Federal Court of Australia

Sydney Subdivision Pty Ltd (in liq) v Chow (No 4) [2026] FCA 1435

ORDERS

THE COURT ORDERS THAT:

1. By 4 pm on 14 October 2026, the parties are to submit either agreed or competing short minutes of orders in accordance with these reasons for judgment.

2. The parties are to be heard on the question of costs.

3. By 4.30pm on 21 October 2026 the Applicants file and serve any affidavits and written submissions (of no more than 5 pages) on the question of costs.

4. By 4.30pm on 30 October 2026 the Respondents file and serve any affidavits and written submissions (of no more than 5 pages) on the question of costs.

5. By 4.30pm on 6 November 2026 the Applicants file and serve any affidavits (strictly in reply) and written reply submissions (of no more than 2 pages) on the question of costs.

6. Upon receipt of the Applicants’ submissions in reply, the question of costs will be reserved for judgment on the papers.

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

REASONS FOR JUDGMENT

WHEATLEY J:

INTRODUCTORY OVERVIEW

1 The Applicants, Sydney Subdivision Pty Ltd (In Liquidation) and Mr Michael Slaven as liquidator (Liquidator) of Sydney Subdivision commenced these proceedings against Mr Chow and Dr Chow (together the Respondents), who were the directors and shareholders of Sydney Subdivision.  Relevantly, Sydney Subdivision was the corporate trustee of the Benjamin M T Chow Family Trust.

2 The Liquidator was appointed to Sydney Subdivision pursuant to a voluntary winding up on the basis of insolvency on 13 July 2015.  The main creditor was the Commissioner of Taxation.

3 Sydney Subdivision Holdings Pty Ltd was appointed trustee of the Chow Family Trust on 29 August 2018, which was registered with the New South Wales Registrar-General on 11 November 2020.

4 In essence the Liquidator’s claim is one relying on Sydney Subdivision’s (the corporate trustee’s) right of indemnity.  Sydney Subdivision is liable to the Commissioner for amounts of primary tax, interest and penalties, in the sum of $2,602,191.05 and it seeks to enforce its right of indemnity on the basis of an equitable proprietary interest in the assets of the trust.  The only asset identified is a particular loan account, owed by Mr Chow and Dr Chow to the Chow Family Trust in the amount of $2,551,330 (Directors’ Loan).

5 The Respondents seek to defend this claim, in summary, on two bases:

(a) first, that any amount that might still be owing on the Directors’ Loan at the time of the commencement of these proceedings was statute barred, see s 14 of the Limitation Act 1969 (NSW); or

(b) second, that any amount still owing on the Directors’ Loan would now be due to the new Trustee, Subdivision Holdings.

6 For the reasons given below, the Applicants’ claim must be upheld because it is based on the former trustee’s right of indemnity which is an equitable proprietary claim.  It is not a claim in debt or in contract.  As such, it is not subject to the claimed limitation defence.  The second matter also does not absolve the Respondents from the Liquidator’s claim.  The former trustee’s right of indemnity survives its replacement as trustee.  Further, the Liquidator has also been appointed Receiver of the property of the Chow Family Trust, such that any property of the Chow Family Trust (including the Directors’ Loan) would be held by the Liquidator as Receiver.

7 Further, Subdivision Holdings has been joined to the proceedings, so any appropriate orders can be made which will necessarily also bind Subdivision Holdings.

8 Given the manner in which the proceedings have been conducted, it will be necessary to hear the parties further on costs and the form of final orders.

WHAT IS THE RELEVANT BACKGROUND?

9 At the commencement of the trial, King’s Counsel for the Applicants advised that the Applicants would only be seeking relief in relation to one aspect of the Amended Originating Application.  This was for judgment in relation to what is defined as the Directors’ Loan in the sum of $2,551,330 or damages for this amount (this being, paragraphs (d) and (e) of the Amended Originating Application).  The rest of the Amended Originating Application was abandoned.  As such, it is unnecessary to outline the full terms of the original relief as sought.

10 Given the narrowing of the issues by the Applicants, it is only necessary to state some short matters by way of background.

11 On 13 July 2015, a resolution was passed to wind up Sydney Subdivision pursuant to s 513B(e) of the Corporations Act 2001 (Cth) and Mr Slaven was appointed the Liquidator.

12 On 16 July 2015, the Liquidator sent what were described as a “director’s pack” to each of Mr and Dr Chow which, amongst other things, required the completion of the Report as to Affairs (RATA).  A completed RATA was only received from Dr Chow.

13 After engaging in correspondence with the Respondents’ accountant regarding the Directors’ Loan (which is considered further below), the Liquidator made a demand for repayment of the Directors’ Loan on 19 October 2015.

14 These proceedings were commenced by the Liquidator on 12 March 2020.

15 On 17 June 2024, Subdivision Holdings was joined as Third Respondent to these proceedings.

16 On 21 June 2024, the Applicants filed an Amended Originating Application in the proceeding, in accordance with the Orders of the Court dated 17 June 2024.  Those Orders were following a contested hearing on competing interlocutory applications: Sydney Subdivision Pty Ltd (in liq) v Chow (No 3) [2024] FCA 644 (Colvin J) (2024 Judgment).  It was these Orders that also joined Subdivision Holdings to the proceedings.

17 On 3 September 2024, Orders were made appointing the Liquidator as the Receiver over all present and after acquired property, rights and undertakings of the Chow Family Trust.  After which further amended pleadings were filed by the parties.

THE CHOW FAMILY TRUST

18 Sydney Subdivision was incorporated on 4 November 1980.  By a Deed of Settlement dated 30 October 1980 Sydney Subdivision was appointed the trustee of the Chow Family Trust.  Relevantly, Sydney Subdivision carried on activities as trustee for the Chow Family Trust.

19 The Chow Family Trust did also engage in a number of other different transactions.  However, those different transactions related to that part of the case now abandoned by the Applicants.

20 The Chow Family Trust, relevantly for the narrowed issues in these proceedings, was a trading trust.  The relevant aspect of the business of the Chow Family Trust was by way of the Respondents each providing professional services.

21 Mr Chow performed personal services in the nature of engineering and project management services for various clients.  The Chow Family Trust issued invoices to Mr Chow’s clients for the work he provided to those clients, in the trading name of Benjamin Chow & Associates.

22 Dr Chow is a medical doctor, who also holds a PhD.  Dr Chow performed medical services.  The Chow Family Trust issued invoices to Dr Chow’s patients for the work she had performed.

23 The Chow Family Trust issued invoices to each of Mr Chow’s and Dr Chow’s respective clients (or patients) for services rendered by each of them and then collected payment for those invoices.  This arrangement had been engaged in by Mr and Dr Chow for many, many years.  It was set-up on the basis of accounting advice that Mr Chow had received for himself and Dr Chow.  The financial statements of the Chow Family Trust that are in evidence are consistent with this position, in that income is recorded in the notes as “medical services fees” and “consulting fees”.

24 Mr and Dr Chow each received a salary from the Chow Family Trust.  There is included as an expense in the available financial statements of the Chow Family Trust “salaries and wages”, which was less than the total income from medical services fees and consulting fees. The financial statements of the Chow Family Trust include notes as well as the main entries in the financial statements.  Recorded as an asset, (read with the notes) is a “Loans unsecured: B & R Chow”, which is the Directors’ Loan. There was no written agreement in relation to the Directors’ Loan.

25 As detailed further below, in essence, it is the recovery of this loan or loans which is sought by the Applicants.

26 Dr Chow’s evidence, which I accept in this regard, was that she generally left attending to paperwork and financial matters of the Chow Family Trust to Mr Chow.  This included liaising with the accountants. However, Dr Chow was aware that she was being paid a wage or salary from the Chow Family Trust.  Dr Chow also understood that some of the money that she and Mr Chow received from the Chow Family Trust was provided by way of a loan or loans.

