FEDERAL COURT OF AUSTRALIA

Gusdote Pty Limited v North Queensland Land Development Pty Limited (No 3) [2012] FCA 280

THE COURT ORDERS THAT:

1.    The parties confer with a view to agreeing on the amounts that should be allowed in the account taken in connection with the Disputed Parcel, on the basis stated in these reasons.

2.    The proceeding be listed for directions at 9.30am on Friday, 20 April 2012.

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

REASONS FOR JUDGMENT

INTRODUCTION

1        This is another episode in a long and drawn out dispute. The dispute was originally concerned with the affairs of Gusdote Pty Limited (Gusdote), and specifically with the transfer by Gusdote to the defendant, North Queensland Land Development Pty Limited (North Queensland), of land situated in Townsville, Queensland. It is now more concerned with the affairs of North Queensland.

2        On 11 June 2010, Cowdroy J declared that North Queensland held legal title to part of the land upon a constructive trust for Gusdote. His Honour ordered that North Queensland account to Gusdote, in accordance with Division 6 Part 5.6 of the Corporations Act 2001 (Cth) (the Corporations Act), for all benefits and moneys received by North Queensland as a consequence of the transfer by Gusdote to North Queensland of legal title to the land in question (see Demetriou v Gusdote Pty Limited [2010] FCA 581). Gusdote then commenced the present proceeding, seeking, relevantly, an order that North Queensland transfer legal title to the land in question (the Disputed Parcel) so that Gusdote might become registered as proprietor of the Disputed Parcel. North Queensland was in administration, and, on 4 June 2010, the administrators were appointed liquidators.

3        On 3 March 2011, I granted leave to Gusdote to commence and prosecute the proceeding against North Queensland, and to file a statement of claim constituting the proceeding as a claim between Gusdote and North Queensland in which Gusdote would ask the Court to set aside the transfer of the Disputed Parcel and any contract relating to it and for an order that North Queensland reconvey the Disputed Parcel to Gusdote. The proceeding was to be listed for directions after the parties had had the opportunity of discussing the real issues between them with a view to resolution without further curial intervention (see Gusdote Pty Limited v North Queensland Land Development Pty Limited [2011] FCA 202 (the 3 March reasons)).

4        In the 3 March reasons, I observed that the ownership of the Disputed Parcel was a benefit received by North Queensland as a consequence of the transfer by Gusdote to North Queensland of legal title to the Disputed Parcel. Accordingly, I said, it would be required, in accordance with the orders made by Cowdroy J, to account for the value of that benefit, after allowing for expenses and outgoings reasonably incurred in maintaining and preserving the Disputed Parcel (see 3 March reasons at [22]). I observed, further, that it was clear enough that the conclusion reached by Cowdroy J must have been that the contract for the sale of the Disputed Parcel by Gusdote to North Queensland was made in breach of a fiduciary duty owed to Gusdote by its director, and that North Queensland knowingly participated in that breach of fiduciary duty. In those circumstances, it would have been open for Gusdote to seek an order for rescission of the contract, setting it aside, and an order requiring North Queensland to reconvey legal estate in the disputed parcel to Gusdote. No such relief was claimed in the earlier proceeding unless, perhaps, it could be said that that was encompassed in the claim for an account (see 3 March reasons at [30]).

THE ORDER FOR AN ACCOUNT

5        After the parties had considered provisional conclusions that I conveyed to them, it became apparent that there may have been a significant misapprehension on each side as to the stance being adopted by the other. It then appeared that North Queensland, through its administrators, did not dispute Gusdote’s entitlement to an account for the value of the beneficial interest in the Disputed Parcel. North Queensland, however, asserted that it was entitled to an allowance for the costs of the administrators and liquidators and also for the amount of any outgoings arising in connection with the maintenance and preservation of the Disputed Parcel. Those costs and outgoings had not then been quantified. Gusdote, on the other hand, for its part, did not then insist upon re-conveyance of the legal estate in the Disputed Parcel but indicated that it would accept an accounting in respect of the beneficial interest received by North Queensland. It appeared, at that stage, that the costs and outgoings claimed by North Queensland were insignificant in relation to the unencumbered value of the Disputed Parcel (see 3 March reasons at [33]).

