Federal Court of Australia

Fairfield Pastoral Holdings Pty Ltd v Ridge Estate Pty Ltd (No 3) [2021] FCA 292

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 59B of the Trustee Act 1936 (SA), the First Applicant is granted power to sell the land comprised and described in Certificate of Title Register Book Volume 5956 Folio 695, being Lot 2, 252 Piney Ridge Road, Brukunga, South Australia (Lot 2 Property), such sale to be in accordance with the following terms:

(a)    the First Applicant is to take all reasonably required steps to sell the Lot 2 Property by public auction including, but not limited to, the appointment of a real estate agent and a registered auctioneer;

(b)    the First Applicant is to obtain a valuation of the Lot 2 Property by a registered valuer and, upon receipt of the valuation, is to apply to the Court for the setting of a reserve price for the sale of the Lot 2 Property by public auction (the Reserve Price);

(c)    the First Applicant must not sell the Lot 2 Property for less than the Reserve Price without the leave of the Court;

(d)    if, at a public auction of the Lot 2 Property, the Reserve Price is not reached, the property is to be passed in and the First Applicant is to take all steps reasonably required to sell the Lot 2 Property by further public auction or by private treaty at or above the Reserve Price;

(e)    if the Lot 2 Property is sold at public auction or by private treaty, the First Applicant shall, on settlement of the sale of the Lot 2 Property, pay the proceeds of sale in the following manner:

(i)    first, all outstanding amounts owing on any mortgage secured on the Lot 2 Property and any amount secured by caveat;

(ii)    secondly, its costs and expenses incurred in relation to the sale of the Lot 2 Property, such costs and expenses not to include its legal costs in making the application to this Court; and

(iii)    thirdly, any net surplus be paid into the Federal Court Litigants’ Fund Account and held until further order of the Court following the resolution of the claims by the parties or any third parties to any proprietary interest in the Lot 2 Property and the priority thereof and any interest on the funds is to accrue to the benefit of the account in this Action.

(f)    Andrew Hamilton, or his nominee, is granted leave to bid, and purchase the Lot 2 Property, at any public auction.

2.    On the Applicants’ interlocutory application of 17 December 2021:

(a)    pursuant to r 5.23(1) of the Federal Court Rules 2011 (Cth) the claims made in [8]-[13], [14]-[16], [17]-[21] and [30]-[33] of the Second Statement of Cross-Claim be dismissed;

(b)    the remaining applications are dismissed; and

(c)    the question of costs is reserved.

3.    The costs of the interlocutory application filed on 4 September 2020, as amended on 8 February 2021, be reserved, including as to whether the Applicants may be paid the costs of the application out of the funds paid into Court.

4.    The matter be adjourned to the case management hearing at 12 noon (ACDT) on Wednesday, 31 March 2021.

5.    There be liberty to the parties to apply.

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

REASONS FOR JUDGMENT

WHITE J:

1    This is a judgment on two interlocutory applications: one seeking an order for the judicial sale of land and the other seeking the entry of judgment by default.

2    The applicants for the judicial sale order and the default judgment are Fairfield Pastoral Holdings Pty Ltd (FPH) and Fairfield Pastoral Holdings No 1 Pty Ltd (FPH No 1).

3    The circumstances of the underlying proceedings are set out in an earlier interlocutory judgment: Fairfield Pastoral Holdings Pty Ltd v Ridge Estate Pty Ltd (No 2) [2020] FCA 312 which concerned the respondents’ application for an order that the applicants provide security for their costs. I will not repeat those circumstances, save to the extent to which it is necessary to do so, in order to indicate the setting for the present application.

Factual setting

4    FPH was registered on 2 February 2015. Its two principal shareholders are Andrew Hamilton, a cardiologist, and Cradle Estate Pty Ltd, a company associated with, and controlled by, the second respondent, Steven Philip Van Niekerk (to whom I will refer as “Steven”). The applicants allege that Mr Hamilton and Steven agreed to establish FPH to pursue the strategic acquisition of rural properties.

5    FPH No 1 is a wholly owned subsidiary of FPH.

6    Mr Hamilton is the sole director of both FPH and FPH No 1.

7    The four respondents in the proceedings are Ridge Estate Pty Ltd (Ridge Estate), Steven, Philip Frederick Van Niekerk (Philip) and Brenda Lynn Van Niekerk (Brenda). Steven is the son of Philip and Brenda. The sole share in Ridge Estate is owned by Andrew John Van Niekerk, who is also a son of Philip and Brenda. For much of the period relevant to these proceedings, Philip has been the sole director of Ridge Estate.

8    Steven has deposed that he was appointed a director of Ridge Estate on 8 February 2021, but at the time of the hearing of the interlocutory applications on 23 February 2021, that appointment had not been registered with ASIC.

9    Steven was declared bankrupt on 26 June 2014 and discharged from that bankruptcy on 17 June 2017.

10    Mr Hamilton and Steven have fallen into dispute in several aspects of their relationship. The dispute became manifest in mid-2018, with a complete breakdown of the relationship from at least October 2018.

11    FPH and FPH No 1 make multiple claims in the proceedings against the respondents. Ridge Estate and Steven have commenced a cross-claim against FPH, Mr Hamilton and FPH No 1. It is not necessary for the purpose of the resolution of the present applications to outline all the claims and cross-claims.

The background to the application for judicial sale

12    Ridge Estate is the registered proprietor of Lot 1, 252 Piney Ridge Road, Brukunga in South Australia (Lot 1). Early in 2016, the neighbouring property (Lot 2, 252 Piney Ridge Road, Brukunga (Lot 2)), became available for purchase. Both Lot 1 and Lot 2 are rural properties. The applicants allege that Steven wished to acquire Lot 2 but at that time he was still an undischarged bankrupt.

13    The applicants assert that Mr Hamilton and Steven agreed upon an arrangement by which:

(a)    a trust known as the Piney Ridge Trust (the Trust) would be established;

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

(c)    FPH, in its capacity as trustee of the Trust, 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 $60,000 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.

14    FPH was also to raise $182,130 from NAB by way of an Equipment Loan and Goods Mortgage (the Equipment Loan). The evidence about the Equipment Loan is incomplete but it seems that Steven, Philip and Ridge Estate transferred equipment used (at least in part) on Lot 1 to FPH in its capacity as trustee of the Trust so that it could provide the required security to NAB.

15    In addition, Mr Hamilton agreed to provide a personal guarantee to NAB in respect of FPH’s indebtedness to it.

16    The applicants assert that part of the arrangement between Mr Hamilton and Steven was that Steven would, within a short period, arrange refinancing of Lots 1 and 2 so as to repay the amounts advanced by FPH and to discharge FPH’s indebtedness to NAB (which would also involve a release of Mr Hamilton’s guarantee).

17    On or about 8 April 2016, FPH was appointed the trustee of the Trust. Brenda was the appointor and is named as the primary beneficiary of that Trust.

18    FPH completed settlement on the purchase of Lot 2 on 8 April 2016. It asserts that it did so in accordance with the arrangements described above, borrowing $525,000 from NAB secured by a mortgage over Lot 2 (the NAB Mortgage) and by taking out the Equipment Loan. The respondents’ defence denies the arrangements for the purchase of Lot 2 summarised above, but there does not seem to be any dispute that FPH did purchase Lot 2 as trustee for the Trust and that it took out the NAB Mortgage with which to do so.

19    The applicants claim that Steven, Philip and Ridge Estate have failed or refused to obtain the refinancing contemplated by the agreement in 2016 so as to make the repayments to NAB and to secure the discharge of the NAB Mortgage.