27 Mr Chow’s evidence, which I accept in this regard, was consistent with Dr Chow’s evidence in that Dr Chow had little involvement in the management of the Chow Family Trust.  Mr Chow dealt with and attended the accountant’s office in relation to his own tax affairs as well as the tax affairs of the Chow Family Trust and Dr Chow’s tax affairs.

28 From 1980-2012 the accountants engaged by the Respondents were “Gould Ralph Chartered Accountants”. Mr Chow’s evidence was that he did not really understand accounting matters or processes.  Despite this, it was also his evidence, which I accept, that he took exclusive responsibility for attending to the Chow Family Trust’s tax (and presumably financial) affairs including meeting and liaising with the accountants.  Mr Chow’s evidence, which I accept, was that he relied heavily on his accounting advisors.  Neither he nor Dr Chow have any formal accounting qualifications.

29 In March 2014, Mr Chow decided to discontinue his engagement of the previous accountants (Gould Ralph Chartered Accountants) as he no longer had confidence in them.  The Australian Taxation Office (ATO) had earlier conducted two audits of the Chow Family Trust.  Late in 2013, Mr Chow received notice that the ATO pursuant to s 264 of the Income Tax Assessment Act 1936 (Cth).  It was this further action by the Commissioner which caused Mr Chow to sever the engagement of Gould Ralph Chartered Accountants.  Ms Rosita Luk was engaged during this third audit.  Ms Luk then had carriage of Mr Chow’s, Dr Chow’s and the Chow Family Trust’s current and future tax affairs.

30 Mr Chow gave evidence that when he withdrew money out of the bank account of the Chow Family Trust he gave little or no thought as to the legal character of what he was doing or of the character of those funds. It was submitted that this included that at the time of the relevant transactions there was no opinion as to whether there was a single debt or multiple debts.  Mr Chow would provide the accountants with the necessary records showing money being paid into and withdrawals from the Chow Family Trust bank account made by himself and Dr Chow (this was for any additional funds that might have been required by either or both of Mr Chow or Dr Chow). Generally, Mr Chow was of the opinion that it was the accountant’s responsibility to apply the appropriate characterisation and to properly account for such transactions, at the time of preparing the financial statements.

31 Mr Chow stated that “accounting is not (his) forte” and his “focus is not accounting”. This is consistent with Mr Chow’s evidence that he took accounting advice about how to deal with and manage these matters and I accept this evidence.  Transfers were made to Mr and Dr Chow’s personal joint bank account and to their credit cards.  Their personal lifestyle expenses were then generally paid for from that joint bank account or charged to credit cards.  However, there was also some evidence that expenses on behalf of the Chow Family Trust were sometimes paid for on their personal credit cards.  Given the evidence, I infer that such amounts would have been reconciled at the end of each financial year.

32 On receipt of the financial statements at the end of the financial year, Mr Chow would know the amount of the debt or debts owed by himself and Dr Chow to the Chow Family Trust.  Mr Chow believed that the debt figure recorded in the financial statements for the amount that he and Dr Chow owed the Chow Family Trust was correct.  It was not disputed by the Respondents that they did owe a debt or debts to the Chow Family Trust, at least at one point in time. The Respondents argued that such amount or amounts were no longer recoverable as they were statute barred or because any amount that was owing, was owed to Subdivision Holdings, as trustee of the Chow Family Trust.

33 The Directors’ Loan was recorded in the Balance Sheet for the year ending 30 June 2012 as an asset, being described as a non-current receivable.  The amount of this loan account changed in the financial statements for the years ending 30 June 2005 (with the comparison year for 2004 included), through to and including 30 June 2012, however the descriptor remained constant.  In the evidence before the Court, the Directors’ Loan was always described as a non-current receivable.  There are no earlier financial statements before the Court.

34 The Directors’ Loan owed to the Chow Family Trust is recorded in its financial statements as follows for the financial years ending:

(a) 30 June 2004 being $2,223,340.16;

(b) 30 June 2005 being $2,317,471.76;

(c) 30 June 2006 being $3,314,587.72;

(d) 30 June 2007 being $3,609,022.83;

(e) 30 June 2008 being $2,818,626.02;

(f) 30 June 2009 being $2,152,463.64;

(g) 30 June 2010 being $2,465,381.11;

(h) 30 June 2011 being $2,516,677.83; and

(i) 30 June 2012 being $2,551,330.00.

35 On or about early June 2015, the Commissioner issued notices of amended assessment (by way of default assessments) to Sydney Subdivision as trustee of the Chow Family Trust.  The Respondents admit the aggregate liabilities of Sydney Subdivision to the Commissioner were $2,602,191.05 as at 3 June 2015. The Respondents also accept that Sydney Subdivision continues to be liable to the Commissioner for the unpaid amended assessments in the amount of $2,602,191.05. The Respondents do not contend that such liability was improperly incurred by the trustee of the Chow Family Trust, Sydney Subdivision. However, the Respondents do make a passing submission that the Court needs to be satisfied that the liability to the Commissioner was properly incurred by the former trustee, with reference to Gatsios Holdings v Kritharas Holdings (In Liquidation) (2002) ATPR 41-864; [2002] NSWCA 29 at [47], (Meagher JA, with whom Mason P and Spigelman CJ agreed) (also see Spigelman CJ at [14]). However, Gatsios was disapproved in Nolan v Collie (2003) 7 VR 287; [2003] VSCA 39 (Ormiston JA, Batt and Vincent JJA agreeing) at [44]-[57] and described the reasoning as a significant departure from accepted principle (at [45]). The Full Court (Moshinsky, Stewart and Jackman JJ) in QB4 Capital Pty Ltd v Guardian Securities Ltd (2023) 411 ALR 496; [2023] FCAFC 72 at [90] described the criticism of Gatsios in Nolan as “well made” and the reasoning as a major departure from the orthodox approach. In the absence of any positive contention by the Respondents that the tax liability was improperly incurred, there is no basis to find that the liability has been incurred other than reasonably and in the discharge of the trustee’s proper duties.

36 The Liquidator contended and it was accepted by the Respondents, that the Chow Family Trust had an outstanding aggregate liability to the Commissioner in an amount of $2,602,191.05.

37 The Liquidator’s review of the books and records revealed that by 30 June 2013, the Directors’ Loan account had been purportedly repaid and there was recorded in the financial statements an amount now owing to the Respondents in the sum of $462,941.  Further, for the year ending 30 June 2014 the loan from the Directors had reduced slightly to $426,847.99.

38 On 30 July 2015, the Liquidator wrote to Ms Luk, accountant for Mr and Dr Chow and previously the Chow Family Trust, requesting further details of the assets listed in the Balance Sheets for years ending 30 June 2012, 2013 and 2014.  It was particularly noted that it appeared that during 2012 to 2014, the directors had entirely repaid the balance of the Directors’ Loan and further, there was now an amount of $426,847.99 owed by Sydney Subdivision to the Respondents.  Further information and documents were requested in relation to the Directors' Loan.

39 On 11 October 2015, Ms Luk, on behalf of the Respondents responded that in effect the Directors’ Loan had been off-set against other liabilities to other entities.  The immediate difficulty with that position is apparent and it is not necessary to analyse this further.  The Respondents quite properly accepted in these proceedings that those purported book-entries or arguments were of no legal effect.  Furthermore, the Respondents do not contend that the 2013 financial statements were correct. Although not expressly submitted by the Respondents, the consequence of the acceptance that the 2013 financial statements were not correct, must also be that the 2014 financial statements were also not correct, as the same change to the financials in 2013 was carried through to the 2014 financial statements, which also purportedly recorded that the Chow Family Trust owed Mr and Dr Chow $426,847.99.  On this basis I accept that neither the 2013 nor the 2014 financial statements are correct.