6        When the transfer to North Queensland took place, the Disputed Parcel was unencumbered. North Queensland was not required to pay the full consideration for the transfer of the Disputed Parcel. Rather, provision was made for North Queensland to give a mortgage to Gusdote to secure the payment of the balance of the consideration after payment of a deposit of $200,000. While such a mortgage was actually executed, the mortgage was never registered and no payments have ever been made under it. On the other hand, North Queensland mortgaged the Disputed Parcel to three different mortgagees to secure advances made by those mortgagees, the most significant of which was an advance by Central Queensland Credit Union for a sum of approximately $2,500,000. Those mortgages were apparently registered. While Gusdote and North Queensland might have a common interest in setting aside those mortgages, that question was not an issue in the proceeding at that stage (see 3 March reasons at [34]). It now appears that that question is very much raised by Gusdote as an issue in this proceeding. I shall return below to the matter of the mortgages.

7        Following the filing of a statement of claim and a defence, the proceeding was fixed for further hearing on 30 May 2011. In the course of argument on that day, it emerged that there may have been some further misunderstanding, arising from lack of communication between the parties, as to the precise relief then claimed by Gusdote and the extent to which that relief was opposed by North Queensland. Counsel for Gusdote informed the Court that Gusdote was not seeking rescission, but that it was asking that effect be given to the order made by Cowdroy J on 11 June 2010. It contended that nothing could justify the continuing refusal by North Queensland to surrender the Disputed Land in a way that was inherently part of the declaration of a constructive trust made by Cowdroy J.

8        Counsel for North Queensland responded that the liquidator of North Queensland had an obligation to realise its assets, including the Disputed Land, and, in the absence of an order requiring a transfer of the Disputed Parcel, North Queensland would be obliged, by virtue of the orders made by Cowdroy J, to account to Gusdote for the proceeds flowing from the realisation of the Disputed Parcel, subject to North Queensland’s entitlement to just allowance in the taking of accounts. Counsel for North Queensland said that such just allowance might include credit for the part of the purchase price that had been paid by North Queensland to Gusdote by way of deposit, together with any amounts expended by North Queensland in the preservation or improvement of the Disputed Parcel. Counsel asserted that expenses, in the form of taxes and outgoings, had actually been incurred in maintaining the Disputed Parcel. It was suggested that, by the process of realisation and deduction of any allowances that were deemed appropriate, there would be produced a fund or a retention by North Queensland as constructive trustee, that would be available for distribution to unsecured creditors. Counsel for Gusdote accepted that Gusdote was not entitled to a transfer of the Disputed Parcel without any allowance for the expenses that had been properly incurred.

9        The parties have advanced differing contentions as to the effect of the orders made by Cowdroy J. One view is that there was a remedial declaration of trust calling for an account involving, not the transfer of a Disputed Parcel, but an assessment of the value of the Disputed Parcel and the giving of an account for that value, less whatever expenses had been reasonably incurred in maintaining the Disputed Parcel. The alternative view is that beneficial ownership of the Disputed Parcel vested in Gusdote, but that North Queensland was entitled to be indemnified out of the Disputed Parcel for expenses reasonably incurred in maintaining it.

10        Whatever may have been intended by Cowdroy J, Gusdote conceded that the expenses of maintaining the Disputed Parcel were for Gusdote’s account and that, if rates and taxes had been paid in respect of the Disputed Parcel by North Queensland, North Queensland was entitled to be indemnified in respect of those expenses and was entitled to a lien over the Disputed Parcel until such time as the expenses had been paid. Counsel for Gusdote said that there had never been any dispute about that proposition. Thus, the only question appeared to be who should dispose of, or value, the Disputed Parcel. Counsel for North Queensland agreed that there was nothing more than that in dispute.

11        Counsel for North Queensland then indicated that North Queensland would be content with an order that the account that it was required to give, by reason of the orders of Cowdroy J, was to transfer the Disputed Parcel to Gusdote, after being indemnified for whatever expenses had been incurred. However, at that stage, no effort had been made to determine what those expenses might be, and counsel for North Queensland said that such determination may take some time.

