from the trust funds to the trustee. At [40] his Honour referred to the amount as 'an amount owing'. So much is consistent with the respondents' argument (and is correct), but neither statement indicates without more that the trustee is a creditor for the purpose of a provision such as s 86.

81    In Agusta, Barrett JA considered how a former trustee would enforce its right of recoupment following the appointment of a new trustee. His Honour (with whom Campbell JA and Sackville AJA agreed) confirmed that a trustee's 'preferred beneficial interest' continues to subsist in trust property in the new trustee's hands (see authorities at [60] above). His Honour also cited authority to the effect that for the former trustee to pursue a claim for indemnity where trust property has been paid to beneficiaries, if the new trustee declined to pursue the beneficiaries then it may be necessary to join the new trustee to proceedings and the former trustee may be able to exercise powers by subrogation (at [43]-[44]). The fact that the former trustee may be entitled to exercise the successor trustee's powers by subrogation does not advance the argument in the present case, which is concerned with access to the trust assets for payment without the exercise of subrogated rights.

82    The respondents identified a statement from Lewin on Trusts (at [19-046]) which, it was said, provided an example where an action might be taken for the recovery of money by a former trustee 'standing in the shoes of a third-party trust creditor' against the new trustee. The passage relied on is to the effect that a trustee that discharges an interest-bearing liability of the trust from its own funds is entitled to be subrogated to the creditor in respect of interest on the liability and so may recoup that interest (which would otherwise have been paid to the lender) from trust assets. This is provided by way of an exception to what was said by the authors to be the usual position that a trustee is not entitled to interest on payments made by it pending reimbursement. I accept that, depending on the circumstances, a predecessor trustee exercising a creditor's rights by subrogation may be a creditor of a successor trustee. However, in this case FPH was not claiming to exercise the rights by subrogation of a third party creditor to recover payment. This specific example does not assist more generally with the status of a trustee exercising its rights of indemnity.

83    There are, however, cases that provide some basis justifying a broader approach to how the word 'creditor ' might be understood under s 86 and analogous provisions.

84    For example, a trustee in bankruptcy who 'represents the creditors' has been recognised as having standing (Williams v Lloyd (1934) 50 CLR 341 at 362), although doubt has been expressed as to whether it follows that a liquidator of a disponor would also fall into that category (Israel Discount Bank at [68]).

85    In particular, there is some (albeit limited) authority that appears to accommodate the position of a trustee. In my view this is not surprising. Viewed objectively, the replacement of a trustee, in circumstances where trust assets vest in the successor trustee and may be dissipated, has the appearance of a disposition to defraud creditors. Even if assets are not dissipated, the predecessor trustee may still be deprived of rights of self-help and may be obliged to seek judicial orders including the appointment of a receiver.

86    Rothmore Farms was a first instance decision of Mansfield J. Rothmore had been the trustee of a family company carrying on a farming business. It ceased to be trustee on 10 February 1993 when a replacement trustee, Belgravia, was appointed and became the legal owner of the trust assets, being personal assets such as plant and equipment. Mansfield J concluded that the relinquishment of the trust assets effected by the replacement did not result in Rothmore's equitable interest being lost (see [60] above). His Honour did not consider the effect of the replacement of the trustee in the context of s 86 of the LPA.

87    After the successor trustee was in place, it carried on business for some time before it was resolved in May 1998 to bring forward the vesting date and vest the trust assets in a family member (Andrew) (referred to as the 'second transaction'). That vesting was within power. The vesting of the trust assets in Andrew was considered in the context of s 86. Mansfield J found that Rothmore was not prejudiced by the second transaction, because it did not have the effect of impairing or otherwise reducing Rothmore's equitable interest in the trust assets. Andrew held his interest in the trust assets subject to Rothmore's equitable interest. His Honour continued (at [124]):

… However, if the contrary were the case, then Rothmore Farms would clearly be prejudiced by the second transaction by the loss of that equitable interest. In that event I would find that the second transaction was avoidable by Rothmore Farms (subject to the operation of s 86(2) of the Law of Property Act 1936 (SA)) because it was undertaken by Belgravia in breach of s 86(1), and has been avoided by Rothmore Farms. …

88    His Honour was clearly satisfied that provided there is prejudice, a predecessor trustee would have standing under s 86(1). That is, the fact that the claim arose out of a right of indemnity and not in any traditional debtor-creditor relationship did not dissuade his Honour from a prospective grant of relief under that provision. However, it does not appear that the point was specifically argued.

89    Further, it is appropriate to give some attention to the decision in Jaken (FC) and also the decision at first instance (Jaken Properties Australia Pty Ltd v Naaman [2022] NSWSC 517 (Kunc J) (Jaken (PJ)).

90    Mr Naaman was a judgment creditor of a former trustee (JPG) and was entitled by way of subrogation in equity to the rights of JPG to be indemnified out of the assets of a trust for liabilities incurred by it. By a deed of appointment and retirement, JPG was removed as trustee and Jaken was appointed in its place. Trust assets included real property, and the legal title to those properties was transferred to Jaken as new trustee. Jaken then entered into a number of transactions which diminished the trust assets. Some of those transactions were impugned under s 37A of the Conveyancing Act and declared void.

91    The primary judge considered the nature of relief available to a former trustee such as JPG and, by subrogation to JPG's rights, to Mr Naaman, in relation to trust assets that had been transferred by Jaken to third parties.

92    It was common ground before the primary judge that claims under s 37A were available to Mr Naaman. Mr Naaman had submitted, for example, that a transfer of property to a third party was made with the intention to defraud Jaken's creditors and was therefore voidable pursuant to s 37A. Mr Naaman was not relevantly a creditor of Jaken and it is apparent that the s 37A claims were brought by Mr Naaman by subrogation to JPG's rights.