20    On 9 May 2018, FPH No 1 entered into a loan agreement with Robert Lorefice for $169,339.33. Further, by a Deed of Guarantee and Indemnity dated 18 October 2018 between Mr Lorefice, Mr Hamilton, FPH in its own capacity and as trustee of the Trust, FPH No 1 and Veranda Interiors Pty Ltd, FPH in its own capacity and as trustee of the Trust guaranteed the liabilities and obligations of FPH No 1 pursuant to the loan from Mr Lorefice and pursuant to a loan from Veranda Interiors to FPH No 1. The material before the Court concerning the loans from Mr Lorefice and Veranda Interiors is incomplete. Counsel’s submissions indicated that each of Mr Lorefice and Veranda Interiors have lodged caveats on the title to Lot 2 to protect their respective interests. The submissions also indicated that Veranda Interiors is controlled by Mr Hamilton.

21    By a document entitled “Deed of Appointment or Removal of Trustee” (the Removal Deed) which bears the date 4 October 2018, Brenda exercised her power as Appointor of the Trust and removed FPH as trustee. She appointed Ridge Estate in its place. The applicants assert that the Removal Deed was not served on FPH but Mr Hamilton has acknowledged being informed of it by NAB on 26 November 2018.

22    The respondents have directed FPH to convey Lot 2 to Ridge Estate and assert that it has been in breach of its duty in failing to do so. They also assert that FPH has “stymied” them in refinancing the existing NAB debt by refusing to authorise NAB to deal with them.

23    As will be described shortly, the applicant contends that the Removal Deed is voidable under s 86 of the Law of Property Act 1936 (SA) (the LoP Act). Acting on that view of the matter, FPH has not transferred the title to Lot 2 to Ridge Estate. The evidence indicates that NAB would not give its consent to such a course in any event in the absence of the discharge of the indebtedness to it or some other satisfactory arrangement securing that indebtedness.

24    Mr Hamilton deposes that it is FPH which has, since 8 April 2016, serviced the debt to NAB and that, since March 2019, it has done so making use of funds loaned to it by the trustee of the Hamilton Family Trust. Steven deposes that he also has made payments to NAB to clear arrears and instalments in the repayments, but the applicants dispute the accuracy of that claim. Mr Hamilton maintains that neither Ridge Estate nor Steven have made any contribution towards the NAB debt.

25    Some income has been generated from Lot 2 (from agistment and from the sale of hay). I understand that the net proceeds of that income may have been applied in payment of other expenses incurred by the Trust. The amounts involved seemed to be relatively minor and it is not necessary for present purposes to detail the evidence about this. There is a dispute about Steven’s use, or purported use, of Lot 2 for income generating purposes. It is not necessary for present purposes to refer to the details concerning that dispute either. I also note that there is evidence that Ridge Estate made a loan to the Trust on 18 October 2018, by transferring $8,300 to its account. Mr Hamilton accepts that that payment was made. It seems to be the only payment made by Ridge Estate to the Trust.

26    The bank statements provided by FPH seem to support Mr Hamilton’s claim that, from 8 January 2019 to 4 September 2020 when FPH filed its interlocutory application, FPH has been the source of the funds used for the monthly repayments of the NAB Mortgage. There is no indication in the bank statements of there having been any other source of those funds. The respondents have not contested Mr Hamilton’s assertion that FPH has derived the funds used for the monthly instalments from funds loaned to it, including funds loaned by the trustee of the Hamilton Family Trust.

27    FPH has asserted an entitlement to exercise a right of indemnity in respect of the amounts it has outlaid in its capacity as trustee.

28    In 2019, FPH took steps directed to the sale of Lot 2 in an apparent attempt to enforce the claimed indemnity, but this led to further disputes between the parties, in particular, a dispute as to whether FPH, having been removed as trustee, was entitled to exercise a power of sale. In the events which happened, an attempt by FPH to sell the property by auction was unsuccessful. Such negotiations as have occurred between the parties since then have come to nought.

29    FPH filed its interlocutory application seeking an order for judicial sale, and the supporting affidavit of Mr Hamilton, on 4 September 2020. It had foreshadowed bringing the application at the case management hearing (CMH) on 21 August 2020. At the CMH held on 4 September 2020, the respondents were directed to file and serve any affidavits to be relied upon in response by 18 September 2020 and the application was listed for hearing on 9 November 2020. The respondents did not file any affidavits in accordance with that order.

30    On 9 November 2020, the respondents sought an adjournment of the hearing in order to give them time to investigate whether they could obtain finance with which to buy out, at the least, the interests secured over Lot 2. Although that application was made very late, FPH did not oppose the adjournment and it was granted. The respondents were then directed to file and serve any affidavits to be relied upon with respect to the potential for refinancing or the sale of Lot 2 by 27 November 2020. They did not comply with that direction and, on 2 December 2020, the respondents’ solicitors filed a Notice of Ceasing to Act, having terminated their retainer by the respondents on 24 November 2020.

31    Steven appeared in person at the CMH on 2 December 2020. He expressed some confidence that the respondents would be able to obtain finance with respect to Lot 2 with a view to resolving the applicants’ judicial sale application. The Court adjourned the applicants’ judicial sale application to 22 December 2020 for a CMH, noting that it expected the respondents to inform the Court then of their intentions with respect to obtaining finance with which to buy out the interests secured by Lot 2.

32    On 17 December 2020, the applicants filed their interlocutory application seeking judgment in default by reason of the respondents’ failure to comply with the Court’s orders concerning discovery.

33    The respondents appeared without legal representation at the hearing on 22 December 2020. Senior counsel for the applicants pressed for the judicial sale application to be listed again for hearing. He said that the applicants had not been provided with any further information regarding the respondents’ obtaining of finance. Steven said that the respondents had been trying to obtain finance and had been trying to negotiate with the applicants about that. There seemed to be a dispute about what may have occurred.

34    The Court listed the judicial sale and default judgment applications for hearing on 5 February 2021 and directed that any affidavits to be relied on by the respondents were to be filed and served by 15 January 2021. No affidavits were filed.

35    The respondents were without legal representation from 24 November 2020 until 28 January 2021 when Hume Taylor & Co Lawyers filed a Notice of Acting. On 1 February 2021, the respondents sought an adjournment of the 5 February hearing, principally because the solicitors had only recently been instructed. The Court acceded to that application, but not for the period of four weeks sought by the respondents. Both the judicial sale and default judgment applications were adjourned to 23 February 2021 and both were heard on that date.

The basis of the application for judicial sale

36    By its interlocutory application of 4 September 2020 (since amended), FPH seeks an order in equity for the judicial sale of Lot 2 or, alternatively, an order under s 59B of the Trustee Act 1936 (SA) that it be granted power to sell Lot 2. It then seeks orders directed to the manner of sale, including the appointment of a real estate agent to sell the property by public auction, the obtaining of a valuation, the setting of a reserve price and payment of the sale proceeds (less the debt secured by the mortgage and the costs and expenses of sale) into the trust account of the applicants’ solicitors pending the resolution of the disputes between the parties.

37    The respondents assert that FPH has been lawfully removed as trustee of the Trust, that it has no right to retain or sell the property, that any attempt to do so would be a breach of trust, that FPH should desist from the attempts to sell the property which it made in 2019, and should transfer Lot 2 to Ridge Estate. By their cross-claim, they seek an order that FPH transfer Lot 2 to Ridge Estate and/or cause title to the assets of the Trust, including Lot 2, to be amended to include Ridge Estate. FPH on the other hand seeks the declaration to which I referred earlier, namely, a declaration that its removal as trustee was a conveyance made with intent to defraud creditors within the meaning of s 86 of the LoP Act and is accordingly void.

38    In the meantime, the parties have not been able to come to any agreement with respect to the discharge of FPH’s indebtedness to NAB, satisfaction of its claimed right to indemnity, or to the sale of Lot 2. FPH continues to make the payment of the monthly instalments to NAB (which were $3,074.89 per month until April 2020 when they reduced to $2,631.83 per month).

39    As at 4 February 2021, FPH’s indebtedness to NAB in respect of the Trust was $476,955.64 (secured by the NAB Mortgage) and $122,000 on the Equipment Loan.