12        Counsel for North Queensland indicated that one of the mortgagees of the Disputed Parcel had appointed a receiver of the Disputed Parcel and that the receiver had received income from the Disputed Parcel. Counsel for North Queensland accepted that any such income, less the expenses incurred, would be for the benefit of Gusdote. The reference to mortgages of the Disputed Parcel raised the question that had arisen at the earlier hearing as to whether or not there was any equity in the Disputed Parcel, having regard to the mortgages that had been given over the Disputed Parcel by North Queensland. Counsel for North Queensland confirmed that the mortgages were still in place.

13        In response to my enquiry as to whether North Queensland has any equity in the Disputed Parcel, counsel for Gusdote said that a great deal would depend on what its market value might be. He said that, as things then stood, the rent and outgoings commitments of the tenants of the Disputed Parcel supported the outgoings under the mortgage, so that the secured debt was not increasing.

14        I then adverted to the question of whether or not the deposit of $200,000 had been paid by North Queensland to Gusdote as part of the consideration for the transfer of the Disputed Parcel to North Queensland. There appeared to be a dispute as to whether that sum had actually been paid. Counsel for North Queensland then produced a document that tended to support the proposition that a sum of approximately $243,000 had been paid by North Queensland to Gusdote by way of deposit. Counsel for Gusdote accepted that, if it could be shown that there was a payment of the deposit, North Queensland would be entitled to credit for that payment.

15        Counsel for Gusdote then asked the Court to make an order for the transfer of the Disputed Parcel to Gusdote, reserving to North Queensland the right to assert a lien for whatever moneys were due to North Queensland on the taking of an account. I indicated that I would not order a transfer until such time as the account was taken and the amount owing had been determined.

16        I indicated that I would direct that the account referred to in the order made by Cowdroy J on 11 June 2010 be taken as soon as practicable, under the supervision of a Registrar of the Court. I said that, upon the account being settled, North Queensland would be required to transfer the Disputed Parcel to Gusdote on payment by Gusdote of any amount found to be due by Gusdote to North Queensland, or, if any amount were found to be due by North Queensland to Gusdote, North Queensland would be required to pay that amount with the transfer. I indicated that I would stand the matter over pending receipt of a report from the Registrar on the taking of the account, and that I would list the proceeding provisionally for directions on 30 September 2011 for the resolution of any matter arising in the taking of the account. Orders were then formulated and were made after they had been considered by the parties and without any further comment from the parties (see Gusdote Pty Limited v North Queensland Land Development Pty Limited (No 2) [2011] FCA 608). Clearly, it was not intended that a certificate from the Registrar after the taking of the account would be a final determination of the dispute.

THE TAKING OF THE ACCOUNT

17        Following the order of 30 May 2011, the account was taken before Deputy District Registrar Belcher (the Registrar). For the purpose of the taking of the account, North Queensland filed an amended accounting (the Accounting), showing 11 receipts and 129 payments. The total amount received was shown as $861,212.54 and the total amount paid was shown as $1,274,824.15, leaving a balance owing to North Queensland of $413,611.61. On 19 August 2011, in response to the Accounting, Gusdote filed a statement of surcharges and falsifications (the Gusdote Statement).

18        None of the 11 receipts shown in the Accounting was disputed by Gusdote. However, in the Gusdote Statement, Gusdote sought to charge North Queensland, beyond the amounts admitted to have been received, with the amounts advanced by various lenders on the security of the mortgages of the Disputed Parcel, which amounts were unknown to Gusdote. It appears, however, from the evidence before the Registrar, that amounts in excess of $3,500,000 were advanced on the security of the mortgages of the Disputed Parcel. In addition, the Gusdote Statement objected to a significant number of payments claimed by North Queensland in the Accounting. The grounds of the objections were generally that, for various reasons, there had been no benefit to Gusdote from the payments.

19        The Registrar disallowed seven payments amounting to $33,522.71, leaving payments totalling $1,241,301.44. However, there were numerous other payments that were disputed by Gusdote that were not disallowed by the Registrar. The receipts remained unchanged at $861,212.54. The balance was an amount of $380,088.70 in favour of North Queensland. Accordingly, on 23 September 2011, the Registrar certified, under Rule 30.55(2) of the Federal Court Rules 2011 (the Rules), that the outgoings and expenses incurred or paid for by North Queensland exceeded the benefits received by North Queensland in the sum of $380,088.70.