93    The main issue in Jaken was that Mr Naaman also sought to pursue the recipients of the property that had been conveyed away by Jaken, and sought to engage the principles in Barnes v Addy to secure equitable compensation from them. The question then was whether Jaken, as successor trustee, owed a fiduciary duty to JPG not to deal with trust assets so as to destroy, diminish or jeopardise the entitlement to be indemnified. Although it was accepted that a trustee has an entitlement to apply for judicial sale or the appointment of a receiver over the trust assets in order to discharge its liability to a third party, and can obtain interlocutory injunctive relief in that regard, the question was whether those were the only rights to which Nr Naaman was subrogated. A finding that there is a fiduciary duty may expand the relief that a former trustee (and so a creditor exercising rights of subrogation) might obtain.

94    The primary judge found that there was such a fiduciary duty. That part of the decision was reversed on appeal (Leeming and Kirk JJA, Bell CJ dissenting). The question of what additional assistance equity may give a trustee having regard to any fiduciary duty is not relevant to this appeal.

95    What is relevant is that orders were made under s 37A at first instance on Mr Naaman's application. The primary judge found that each of the impugned transactions was undertaken with the intention, or at least had the effect, of destroying, diminishing or jeopardising JPG's right of indemnity from the assets of the trust and, among other things, was liable to be set aside pursuant to s 37A of the Conveyancing Act: Jaken (PJ) at [8(5)], [508].

96    Mr Naaman's standing under s 37A was assumed: Jaken (PJ) at [288]. I accept that little can be drawn from an assumed position: CSR Ltd v Eddy [2005] HCA 64; (2005) 226 CLR 1 at [13]. Having said that, in a case where Mr Naaman's rights and standing (by subrogation to JPG's rights) were clearly the subject of dispute, it is no small thing that there was some agreement, at least on this point. Mr Naaman's rights by subrogation could be no greater than those of the trustee.

97    Moreover, on appeal, although standing under s 37A was not argued, both Leeming JA and Kirk JA assumed that a predecessor trustee may be able to invoke provisions such as s 37A.

98    Leeming JA described the issue before the Court as follows (at [35]):

… The significance of the obligation being fiduciary as the primary judge found was that when the successor trustee transferred trust assets to third parties who were not bona fide purchasers for value without notice in order to defraud creditors including the former trustee, not only were the transfers voidable under statute, but the recipients and those involved were personally liable under either or both limbs of Barnes v Addy. …

99    Having referred to transfers being voidable under statute, his Honour also observed (at [220]):

However, JPG and through it Mr Naaman is a creditor of the trust who is entitled to have recourse to trust assets including land alienated contrary to s 37A of the Conveyancing Act and its Victorian equivalent.

100    Kirk JA said (at [233]):

The vulnerability of a person in the position of the respondent should also not be overstated. The previous trustee has proprietary rights. This case also illustrates the potential application of provisions such as s 37A of the Conveyancing Act 1919 (NSW). Further, there was no dispute in this case that the respondent's interest in the realty held by the trust was capable of being protected by a caveat on title. That is more than can be said of some other valuable equitable interests: note Thynne v Sheringham [2023] NSWCA 181.

101    What can be drawn from Rothmore Farms and Jaken (FC) is support for the view that s 86 of the LPA may be invoked by a former trustee who has a right to be paid from trust assets, and so, it follows, for the view that a trustee may be a creditor for the purpose of s 86 of the LPA and analogous provisions.

102    I turn now to consider against that backdrop whether a broad interpretation of 'creditor' is justified so that it includes a trustee who is entitled to have recourse to trust assets.

Consideration

103    It is important to return to the purpose of provisions such as s 86, observing that it is to counter the defrauding of creditors. It facilitates the intervention of a creditor to frustrate a disposition so that the property is available for distribution to them: Cannane v J Cannane Pty Ltd (in liq) [1998] HCA 26; (1998) 192 CLR 557. The focus is on assets that would otherwise have been available to a debtor's creditors, and the diminution of their position in that regard: Lloyds Bank Ltd v Marcan [1973] 1 WLR 1387 at 1390-1391, cited in Marcolongo at [32].

104    As explained in Carter Holt, a trustee's right of indemnity generates an equitable proprietary interest, but it is a right to have the trust property applied in indemnifying the trustee. The equitable proprietary interest in the trust property is not security for payment of any debt, because there is no debt payable by any party to the trustee. I accept that a trustee is not a creditor in the ordinary sense of having a 'debt'. The right of indemnity does not impose any personal liability on any party to make a payment. The new trustee incurs no personal liability to the former trustee in respect of the expenses of the former trustee.

105    However, the right to indemnity carries with it a right to payment out of the trust assets. Whilst that right is distinct from a conventional debt due, having regard to the purpose and terms of s 86 of the LPA, I consider it extends to an application by a trustee whose right to payment from trust assets is diminished by a transaction executed with the requisite intention to defraud. To limit the operation of the section to a traditional debtor-creditor relationship is to restrict the meaning of the word 'creditor' in a manner that the section does not otherwise require.

106    It is to be recalled that Young JA in Chen v Marcolongo acknowledged there may be grey areas when it comes to standing under s 86 or its equivalents. Acknowledging the text of the statutory provision and the centrality of that text to its construction, the cases have indicated support over the years to an approach whereby some breadth is to be given to the term 'creditor' in the context of those provisions. So much is apparent from Chen v Marcolongo. There are also indications (and I do not put it more highly) in both Rothmore Farms and, more recently, Jaken (FC) that the provisions should be understood as encompassing a claim that a particular transaction may defraud a former trustee with respect to its right of indemnity. To my mind, however, the observations of both Leeming JA and Kirk JA in Jaken (FC) are consistent with the proper and beneficial construction of a provision such as s 86.

107    I do not consider that any of the authorities prohibit this conclusion.

108    Although a trustee has other remedies and rights, and its indemnity and beneficial interest in assets survives removal, those matters do not compel its exclusion from the concept of a creditor for the purposes of s 86. Because removal deprives a former trustee of its powers and places the assets of the trust under the control of others, the scope for a trustee to be prejudiced in exercising its right to payment or to have those rights diminished is apparent.

109    If conduct is undertaken by or at the direction of the successor trustee with intent to interfere with the trustee's right to payment, then there is no obvious reason why a trustee ought not be able to rely on s 86.