40 The Respondents acknowledge that the 2012 financial statement is evidence that the amount of $2,551,330 was advanced as a loan or loans to them. Further, Mr Chow’s evidence in these proceedings (at [32] above) and his evidence pursuant to an examination summons accepted the accuracy of those financial statements.  I accept (and find) that on the basis of the 2012 financial statements the Directors’ Loan were due and owing to the Chow Family Trust in the amount of $2,551,330 at the time of the preparation and acknowledgment of the 2012 financial statements.  The 2012 financial reports are not signed.  There is a typed or printed date at the end of the 2012 financial reports of “14 November 2012”.  However, in the absence of that financial report being signed or otherwise verified that the accounts were prepared and acknowledged on or about that date, I do not accept that the 2012 financial report was prepared and acknowledged on or about 14 November 2012.  It could have been prepared by the accountants on this day, but unbeknown to the Respondents.  However, there is evidence that on 11 February 2014 Ms Luk provided, amongst other matters, the 2012 financial reports to the Commissioner.  Those 2012 financial statements must have been completed and acknowledged by at least that day.

41 Furthermore, the evidence or argument that there had been repayment from the amount owing as at 30 June 2012, was on the basis of the position advanced by Ms Luk.  The Respondents, in these proceedings, accept those purported transactions were of no legal effect and hence the 2013 financial statement is not correct.  This position (as was advanced by Ms Luk, on the Respondents behalf) was also put forward by Dr Chow when she completed the RATA for the Liquidator.  The Liquidator has also obtained possession of the accounts for the Chow Family Trust, including for the year ending 30 June 2014.  The 2014 balance sheet is also consistent with the position advanced by Ms Luk and records a loan from Mr and Dr Chow to the Chow Family Trust of $426,847.99.  I accept (and find) that there is no proper basis (or evidence) relied on by the Respondents that the Directors’ Loan had been repaid.  I also accept (and find) that the Directors’ Loan were still and due owing to the Chow Family Trust in the amount of $2,551,330 at the time of the appointment of the Liquidator.  However, such a finding does not deal with the Respondents’ contention that some or all of the Directors’ Loan was statute barred.

PRELIMINARY ISSUE

42 The Respondents objected to a matter in the Applicants’ opening submissions, regarding the Directors’ Loan and that the principles of an “open” or “running account” were applicable.  The Respondents contended that such a submission was beyond the terms of the pleading and that they would have led different or at least further evidence to meet this factual inquiry.  The Applicants did not make an application to amend the pleading, submitting it was a legal argument. The Applicants submitted that the label of a “running account” was just that, a badge.  The Applicants contend that they do not seek a reclassification of the Directors’ Loan, rather it is a serious of accounts which is supported by the evidence, and they say, is sufficiently pleaded, again noting it was a point of law.  The parties were content for the ruling on this issue to await the determination of the proceedings.  The Respondents maintained their objection in their written closing submissions.

43 This issue arose in the context of the Applicants’ opening submissions.  The Applicants submitted, in opening, as part of the applicable principles to be applied, that it was customary to imply a term between the shareholder and the company that the amount shown to be due or owing by a shareholder on current account at any given date, was not recoverable in the absence of a prior demand for payment of the debt. It is apparent that the Applicants were seeking to draw an analogy from such principles to the circumstances of this case.  The submission regarding the “running account” was the fourth principle submitted by the Applicants to be applicable and which built upon the first three, being:

(a) a ‘simple loan’ of money is due and payable immediately from making the loan: Ogilvie v Adams [1981] VR 1041 (Fullagar J);

(b) where a loan agreement is not expressed to be for a fixed term, it does not follow that the loan is repayable on demand: Woodhouse v Woodhouse [2022] NSWCA 240 at [117] (Meagher JA, with who Bell CJ and Mitchelmore JA agreed); and

(c) an agreement that the liability to repay does not arise until an actual demand is made may be express or implied or inferred from the circumstances, including by implication from their relationship: In re Brookers (Australia) Limited (In Liquidation); Brookers v Pridham (1986) 10 ACLR 428; (1986) 41 SASR 380 at 382 (King CJ, with whom Mohr J agreed).

44 In the Amended Defence the Respondents plead the following (in summary) about the Directors’ Loan, that:

(a) there was no written loan agreement;

(b) there was no express or implied term that the cause of action for recovery would only arise upon the making of a request repayment;

(c) the cause of action arose in respect of each advance of loan money immediately upon that advance and hence was subject to a six year limitation period, from the date the relevant amount was advanced; and

(d) After the transfer to Subdivision Holdings any causes of actions for the Directors’ Loan remained subject to the same limitation periods and the right to sue for recovery is that of Sydney Subdivision.

45 In reliance on those matters the Respondents then advance four different limitation arguments:

(1) Of the $2,551,330 said to be owing as the Directors’ Loan, $2,465,381 was advanced on or before 30 June 2010 or 13 February 2012, on the basis that the financial statements for 2010 recorded the Directors’ Loan for that amount and were finalised on 13 February 2012.  On the basis of either date, the proceedings were statute barred prior to the date when the proceedings were commenced.

(2) Of the $2,551,330 said to be owing as the Directors’ Loan, $2,516,678 was advanced on or before 30 June 2011 or 8 November 2012, on the basis that the financial statements for 2011 recorded the Directors’ Loan for that amount and were finalised on 8 November 2012.  On the basis of either date, the proceedings were statute barred prior to the date when the proceedings were commenced.

(3) The $2,551,330 said to be owing as the Directors’ Loan was advanced on or before 30 June 2012 or 14 November 2012 or 11 February 2014, on the basis that the financial statements for 2012 recorded the Directors’ Loan for that amount and were finalised on 14 November 2012 or at least by 11 February 2014 (as the statements were provided to Commissioner on this date).  On the basis of either date, the proceedings were statute barred prior to the date when the proceedings were commenced.

(4) The date for the accrual of the causes of action for the Directors’ Loan, was the same when the transfer to Subdivision Holdings occurred, and Subdivision Holdings was not joined to the proceedings until 17 June 2024 and the Receiver was not appointed to the property until 3 September 2024, each of which are beyond the relevant limitation period (as advanced in the above 3 paragraphs).

46 In the Reply, the Applicants plead that when Sydney Subdivision was placed into liquidation the right of indemnity passed to the Liquidator and when it was replaced as trustee, the accrued right of indemnity remained.  The Applicants contend that Sydney Subdivision retained the obligation to get in the trust assets, as bare trustee.  Further that the chose in action, by way of the Directors’ Loan, was a chose in action within the meaning of s 12 of the Conveyancing Act 1919 (NSW), and as such any assignment was subject to that section.  As such, any assignment under s 9(5) of the Trustee Act 1925 (NSW) did not vest until assigned in accordance with s 12 of the Conveyancing Act.  Such an assignment had to be in writing under the hand of Sydney Subdivision with express notice to the Respondents, which was not done.  Therefore, the Applicants contend that Sydney Subdivision was not obliged to transfer, and was entitled to commence the proceedings to recover, the Directors’ Loan.