20        On 30 September 2011, Gusdote filed an interlocutory application seeking orders that the Registrar’s certificate be set aside and that the account to be given by North Queensland be given in accordance with principles stated in the application. Gusdote claimed that the only sums for which North Queensland was entitled to be credited and to charge against Gusdote were moneys that were actually and reasonably incurred by North Queensland in and about the acquisition of the Disputed Parcel (if and insofar as North Queensland did in fact pay money to Gusdote in connection with such acquisition) and the holding (meaning payment of statutory charges, insurance and physical maintenance or improvements) of the Disputed Parcel.

21        On 4 November 2011, Gusdote filed an amended interlocutory application seeking, in addition, an order that the account to be taken pursuant to the order made on 30 May 2011 be taken for the purpose of quantifying the sum, if any, for which North Queensland is entitled to a lien in its capacity as a trustee of the Disputed Parcel for Gusdote. By the amended application, Gusdote claimed that, in taking such account, North Queensland should be credited only with moneys in fact expended in the proper execution of its duties as trustee of the Disputed Parcel for Gusdote, and should be charged with having received as benefits derived in its capacity as such trustee all sums payable as purchase money under any sale, and all moneys secured by any mortgage, of the Disputed Parcel, whether those sums were in fact actually received by North Queensland personally or not.

22        The orders made on 30 May 2011 included the reserving of liberty to each of Gusdote and North Queensland to apply to the Court, in relation to any matter arising in the taking of the account, or to request the Registrar to refer any such matter to a judge of the Court. Clearly enough, questions of principle were raised by the Gusdote Statement. Unfortunately, notwithstanding the reservation of liberty, no such question was referred to the Court prior to the Registrar’s certificate of 23 September 2011.

23        Accounts are dealt with in Division 30.5 of the Rules. The Rules did not come into force until 1 August 2011. Accordingly, the Rules had no application to this proceeding when the order of 30 May 2011 was made. However, under Rule 1.04(2), the Rules apply to any step in a proceeding that was started before 1 August 2011, if the step was taken on or after that date. All steps in relation to the taking of the account by the Registrar were taken after 1 August 2011, and the Rules must be taken to have applied to those steps.

24        Under Rule 30.51, a party who has claimed an account, or makes a claim that involves taking an account, may apply to the Court for an order that an account be taken and for the manner of taking or vouching the account. Under Rule 30.53, if a party seeks to charge an accounting party with an amount not mentioned in the accounting party’s account, the party must give the accounting party notice of the charge. The notice must state, to the extent that the party is able, the amount the party seeks to charge and brief details about the amount. Rule 30.55 provides that a party may apply to the Court for an order that the Registrar take an account or hold an enquiry under Division 30.5. If the Court makes an order to that effect, the Registrar must take the account and give a certificate to each party stating the amount due to any party and the person liable to pay the amount.

25        Under Rule 30.56, a party who wants to object to a Registrar’s certificate must, within seven days after receiving the certificate, give the Registrar a notice objecting to the certificate and serve a copy of the notice on each other party. Rule 30.57 then provides that the party who has given notice under Rule 30.56 must, within 21 days after giving notice, apply to the Court for an order that the Court take the account or hold the enquiry. Rule 30.58 provides that, if no notice has been given under Rule 30.56, the accounting party may apply to the Court for a judgment on the Registrar’s certificate and any other consequential orders. No notice objecting to the Registrar’s certificate of 23 September 2011 was filed as contemplated by Rule 30.56. Nor has there been any application under Rule 30.58 for judgment on the Registrar’s certificate.

26        Gusdote’s interlocutory application was originally filed in Court on 30 September 2011. When the matter came before me once more in February 2012, counsel for North Queensland, acting on instructions from its liquidator, indicated that no objection would be taken to the treating of Gusdote’s interlocutory application as a notice of objection to the Registrar’s certificate. Counsel for Gusdote embraced the proposal that the interlocutory application should be treated in that way. In the circumstances, that is the appropriate course to take. The question of the account is therefore now before the Court.