40    It is in these circumstances that FPH seeks orders from the Court which would enable the sale of Lot 2 and the payment of the surplus proceeds from the sale into its solicitor’s trust account or into Court to abide the order of the Court in the proceedings.

The claim in equity

41    FPH seeks the order for judicial sale in order to enforce its lien supporting its claim to indemnity in respect of the liabilities it incurred before its removal and subsequently in its protection of the assets of the Trust.

42    In the underlying proceedings, FPH seeks a declaration that the Removal Deed was a conveyance made with intent to defraud creditors within the meaning of s 86 of the LoP Act and therefore void, together with ancillary orders to give effect to that declaration, including an order that the Removal Deed be set aside.

43    This claim for relief is pleaded in [110] in the Further Amended Statement of Claim (FASC), the chapeau to which is as follows:

The Removal Deed was made with an intent to defraud creditors and therefore is voidable at the instance of Fairfield, as party prejudiced thereby, pursuant to section 86 of the [LoP Act].

44    In the particulars which follow, FPH pleads in substance that Steven knew that the applicant had made payments in connection with the purchase of Lot 2 and payments to NAB, that Steven had instigated the replacement of FPH as trustee by Ridge Estate, and that his intention in doing so was “to defraud [FPH] and Hamilton by prevent[ing] them from taking any action in relation to the monies owed to [FPH] … and to otherwise prejudice any attempted recovery of those sums against the assets of [the Trust]”. The FASC goes on to plead in [110] that the Removal Deed is voidable.

45    Section 86 of the LoP Act 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.

46    FPH accepts that the effect of s 86(1), even if intention to defraud is established, will be that the Deed of Removal will cease to have effect only upon the Court making an order that it is void – citing Green v Schneller [2002] NSWSC 671 at [25]-[27] and the authorities cited therein. In particular, FPH accepts that, until such time as the Court makes an order under s 86, it is not the trustee under the Trust Deed.

47    It seemed to be common ground that, since 4 October 2018, FPH has been a bare trustee of the Trust. The position of such a trustee was described by Gummow J in Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281:

[T]he usually accepted meaning of “bare trust” is a trust under which the trustee or trustees hold property without any interest therein, other than that existing by reason of the office in the legal title as trustee, and without any duty or further duty to perform, except to convey it upon demand to the beneficiary or beneficiaries or as directed by them, for example, on sale to a third party.

That is to say, with the exception of the obligation to convey the trust property upon demand to the beneficiaries or as directed by them, the duties, powers and rights of a bare trustee are limited to protecting the trust assets: Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 at [26]. The bare trustee retains its right to indemnity or exoneration. As to such rights generally, see Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth of Australia [2019] HCA 20; (2019) 368 ALR 390 at [29]-[33] (Kiefel CJ and Keane and Edelman JJ). It also retains its lien over the assets of the Trust: Caterpillar Financial at [26]. It is this right and this lien which the applicants seek to enforce.

48    As is well recognised, the lien does not confer a power of sale and, if sale is necessary, a court order for a judicial sale or the appointment of a receiver to sell is required: Apostolou v VA Corporation of Australia Pty Ltd [2011] FCAFC 103 at [45] (Perram, Nicholas and Yates JJ); Jones (liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil and Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40, (2018) 260 FCR 310 at [44] (Allsop CJ). The power to make an order for judicial sale of property has been described as inherent and as being subject to discretionary considerations: King Investment Solutions Pty Ltd v Hussain [2005] NSWSC 1076, (2005) 64 NSWLR 441 at [80]-[81], [119], [134] (Campbell J); Chateau Constructions (Aust) Ltd v Zepinic (No 5) [2010] NSWSC 265 at [72]-[73].

Section 59B of the Trustee Act (SA)

49    FPH relies in the alternative on s 59B of the Trustee Act (SA) which provides (relevantly):

59B—Advantageous dealings

(1)    Where in the management or administration of any property vested in a trustee, any sale, lease, mortgage, surrender, release, or disposition, or any purchase, investment, acquisition, expenditure, or transaction, is in the opinion of the Supreme Court expedient, but cannot be effected by reason of the absence of or defect in any power for that purpose vested in the trustee by the instrument, if any, creating the trust, or by law, the Supreme Court—

(a)    may by order confer upon the trustee, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, including adjustment of the respective rights of the beneficiaries, as the Supreme Court may think fit; and

…

(2)    Subsection (1) of this section shall be deemed to empower the Supreme Court, where it is satisfied that an alteration whether by extension or otherwise of the trusts or powers conferred on the trustee by the trust instrument, if any, creating the trust or by law is expedient, to authorise the trustee to do or abstain from doing any act or thing which if done or omitted by them without the authorisation of the Supreme Court or the consent of the beneficiaries would be a breach of trust, and in particular the Supreme Court may authorise the trustee—

(a)    to sell trust property notwithstanding that the terms of or the consideration for the sale may not be within any statutory powers of the trustee, or within the terms of the instrument, if any, creating the trust, or may be forbidden by that instrument;

…

(3)    The Supreme Court may from time to time rescind or vary any order made under this section, or may make any new or further order.

…

50    The power vested in a court by s 59B is enlivened when it is of the opinion that the authorisation of the trustee (relevantly) to sell trust property is “expedient”. The meaning of “expedient” in this context has been discussed in a number of authorities concerning the interstate counterparts of s 59B. In Riddle v Riddle [1952] HCA 12, (1952) 85 CLR 202, Dixon J at 214 said that “expedient” meant expedient “in the interest of the beneficiaries”. Williams J at 221-2 said that the ordinary natural grammatical meaning of “expedient” is “advantageous”, “desirable” or “suitable to the circumstances of the case” and that the Court “has only to be of the opinion that the trust property as a whole will in fact benefit from the making of the order”. Fullagar J (who was in dissent in the result) at 227 said that the statutory provision should be interpreted liberally so that “all you have to do is see whether a proposed course is … likely to be for the financial advantage of the trust fund, and, if you find it is “expedient” in that sense, give authority for the proposed course” (emphasis in the original). See also Re Dion Investments Pty Ltd [2014] NSWCA 367; (2014) 87 NSWLR 753 at [92].

The respondents’ position

51    The respondents oppose the making of any order pursuant to s 59B of the Trustee Act (SA) but do not oppose orders for a judicial sale, albeit on terms different from those proposed by FPH. Those terms would provide them with a further opportunity to refinance the existing facilities with NAB or, or with NAB’s cooperation, with another financier. They propose that the Court make orders as follows:

…

3.    Within 14 days of the date of this Order, the first applicant:

3.1    shall inform the NAB in writing that it has no objection to the NAB discussing with the respondents or any other lender the refinancing of the existing facilities;

3.2    shall provide to the respondents all books and records of the Piney Ridge Trust, including:

3.2.1    all records required to be kept pursuant to s 84 of the Trustee Act 1936 (SA);

3.2.2    all loan and mortgage agreements that were entered into by the Piney Ridge Trust;

3.2.3    all loan statements issued by the NAB for loans entered into by the first applicant; and

3.2.4    all rates notices for the Lot 2 Property.

4.    In the event that the respondents have not arranged refinancing with NAB or another lender within a period of 60 days of the first applicant’s compliance with order 1, there shall be a sale of the Lot 2 Property by a trustee to be appointed by, and in accordance with terms set by, the Court.

…

6.    Liberty to apply, including to appoint a trustee and set the terms applying to any sale of the Lot 2 Property, if required.

52    In his affidavit of 14 February 2021, Steven deposes that Lot 2, being immediately adjacent to Lot 1 owned by Ridge Estate, has special value to Ridge Estate. He deposes that the two Lots are fenced together as one farming property and that each Lot by itself is too small to be a commercially viable farming property. However, there is some evidence which may suggest that, before the purchase of Lot 2 by FPH, Lot 2 and Lot 1 had been farmed separately while under different ownership.