47 The Applicants agree that the Directors’ Loan was not contained in a written agreement and the terms of repayment are implied.  The repayment and hence the cause of action is said by the Applicants to only arise upon the making of a request for repayment.  The circumstances which give rise to the implication are relevantly said to be as follows:

(a) as directors, the Respondents had an obligation to keep proper financial records, which also included the duties imposed by the Corporations Act and a lack of compliance could have serious consequences, so professional accountants were engaged, whose advice was followed by the Respondents;

(b) the balance sheets demonstrated that amounts were carried forward and adjusted from year to year recording the amount of the directors’ indebtedness in each financial year;

(c) there was no reduction year to year on the amount of Directors’ Loan because the loan or any part of the loan was non-recoverable as being statute barred;

(d) the balance sheets separately included other assets and in contradiction to other loans, the Directors’ Loan was a “non-current asset”, which significantly meant it was not immediately available as an asset; and

(e) the nature of the arrangements, by the Respondents having their professional services income invoiced from and paid into the Chow Family Trust, resulted in the Respondents having no funds from their own assets to repay the Directors’ Loan which negates any inference that the loans were repayable at the time advanced.

48 For the following reasons, I accept the Applicants’ submissions and overrule the Respondents’ objection.

49 The term “running account” is usually used between traders as another name for an active account running from day to day, as opposed to an account where further debits are not contemplated: Airservices Australia v Ferrier (1996) 185 CLR 483; [1996] HCA 54 at 504 (Dawson, Gaudron and McHugh JJ).  As was observed in Airservices Australia “... the significance of a running account lies in the inferences that can be drawn from the facts that answer the description of a “running account” rather than the label itself.” (at 504). The essential feature of a running account is that it predicates a continuing relationship of debtor and creditor with an expectation that further debits and credits will be recorded: Airservices Australia at 504-505; also see Bryant v Badenoch Integrated Logging Pty Ltd (2023) 275 CLR 463; [2023] HCA 2 at [82] (Jagot J with whom Kiefel CJ, Gageler, Gordon, Edelman, Steward and Gleeson JJ agreed).

50 The Applicants have relevantly pleaded that the Respondents acted in accordance with their accountants’ advice (being attentive to what the accountants required) and the Directors’ Loan was carried forward and adjusted year to year.  Therefore, amounts that were still due and owing were caried forward from year to year, without limitation, and were adjusted from year to year, again without limitation.  There is also the express pleading that there was no reduction in the Directors’ Loan for an amount being unrecoverable because it was statute barred.  This is sufficient to plead the essential feature of the kind of relationship and agreement which the Applicants contend was the basis of the Directors’ Loan.  That essential feature was a continuing relationship and agreement of debtor and creditor as between the Respondents and the Chow Family Trust, such that there would be further debits and credits to the Directors’ Loan account, on an ongoing basis.  Furthermore, the use of the term “running account” in the opening submissions was merely a label.  It is also correct to describe this as a legal submission.  It is a submission advanced about the proper legal characterisation and construction of the Directors’ Loan.

51 In the circumstances of this case, the Directors’ Loan would not commonly be described as a “running account”, in the usual understanding of that term.  That being in an insolvency context, often on a preference claim, as between a supplier (the creditor) of goods or services to the customer/client (the debtor). Just as the Directors’ Loan might not commonly be labelled as a line of credit or a revolving loan, as the Directors’ Loan was not with a bank.

52 However, the essential features of such an agreement or relationship, being the ongoing nature of the arrangement with debits and credits being applied to the account (not just credits, being repayments), was advanced on the pleading.  As such, I would overrule the Respondents’ objection to this opening submission on this basis.

53 The Respondents also objected on the basis that they would have led different or at least further evidence.  There are two answers why this is an insufficient basis to uphold the Respondents’ objection.  First, as the above reasons demonstrate, the matter was pleaded and as such the Respondents could have led evidence in relation to this issue.  It was a matter for the Respondents what evidence they wish to advance and rely on at the trial.  Second, the Respondents were advancing an argument on the limitation defence that each payment made to the Respondents became immediately due and payable when it was lent.  Evidence to establish this contention would have been along similar lines to that said to be necessary for this argument on the “running account”.  Without being exhaustive, evidence for the Respondents’ contention from the accountants as to how the loans were maintained, what were the debits and credits applied to the Directors’ Loan account and how the balance was struck, would have been necessary.  This kind of evidence which the Respondents identified as being necessary on the Applicants’ “running account” argument, should have already been provided to support one of the Respondents’ limitation arguments.  As such, the evidence sought to be identified by the Respondents was already evidence which the Respondents should have led to support their own case and to meet the Applicants’ pleaded case.

54 For those reasons, the Respondents’ objection is overruled and the Applicants can rely on that paragraph of their opening submissions.

ISSUES

55 The parties each filed a List of Issues for determination at the hearing.  However, those issues were at a time prior to the Applicants abandoning a large part of the case.  Like much of the evidence, the issues changed, and what was then relevant significantly narrowed. However, even accepting this changing position, the List of Issues provided by the parties shared only fleeting encounters of similarity.  The Respondents do not engage with or seek to identify any issue regarding the position of the former trustee or seek to identify any issues regarding the rights of indemnity. The Respondents over four substantive paragraphs regarding the Directors’ Loan (and by way of eight sub-paragraphs) identify issues regarding the characterisation of the Directors’ Loan and matters of their limitation defence.

56 The Applicants seek, by way of the right of indemnity, the recovery of the Directors’ Loan (being the trust assets) on the basis that Sydney Subdivision, as the former trustee of the Chow Family Trust is indebted to the Commissioner for a total amount (of primary tax, penalties and interest) of $2,606,991.05.  The Respondents have admitted that Sydney Subdivision is indebted to the Commissioner for that amount.  The Respondents deny that they bear any liability for that indebtedness.  However, it is on the basis of this underlying indebtedness by the former trustee to the Commissioner that the Applicants bring these proceedings, seeking to recover trust assets to pay this trust debt to the Commissioner. There was a considerable focus on what was contended to be the relevant trust asset, being the Directors’ Loan.  It is the only trust asset identified.

57 Given the disparity in the List of Issues, but having regard to the matters raised therein, the issues to be determined are as follows:

(1) What is the basis of the Applicants’ claim?

(2) Does the Applicants’ claim depend on a particular characterisation of the Directors’ Loan?

(3) Does the Respondents’ limitation defence, provide a complete defence?

(4) Is the Directors’ Loan properly owing to the new trustee, Subdivision Holdings, such as to provide the Respondents with a defence to this claim?

(1) What is the basis of the Applicants’ claim?

58 With the Applicants abandoning much of what was previously relied on, a struck-through version of the Further Amended Statement of Claim filed on 17 September 2024 (the Pleading) was also provided.

59 The Pleading commences by identifying the relevant parties and their relevant roles.  Those matters are largely admitted by the Respondents in their Amended Defence (Defence).  Under the heading of “Non-Payment of Directors Loans”, the Pleading alleges, which is admitted in the Defence, that between 2004-2012 Mr Chow and Dr Chow were the sole directors of Sydney Subdivision, were responsible for all decisions of Sydney Subdivision and for the keeping of the books and records of the company.

60 Also between 2004-2012 the Pleading alleges that the Respondents continued to borrow monies from the Chow Family Trust by way of unsecured loans. The particulars of this allegation then list by year, the balance of the borrowing and the change in borrowing.  This appears to be with reference to the financial statements of the Chow Family Trust.  The Respondents do not admit this allegation.

61 The Applicants allege that the Directors’ Loan is recorded in the financial statements in an amount of $2,551,330 and that this amount remained outstanding at the date of the appointment of the Liquidator, on 13 July 2015.  The Respondents deny this as there were no financial statements for that date or the 2015 or 2016 financial year.  To support this, at the hearing the Applicants relied on the Directors’ Loan being recorded in the financial statements in an amount of $2,551,330 for the year ending 30 June 2012.  By the time of the hearing, evidence to support this position (at 30 June 2012) was accepted by the Respondents. As I have already found above, the Directors’ Loan were still and due owing to the Chow Family Trust in the amount of $2,551,330 at the time of the appointment of the Liquidator.