27        Gusdote, when the matter came before me in February, also applied for amendment of the order made on 30 May 2011 to provide that the account extend to all outgoings and expenses incurred or paid by North Queensland in its capacity as trustee for Gusdote, in accordance with the principles set out in the interlocutory application, so as to identify the moneys, if any, for which North Queensland is entitled to indemnify itself or to pay or discharge out of the Disputed Parcel, as trust property, in accordance with s 72 of the Trusts Act 1973 (Qld). Counsel for North Queensland did not wish to be heard in opposition to that amendment, other than to object on the basis that what was sought by Gusdote was a substantive variation to an order that was final in nature, and that had been effected and acted upon.

THE DISPUTED RECEIPTS AND PAYMENTS

28        Gusdote contends that North Queensland should account for the amounts of the advances made on the security of the mortgages of the Disputed Parcel. It also disputes payments that may be grouped into the following categories:

(a)    interest, charges and other expenses paid by North Queensland under the mortgages of the Disputed Parcel;

(b)    cost connected with the transfer of the Disputed Parcel from Gusdote to North Queensland;

(c)    proceeds from the sale of part of the Disputed Parcel;

(d)    expenditure incurred by North Queensland in connection with the Thuringowa Sports Facilities Unit Trust;

(e)    expenses incurred by North Queensland in entering into a lease of part of the Disputed Parcel to River City Group;

(f)    fees and expenses paid by North Queensland to its administrators and subsequently to its liquidators for investigating North Queensland’s affairs, preparing reports to creditors and to the Australian Securities and Investments Commission, convening and holding meetings of creditors and calling for, receiving and, considering and dealing with proofs of debt; and

(g)    legal costs, expenses and disbursements incurred by North Queensland to various solicitors, including legal costs and expenses incurred by North Queensland in contesting Gusdote’s right to recover legal title to the Disputed Parcel in this and the earlier proceeding and the legal costs incurred by North Queensland in the taking of the account.

29        Gusdote contends that, when the order for the taking of the account was made, it was made in the context of an accounting to Gusdote in respect of North Queensland’s acting as a bare trustee under a constructive trust for Gusdote. Thus, it says, the order made on 30 May 2011 should be understood as an order for the taking of accounts between trustee and beneficiary, with all the consequences that that entails, and not merely for the taking of accounts as between debtor and creditor. Gusdote says that the Registrar misunderstood his role and took the account as if it were a common account between a debtor and a creditor.

30        Gusdote urged before the Registrar that the question of whether or not a particular receipt or payment was made for the benefit of Gusdote should be resolved by the Registrar, and that the Registrar should determine whether many of the payments ought to have been made or incurred, having regard to North Queensland’s role as a constructive trustee. However, the Registrar perceived his role under Rule 30.55 as requiring the resolution of two predominant issues in relation to each receipt or payment as follows:

    whether the particular item could be vouched for; and

    whether the particular receipt or outgoing was made in connection with the acquisition or holding of the Disputed Parcel.

That is to say, the Registrar perceived his task as being more clinical than that proposed by Gusdote. While he accepted that the declaration made by Cowdroy J on 11 June 2010 gave important context to the order of 30 May 2011, it was not apparent to the Registrar that the latter order required him to make a value judgment in relation to whether or not a particular receipt or outgoing was made to benefit Gusdote. He approached his task on the basis that any consideration of whether a receipt or outgoing was properly incurred related to the issue of whether or not it was truly in connection with the acquisition or holding of the Disputed Parcel. The Registrar did not accept that he should determine the question of whether or not any particular outgoing was made for the benefit of Gusdote.

31        Gusdote accepts that expenses properly incurred include rates, insurance premiums and similar outgoings in relation to the trust estate, the expenses of maintaining and responsibly improving the trust estate, and compliance with certain legal obligations. It contends, however, that expenditure not proved by North Queensland to have been incurred either for Gusdote’s benefit, as sole trust beneficiary, or to discharge a statutory obligation binding the trust, is not properly incurred in discharge of the trust, and therefore is not of a kind that would attract any indemnity from the trust estate. It also contends that North Queensland bears the onus of proving that any particular item of expenditure was properly incurred.