110    As emphasised by the High Court in Marcolongo, a provision such as s 86 is to be given a liberal construction in effecting the purpose of suppressing fraud - the construction I prefer is consistent with this approach.

111    It follows that a trustee with a right of indemnity who has an entitlement to payment out of trust assets may be considered a creditor for the purpose of s 86. The primary judge did not err in this regard.

Ground 3 - reliance on Dr Hamilton's position

112    I have considered, having regard to Boensch v Pascoe [2019] HCA 49; (2019) 268 CLR 593 at [7]-[8], [101], whether it is necessary to address this ground as it is not dispositive of the appeal. I have decided to do so, but it only requires brief reasons.

113    To recall, by ground 3 Ridge Estate asserted that the primary judge erred in having regard to Dr Hamilton's position as a creditor in circumstances where he was not a party to the proceeding.

114    As noted above, the question of whether a person is a creditor relates to both whether the person is prejudiced and so has standing to bring a claim under s 86, and whether the conveyance in question was made with the intent to defraud creditors.

115    The primary judge found that Dr Hamilton was at least a prospective creditor of FPH, given that he provided a personal guarantee of FPH's obligations to NAB (PJ [374]). The appellants do not challenge this finding.

116    Between PJ [369] and PJ [373] the primary judge considered the question, 'Is FPH a creditor to whom s 86 may apply?'. His Honour did so expressly in the context of whether Steven had an intention to defraud creditors (at [369]). At [370]-[371] his Honour considered the argument that FPH was not a creditor because of the nature of the trustee's indemnity. At [372]-[373] his Honour rejected the contention that FPH was not a creditor, as addressed above in respect to ground 2. His Honour then stated (at [374]):

Secondly, the respondents' submission assumes, incorrectly, that it is only FPH in its capacity as trustee of the PRT which is the subject of the applicants' allegations. As [110.13] of the [statement of claim] indicates, the applicants allege an intention by Steven to defraud both FPH and Dr Hamilton. The latter was at least a prospective creditor of FPH given his provision of a personal guarantee to NAB of FPH's obligations. Steven knew of the loans taken out by FPH and knew that Dr Hamilton had provided a personal guarantee.

117    It became apparent from the appellants' submissions that it is the first sentence of this paragraph which underlies this ground of appeal. The appellants contend that they were right to assume that whether or not Dr Hamilton was a creditor was not to the point, because only FPH sought to bring a claim under s 86.

118    A number of matters arise from this.

119    First, his Honour concluded that FPH was a person prejudiced by the fraudulent conveyance and entitled to bring a claim under s 86. His Honour proceeded on the basis that there was no submission by the respondents (now appellants) to the contrary (addressed further in relation to ground 5). Therefore, on those findings, FPH could seek to have the Removal Deed declared void under s 86.

120    Second, the claim by the applicants (now respondents) was that the Removal Deed was voidable 'at the instance of FPH'. It was not said to be voidable at the instance of Dr Hamilton and no claim was made by Dr Hamilton to set it aside. He was not a plaintiff in the main action. The primary judge did not go so far in PJ [374] as to suggest that absent FPH having standing to bring the claim, the relief could in any event be granted merely because Dr Hamilton was a creditor.

121    Third, however, his Honour was entitled to take into account the position of Dr Hamilton as a creditor when considering whether Steven had the relevant intent to defraud creditors. It is established that 'to show that creditors have been defrauded, one takes into account prospective contingent and other persons including people who have unliquidated claims in tort': Chen v Marcolongo at [205].

122    Fourth, the respondents seek to infer from [374] that the primary judge concluded that Dr Hamilton was a person prejudiced, had standing to bring an application under s 86 and in effect was bringing an application. They submitted that if there had been doubt about this, then they should have been permitted to remedy the situation by seeking to have Dr Hamilton joined in the proceeding. They contend that the appellants should not now be able to 'attack Dr Hamilton's standing', and submitted that the appellants are seeking to run a new case. I reject the respondents' submissions as to the effect or potential effect of the findings at [374]. The respondents framed their case at all times as one being advanced by FPH. If they had concerns about FPH's standing to do so, they could have joined Dr Hamilton, but it was not for the appellants to suggest this course to them. As ground 2 makes clear, the status of FPH as a creditor who could bring a claim under s 86 was always in issue.

123    Regardless, there is no error disclosed by the manner in which the primary judge had regard to the position of Dr Hamilton as a creditor, and ground 3 is not made out.

124    Dr Hamilton's position as a creditor remained relevant to the broader question of whether Steven had the requisite intent to defraud creditors.

Ground 4 - intent to defraud

Findings

125    The primary judge (PJ [385]-[394]) set out the relevant circumstances in which the Removal Deed was made. There is no challenge to those findings. In summary, Dr Hamilton had called a shareholders' meeting of FPH for 2 October 2018 to discuss the future directions of FPH. This was at a time when the relationship between him and Steven had broken down. Steven was unable to attend the meeting. Resolutions were passed as to calling in certain loans and ceasing consultancy payments due to cash flow issues. Prior to the meeting Steven had already sought legal advice. On 1 October 2018 he emailed his lawyer saying that 'Andrew [Dr Hamilton] [was] up to no good' and stating that it was good that Ridge Estate had been put in place as trustee 'all those months ago'. On 2 October 2018 Steven's lawyers provided him with a draft of the Removal Deed. Steven did not inform Dr Hamilton of his intention to remove FPH as trustee. Steven discussed it with his parents. On 4 October 2018 Brenda signed the Removal Deed. A copy was not provided to FPH until 24 January 2019 (PJ [364]).

126    Although the Removal Deed was signed by Brenda, the primary judge accepted that it was Steven's intention that was relevant, citing Marcolongo at [64] (where reference is made to the 'critical mind'). This finding is not in issue.