62 The Applicants then allege that a demand for repayment of the Directors’ Loan was made on 19 October 2015, to the Respondents by the Liquidator.  However, the Respondents have failed, refused or neglected to repay the Directors’ Loan, which is admitted.

63 The Applicants then claim, which the Respondents admit, that during the course of its business activities the Chow Family Trust incurred liabilities to third parties, which were outstanding at the date of the winding up of Sydney Subdivision and provable in that winding up.

64 The Applicants allege that Sydney Subdivision enjoys rights of indemnity, out of the assets of the Chow Family Trust for the liabilities it incurred in the course of its conduct of the business of the trust, which is admitted by the Respondents.  In aid of the right of indemnity, it is claimed and admitted that the Applicants are entitled to the appointment of a receiver to administer the assets of the Chow Family Trust, which have now passed to Subdivision Holdings.  Such a receiver is entitled, the Applicants claim, to seek the Court’s assistance to require such persons who owe obligations to the Chow Family Trust to pay, deliver or otherwise discharge such obligations.  The Respondents admit that the Receiver is entitled to take steps to vindicate Sydney Subdivision’s rights of indemnity pursuant to the powers in the Court’s Order of 3 September 2024.

65 The Applicants claim that following the resolution for winding up or the Liquidator’s demand on 19 October 2015, the whole amount of the Directors’ Loan indebted to Sydney Subdivision became immediately due and payable.  This is denied by the Respondents.

66 The appointment of Subdivision Holdings as the successor trustee of the Chow Family Trust on 29 August 2018 and holder of the Directors’ Loan is admitted.  The Respondents further contend that on registration of the appointment of Subdivision Holdings on 11 November 2020 the legal ownership of the Directors’ Loan (which would necessarily apply to all trust assets of the Chow Family Trust) vested in Subdivision Holdings.

67 The Respondents admit that as the former trustee, Sydney Subdivision may continue to possess rights of indemnity but denies that Sydney Subdivision can recover pursuant to those rights, in the present case. The Respondents do not admit that they were indebted to Sydney Subdivision or the Chow Family Trust at the date of the appointment of the Liquidator, but admit that at one point this debt was recorded in the financial statements. The Respondents contend that if any loan advances occurred more than six years prior to the commencement of the winding up, then such a claim would be statute barred.

68 With that understanding of the Applicants’ Pleading, it is necessary to characterise the Applicants’ claim.  The Respondents were correct to admit that Sydney Subdivision, the former trustee, enjoys rights of indemnity. In Naaman v Jaken Properties Australia Pty Ltd (2025) 281 CLR 635; [2025] HCA 1 at [1], Gageler CJ, Gleeson, Jagot and Beech-Jones JJ stated (footnotes omitted):

It has been settled by decisions of this Court, consistently with decisions of many other courts in Australia and elsewhere, that a trustee has as an incident of office an entitlement in equity to be indemnified out of the trust assets (by way of recoupment of past expenditure or exoneration from existing liability) for expenses and liabilities properly incurred by the trustee in the execution of the trust and that the trustee has a beneficial interest in the trust assets commensurate with that entitlement to indemnification which takes priority over the beneficial interests that the persons for whose benefit the trustee is bound to administer the trust assets (the cestuis que trust) have in the trust assets. It has also been acknowledged in this Court, consistently with decisions of many other courts in Australia and elsewhere, that the entitlement to indemnification and the commensurate beneficial interest that the trustee has in the trust assets survive replacement of the trustee by a successor trustee.

(emphasis added)

69 The interest that the trustee has in trust assets is characterised as a “beneficial interest in the trust assets”: Naaman at [13]. Properly understood that “beneficial interest” is an equitable proprietary interest in the trust assets: Naaman at [16]; Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524; [2019] HCA 20 at [83] (Bell, Gageler and Nettle JJ); Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; [1979] HCA 61 at 367 and 370 (Stephen, Mason, Aicken and Wilson JJ). This is because a trustee is personally liable for debts and liabilities incurred in its capacity as trustee: Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 319; [1945] HCA 37 at 324; Octavo at 367; Carter Holt at [24].

70 A court of equity “will assist the trustee to realise trust assets to satisfy the trustee’s right of indemnity” which may be by way of the trustee’s equitable charge or lien over the trust assets: Naaman at [19].  It is clear, although described in different ways at times, the trustee has a proprietary interest in the trust assets for no more and no less than the indemnified amount: Naaman at [22]-[26].  There is no difference between the right of indemnity and the proprietary interest: Naaman at [24].  This right of indemnity, this proprietary interest in the trust assets, takes priority over the beneficial interests that the beneficiaries of the trust have in the trust assets: Naaman at [1] and [13]; Carter Holt at [83]-[84]; Octavo at 367 and 370.

71 A former trustee is in relatively the same position and retains a right, by way of a proprietary interest in the trust assets to be indemnified against liabilities properly incurred: Naaman at [25]-[26].  As explained below (Naaman at [48]) the former trustee enforces its entitlement by bringing proceedings against the successor trustee.  If the trust property is transferred to a new, successor trustee, the lien survives and the new trustee takes the trust property subject to the lien of the old trustee: Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd (2008) 74 NSWLR 550; [2008] NSWSC 1344 at [21], Brereton J.  This is enforceable only by judicial sale or the appointment of a receiver: Lemery at [18].

72 However, a successor trustee does not owe a fiduciary obligation to a former trustee in respect of either the entitlement of the former trustee to indemnification out of the trust assets or the commensurate beneficial interest of the former trustee in the trust assets: Naaman at [6].  This is explained by the nature of the trustee’s or former trustee’s entitlement to indemnification and commensurate beneficial interest in the trust assets: Naaman at [12].  The Court is able to protect the equitable proprietary interest of the former trustee by, amongst other matters, appointing a receiver to take possession of the trust assets: Naaman at [28].

73 The High Court explained the position of the former trustee as (Naaman at [48]):

At all times since its replacement by [the successor trustee], [the former trustee] has been able to enforce its entitlement as a former trustee by bringing a proceeding against [the successor trustee] in the Equity Division of the Supreme Court for final relief in the form of an order for the sale of the trust assets or for payment out of trust funds. At all times since its replacement by [the successor trustee], [the former trustee] has also been able to protect its entitlement from being destroyed, diminished, or jeopardised by conduct of [the successor trustee] by seeking in such a proceeding an interlocutory injunction or the appointment of a receiver.

(emphasis added)

74 Although at times, the Applicants repeatedly mentioned the Respondents’ indebtedness to Sydney Subdivision or the Chow Family Trust, the Applicants’ claim is not one based on debt or contract. The Applicants’ Amended Originating Application states that it seeks “(t)he sum of $2,551,330 in unpaid director’s loans”.  That originating process does not seek to characterise the basis of that claim.  It does so on the basis of the matters in the Pleading.  When the Pleading and the Amended Originating Application are read together, the Applicants’ claim is one based on the former trustee’s entitlement to indemnification and the commensurate equitable proprietary interest in the trust assets.  A particular trust asset, being the Directors’ Loan, is identified. The right of indemnity is one which “at all times” since Sydney Subdivision (the former trustee) was replaced by Subdivision Holding (the successor trustee), Sydney Subdivision has been able to enforce its entitlement.

75 In this context it is well to keep in mind that Sydney Subdivision’s “property” constituted by the right of indemnity (that being its commensurate equitable proprietary interest in the trust assets) is separate and distinct to the property that constitutes the trust assets themselves: Carter Holt at [85]. This is so even though that right of indemnity confers an equitable proprietary interest in those trust assets. This matter has suffered from a conflation in concepts which has resulted in many misconceptions during these proceedings.