32        North Queensland, on the other hand, contends that there was no suggestion within the terms of the order of 30 May 2011 that the account was required to be taken on the wilful default basis. Thus, there was no stipulation in the terms of the order that North Queensland was to account not only for actual receipts and expenditures, but also for allowances or adjustments reflective of what ought to have been received or expended in some hypothetical scenario, such as, for example, upon the assumption of absence of a breach of duty on the part of North Queensland.

33        North Queensland contends, therefore, that the approach now adopted by Gusdote would require a substantial departure from the order of 30 May 2011 and that such an approach is no longer open to Gusdote. The parties to the account, it says, are bound by the orders made, and are not to be permitted to depart from those orders, once perfected. North Queensland contends that what amounts to a final order for the taking of an account in common form cannot be subsequently elevated, at least after the order has been perfected, into a form that would require the account to be taken on the more onerous wilful default basis.

34        Gusdote says that the “finality principle” relied upon by North Queensland is irrelevant. It says that the taking of the account is an interlocutory matter, the outcome of which will ultimately be referred to the Court for the making of final orders. Gusdote also says that the “wilful default” question is a false issue. It says that on the taking of the account on the ordinary basis, the party to whom the account is given is entitled to surcharge and falsify the account, and that an order for taking the account on the basis of wilful default is not an indispensable pre-condition to the right of the non-accounting party to surcharge and falsify the account.

35        Clearly enough, there is a distinction between taking an account as to actual receipts and expenditures, on the one hand, and taking an account as to what receipts and expenditures ought to have been made or received. As I have said, the former was the course adopted by the Registrar, except as to the amounts advanced on the security of the mortgages. It is a matter for the Court to determine the latter. That is to say, questions of principle as to whether an allowance should or should not be made were intended for the Court. The account is, in any event, now properly before the Court. In essence, apart from the possible failure to address the question of the amounts advanced on the security of mortgages of the Disputed Parcel, there was no error in the approach adopted by the Registrar.

36        I shall deal in principle with the receipts and expenditure that are disputed. For the most part, the position of North Queensland is that the contentions advanced on behalf of Gusdote in relation to specific receipts and payments are not open to Gusdote, for the reasons outlined above.

The Advances under the Mortgages

37        North Queensland accepts that the order of 30 May 2011 required it to bring into account any funds raised on the security of any mortgage of the Disputed Parcel that were received and applied for North Queensland’s benefit. Two such amounts of $243,530.00 and $136,480.00 received on 4 June 2007 were in fact brought into account. The first amount was part payment of the purchase price for the Disputed Parcel and was paid to Gusdote. The second payment was stamp duty charged upon the contract for sale and transfer of the Disputed Parcel to North Queensland. Clearly enough, North Queensland must account for the first amount, but Gusdote must make an allowance in respect of the same amount in so far as it received that amount in part payment of the consideration for the transfer. The second amount, however, was not applied for the benefit of Gusdote and should not be allowed as an expense to North Queensland.

38        North Queensland contends that it was not required to bring into account moneys raised on the security of mortgages over the Disputed Parcel that did not benefit North Queensland, because the moneys were paid to other parties. In any event, North Queensland says, it is not required to bring into account moneys applied for the benefit of third parties, because Gusdote has elected for the gains-based remedy of account rather than for the loss-based remedy of equitable compensation. To the extent that Gusdote seeks recompense for having to pay something more to discharge the mortgages than has been brought into account as funds raised on the mortgages, North Queensland says that the appropriate remedy would have been equitable compensation and that, unless and to the extent that North Queensland was actually a beneficial recipient of funds raised on the security of the relevant mortgages, the moneys raised do not constitute a gain susceptible of disgorgement by North Queensland through the equitable remedy of account.

39        North Queensland says that a loss-based remedy, such as equitable compensation, is only available in the alternative to the gains-based remedy of account, and that, having elected for the remedy of account, it is no longer open to Gusdote to seek recompense for losses that might have fallen within the scope of an allowance of equitable compensation. It says that the order of 30 May 2011 merely requires North Queensland to bring into account benefits in fact received by it in connection with the acquisition and holding of the Disputed Parcel during the period in question. North Queensland says that the order did not require it to bring into account all sums required to discharge the mortgages so that Gusdote will have returned to it the Disputed Parcel unencumbered by any mortgage or charge. Therefore, North Queensland says, Gusdote has no legitimate basis for seeking a direction in the terms now sought in its amended interlocutory application.