127    The primary judge made the following findings about Steven's intention:

[398]    Steven said that his purpose in asking Brenda to sign the Removal Deed was to 'get in control of our land again', to 'slow the process' and to prevent creditors of PRT being able to realise their debts against the assets of the PRT without him having 'a say so'. He also acknowledged that it had not been Brenda's decision to execute the Deed. He said that his intention in promulgating the Removal Deed had been to stop Dr Hamilton from taking any action to recover any debts of which he was guarantor and that he had not wanted FPH to call in its loan 'at the irrational pace that Andrew Hamilton did things'.

[399]    Steven admitted that he had not told Dr Hamilton that FPH had been removed as trustee of the PRT and said that he had 'wanted to keep it as an ace up [his] sleeve in case [Dr Hamilton] went and did something that [he] didn't agree with as trustee of the PRT'. Later, Steven said that he had not told Dr Hamilton of the removal of FPH as trustee because 'I was new to the process and following direction and instruction from Matthew Allan'. I considered this last piece of evidence of Steven's to be implausible and do not accept it. In my view, it was Steven himself who decided not to disclose the Removal Deed to Dr Hamilton.

[400]    Steven acknowledged that he had known that, by removing FPH as trustee, it would not be able to exercise 'self-help', i.e, by exercising a power of sale of the Trust assets, in relation to the debts owed to FPH.

[401]    These admissions of Steven make inevitable a finding that Steven had Brenda execute the Removal Deed with the requisite intention of defrauding creditors of the PRT, FPH and Dr Hamilton, i.e, with the intention at least of hindering or delaying them realising their entitlements. That was the very purpose of FPH's removal as trustee. No other purpose has been advanced.

Summary of submissions

128    The appellants by this ground contended that the primary judge erred in fact by finding that Steven's intention was to improperly 'hinder or delay'.

129    In their grounds of appeal and submissions they contended (in summary) that the finding was in error because:

(a)    the Removal Deed expressly preserved FPH's right of indemnity, so that there was no intention to deprive FPH of anything;

(b)    the relationship between Steven and Dr Hamilton had broken down such that a change in trustee was inevitable to avoid conflicts of interest;

(c)    Brenda as appointor was free to change the trustee and it was in the interests of beneficiaries that it be changed; and

(d)    Steven's evidence was to the effect that he wanted to ensure Dr Hamilton acted in a manner consistent with his fiduciary obligations.

130    In oral submissions on the appeal the appellants also contended that the primary judge had failed to make the requisite finding of dishonesty.

Consideration

131    The primary judge's finding (at [401]) that Steven acted 'with the intention at least of hindering or delaying [creditors of FPH] realising their entitlements' clearly references the discussion in Marcolongo as to the meaning of 'defraud' (reproduced below).

132    Any intention to defraud on the part of a successor trustee is perhaps more readily identifiable if property otherwise available to a former trustee is dissipated.

133    In Rothmore Farms Mansfield J held that there had been no relevant alienation of the trustee's interests in that Andrew received the assets subject to the trustee's equitable interest. The equitable interest in that particular case apparently was not relevantly impaired or reduced. In Jaken (FC) some of the trust assets had been dissipated (by sale) or otherwise diminished by the successor trustee. It followed that in Jaken (FC) the alienation and prejudice to JPG as trustee (and Mr Naaman by subrogation) was more readily identified.

134    In this proceeding, it was not the respondents' case that the Removal Deed brought about a dissipation of all assets such that FPH would forever be out of pocket, in part or in full. Rather, their case was that FPH was entitled to look to trust assets to meet its entitlements under its indemnity, and it was prejudiced and defrauded because the Removal Deed distanced it from those trust assets. This curtailed its ability to self-help and otherwise exercise its rights, so diminishing its rights and hindering and delaying it in the exercise of its rights. The appellants' main answer to this was that the Removal Deed expressly preserved FPH's right of indemnity and so (even assuming FPH to be a creditor) it was not a creditor that was prejudiced, and no intention to defraud should be inferred.

135    Returning to Marcolongo, the reference to an intention to defraud is to be read as a reference to 'delay, hinder or [otherwise] defraud'. The majority said at [32]:

… Mrs Marcolongo correctly relies upon a statement by Blanchard and Wilson JJ when considering the comparable New Zealand legislation in Regal Castings Ltd v Lightbody. Their Honours said that it was unnecessary to show that the debtor wanted creditors to suffer a loss or that the debtor had a purpose of causing loss: it was necessary to show the existence of an intention to hinder, delay or defeat creditors and in that sense to show that accordingly the debtor had acted dishonestly. Mrs Marcolongo correctly relies also upon the observation by Russell LJ when considering s 172 of the 1925 Act in Lloyds Bank Ltd v Marcan. His Lordship said:

'I am not sure what is meant by a perfectly innocent defeat, hindrance or delay. It must be remembered that in every case under this section the debtor has done something which in law he has power and is entitled to do: otherwise it would never reach the section. If he disposes of an asset which would be available to his creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach, he is in the ordinary case acting in a fashion not honest in the context of the relationship of debtor and creditor. And in cases of voluntary disposition that intention may be inferred … The intention of Mr Marcan is perfectly plain: the lease to his wife was designed expressly to deprive the bank of the ability to obtain the vacant possession to which the bank plainly attributed value, and to diminish to that extent the strength of the bank's position as creditor. To take that action at that juncture, in my judgment, was, in the context of relationship of debtor and creditor, less than honest: it was sharp practice, and not the less so because he was advised that he had power to grant the lease. It was, in my judgment, a transaction made with intent to defraud the bank within s 172, and would have been within the [Elizabethan Statute].'

(footnotes omitted)

136    And at [56], the majority said:

… First, the reference to 'defraud', in the light of what has been said earlier in these reasons, includes the hindering or delaying of creditors, in particular of Mrs Marcolongo in the exercise of her legal remedies, whether by an assets preservation order in respect of Project 2 pending determination of her District Court action against Lym, or by execution upon Project 2 to recover her verdict and costs were she to be successful. No doubt, the transaction was not expressed as voluntary and Lym was to receive some value in exchange. But the provision in special condition 33(b) for application of the balance of the proceeds to debts owed by Lym and related entities of Lym, and the evidence as to the lack of arrangements for Mr Chen to pay that balance, shows the deterioration to the position of Mrs Marcolongo that inevitably ensued. It is no answer, as it was no answer in In re Fasey; Ex parte Trustees, that there had been no delay and hindrance occasioned by the transaction because eventually she might have had some recovery for any judgment she recovered and costs.