53    Steven then deposes:

[31]    If given sufficient time, and the sale order is not made, I can assist the current trustee of Piney Ridge Trust by obtaining finance to pay out the NAB loan:

[31.1]    While my preference would be to arrange finance from a first tier lender, I have been arranging funding with a second tier lender which will be sufficient to pay out the NAB loan;

[31.2]    The lender cannot formally approve finance without various documents which I expect to be in the custody of the first applicant from its time as trustee, including, among other things, the rates notices for Lot 2 and the NAB loan documents and statements. I believe the trustee would also have to sign a NAB discharge document to facilitate a refinance settlement and I am not confident that the first applicant will do so, or that it has power to do so after being removed by the appointer;

[31.3]    If I was provided with full records of the trust from the first applicant, I expect it could take 45 days to secure finance approval, but I would respectfully ask for a period of 60 days, as I am told by my solicitor Mr Partridge who practices in property law, and believe, that banks are taking longer than usual to process loans at the moment due to disruptions relating to COVID-19. This would give me a final chance to obtain lending from a first-tier lender;

[31.4]    I am confident that I can obtain finance secured over Lot 2 and the other properties owned by my family and related entities, which would have a very safe loan-to-value ratio and be very unlikely to be declined by a lender;

[31.5]    I think it is in the best interest of the Piney Ridge Trust that Lot 2, the only significant asset of the trust, which has equity above the secured loans and which has significant potential to earn income and capital growth, stay in the trust. I have spoken to the sole named beneficiary, my mother, and her wish is that Lot 2 remain in the trust.

Is the power of sale under s 59B of the Trustee Act (SA) available?

54    The respondents contended that the Court does not have power under s 59B of the Trustee Act (SA) to order the sale. Their first submission was that, by reason of FPH having been removed as the trustee of the Trust, s 59B of the Trustee Act (SA) cannot be invoked to provide a power of sale.

55    This submission faces the difficulty that, in Caterpillar Financial at [28]-[30], Gordon J concluded that the Victorian counterpart of s 59B did provide the Court with power to authorise a bare trustee to deal with trust assets and to apply those assets to meet claims under s 556 of the Corporations Act 2001 (Cth) in the course of the winding up of the company. Her Honour made an order permitting the company, through its liquidator, to sell the assets of the trust in question. Moreover, the approach of Gordon J in Caterpillar Financial was followed by Reeves J in Pleash, in the matter of Sun Coast Restoration Pty Ltd [2013] FCA 355; (2013) 211 FCR 203 at [62]-[63] in relation to s 94(1) of the Trusts Act 1973 (Qld) and by Markovic J in Amirbeaggi, in the matter of Simpkiss Pty Ltd (in liq) [2018] FCA 2121 at [36]-[38] in relation to s 81 of the Trustee Act 1925 (NSW). Both s 94(1) and s 81 are counterparts of s 59B in the Trustee Act (SA).

56    Counsel for the respondents did not attempt to distinguish these authorities. Nor did he submit that they should not be followed.

57    Secondly, the respondents submitted that an order giving FPH the power of sale is not expedient for the management or administration of any property “vested in a trustee” within the meaning of that term in s 59B(1). That was so because, on the removal of FPH as trustee, Lot 2 had ceased to be vested in it. The respondents’ alternative submission was that, if Lot 2 continues to be vested in FPH, that is so only because FPH is in breach of its duty to transfer the property to Ridge Estate as the new trustee.

58    The first part of this submission seemed to be no more than a variant of the first which, for the reasons already given, cannot be accepted.

59    The submission that Lot 2 continues to be vested in FPH only because FPH is in breach of its duty to transfer the property to Ridge Estate as the new trustee also cannot be accepted.

60    It is non-contentious that FPH borrowed funds from NAB to purchase the property and that those borrowings are secured by the NAB Mortgage and a personal guarantee from Mr Hamilton. The Court is entitled to take judicial notice of the fact that NAB’s consent would be required for the transfer and that NAB would be unlikely to give that consent with a release of its securities in respect of the indebtedness unless that indebtedness was discharged, or alternative security, to its satisfaction, provided.

61    This understanding of the position is in any event confirmed by an email from NAB to the solicitor acting for Brenda as Appointor of the Piney Ridge Trust of 29 October 2018 in which NAB said:

I confirm that, in this matter, NAB’s client is [FPH] as trustee for [the Trust] and NAB will not consent to a change in the trustee as such would be considered a default under NAB’s facilities with the trustee.

62    The email chain provided by Steven indicates that the solicitor provided him with a copy of this email from NAB on 22 July 2019. At least on the evidence presently before the Court, the respondents do not appear to have taken any steps in October 2018 to address that circumstance.

63    Having regard to this evidence, the more obvious inference on the evidence is that Lot 2 continues to be vested in FPH because the respondents have not taken any steps to secure the discharge or replacement of NAB’s securities.

64    The respondents submitted, thirdly, that even if its first two submissions were not accepted, an order for sale could not be regarded as expedient for the management or administration of the Trust in the interests of the beneficiaries and that FPH is seeking the order for sale in its own interests.

65    This submission did not arise above assertion as the respondents did not point to any evidence to support it. Moreover, the respondents did not seek to cross-examine Mr Hamilton with respect to FPH’s purpose in seeking the order for judicial sale.

66    Nevertheless, it is obvious that a judicial sale of Lot 2 on the terms proposed by FPH and the discharge of its indebtedness to NAB would be advantageous to both FPH and Mr Hamilton. Counsel for the applicants conceded as much. The former would be relieved of its indebtedness to NAB, including its ongoing liability for the monthly instalments, and the latter would be released from his guarantee. If these were the only advantages to be obtained from a judicial sale, there may be some force in the respondents’ submission. But they are not the only matters. FPH is making the payment of the monthly instalments as part of its obligation to protect the Trust property, that is, to protect it from the exercise of the mortgagee’s power of sale. Further, as counsel for FPH pointed out, so long as the current situation continues, FPH as bare trustee is borrowing the funds with which to meet the obligations it is incurring in relation to Lot 2. It is thereby incurring a liability in respect of which it will be able to exercise its right of indemnity. The extent of FPH’s right of indemnity is thereby increasing and, correspondingly, the extent of the Trust’s indebtedness is increasing. Ridge Estate as the new trustee seems unable to discharge even FPH’s indebtedness to NAB, even though it has had considerable time in which to do so.

67    In my view, it is reasonable for the Court to conclude that it is in the interests of the beneficiaries, and advantageous, desirable or suitable to the circumstances of the case, to bring to an end the state of affairs pursuant to which the Trust’s indebtedness to FPH is increasing. Accordingly, this third objection to the exercise of power under s 59B does not succeed.

68    Finally, the respondents submitted that FPH seeks the power of sale not by reason of an absence of any power for that purpose vested in the trustee by the Trust Deed but because FPH is no longer the trustee.

69    This objection does not succeed. If it was a valid objection, then the order for sale could not have been made in Caterpillar, Pleash and Amirbeaggi.

70    I conclude therefore that it is open to exercise the s 59B power in the present case.

Should an order for judicial sale in equity be made?

71    I am not satisfied that an order for judicial sale should be made on this basis. My reasons can be stated shortly. The 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.

Should the Court order the sale of Lot 2 under s 59B of the Trustee Act?

72    One may readily accept that the respondents would regard it as advantageous for them to have Lot 2 transferred to them or transferred to Ridge Estate to hold on behalf of the beneficiaries of the Trust. However, the respondents have had ample opportunity in which to bring about such a transfer. On one view, they have had that opportunity ever since the acquisition by FPH of Lot 2 on 8 April 2016, given the basis upon which it is said FPH acquired the property. However, it is not necessary for present purposes to make a finding about that possibility, and it is undesirable to do so given that the Court can expect to receive evidence in the trial about those matters.

73    At the very least, Brenda’s removal of FPH as the trustee of the Trust on 3 October 2018 created the circumstance in which the respondents should have addressed satisfaction of FPH’s right of indemnity.