40        The order of 30 May 2011 called for an account of all benefits received by North Queensland in connection with the acquisition and holding of the Disputed Parcel. The account was not limited to benefits in fact received, whatever that may mean. North Queensland now contends that, because the advances were apparently made to third parties, and North Queensland provided the Disputed Parcel as security only by way of suretyship, it received no benefit from those advances and should not be charged with any amount in respect of the amounts now secured by the mortgages.

41        Gusdote’s response is that a trustee cannot claim a lien unless it proves that the moneys for which the lien is claimed were properly expended in the execution of the trust. It says that North Queensland has not proved that it properly applied any moneys raised on the securities of mortgages of the Disputed Parcel in the execution of the constructive trust declared. It says that, if North Queensland wishes to assert a lien, it must advance a proposal for determining the extent that moneys expended by North Queensland were in fact properly expended in the execution of the trust.

42        The substantial question is whether Gusdote should receive the fruits of the Disputed Parcel, including the money borrowed on the security of the Disputed Parcel. In substance, the amount advanced by the mortgagees on the security of the Disputed Parcel falls to be characterised as the fruits from the holding of the Disputed Parcel. Whether or not the money borrowed was actually received by North Queensland is not to the point. The fact of the matter is that North Queensland obtained the benefit of raising money on the security of the Disputed Parcel. What it did with the funds raised is a matter for North Queensland, not Gusdote.

43        There is presently no evidence before the Court as to the precise amount secured by the mortgages or whether the borrowers who are primarily liable to repay the loans are in a position to do so. If they are, a significant issue between the parties might evaporate. North Queensland may be entitled to require the borrowers to repay the loans. If the mortgagees were to enforce the security against the Disputed Parcel, North Queensland may be subrogated to the rights of the mortgagees against the principal borrowers. Of course, if the principal borrowers are unable to repay the loans or to indemnify North Queensland, there will have been a very significant detriment to Gusdote, in so far as the value of the Disputed Parcel will have been diminished by the amount secured by the mortgages.

44        It may be that the granting of the mortgages over the Disputed Parcel by North Queensland involved breaches of fiduciary duty by the directors of North Queensland. It may be that North Queensland, in addition to any rights that it may have against the principal borrowers of the advances made under the mortgages, also has rights of indemnity against any director who acted in breach of a fiduciary duty. It may also be that all of those rights, both against the principal borrowers and against the director, are benefits for which North Queensland would be required to give credit in the taking of accounts, to the extent that North Queensland is unable to reconvey the Disputed Parcel free of the encumbrances created by North Queensland.

45        Whatever the position may be in relation to those rights, North Queensland, for whatever reason and for whatever consideration, created the encumbrances that now subsist. Advances were made by the mortgagees on the security of the mortgages. The fact that North Queensland did not secure for itself the indemnity to which it would be entitled if the principal borrowers failed to discharge the obligations secured by the mortgages is not a matter that should be of concern to Gusdote. North Queensland received the benefit of an unencumbered title to the Disputed Parcel. It must account for that benefit to Gusdote, irrespective of the extent to which it may have dissipated that benefit after it was received. North Queensland must account for the unencumbered value of the Disputed Parcel, as in substance claimed in the Gusdote Statement. The interest and other expenses payable under the mortgages and secured by them must be treated in the same way.

Expenses of Transfer

46        The costs and expenses, including stamp duty, incurred by North Queensland in connection with the transfer of the Disputed Parcel were not expenses properly incurred in the preservation and holding of the Disputed Parcel. North Queensland is not entitled to an allowance in respect of those expenses. It may be, of course, that, if any contract relating to the transfer of the Disputed Parcel were set aside, North Queensland would be entitled to a refund of the stamp duty. That question, however, has not been explored in the proceeding.