(footnotes omitted)

137    To this can be added the example referred to by Carr AJA in Westpac v Bell at [3185], where the subordination of creditors, so that they would not be paid until after the banks had been paid in full, was held to have delayed and hindered, and thus relevantly defrauded, those creditors.

138    Therefore, it follows that even if a trustee is eventually paid or may eventually be paid, including by court proceedings, if there has been an intention to hinder or delay the trustee in the assertion of its right of indemnity it may have been defrauded within the meaning of s 86.

139    In the present case, the fact that the Removal Deed expressly preserved FPH's right of indemnity did not preserve the status quo as far as FPH's ability to enforce its rights was concerned. It was inevitable, once the Removal Deed took effect, that FPH's ability to rely on its indemnity was hindered and it would be delayed in receiving payment. It was no longer open to FPH to exercise rights of self-help to sell assets and apply the proceeds in part payment of the amounts due to it and recoverable by way of the indemnity.

140    Whilst the chattels that had not been sold remained available to be sold after FPH's removal, title had vested in Ridge Estate. In light of the animosity between Dr Hamilton and Steven, the prospect of any short-term agreement or cooperation with respect to their sale and the application of proceeds was unlikely (and it appears that FPH did purport to sell some of the chattels after the date of the Removal Deed, and Ridge Estate complained about such conduct in the proceedings at some point). FPH was therefore in the hands of Ridge Estate as to the realisation of all remaining chattels.

141    As to Lot 2, for the reasons set out at [41] above, there was no vesting of title in Ridge Estate as a result of the Removal Deed. However, the effect of the Removal Deed was to deny FPH the ability to exercise its right of sale, so that the delay and hindering that flowed from the vesting of the other assets could not be ameliorated in the short term by access to the proceeds of sale of Lot 2, a consequence that was clearly understood by Steven at the time of the Removal Deed. Part of the overarching purpose of the Removal Deed was to prevent FPH selling Lot 2. Although the Removal Deed did not operate to convey Lot 2, the impact of the loss of FPH's right of sale over Lot 2 remains relevant for the purpose of s 86. The interposition of a judicial sale process with respect to Lot 2 served to further delay the prospect of any payment to FPH to meet its right of indemnity from any source. In the meantime it was required as bare trustee to preserve trust assets that were not conveyed at law: Fairfield (No 3) at [81].

142    It was apparently not in issue that at the time of the Removal Deed, FPH had incurred debts in its capacity as trustee with respect to (at least) mortgage repayments made from 2016. It continued to make mortgage repayments until Lot 2 was sold (in June 2021) (PJ [408]). So, at all material times FPH had a right to payment from trust assets in accordance with its right of indemnity, and for sums of some substance.

143    These are all matters of context that undermine the contention that the express retention of FPH's right of indemnity by the Removal Deed protected FPH from prejudice.

144    As to the appellants' submission that a change in trustee was inevitable to avoid conflicts of interest, and was in the interests of beneficiaries, that may have been so. But, to replace the trustee without notice and with Ridge Estate, a company of which Steven's father, Philip, was the sole director, diminishes the force of that submission.

145    As to the submission that Steven wanted to ensure Dr Hamilton 'acted in a manner consistent with his fiduciary obligations', having regard to Steven's evidence referred to by the primary judge, that is hardly a complete picture of Steven's intention.

146    Steven said his intention in asking for the Removal Deed was to prevent Dr Hamilton from selling Lot 2 and the plant and equipment without his consent, and to 'take back our asset' (PJ [391]). He admitted that he did not want FPH to exercise 'self-help' in relation to 'the debts owed to FPH'. He deliberately failed to tell Dr Hamilton about the Removal Deed until some time after it was executed, keeping it as an 'ace up [his] sleeve'. He wanted to 'slow the process' and prevent creditors being able to realise their debts without him having a 'say-so'. He wanted to stop Dr Hamilton from taking action to recover debts of which he was a guarantor.

147    In my view the primary judge was right to conclude, having regard to those matters, that the requisite intention to defraud was established. Steven was not acting simply to supervise the exercise of fiduciary duties, but to terminate FPH's role as trustee, so interfering with FPH's capacity and right to pay its creditors and rely on its right of indemnity. He sought by the Removal Deed to ultimately assume control over trust moneys and assets (with or through Philip and Ridge Estate). Clearly FPH owed debts to creditors (including the bank), it was bound to pay them, it had the right to be indemnified, it was entitled to payment - and Steven was deliberately seeking to slow down and interfere with that process. He sought by the Removal Deed to prevent FPH from exercising its powers of self-help available to it at law, so diminishing its capacity to take steps to rely on its right of indemnity. The fact that Lot 2 did not vest in the successor trustee is no answer to the fact that the intention to hinder and delay was formed and given effect, at least with respect to the other assets of the trust. As the primary judge observed in Fairfield (No 3) at [73], the respondents should have addressed satisfaction of FPH's right of indemnity at the time of its removal.

148    The mere replacement of a trustee of itself is not a fraudulent conveyance. As observed by Russell LJ in Lloyds Bank Ltd v Marcan (cited in Marcolongo at [32]), impugned transactions under s 86 and its equivalents involve transactions that the disponor has power and is entitled to do. The question (relevantly) is whether there has been an intention to hinder or delay FPH in exercising its right of indemnity and its right to payment, and in that sense to show that Steven had acted dishonestly. It is not necessary to show that Steven acted dishonestly in wanting FPH or other creditors to suffer loss. To my mind, the intent underlying the conduct of Steven was sufficient to satisfy the test required by s 86. The dishonesty is reflected in the fact that Steven's conduct was directed at deliberately delaying and hindering FPH, by seeking to prevent FPH from accessing trust assets where FPH had extant rights to be indemnified and paid. Steven acknowledged that he knew that by removing FPH it would not be able to exercise the power of sale with respect to trust assets. To take the action in the circumstances was, in my view, sharp practice, and Steven's decision to deliberately keep the Removal Deed 'up [his] sleeve' and not reveal it before or immediately upon execution is consistent with this conclusion.