74    Even if that circumstance be put to one side, the respondents have had all the time since FPH foreshadowed the bringing of an application for judicial sale at the CMH on 21 August 2020 and all the time since the filing of FPH’s interlocutory application on 4 September 2020 to attend to matters such as the discharge of the indebtedness of the NAB debt and an arrangement with respect to FPH’s claim as former trustee to indemnity. While the respondents may dispute the extent of FPH’s entitlement to indemnity and assert claims entitling them (or some of them) to a set off, they could have proposed arrangements by which the positions of each party could be protected pending the Court’s determination of the underlying disputes. There is no evidence that they have done so.

75    Further again, the respondents secured the adjournment of the hearing of FPH’s judicial sale application on 9 November 2020 on the basis that they wished to have the opportunity to explore refinancing. It is pertinent that the respondents did not file any affidavits with respect to their potential for refinancing or the sale of Lot 2 as required by the Court’s order of 9 November 2020. Steven has since deposed only that:

[30]    In December 2020 I was negotiating with a lender to obtain finance to pay out the NAB loan. That did not materialise, as around that time I was made aware of the applicants' application for orders to sell the land. I did not have a solicitor acting at that time.

76    As is apparent, Steven did not in that paragraph address the action taken in November 2020 after the respondents had secured the adjournment of the hearing on 9 November 2020 or the action taken thereafter until their solicitors ceased to act on 2 December 2020.

77    Although Steven has raised from time to time the prospect of obtaining finance and has expressed confidence in the respondents’ ability to do so, no firm arrangement had materialised in the evidence before 23 February 2021 when the hearing of the judicial sale application took place. At that hearing, the respondents referred to two steps recently taken by Steven in the pursuit of finance.

78    The first matter appears to have been an informal enquiry by Steven at the NAB branch in Chinchilla, Queensland on 19 February 2021. Unsurprisingly, the employee to whom Steven spoke sought further information within NAB regarding the enquiry.

79    The second appears to have been an application by Ridge Estate to a finance broker, @ Finance Pty Ltd, in Paradise Point in Queensland. That elicited an “indicative offer” dated 19 February 2021 from Oak Capital of a loan of $599,000 secured by a mortgage over Lot 2. The indicative offer was based on Lot 2 having a value of $1.2 million (ie, a loan valuation ratio of 49.95%) and provided for an interest rate of 12.99%. The respondents did not provide evidence of any action taken with respect to the indicative offer, nor any other material which indicated that the “indicative offer” had prospects of becoming the reality.

80    Moreover, as counsel for FPH noted, there appears to be a real question as to whether Lot 2 has a value of $1.2 million, given two matters. The first is that the contract for sale which FPH was able to achieve in 2019 was at a price of $865,000. The second is that the Valuer-General’s valuation of Lot 2 at 1 January 2020 was $690,000 (although that may not have been changed since 1 July 2006). The respondents have not provided a valuation which suggests that the estimated value of $1.2 million can be regarded as realistic. Nor have they provided evidence of an ability to provide any additional security. The very lateness of the steps taken by Steven and the incompleteness of the material provided does not engender confidence that the respondents have realistic prospects of obtaining the finance which the indicative offer was said to suggest would be available.

81    Putting to one side FPH’s reliance on s 86 of the LoP Act, 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.

82    I am not persuaded that the alternative orders proposed by the respondents are appropriate. In relation to the first proposed order, there is no evidence that NAB requires the consent of FPH before it will discuss with the respondents refinancing of the existing facilities (as distinct from the affairs of the Trust or its client, FPH). On the contrary, one would have thought that the respondents could approach NAB with respect to financing a “purchase” of Lot 2 or of FPH’s interest in it, in the same way as any arms-length purchaser. While it is understandable that NAB will not, without FPH’s consent, discuss with others FPH’s affairs, the evidence indicates that the respondents do know the extent of the indebtedness of FPH to NAB. That is because FPH’s solicitor, Mr Elix, has deposed that, as at 4 February 2021, it was $476,955.64 in respect of the NAB Mortgage and $122,000 on the Equipment Loan. Moreover, the respondents have been provided from time to time in these proceedings with the NAB bank statements for the NAB Mortgage and now have those statements for the whole of the period from 7 April 2016 to 30 June 2020. On the evidence presently available, there is no apparent reason why the respondents could not discuss with NAB its requirements with respect to new facilities provided to Ridge Estate with respect to those amounts.

83    Nor have the respondents shown that they need the books or records in the proposed second order in order to raise alternative finance. In particular, the respondents have not produced evidence from a potential financier to that effect. Moreover, Mr Hamilton has deposed that the respondents have been provided with discovery of documents in the proceedings which, in addition to those mentioned above, include the NAB loan agreement, loan agreements between FPH and FPH No 1, the loan agreement between FPH and a caveator, and the deed of guarantee and indemnity. The evidence also suggests that the applicants provided the respondents’ former solicitors with numerous other documents evidencing the relationship between FPH and NAB and between FPH and the Trust, and that this occurred as long ago as March 2019. Despite a submission from the respondents to the contrary, I am satisfied that these documents include the loan agreement between FPH and NAB.

84    I note that Mr Hamilton deposed in his affidavit of 19 February 2021 that the respondents have not, since the filing of the interlocutory application of 4 September 2020, requested any of the documents which they now seek with a view to raising finance.

85    Counsel for the respondents raised issues concerning the conduct of FPH as trustee of the Trust and queried whether all of the indebtedness of FPH to NAB and of the amount for which it claims indemnity are attributable to its activities as trustee. However, by reason of having been briefed only shortly before the hearing, counsel had limited ability to refer the Court to specific matters. In any event, on my present understanding, the matters to which counsel referred do not bear on the extent of the indebtedness to NAB which would have to be discharged or secured to its satisfaction before it would release the securities provided by FPH.

86    In these circumstances, it is not necessary to address the submission of counsel for the applicants concerning the respondents’ purpose in seeking, in relation to the proposed order for sale, the documents kept by FPH pursuant to s 84 of the Trustee Act (SA).

87    The third order proposed by the respondents seemed to amount to an attempt by them to obtain another two months within which to obtain finance. This is so despite the respondents not providing any evidence (other than the indicative offer of 19 February mentioned earlier) such as loan applications, loan approvals, evidence of income available to secure borrowings or evidence of other security, that is, evidence of the kind that the ordinary reasonable financier would require before advancing monies to the respondents. In some respects, the respondents are seeking to achieve the same position which they would be on an adjournment of the applicants’ judicial sale application. Counsel for the respondents conceded as much by submitting that they sought an additional period of time, fully armed with information, to obtain refinancing.

88    I note, again, that FPH has been proposing the sale of Lot 2 since 2019 and yet the respondents seem to have done very little to address the FPH’s indebtedness to NAB in respect of the Trust. This includes the periods during which they have had legal representation.

89    An affidavit of Steven (filed 14 February 2021), raises the assertion that Lot 2 has been poorly managed which may be reflected in the price able to be obtained for it on a judicial sale. That is not a matter which can be resolved on the present application, especially as it does not rise above assertion by Steven. I do not regard this as a factor warranting the conclusion that judicial sale at this time would be inappropriate.

90    In my view, it is expedient that the continued incurring of liabilities which the beneficiaries will have to meet ultimately from the trust assets is brought to an end. Accordingly, I am satisfied that the order for judicial sale should be made.