Proceeds from Sale of Part of the Disputed Parcel

47        North Queensland accepts that it sold part of the Disputed Parcel. It says, however, that the net proceeds of sale were included in the receipts taken into account by the Registrar. Gusdote, on the other hand, claims that, insofar as the area of land now capable of restoration is less than the total area originally held on trust for Gusdote, North Queensland must account to Gusdote for the gross value of that area of land originally held which it now cannot restore to Gusdote. There has not been any suggestion that the part of the Disputed Parcel that was sold was disposed of at an undervalue. The costs and expenses reasonably incurred in connection with the disposition of that part would be allowable expenses of North Queensland.

The Thuringowa Sports Utilities Trust

48        Various items in the Accounting ostensibly involved legal fees paid by North Queensland to solicitors in relation to matters such as the proposed subdivision of the Disputed Parcel, and a trust known as the Thuringowa Sports Facilities Unit Trust, which was apparently established in connection with that proposed subdivision. Gusdote asserts that it had no connection with the trust and that any expenditure incurred by North Queensland in connection with the trust was not properly allowable. North Queensland contends that the evidence available to the Registrar permitted him to conclude that each of the relevant payments was made in connection with the holding of the land, and that the process by which the trust was established was clearly connected with North Queensland’s ongoing ownership of the Disputed Parcel. I consider that, insofar as the trust was established in connection with the disposition of part of the Disputed Parcel, it should be treated as an expense of the realisation of part of the Disputed Parcel.

Lease of the Disputed Parcel

49        It appears that the Registrar disallowed the expense in respect of a lease apparently granted to River City Group. It is curious, therefore, that Gusdote seeks to reopen the Registrar’s conclusion. There is no reason for reaching a conclusion different from that reached by the Registrar.

Administrators’ and Liquidators’ Costs

50        The Registrar accepted that the general cost of the administration and subsequent liquidation of North Queensland were appropriate to be brought into account as outgoings that were sufficiently in connection with the holding of the Disputed Parcel to fall within the requirements of the order made on 30 May 2011. Gusdote asserts that North Queensland has no entitlement to claim indemnity for operating and management expenses, such as rent, office overheads, wages paid to staff, directors’ fees, accounting and audit fees. It further says that the fees and expenses charged by the administrators and liquidators are not properly chargeable by North Queensland in the taking of the account. Gusdote says that such matters are outside the due administration of a bare trust of the Disputed Parcel for Gusdote. It invites the Court to accept the analogy of a thief returning stolen property to the true owner, which circumstances, it contends, do not give rise to any obligation on the true owner to pay the expenses incurred by the thief in returning the property to the true owner.

51        North Queensland, on the other hand, contends that its activities during the period in question were limited exclusively to the care, preservation, development and realisation of the Disputed Land. It says that the general cost of administration or liquidation of a corporate trustee may, in such circumstances, be considered to be sufficiently connected with the trust property to be recoverable in the exercise of the corporate trustee’s right of indemnity from the trust property.

52        I consider that a distinction should be drawn between the costs of the day-to-day operations of North Queensland, on the one hand, and the costs and expenses incurred specifically in connection with the process of administration and liquidation, on the other hand. That is to say, costs and expenses involved in the day-to-day operation of the affairs of North Queensland, even after administration and liquidation, since they were directed solely to the holding of the Disputed Parcel and the realisation of the benefit of that holding, should be allowed. On the other hand, costs and expenses incurred in relation to such matters as reporting to the creditors and convening meetings of creditors, and other expenses attributable to the administration and liquidation aspects of the affairs of North Queensland, should not be allowed against the value of the Disputed Parcel.

Legal Costs

53        North Queensland is entitled to bring into account and claim an indemnity in respect of legal costs, expenses and disbursements properly incurred in and about the discharge of its duties as constructive trustee of the Disputed Land. It is not entitled to indemnity in respect of its costs of this proceeding, including the taking of the account, or of the earlier proceeding before Cowdroy J.

CONCLUSION

54        I have endeavoured to resolve the questions of principle raised in the taking of the account. There are still further enquiries to be made before there can be a final resolution. I propose to direct the parties to confer with a view to agreeing on the amounts that should be allowed, in the light of the views expressed above. If agreement cannot be reached, it will be necessary to formulate terms of reference for a further enquiry by a Registrar of the Court.

Associate:

Dated:    28 March 2012