76 A court of equity may authorise the sale of assets held by the successor trustee so as to satisfy the right of indemnity or where the property is a fund, making an order requiring payment out of that fund: Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226; [1998] HCA 4 at [50] (Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ); Naaman at [18], also see Hewett v Court (1983) 149 CLR 639; [1983] HCA 7 at 663 (Deane J).

77 The difficulty identified in Lemery was one regarding whether the old trustee’s right to possession takes priority over the entitlement of the replacement trustee, where there was authority that the equitable lien of a trustee is possessory at least to the extent that it entitles the trustee to retain possession as against the beneficiaries: Lemery at [23]-[36]. Brereton J observed (at [40]):

Those cases are significant because they tell against the notion that the trustee’s equitable lien – which on the authorities plainly extends to all trust assets – gives the trustee a right to possession of all of these assets. …

78 What is clear from this consideration, is that the circumstances were such that the quantum of the old trustee’s right of indemnity was less than the whole of the trust assets.  This why in the matter of Hillig v Darkinjung Local Aboriginal Land Council (2006) 205 FLR 450; [2006] NSWSC 1371 (Barrett J), the appropriate course was to require the old trustee to transfer all of the trust assets to the new trustee except for a specified sum which was paid into Court pending resolution of the old trustee’s claim to indemnity: Lemery at [39].  Also in Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576 at 587 (McPherson J, Andrews SPJ agreeing), the trustee’s right of retainer extended only to sufficient assets to cover the trustee’s claim for indemnity and did not entitle the trustee to retain all of the assets in satisfaction of a claim, which would have been easily satisfied out of only a small proportion of those assets: Lemery at [39].  Brereton J was of the view that the trustee was entitled to retain only sufficient trust assets to cover the indemnity and not more: Lemery at [48].  Brereton J explained that (at [50]):

… it follows in principle that a former trustee does not have a right to retain, as against a new trustee, the trust assets as security for an accrued right of indemnity, though the former trustee is entitled to ensure the new trustee does not take steps which will destroy, diminish or jeopardise the old trustee’s right of security, which subsists in the trust assets after their transfer to the new trustee. …

79 Again, this position is based on there being a greater quantum of trust assets, than any amount that may be required pursuant to the former trustee’s right of indemnity.  The trustee’s interest in the trust property is sufficient to render the description “trust property” inadequate as the trustee no longer holds property solely in the interests of the beneficiaries of the trust: Octavo at 370.  Until the right of indemnity has been satisfied it may be impossible to say what is the trust fund: Buckle at [48].  To the extent that assets held by the trustee are subject to right of indemnity, those assets are not properly “trust assets” or “trust property”: Buckle at [48].

80 The former trustee has a beneficial interest in the trust assets “commensurate” with that entitlement to indemnification: Naaman at [1], [13], [21], [26] and [30].  That is, the beneficial interest is to the extent necessary to ensure indemnification and not more.  That is to exonerate (or if already paid, by way of recoupment) the trustee who is personally liable for the liabilities incurred on behalf of the trust.  Therefore, in circumstances where the entitlement to indemnification exceeds the quantum of the trust assets, then the descriptor “trust assets” is not accurate.  Such a trustee would have a beneficial interest in all of the property, previously described as “trust property”.

81 The Respondents spend much of the remaining relevant parts of the Defence advancing a limitation defence against a claim in debt or in contract (as is outlined above – which will not be repeated).  The Respondents’ closing submissions characterise “(t)he Applicants’ claim for the [Directors’ Loan] [as] a cause of action in debt…” and commence those submissions with “(t)he Applicants’ claim depends on debts which date from 30 June 2012 and much earlier than this.” A key step in the Respondents’ argument is the “debt claim for $2,551,330”.  The Respondents contend that the starting point for resolving the limitation issue (already described as being a limitation period for a debt claim of six years) is the identification of the plaintiff/applicant.  That according to the Respondents is either Sydney Subdivision or Subdivision Holdings.

82 However, the Respondents contended starting point is based on the stated assumption that the Applicants’ claim is based on a debt or contract claim.  It is this assumption, which is then built upon in the Respondents’ submissions, without any substantive analysis of that assumption. This is so, despite the Respondents admitting in its Defence that Sydney Subdivision enjoys rights of indemnity.  The Respondents place heavy reliance on s 9 of the Trustee Act which deals with vesting (to which I will return).  The Respondents contend that “(i)t is the [Directors’ Loan] the Applicants are suing on.”  As the above analysis of the Applicants’ Pleading demonstrates that is not the basis or a proper characterisation of the Applicants’ claim.  However, then the Respondents recognise, in their written closing submissions that “Sydney Subdivision has a right of indemnity as a former trustee, that is exercisable against the assets of the Chow Family Trust.” However, despite that reference, the Respondents then again seek to characterise the Applicants’ claim as “(t)he indemnity may entitle Sydney Subdivision to the fruits of this proceeding but the cause of action is recovery of the [Directors’ Loan]”.  It is by the continual characterisation of the Applicants’ claim as being one based on debt that the Respondents raise the limitation defence.

83 However, the Applicants’ claim is not one based on debt or contract.  The basis of the Applicants’ claim is one seeking the former trustee’s entitlement to indemnification and commensurate equitable proprietary interest in the trust assets of the Chow Family Trust.  However, the only asset identified is the Directors’ Loan. It is an entitlement which the former trustee (Sydney Subdivision, the First Applicant, brings by the Liquidator, the Second Applicant) which seeks to enforce that entitlement against the successor trustee, Subdivision Holdings (Third Respondent) and potentially directly against the Respondents.

84 This is the characterisation of the Applicants’ claim; it is based on the position of the former trustee.  As such, the Applicants’ claim is for equitable relief.  Section 14, which is relied on by the Respondents does not apply to equitable relief: s 23 of the Limitation Act.

85 The Applicants also originally sought additional relief.  Some of that relief (appointing the Liquidator as Receiver, having the powers under s 420 of the Corporations Act and other powers and that any amounts recovered can be applied in certain ways) have already been granted by way of the Orders of 3 September 2024.  The Applicants also seek an order directly that the Respondents pay to the Receiver or bring into Court the amount of $2,551,330 to discharge the entitlements of the former trustee.

(2) Does the Applicants’ claim depend on the characterisation of the Directors’ Loan?

86 The Applicants’ claim is an equitable claim for relief based on the former trustee’s right of indemnity.  It is not an action or a cause of action founded on contract (to use the language of s 14 of the Limitation Act).  In this sense the characterisation of the Directors’ Loan is not relevant. The Liquidator has been appointed Receiver and can realise the assets of the trust in exercise of the lien to secure the trustee’s right of indemnity: Carrello, in the matter of Gembrook Investments Pty Ltd (in liq) [2019] FCA 1143 at [21] (Colvin J).

87 However, in case I am wrong and given the time taken on this issue, I will consider it.  The Respondents advance the following submissions regarding the Directors’ Loan to support the proposition that the Applicants’ claim is statute barred on the basis of s 14(1) of the Limitation Act.  Those can be summarised as follows.

(a) Whether the Directors’ Loan was one loan or a series of separate loans?  In any event, all sums were advanced by (at the latest) 30 June 2012 and as it did not have a specified repayment date, the debt was repayable immediately.  It was not repayable by a precondition of a demand. Hence, any claim on the basis of this loan was statute barred and there was no subsequent acknowledgment.

(Was the Directors’ Loan immediately repayable?)