91    At the hearing on 23 February 2021, counsel for the respondents submitted that the sale of Lot 2 should be conducted by a trustee appointed by, and in accordance with terms set by, the Court. Counsel referred to Chateau Constructions in which Slattery J, when ordering a judicial sale, appointed an independent trustee to conduct that sale and specified the terms on which the sale was to be conducted. Slattery J noted:

[87]    The principles that govern the mechanics of an order to judicial sale are clear. The Court must decide whether the sale should be “in court” by a trustee appointed by the court or “out-of-court” by one of the parties; there is no general rule that conduct of the sale will be given to the mortgagor on a sale out of court; where the mortgagee has the best interests of getting the highest price and appears to be a responsible person then, subject to the court fixing a reserve and the proceeds of sale being paid into court, conduct of the sale may be given to the mortgagor out of court …

(Citation omitted)

92    The matters to which Slattery J referred in deciding that the appointment of an independent trustee was appropriate in the circumstances of Chateau Constructions, were these:

(a)    the proposed trustee was suitable, at [88], [95];

(b)    sale by a court appointed trustee should obtain the best available price for the property, at [88];

(c)    that method of sale should minimise disputes about the sale process because, if the sale process was in the hands of either party, it is likely that it would be “paralysed” by further disputes between the parties, at [88]-[89]; and

(d)    a number of matters (which it is not necessary to recite presently) made it inappropriate for the respondents in that case to be appointed to conduct the sale, at [94].

93    The principal basis upon which the respondents proposed the appointment of an independent trustee was, as I understand it, the antipathy which exists between the parties and that, to the extent that there may be equity in the property which exceeds the indebtedness to NAB and FPH’s right of indemnity, it will be they, rather than the applicants, who will have the incentive to ensure that Lot 2 is sold for the best price reasonably obtainable.

94    The respondents’ submission that an independent trustee should be appointed was made relatively late, being first foreshadowed in their outline of submissions filed on 19 February 2021. They did not propose any particular person to be the trustee, nor provide any evidence as to the financial terms upon which such a person may be willing to act.

95    In resisting the appointment of an independent trustee to conduct the sale, counsel for the applicants made the following submissions:

(a)    it is in the interests of the applicants and Mr Hamilton to obtain the best price possible for Lot 2;

(b)    the sale is any event to be conducted through a real estate agent and by an auctioneer;

(c)    FPH is first to obtain a valuation of the property by a registered valuer and, upon receipt of a valuation, to apply to the Court for the setting of a reserve price for the property;

(d)    FPH may not sell the property for less than the reserve price without the leave of the Court; and

(e)    it is nominally the Trust which would have to bear the cost of the independent trustee but, in reality, Mr Hamilton through FPH. That is to say, the respondents would not bear these costs.

96    Underpinning the applicants’ submissions seemed to be an unexpressed concern that the amount likely to be realised on the sale of Lot 2 may not be sufficient to allow the discharge of the entire indebtedness to NAB, the indebtedness to Mr Lorefice and Veranda Interior and FPH’s right of indemnity. This seemed to be the basis upon which counsel submitted that it would be in the applicants’ interest to obtain the best price reasonably obtainable.

97    Even so, the antipathy between Mr Hamilton, on the one hand, and Steven, on the other, does point to the involvement of an independent trustee being appropriate. However, ultimately, I have decided not to adopt that course. First, it does not seem that the respondents need have any involvement in the actual mechanics of the sale at which the antipathy between the parties may become manifest.

98    Secondly, the proposed orders concerning the obtaining of a valuation, the setting by the Court of a reserve price, and the conduct of the sale through a real estate agent and registered auctioneer provide the Court with some assurance that the sale will be conducted appropriately.

99    Finally, I take into account that the respondents have not made any proposal with respect to the costs of the independent trustee, have not provided the Court with any evidence by which it may make an assessment about those matters, and have not provided any indication of their ability, in a practical way, to share the costs of an independent trustee.

100    There did not seem to be any dispute concerning the remaining terms upon which the sale should proceed. In particular, the respondents did not oppose the applicants having power to bid at the auction for the property (as was the case in Chateau Constructions at [100]) and the Court is to fix the reserve price. I will, however, order that any surplus from the sale proceeds after the discharge of the indebtedness to NAB and the payment of the expenses of sale be paid into Court to abide further order.

101    Accordingly, subject to the matters just mentioned, I will make orders for the judicial sale substantially in the terms proposed by the applicants.

The application for judgment by default

102    By their interlocutory application of 17 December 2020, the applicants seek judgment by default as follows:

1.    An order pursuant to r 5.23(1) that the Cross-Claim filed 22 February 2019 be dismissed in whole immediately.

2.    An order pursuant to r 5.23(2)(b) that there be judgment for the Applicant for the amounts claimed in paragraphs 6, 7, 8, 9, 10, 11 and 12 of the Further Amended Originating Application filed on 5 April 2019, plus interest.

3.    An order pursuant to r 5.23(2)(c) that there be judgment for the Applicant for the relief otherwise claimed in the Further Amended Statement of Claim filed 12 March 2019 and the Further Amended Originating Application filed on 5 April 2019.

103    Rule 5.23 of the Federal Court Rules 2011 (Cth) (the FCR) provides (relevantly):

5.23    Orders on default

(1)    If an applicant is in default, a respondent may apply to the Court for an order that:

  (a)    a step in the proceeding be taken within a specified time; or

(b)    the proceeding be stayed or dismissed for the whole or any part of the relief claimed by the applicant:

(i)    immediately; or

(ii)    on conditions specified in the order.

(2)    If a respondent is in default, an applicant may apply to the Court for:

(a)    an order that a step in the proceeding be taken within a specified time; or

(b)    if the claim against the respondent is for a debt or liquidated damages — an order giving judgment against the respondent for:

   (i)    the debt or liquidated damages; and

(ii)    if appropriate, interest and costs in a sum fixed by the Court or to be taxed; or

(c)    if the proceeding was started by an originating application supported by a statement of claim … or if the Court has ordered that the proceeding continue on pleadings — an order giving judgment against the respondent for the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled; or

(d)    an order giving judgment against the respondent for damages to be assessed, or any other order; or

(e)    an order mentioned in paragraph (b), (c) or (d) to take effect if the respondent does not take a step ordered by the Court in the proceeding in the time specified in the order.

Note 1    The Court may make any order that the Court considers appropriate in the interests of justice — see rule 1.32.

   Note 2    An order or judgment under this Division may be set aside or varied.

104    Rule 5.22 identifies when a party is “in default” for the purposes of r 5.23:

5.22    When a party is in default

A party is in default if the party fails to:

(a)    do an act required to be done, or to do an act in the time required, by these Rules; or

 (b)    comply with an order of the Court; or

 (c)    attend a hearing in the proceeding; or

 (d)    prosecute or defend the proceeding with due diligence.

Relevant principles

105    The entry of a judgment by default is a serious matter, with the consequence that the Court exercises the discretionary power under r 5.23 with caution: Chamberlain Group Inc v Giant Alarm System Co Ltd [2019] FCA 1606 at [13]. One of the reasons for the Court’s caution is that a default judgment in favour of an applicant means that it has at least partial success in the proceedings without having to prove by evidence its entitlement to the claimed relief: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2006] FCA 1427; (2006) 235 ALR 665 at [48]; Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2007] FCAFC 146, (2007) 161 FCR 513 at [42]. Another reason for the Court’s caution has been said to be the difficulty for a party in disturbing on appeal the entry of a judgment by default: Akibou Yacouba v Eurocars (Wholesale) Pty Ltd [2020] FCA 317 at [37]. However, this is a feature of most judgments involving the exercise of a discretion. Generally, the power is exercised only in clear cases of serious default: ACOHS Pty Ltd v Ucorp Pty Ltd [2009] FCA 577 at [27].