149    As to the submission that the primary judge failed to make a finding as to dishonesty, I would not accept it.

150    The appellants sought in oral submissions to reagitate debate as to the nature of the dishonest intention required by s 86, referring in particular to Cannane. However, to the extent questions remained after Cannane about any need to show an actual dishonest intent to defraud or conscious dishonesty, they were answered in the negative in Marcolongo, in particular by the majority at [32]-[33] and by Heydon J at [87].

151    The primary judge cited the relevant passage from Marcolongo as to proof of an intention to hinder, delay or defeat and in that sense there being proof that the debtor had acted dishonestly (PJ [368(a)]). It was not necessary to make a finding that utilised the word 'dishonest': that word is not used in s 86 itself. His Honour's reasons reveal that he considered the 'very purpose' of Steven's conduct. His Honour found the 'requisite intention' to 'at least' hinder or delay the creditors of the trust, FPH and Dr Hamilton. It was sufficient that the primary judge make a finding of an intention to achieve the proscribed defrauding, hindering or delay. So much was done (PJ [401]).

152    I respectfully agree with the primary judge's conclusion that Steven had the requisite intention to hinder and delay creditors for the purpose of s 86.

Ground 5 - FPH and prejudice

153    The primary judge found that FPH was a person 'prejudiced by' the fraudulent conveyance entitled to bring a claim under s 86, and observed that the then respondents (now appellants) did not submit to the contrary (PJ [402]). His Honour found that the matters pleaded were established. Relevantly, the plea of prejudice is set out at [29] above, and refers to FPH and Dr Hamilton being prevented from taking action to recover moneys and prejudiced in any attempted recovery of sums due from the trust assets.

154    The appellants contended on the appeal that, contrary to the primary judge's observation, they made oral closing submissions before his Honour contending that FPH was not a person prejudiced, although they conceded the issue was not addressed in their written closing submissions.

155    It is apparent from the reasons that the primary judge was obliged to deal with fact-intensive evidence across a large number of different causes of action, and where conflicting evidence revealed on occasion that the Court had been misled (for example, PJ [424]). It is unsurprising in those circumstances that the primary judge may have overlooked or misapprehended the significance of a discrete submission, particularly where there was an inconsistency between the written and oral closing submissions.

156    Even on the appeal, the appellants' approach to this issue was somewhat fluid. On some occasions prejudice was referred to in the context of addressing whether FPH was hindered or delayed. On other occasions it was referred to apparently in the context of standing and whether FPH was a prejudiced person. In the end little turns on this, as those matters overlapped to some extent, but as a result the respective submissions of the parties did not always address each or the same question.

157    The appropriate starting point is the scope of the appeal ground. The appellants challenge the finding at PJ [402]. They particularise the ground in this manner:

(a)    FPH was not a creditor and so in any event was not entitled to rely on s 86;

(b)    in any event, the Removal Deed expressly preserved its right of indemnity; and

(c)    FPH's right of indemnity was 'ultimately vindicated through the sale of various items of equipment, the Court's judicial sale order and the orders after trial'.

158    I have already concluded that the primary judge did not err in finding that FPH was a creditor for the purpose of s 86, and that the conveyances affected by the Removal Deed hindered or delayed FPH in the exercise of its right of indemnity and its right to be paid from trust assets.

159    The appellants submitted on appeal that the primary judge erred in that FPH was required to establish prejudice as at the date of the hearing, relying on the reasons of Young JA in Chen v Marcolongo at [204], referred to at [71] above. They contended that FPH had sold 'the bulk of the equipment' and applied it against the equipment loan, and that they failed to establish that any relevant choses of action were established at trial.

160    During the oral closing submissions at trial the point made by the appellants was somewhat different. It was to the effect that as a result of the judicial sale orders in Fairfield (No 3), there were proceeds of sale in Court so that whether or not there was a void conveyance was no longer to the point - rather, the question at that time was who should have access to the moneys in Court, and that could be dealt with by the 'indemnity claim'. His Honour observed, when the submission was made, that the issue of a voidable conveyance remained live on the pleadings regardless of the sale of Lot 2, and paraphrased the appellants' submission:

… The point you're making that it's unnecessary for the court to determine whether or not this was a fraudulent conveyance because the moneys are now in court and under the court's control

… I was asking whether I see that in the written submissions

161    The highpoint of the appellants' submission was that:

So it doesn't matter whether there might have been a conveyance that was ultimately going to hinder or delay, in effect it hasn't. So you don't set it aside.

162    It takes some generosity to treat the appellants' submission as exposing the question of prejudice for the benefit of the primary judge. Indeed, the word 'prejudice' is not used in the part of the trial transcript to which we were taken. His Honour's finding at [402] is therefore not surprising. However, the respondents did not suggest that the ground should be dismissed for that reason. Further, as is apparent, the issue of prejudice permeates to some extent the discussion above as to the meaning of the requisite intention to defraud and as to whether FPH was a creditor.

163    In my view, the conclusion reached by the primary judge that FPH was a person prejudiced was, in any event, correct. If, as the authorities indicate, a fraudulent intention (by delay or hindrance) may be established even where eventually a creditor might recover payment (see [133]-[138] above), then it should follow that a person may be 'prejudiced' in the context of standing even if it so happens that, after taking whatever action might be required to vindicate their rights, they might eventually recover payment. Prejudice might be diminished or dissipated over time, but that does not deny reliance on s 86, having regard to the beneficial purpose of the provision.