(b) Does the claimed transfer of rights to Subdivision Holdings, mean that it is the proper plaintiff, who could sue upon the Directors’ Loan?  If so Subdivision Holdings was not joined to the proceedings until 17 June 2024, which also means the claim remains outside the six year limitation period and statute barred.

(What is the position of Subdivision Holdings?)

(c) Finally, aspects of unconscionability cannot be relied upon by the Applicants to contend that the Respondents are unable to rely on the limitation defence.

(Is the Respondents’ position unconscionable?)

88 Although the Applicants’ claim is based on the former trustee’s entitlement to indemnification and commensurate equitable proprietary interest in the trust assets of the Chow Family Trust, these proceedings do not only involve the former trustee seeking to enforce that position as against the successor trustee.  The Respondents, against whom the relevant chose in action is (being the Directors’ Loan), are also parties to these proceedings.  Furthermore, even though the Liquidator has been appointed Receiver over all present and after acquired property, rights and undertakings of the Chow Family Trust, it is likely (given the Respondents’ position in these proceedings) that the Respondents would contest any recovery by the Receiver.  Whether the Directors’ Loan is statute barred may be relevant for the position of the Receiver: see Angius v Salier (No 4) [2020] NSWSC 1171 (Ward CJ).  The issue has been fully ventilated, and all necessary parties are before the Court.

Was the Directors’ Loan immediately repayable?

89 All parties accepted that the Directors’ Loan was not the subject of a written loan agreement. The agreement must either be oral or partly oral and partly by conduct, that is to say, an informal contract.  The Respondents rely on the usual position, described as the “normal rule” from Ogilvie at 1043 that where there is nothing said as to repayment, the money is repayable instanter, immediately. The debt which constitutes the cause of action arises instantly on the loan, where money is simply lent: Young v Queensland Trustees Ltd (1956) 99 CLR 560; [1956] HCA 51 at 566 (Dixon CJ, McTiernan and Taylor JJ); also see Australian Medico-Legal Group Pty Ltd v Claireleigh Mosman Pty Ltd [2017] NSWCA 218 at [40] and [74], (White JA, with whom Basten JA agreed); Haller v Ayre [2005] 2 Qd R 410; [2005] QCA 224 at [15]-[32] (Keane JA with whom De Jersey CJ and Mullins J, as the President then was).

90 The Respondents contend that this case is within the usual position, where the “normal rule” is applicable and hence the Directors’ Loan was repayable immediately on its advance.  This is advanced on the basis that each sum of money lent was a separate loan.  Each sum was said to be immediately repayable such that the six year limitation began to run from the date when each sum was lent.  Further, the Respondents also advance the four different limitation arguments (see at [45] above).

91 The Respondents however, did not advance any evidence or financial analysis to support this submission that each sum lent was a separate loan, the subject of a separate cause of action and hence the subject of a separate (and possibly earlier) limitation period. However, this submission was said to be supported by the descriptor, on an objective basis, in the financial statements of “loans”, plural.  I do not accept this characterisation of the Directors’ Loan, for the following reasons.

92 The Respondents did not seek to identify (by reference to the evidence) which part or parts of the amounts lent to them in any particular year were, as they claimed, then immediately repayable on that specific advance and hence now statute barred.  In these circumstances, as this was a basis for the Respondents’ limitation case, it was incumbent upon them to properly support this submission with evidence.  As such, I draw the inference that the absence of this evidence is most likely because such records do not exist, because they were not maintained.  Not maintaining such records, objectively, does not support a finding that each and every advance or payment from the Chow Family Trust to the Respondents was a separately identifiable loan, immediately repayable.

93 The descriptor in the financial statements of “loans”, being “Loans, unsecured” and “B & R Chow”, does not support the proposition that the outstanding amount from the Respondents to the Trust were separate individual loans, each of which arose at a separate date and which was immediately repayable.  These descriptors would have been given by the accountants, although accepted by the Respondents at the end of the financial year, when the financial statements were prepared and accepted by the Respondents.  The balance sheet also describes “Loans at call” in the current assets, “Loans, unsecured” non-current receivables, “Loans at call” in current liabilities and “Loans, secured” in non-current liabilities.  The notes to the balance sheet then provide further details of these amounts.  In the 2004-2012 financial statements, the current asset, “loans at call” varies from four separately identified loans, to one and nil in the 2010 and 2012 year, and then one separate loan in the 2011 year.  The current liabilities “loans at call” varies from one separate loan in 2004, to two in 2007 and back to one in 2011 and 2012. The non-current liabilities of “loans, secured” always comprises of more than one loan.  These overarching descriptors in the financial statement are simply that, a label or account classification for the purposes of compiling the financial statements.  The Respondents’ submission seeks to draw too much on the descriptor.  On this basis I do not accept that this supports the Respondents’ submissions that the Directors’ Loan comprised of multiple separate loans, arising on different dates. The Directors’ Loan will be considered and is one loan.

94 Rather than the application of what was described as the “normal rule” the position remains always an exercise of construction: VL Finance Pty Ltd v Legudi (2003) 54 ATR 221; [2003] VSC 57 at [43]-[53] (Nettle J); Haller at [31].  This was also expressly recognised in Ogilvie.  All of the terms in Ogilvie were in the written document and Fullagar J observed (at 1043) that it raised “a pure question of construction of the document”.  That construction and the implication of a term is based on the relationship between the parties and the surrounding circumstances of the loan: V L Finance at [41]-[42]; Suh v Cho [2016] VSC 108 at [56] (Elliot J).  The Victorian Court of Appeal has described it as follows, in GMH Nominees Pty Ltd v Wallace Jackson Pty Ltd (2022) 68 VR 377; [2022] VSCA 230 at [1] (Ferguson CJ, Sifris and Macaulay JJA):

When A lends money to B with nothing at all said as to repayment, the money is repayable immediately. Where the borrower simply agrees to pay on request, again the money is repayable instantly. To avoid a cause of action for recovery arising in A instantly, thereby commencing the relevant limitation of action period under statute, parties must contract out of that situation. A term that provides for the time for repayment may be inferred or implied, objectively, from relevant communications and the circumstances existing at the time of the loan. Determining when loans were repayable is the issue in this appeal.

(footnotes omitted)

95 Brereton J in Re In the matter of Italasia Pty Ltd [2017] NSWSC 811 at [17] described it as:

In order for a special term of a loan contract to prevent the cause of action from arising instantly on the loan being made, there needs to be something from which the Court can see that the parties, had made provision inconsistent with the ordinary position. …

96 In re Brookers at 382 and 383 described the position as follows:

The first stage in answering that question is to determine when the cause of action which is said to have been barred, arose. Section 35 of the Limitation of Actions Act provides that an action founded upon any simple contract shall be commenced “within six years next after the cause of action accrued and not after”. It is trite to say that where there is a simple loan of money, the debt is due and payable immediately and from day to day from the time of the making of the loan, and that the cause of action therefore arises immediately upon the loan of the money. This position is unchanged by the fact that there is an express agreement making the loan repayable on demand, on request or on call; the debt is nevertheless due and payable immediately: Young v. Queensland Trustees Ltd; Norton v. Ellam. If, however, the agreement between the parties is that the loan is repayable only upon the happening of a certain event or upon compliance with a condition precedent to liability, the debt is not immediately due and payable and the cause of action does not arise until the happening of the event or compliance with the condition: Atkinson v. Bradford Third Equitable Benefit Building Society. The agreement may provide that the amount of the loan is not repayable until a demand is made, in the sense that the making of an actual demand is to be a condition precedent to liability to repay, and in that case the cause of action will not arise until the demand has been made: Murphy v. Lawrence. An agreement that liability to repay does not arise until an actual demand is made may be express or implied or may be inferred from the circumstances and the conduct of the parties; it may be implied from their relationship; Joachimson v. Swiss Bank Corporation.