106    Nevertheless, the principles stated by Wilcox and Gummow JJ in Lenijamar Pty Ltd v AGC (Advances) Ltd (1990) 27 FCR 388 at 396 in respect of the predecessor of r 5.23 remain pertinent:

The discretion conferred by O 10 r 7 is unconfined, except for the condition of non-compliance with a direction … [T]wo situations are obvious candidates for the exercise of the power: cases in which the history of non-compliance by an applicant is such as to indicate an inability or unwillingness to co-operate with the Court and the other party or parties in having the matter ready for trial within an acceptable period and cases - whatever the applicant’s state of mind or resources - in which the non-compliance is continuing and occasioning unnecessary delay, expense or other prejudice to the respondent. Although the history of the matter will always be relevant, it is more likely to be decisive in the first of these two situations. Even though the most recent non-compliance may be minor, the cumulative effect of an applicant’s defaults may be such as to satisfy the Judge that the applicant is either subjectively unwilling to co-operate or, for some reason, is unable to do so. Such a conclusion would not readily be reached; but, where it was, fairness to the respondent would normally require the summary dismissal of the proceeding.

107    These principles were applied in respect of r 5.23 by the Full Court in Professional Administration Service Centres Pty Limited v Commissioner of Taxation [2012] FCAFC 180; (2012) 295 ALR 52 at [35]. They mean that evidence of persistent non-compliance or inordinate delay by a party is relevant to the exercise of the discretion under r 5.23: Black & Decker (Australasia) Pty Ltd v GMCA Pty Ltd [2007] FCA 1623 at [5]; Chamberlain v Giant Alarm at [13]-[14]; and Derrimut Health & Fitness Pty Ltd v Revival 24:7 Gym Pty Ltd (No 2) [2020] FCA 1581 at [53].

The respondents’ cross-claim

108    In order to provide the basis for some of the applicants’ submissions, it is necessary to note some elements of the cross-claim brought by the respondents.

109    The second statement of cross-claim (the 2SCC) is the current iteration of the cross-claim. The claims made in it include:

(a)    a claim by Ridge Estate and Steven for damages in respect of an alleged breach of contract by FPH constituted by its failure to perform its obligations under a “Services Agreement” which had required that FPH pay to Ridge Estate a total of $30,000 per month, in consideration of its performance of specified services. The same claim is, in effect, made against Mr Hamilton on the basis of his alleged failure to procure FPH to make the payments. Ridge Estate and Steven claim “an amount to be quantified following disclosure in this action”. The claim is made in [8]-[13] of the 2SCC;

(b)    a claim that Steven “and his interests” have suffered loss and damage indirectly from the breach of a joint venture agreement (JVA) constituted by Mr Hamilton’s failure to provide funds by which FPH could settle on investment properties located by Steven. The respondents pleaded that particulars of the loss and damage would be provided “following disclosure and the provision of an expert report”. This claim is made in [14]-[16] of the 2SCC;

(c)    a claim by Steven against Mr Hamilton for damages pursuant to s 236 of the Australian Consumer Law contained in Sch 2 to the Competition and Consumer Act 2010 (Cth) by reason of his alleged misleading or deceptive conduct in making a representation that, in the event that Steven could identify suitable investment properties, Mr Hamilton would provide and raise funds for the acquisition and development of those properties. Steven repeated the pleas in [15] and [16] of the 2SCC, including the claim that particulars would be provided following discovery and the provision of an expert report. This claim is made in [17]-[21] of the 2SCC; and

(d)    a claim by Steven and Ridge Estate for reimbursement of costs said to have been incurred by Steven in the maintenance and upkeep of six vehicles alleged to have been provided for his use in undertaking the JVA and the Service Agreement. The respondents plead that the amount of this claim would “be quantified following disclosure in this action”. This claim is made in [30]-[33] of the 2SCC.

110    For reasons which will become apparent, it is not necessary presently to note the remaining claims in the 2SCC.

The basis of the applicants’ application

111    The applicants rely on both a failure by the respondents to make discovery in accordance with the orders of the Court and a failure by them to defend the applicants’ claim, and to prosecute their own cross-claim, with reasonable diligence. At the hearing on 23 February 2021, counsel confirmed that, as their interlocutory application suggested, the applicants were seeking, primarily, dismissal of the whole of the cross-claim. Default judgment on their own claim was sought as a secondary matter. Counsel also acknowledged that, as a matter of practicality, the applicants did not need discovery from the respondents in order to make out their own claim, but did of course wish to have that discovery in order to assess the defences which may be raised by the respondents.

112    At the time the applicants filed their application, the respondents had not, other than in a nominal way to be noted shortly, made any discovery. By the time of the hearing on 23 February 2021, they had made some discovery but not in a satisfactory manner. The applicants then focused on the inadequacy of the respondents’ discovery.

A chronology of the Court’s orders and of the respondents’ conduct

113    Before turning to the evidence upon which the applicants rely for the defaults they allege, it is appropriate to identify the orders made by the Court with respect to discovery and a chronology of relevant events:

114    Counsel for the respondents at the hearing on 23 February 2021 accepted that it is the respondents personally who are responsible for the non-compliance with the Court’s orders concerning discovery, and that no criticism was made of the conduct of their former solicitors in this respect.

115    The effect of the orders reviewed above is that, after several extensions of time, the respondents had until 4 pm on 15 February 2021 to complete their discovery of documents in the proceedings.

116    On 14 February 2021, the respondents (by their new solicitors, Hume Taylor & Co) filed an affidavit of Steven verifying two lists of documents. The first list comprised 71 separate documents. The second was a list of 12,961 separate documents described by Steven as “documents exported from certain email accounts and by way of PST file”. Hume Taylor & Co provided the applicants’ solicitors with a USB containing the discovered documents on 16 February 2021.

117    In an affidavit made on 19 February 2021, the applicants’ solicitor deposed that, on the basis of an incomplete review of the 12,961 discovered documents:

(a)    a significant portion could not be regarded as either directly or indirectly relevant to an issue in the proceedings; and

(b)    another significant portion appear to be computer generated front sheets or descriptions of a document but without the actual document.

118    By way of illustration of these complaints, the applicants’ solicitor deposed that, of the first 1,000 emails contained in the respondents’ second list, 436 were relevant, 564 were irrelevant and 78 had no content, being “just a document coversheet”. He also deposed that, of the last 1,192 emails in the second list, 20 were relevant, 5 were irrelevant and 1,167 had no content but were just a “document coversheet”.

119    The respondents did not contest these matters. In fact, by an affidavit made on 21 February 2021, the respondents’ solicitor deposed that, having recently taken over the matter from the respondents’ previous solicitors, he had not had sufficient time in which to provide discovery in proper form. In that circumstance, he had used a list prepared by the respondents’ previous solicitors, and then added further documents to it. The solicitor then deposed:

[15]    I regret, and apologise to the Court, that the respondents' discovery as it currently stands is imperfect. It is not to the standard that I would ordinarily complete discovery, however, it is my belief that, based on the time available and the scope of my retainer, a genuine and diligent effort was made to make discovery as well as could be achieved in the circumstances.

[16]    Having seen the volume of emails in Schedule 2 to the respondents' List of Documents, if a thorough item-by-item review of the emails and amendment of Schedule 2 was required, I expect it would take at least 4 weeks to achieve to a reasonable standard.

120    As is apparent, the solicitor recognised in these paragraphs that there were inadequacies in the respondents’ discovery and estimated that it would take at least four weeks for him to achieve discovery “to a reasonable standard”. I add that I do not make any criticism of the respondents’ solicitor – it is plain that he was operating under difficulties. It seems that those difficulties are almost wholly of the respondents’ own making.

The applicants’ submissions

121    The applicants relied upon the failure by the respondents to make discovery by 15 February 2021 in the manner contemplated by the Court’s orders. They also submitted that the respondents’ failure to comply with the Court’s orders made on 20 March 2020, 25 June 2020, 21 August 2020, 9 November 2020 and 22 December 2020 constituted a failure by them to prosecute their defence to the claim, and to prosecute their own counterclaim, with due diligence. In my view, the non-compliance with the orders of 20 March and 25 June 2020 should be disregarded for present purposes, as the applicants were also in breach of those orders. The early orders are, however, relevant to the time which the respondents have had to comply with the orders.