164    In this case, the requisite prejudice was established. As events indicate, FPH was unable to exercise its right of indemnity and its right to payment from the trust assets or their proceeds without court proceedings being instituted. It is not a sufficient answer to say that 'various items of equipment were sold'. The primary judge found (at PJ [412]) that part of the proceeds of the sale of equipment were applied to a NAB loan, but the finding does not extend to all proceeds or to all chattels. Under the Removal Deed, title in all chattels vested in Ridge Estate as the successor trustee (although it appears that FPH purported to sell some of the chattels and applied the proceeds to FPH liabilities). This Court was not taken to any evidence that established that all trust chattels had been sold before the proceedings were instituted or before the hearing (footnote 17 of the appellants' submissions directed the Court to a statement in an affidavit of Dr Hamilton that, at its highest, indicated that some chattels had been sold, that Dr Hamilton did not know the whereabouts of some trust chattels, and that some trust chattels were on Lot 1 and had not been sold).

165    The judicial sale had the benefit of bringing to an end the requirement that FPH continue to incur liabilities to NAB under the Lot 2 mortgage. As the primary judge said in Fairfield (No 3) (at [81]):

Putting to one side FPH's reliance on s 86 of the [LPA], it has, in effect, been compelled since 2018 to continue as a bare trustee of the Trust by reason that the respondents have not taken effective steps to discharge its indebtedness to NAB or to secure that indebtedness to its satisfaction. FPH has continued to protect the assets of the Trust from a mortgagee sale, but only by making the loan instalments itself.

166    However, the judicial sale orders, as is apparent from Fairfield (No 3), were not made for the purpose of enabling FPH to exercise its right of indemnity. The primary judge said (at [71]):

…The [judicial sale order] cannot be regarded as being for the purpose of enabling FPH to exercise its right of indemnity. Instead, the proceeds will be held in a trust account and FPH will not have any access to those funds until the resolution of the disputes between the parties in these proceedings. This means that there will be a change in the form in which the asset against which FPH can enforce its right of indemnity is held, but with a recognition by FPH that its ability to enforce its right against that asset will be contingent on the extent of its success in the underlying proceedings.

167    Accordingly, the appellants' submission that FPH was not prejudiced because its right of indemnity was 'ultimately vindicated through the sale of various items of equipment, the Court's judicial sale order and the orders after trial' is rejected.

168    Applying what was said by Young JA in Chen v Marcolongo, FPH had a right to exercise its indemnity with respect to debts that had already been incurred, and so a right to payment from the assets of the trust at the time of the commencement of the hearing. FPH remained a person prejudiced within the meaning of s 86. The judicial sale process did not permit access by FPH to the proceeds of the sale of Lot 2 prior to the hearing. All that occurred was the 'change in form' to which the primary judge referred in Fairfield (No 3).

169    The ability of FPH to exercise its right of indemnity and so its right to payment remained diminished and the subject of hindrance and delay as a result of (at least) the conveyance of the chattels, in circumstances where access to trust assets and funds was inevitably and foreseeably delayed by the need to participate in (at least) judicial sale proceedings and litigation.

170    For these reasons, and having regard to the liberal construction which the provision has been held to require, I consider that prejudice was established.

Grounds 1-5 - conclusion

171    It has not been necessary to deal with ground 1 separately. Its content has been addressed by grounds 2-5. It follows that grounds 1-5 are dismissed, whilst acknowledging that for the purpose of ground 3, having regard to the manner in which the case was pleaded, only FPH sought to have the Removal Deed set aside under s 86.

PART B - SECRET COMMISSIONS CLAIM

172    I have had the opportunity to read Feutrill J's draft reasons in relation to grounds 6-10. I respectfully agree generally for the reasons given by Feutrill J that those grounds are to be dismissed.

173    I add that I have been persuaded that those grounds should be dismissed having regard in particular to the following matters:

(a)    it was the appellants (the respondents below) who raised in para 35 of their defence a question as to who was able to pursue recovery of the secret commissions from Steven, asserting that 'if (which is denied) Steven had received any secret commissions, the proper plaintiff is AusPods, not [FPH No 1] …' (AusPods being AusPods Property Pty Ltd, the principal on the relevant redevelopment project);

(b)    the amended defence did not disclose why what was asserted in para 35 was said to be the case;

(c)    the deed of assignment was subsequently executed on 31 July 2021;

(d)    it is recited in the deed of assignment that by para 35 of the amended defence the appellants asserted that FHP No 1 was the wrong party to recover the secret commissions, and that although that plea is denied, for the avoidance of doubt Auspods thereby assigned any interests in the chose of action relating to the secret commissions to FPH No 1 - therefore the purpose of the deed of assignment would have been immediately apparent to the appellants on reading it;

(e)    it was also apparent from the tender of the deed of assignment, and having regard to its terms, that the respondents intended to rely upon it to address the claim made in para 35 of the defence;

(f)    the relevance of the deed of assignment to that pleaded issue is readily apparent, and the primary judge's ruling that it was admissible was correct and unsurprising;

(g)    how the respondents intended to deploy the deed of assignment was also readily apparent;

(h)    the issue of the assignment was therefore clearly 'in play' at trial;

(i)    the primary judge left it open to the parties to make whatever submissions they wished to make about the deed of assignment in final submissions; and

(j)    the deed of assignment was clearly also central to the matter of law raised for the first time by the appellants in oral closing submissions based on Powell & Thomas v Evan Jones & Co [1905] 1 KB 11 and Novoship (UK) Ltd v Mikhaylyuk [2014] EWCA Civ 908; [2015] QB 499.

174    In these circumstances I do not consider that failure to plead the deed of assignment denied the respondents the ability to rely upon it as they did: that is, in response to matters raised by the appellants. There was no denial of procedural fairness in the primary judge's decision to place reliance on the unpleaded deed of assignment. The appellants were not taken by surprise. There was no question as to the evidentiary value of the deed of assignment. The appellants had the opportunity to make whatever submissions they wished to make in relation to the deed and no practical prejudice was established.

175    I agree that it is therefore unnecessary to deal with the notice of contention, and endorse Feutrill J's observation that it is arguable that neither Powell & Thomas nor Novoship are to be understood as proposing a general rule that an agent is not entitled to recover secret commissions obtained by a sub-agent.

PART C - CALCULATION ERROR

176    Ground 11 relates to what might be either an ambiguity or error in a calculation made by the primary judge. Regardless, the parties in effect agree as to the correct calculation.

177    In short, at the time of trial the sum of $395,178.36 was held in Court, representing primarily the net proceeds of sale of Lot 2. The primary judge held that FPH at that time had a qualified entitlement to an indemnity of $314,741.95 (PJ [453]). The qualification was that the sum included an amount of $122,000 which FPH had not at that time sought to vindicate its right to an indemnity. Accordingly, it is apparent that his Honour formed the view that FPH was entitled at that time to receive beneficially from the funds in Court the amount of $192,741.95 ($314,741.95 less $122,000). Relevantly, his Honour made an order that:

Of the sums held by the Court in the Litigants' Fund in relation to this Action, $273,178.36 together with the interest accrued on that amount, be paid out to FPH in part satisfaction of its claim to indemnity.

178    It is apparent that the figure of $273,178.36 in the order was derived by deducting the $122,000 from the total funds in Court ($395,178.36 less $122,000).

179    If it was his Honour's intention to permit payment out of only $192,741.95, being the amount as determined at that time for which FPH was to be indemnified, then the order appears to have provided inadvertently for payment to FPH of an additional $80,436.41. On the other hand, the order could be read as reflecting that his Honour intended that $273,178.36 be paid out for the purpose of the indemnity as quantified at that time, with the balance to be held by FPH on trust, pending further determinations or otherwise. The costs orders indicate that his Honour declined to correct the order under the slip rule, which indicates this latter interpretation of the order is what was intended. On this basis there is no error.

180    Be that as it may, there is a pragmatic solution, having regard to the position of the parties. There is no reason why the order cannot be varied by this Court so that it reads:

Of the sums held by the Court in the Litigants' Fund in relation to this Action, $273,178.36 together with the interest accrued on that amount, be paid out to FPH in part satisfaction of its claim to indemnity (as to $192,741.95) and otherwise in its capacity as trustee of the PRT.

181    Although the ground should be dismissed, the orders on the appeal will reflect this variation.

PART D - LEAVE TO APPEAL COSTS ORDERS

The costs orders

182    On the same day that his Honour delivered his primary judgment and made orders, he heard the parties as to costs, provided extempore reasons and made costs orders.

183    Those costs orders (renumbered for convenience) are:

1.    The First Respondent [Ridge Estate], the Second Respondent [Steven] and the Fourth Respondent [Brenda] are to be jointly and severally liable to pay 15% of the Applicants' [FPH's and FPH No 1's] costs of and incidental to the proceedings, such costs to include the costs of the Cross-Claim and all reserved costs.

2    The First Respondent and the Second Respondent are to pay a further 15% of the Applicants' costs of the proceedings, such costs to include the costs of the Cross-Claim and all reserved costs.

3    There be no order as to costs in respect to the Third and Second Cross-Respondents [FPH No1 and Dr Hamilton].

184    The general effect of these orders was that the respondents at trial were ordered to pay 30% of the costs of the applicants at trial. By the proposed appeal, the respondents at trial contend that the appropriate order is that the applicants at trial pay 50% of the respondents' costs, such costs to include the costs of the cross-claim and all reserved costs. No issue arises as to the limit on Brenda's liability to 15% only.

185    To guard against confusion about the parties in this part of the reasons, I will refer to the applicants for leave to appeal as the Ridge Estate parties, and to the respondents on the leave application as the FPH parties.

Leave to appeal

186    Leave to appeal from the costs orders is required: see generally Harvard Nominees Pty Ltd v Dimension Agriculture Pty Ltd (in liq) [2023] FCAFC 140 at [13]. Prior to the hearing of the appeal, it was ordered that the application for leave to appeal be heard and determined at the same time as the main appeal.

187    The Ridge Estate parties therefore must satisfy the principles concerning leave to appeal. In short, those principles require an applicant for leave to demonstrate that the decision in respect of which leave to appeal is sought was 'attended with sufficient doubt to warrant its being reconsidered' and that 'substantial injustice would result if leave were refused, supposing the decision to be wrong': Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 398.

Costs and discretion

188    The Court has a broad discretion under s 43(2) of the Federal Court of Australia Act 1976 (Cth) when determining appropriate costs orders, a discretion which must be exercised judicially, that is, not arbitrarily, capriciously, or so as to frustrate the legislative intent: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [22] (Gaudron and Gummow JJ).

189    The Ridge Estate parties accepted that it would be incumbent upon them to establish an error of the nature identified in House v The King (1936) 55 CLR 499 in the exercise of the discretion as to costs. As Dixon, Evatt and McTiernan JJ held in House v The King at 504-505:

It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance.

190    In the present case, the Ridge Estate parties submitted that error was to be inferred from the overall result, which was said to be unreasonable or plainly unjust.

Outcome of 13 claims before the primary judge

191    The appeal from the trial orders has required this Court to consider only a number of the 13 claims litigated before the primary judge. However, that all 13 claims were litigated is relevant to the question of costs. Those claims and their determination may be summarised sufficiently as follows:

(1)    Misleading or deceptive conduct

It was alleged that Ridge Estate and Steven engaged in a long running fraud that induced FPH to believe that a consultancy agreement was in place and took benefits under that arrangement, while never intending to perform the duties. It was determined that although Steven's conduct was unsatisfactory and questionable, the evidence did not establish to the requisite standard that Steven never intended to perform the duties: PJ [317]. The claim was dismissed.

(2)    Sham arrangements

It was alleged that all assets held by Ridge Estate were held as bare trustee for Steven, where such arrangements were put in place to conceal Steven's assets and income from his creditors and his trustee in bankruptcy. The sham also attributed Steven's misleading or deceptive conduct to Ridge Estate. It was determined that the transactions were to distance Steven from assets and income. However, a transaction is not a 'sham' merely because it involves distancing an asset from its creditors: PJ [327]-[332]. The claim was dismissed.