122    The applicants submitted that, even now, after the various extensions of time granted to the respondents, they have still not made discovery in accordance with the FCR as contemplated by the Court’s orders. The elements of the applicants’ submission were:

(a)    the respondents were ordered to give standard discovery. In accordance with r 20.14 of the FCR, this meant that they were to give discovery of only those documents which are “directly relevant” to the issues raised on the pleadings, within the meaning of that expression in r 20.14(1)(a);

(b)    the respondents had provided a unsworn list of documents on 3 September 2020 which contained only the single entry set out above;

(c)    the respondents did not provide the documents in the unsworn list until 16 February 2021, and did not provide any further discovery until 14 February 2021 when they filed the two lists referred to above. The applicants noted that the first list comprised, in the main, documents which have been exhibited to affidavits previously sworn in the proceedings, and so were not additional to those already disclosed. They submitted, for the reasons given earlier, that the second list comprises substantial numbers of documents which, on any reasonable view, do not have even indirect relevance to an issue in the proceedings, indicating thereby a lack of attention to the giving of proper discovery. Instead, the respondents have provided documents without any discrimination, thereby creating a circumstance in which it should be concluded that they have not provided discovery as required by the Court’s orders and, furthermore, have engaged in conduct which is oppressive of the applicants;

(d)    the respondents have not discovered documents to support the losses said to provide the basis for the claims for damages in the respondents’ 2SCC;

(e)    the further four weeks identified by the respondents’ solicitor as the time required for the making of discovery to a reasonable standard leaves insufficient time for the provision of particulars, and for the preparation, in the usual way, of the evidence to be presented at trial; and

(f)    at the very least, the respondents’ own claim which depends on them making discovery should be dismissed, as they have not provided discovery to support those claims.

The respondents’ submissions

123    Counsel for the respondents referred to the following matters:

(a)    the applicants themselves had been in breach of the orders made on 20 March and 25 June 2020;

(b)    the applicants themselves had “dumped” a large number of emails on the respondents. I understood, however, counsel not to persist with that submission in the light of a further affidavit from the applicants’ solicitor in which he deposed to having made discovery of selected documents from a large volume of emails but to having also provided the larger number to the respondents’ former solicitors at their request so that they could check, if they wished, the appropriateness of the applicants’ selection. It was this second provision of documents which counsel had, without knowledge of the circumstances of its provision, characterised as “the dump”;

(c)    the respondents are taking steps to remedy the defaults in their discovery obligations; and

(d)    the grant of judgment for default for the “large array” of relief sought by the applicants as well as the summary dismissal of the cross-claim would be “manifestly harsh and contrary to the interests of justice”, given that it would shut the respondents out from the opportunity to test the applicants’ claims, and to pursue their own, at the trial.

124    Counsel did not dispute the applicants’ criticism about the discovery of the documents in the second list filed on 14 February 2021. He seemed to accept that that manner of discovery was not compliant with the Court’s Rules or with the Court’s orders and would require the applicants’ solicitor to engage in a substantial amount of unnecessary work. Counsel also did not contest the applicants’ submission that the respondents had not discovered documents supporting the losses said to provide the basis for the claims for damages in the respondents’ 2SCC. It is understandable, at least to an extent, that counsel was not able to contest these matters given the recency of the discovery provided by the respondents and the recency of the time at which both he and Hume Taylor & Co had been instructed. This is a circumstance of the respondents’ own making.

125    As counsel for the respondents noted, one would expect ordinarily that, to support the claims for damages in the 2SCC, the respondents would discover documents evidencing the transactions upon which it is said that Mr Hamilton failed to provide the funds for settlement, documents evidencing the income or profits said to be lost, and documents from the respondents themselves or from third parties which may support the assumptions upon which an accounting expert may be asked to express an opinion as to the extent of the claimed loss. Counsel submitted that some documents of these kinds would not necessarily be documents which the respondents would have in their own possession but would have to be the subject of applications for third party discovery or subpoena.

126    While acknowledging the inadequacies in the respondents’ discovery, counsel was not able to identify how the pre-trial steps necessary for the pursuit of the damages claims in the 2SCC could be accommodated within the revised trial program fixed on 5 February 2021. He submitted nevertheless that there was no evidence of “irremediable prejudice” to the applicants arising from the respondents’ delays. The submission in short was that the detriments resulting from a further compression of the trial programming orders were not sufficient to warrant the dismissal altogether of the respondents’ 2SCC, let alone entering judgment by default for the applicants on their claim.

Consideration

127    I accept that the respondents have provided some discovery of documents said to evidence transactions which Steven alleges could not be completed by reason of the alleged breaches of contract by Mr Hamilton. Counsel was not able, however, to contest the applicants’ submissions that the respondents have not discovered documents said to evidence or support the losses alleged to have resulted from the non-completion of the contracts said to have been negotiated by Steven. It is stark that, even now, the respondents have not obtained, so as to be able to discover, documents of this kind. Further, and independently of those matters, the respondents should have been able to discover, but have not, documents concerning the claim for reimbursement of motor vehicle and maintenance costs, and at least some documents supporting the losses said to have been suffered by Steven resulting from the misleading or deceptive conduct which is alleged. Documents of this kind, if they exist, should be in Steven’s own control, and able readily to be discovered.

128    Naturally, in cases of default, the Court looks to evidence of attempts made by the party in default to remedy the situation and to prosecute the matter diligently thereafter. In this case, the respondents have not engendered confidence about these matters. I refer in particular to the statement of the respondents’ solicitors that it would take approximately four weeks to get the discovery to a reasonable standard. Moreover, since the Court reserved its decision on 23 February 2021, the respondents’ solicitors have filed a notice of ceasing to act and new solicitors do not seem to have been appointed.

129    I am not satisfied that it would be appropriate at this stage to dismiss altogether the respondents’ cross-claim or to enter judgment in default for the applicants on their claim. As to the latter, I note the frank concession of counsel for the applicants that they do not need the discovery from the respondents in order to prosecute their own claims.

130    However, I am persuaded by the applicants’ submissions that the damages claims contained in the respondents’ 2SCC should be dismissed pursuant to r 5.23(1)(b) of the FCR. The parties are now only a little over two months away from the listed trial and the respondents have been in breach of the orders concerning discovery over an extended period. They have not provided proper discovery as required by the Court’s orders and have not provided evidence of taking even basic steps towards the preparation of their monetary claims. Contrary to the submissions of counsel for the respondents, I consider it reasonable to conclude that the respondents’ non-compliance with the discovery orders has had the effect that the pre-trial steps necessary for the pursuit of those claims cannot be completed in time for the trial to commence on 31 May 2021, let alone in a manner which is fair to the applicants. That is to say, there is insufficient time now in which the respondents may provide the discovery necessary to support their own monetary claims, provide the particulars which they foreshadowed in the 2SCC, provide the necessary expert reports so as to allow the applicants an adequate opportunity to prepare their defence to those claims including, possibly, obtaining answering expert reports.

131    In refusing at this stage the remainder of the applicants’ application for the entry of judgment by default, I have proceeded on my present understanding that the respondents’ default will not prejudice in a material way the applicants’ ability to prosecute their own claims or to defend the non-monetary claims of the respondents. On that understanding, I have thought it appropriate to proceed, as the authorities indicate is appropriate, cautiously and with regard to the potential harsh consequence of the entry of a judgment in default.

132    The extra work which the manner in which the respondents have provided the discovery on 15 and 16 February 2021 has caused the applicant can be reflected, if appropriate, in an order for costs.

133    Accordingly, I will make orders pursuant to r 5.23 of the FCR dismissing the claims made in [8]-[13], [14]-[16], [17]-[21] and [30]-[33] of the 2SCC. The remaining aspects of the applicants’ interlocutory application of 17 December 2020 are dismissed.

Conclusion

134    For the reasons given above, the applicants’ application for judicial sale succeeds. Their application for judgment by default succeeds in part.

Associate:

Dated:    26 March 2021

SCHEDULE OF PARTIES