…

It is, of course, common enough for proprietors of a business, who have formed a company to take over the business or who have constituted a family or other trust, to leave funds on loan for use as working capital. The intention is usually that such funds, subject to withdrawals from time to time, will remain for an indefinite period of time for use in the business. In many cases, of course, liability to repay is governed by the terms of an agreement in writing. Where there is such an agreement, the question is one of construction of the written agreement: Ogilvie v. Adams. Where there is no written agreement, the question may be determined by reference to express oral terms which are proved and interpreted in the ordinary way. Where, however, there are no express terms, an agreement as to the circumstances in which liability to repay arises must be implied from the surrounding circumstances and the conduct and relationship of the parties. It becomes a question of whether the parties, if they had applied their minds to the issue, would reasonably be expected to have agreed to depart from the general rule of immediate liability to repay and to have agreed that some notice would be a prerequisite of such liability. I feel no doubt that in the generality of cases in which loan moneys are provided as working capital following the incorporation of a company to take over a business or the establishment of a trust, those concerned would assume that some notice of demand was a necessary prerequisite of liability to repay.

(footnotes omitted)

97 In GMH (at [33]-[36]) the principles for inferring or implying terms in relation to an informal contract as explained by Deane J in Hawkins v Clayton (1988) 164 CLR 539; [1988] HCA 15 at 573, subsequently approved in Byrne v Australian Airlines Ltd (1995) 185 CLR 410; [1995] HCA 24 at 422 (Brennan CJ, Dawson and Toohey JJ) were conveniently summarised as involving:

…two possible stages which often overlap and, commonly, do not need to be distinguished. The first is to infer, objectively, the terms that the parties actually intended to incorporate in their agreement; the second is to imply terms into the contract as a matter of presumed or imputed intention. The second step would usually concern matters which, at the time, the parties did not direct their minds to and, so, said nothing between them on which any actual intention could be inferred.

98 With these principles firmly in mind, it is necessary to consider the evidence.

99 The evidence before the Court, by way of financial statements for the Chow Family Trust (and admitted) is that Mr and Dr Chow started borrowing from the Chow Family Trust in (at least) 2004.  The Respondents submitted that the commencement of the Directors’ Loan was uncertain.  It could have been a practice since the settlement of Chow Family Trust in 1980.

100 On the evidence before the Court, it is not possible to make a finding when the Directors’ Loan first commenced.  However, there was no dispute and the Respondents accepted that they had, at least at a particular point in time, lent money from the Chow Family Trust, and that such money lent was correctly recorded up to the year ending 30 June 2012, in the financial statements. Each of Mr and Dr Chow gave evidence that they regarded the financial statements as correct, relying on their accountants. The Respondents did not give any evidence of any express oral discussions regarding the Directors’ Loan.

101 The evidence was that the Respondents would withdraw funds from the Chow Family Trust bank account when they needed, and either pay it to their joint bank account or pay their credit cards.  The amounts borrowed and paid to their joint bank account or credit card accounts were used to fund their lifestyle.  However, there was some evidence that sometimes their personal credit cards were used to pay for an expenses that was for the Chow Family Trust.  No analysis or reconciliation of such amounts was provided by the Respondents.   The Respondents also stated that payments were (or credits applied) in reduction of the Directors’ Loan.  All of these transactions, which either increased or decreased the amount of the Directors’ Loan, were dealt with at the end of each financial year by the Respondents’ accountants.  Details of these transactions were provided to the accountant who gave such amounts an appropriate accounting treatment, and would prepare the financial statements and calculate the correct balance of the Directors’ Loan.

102 Although there was a change in the loan balances from 2004 to 2012, there was no evidence that the change was brought about because amounts which would be statute barred had been written-off.  The fluctuations in the debt figure (calculated by the accountants) recorded in each set of financial statements was due to amounts taken out of the Chow Family Trust bank account by the Respondents and amounts of money that were paid back (or credited) into that bank account.

103 Mr Chow gave evidence that when he withdrew monies from the Chow Family Trust, he gave little to no thought as to the characterisation of those funds, including whether it was one debt or whether Mr and Dr Chow were jointly responsible for the debt.  Mr Chow also gave evidence that he was aware of the debt recorded in the financial statements, but also that he was in control of the trustee of the Chow Family Trust and hence it was not important to make repayments in order to reduce and ultimately repay the debt.  Of course, his subjective intention is not relevant, the objective theory of contract is in command of the field:  Realestate.com.au Pty Ltd v Hardingham (2022) 277 CLR 115; [2022] HCA 39 at [17] (Kiefel CJ and Gageler J), at [43], [50]-[51] (Gordon J) and [83] (Edelman and Steward JJ); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40]-[41] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

104 Dr Chow knew that some of the money provided from the Chow Family Trust was in the form of a loan.

105 In terms of the relationship of the parties, Mr Chow and Dr Chow on one side, were the borrowers of funds from the Chow Family Trust, on the other side, the corporate trustee who (at the time) was Sydney Subdivision.  Mr Chow and Dr Chow were also the directors and shareholders of the corporate trustee, Sydney Subdivision.  This, the Respondents submit, supports a finding that they would not have agreed to terms that repayment was subject to a precondition, being a demand for payment.  The Respondents regarded the trustee of the Chow Family Trust as their own entity and they were in control.

106 The Respondents submitted that the example given in Haller of borrowing a neighbour’s lawnmower was apt in these circumstances. The lawnmower was returnable on demand but should have been ready at any time for the owner who can reclaim it.  The distinction the Respondents sought to draw was one between the necessity to return the lawnmower and the legal obligation to return the lawnmower.  The Respondents submitted that the analogy was clear, they might have repaid the Directors’ Loan (in full or in part) at any time or they might not, depending on the exigencies of the moment.  However, there was no legal obligation to make a preconditional demand first. This, it was submitted, was on the basis that they would have gone into the loan relationship with an expectation that they could move money back and forth between themselves, personally and the Chow Family Trust when and as they pleased.  However, this submission, rather than supporting a contention that this meant the loan would have been repayable immediately, objectively supports a finding that the loan was one which would be indefinite and therefore contained a precondition of a demand, before it was due and payable.  Furthermore, this also supports a finding that the Directors’ Loan was not a simple loan of money, but more akin to the concept of a running account, a line of credit or revolving credit, it being a loan or credit facility that the Respondents had with the Chow Family Trust from which they drew and repaid time and time again.  There was no expiration or requirement for the entire amount to be paid immediately, nor was it is a simple loan for a fixed sum at a particular point in time.  Objectively, the essential feature of the arrangement between the Respondents and the Chow Family Trust was a continuing of that relationship with an expectation that further debits and credits would be applied to the Directors’ Loan account.  This is the apparent mutual or common understanding.

107 No interest was ever paid on the Directors’ Loan, nor was any interest applicable to the Directors’ Loan.

108 The beneficiaries of the Chow Family Trust not only included Mr and Dr Chow but also their children, other family members (such as an aunt and mother) and other eligible beneficiaries.  In this way, objectively the terms of the Directors’ Loan would not be construed such as to be potentially disadvantageous to the remaining beneficiaries of the Chow Family Trust, by part of the trust assets becoming unenforceable by the mere effluxion of time.

109 The Balance Sheets for 2004 (by way of comparator) and 2005 had current assets of “Loans at call” and current liabilities of “Loans at call” and well as non-current receivables being the Directors’ Loan and non-current liabilities being “loans, secured”.  The characterisation of the Directors’ Loan did not change from being a non-current receivable (even when, say from 2004, in 2010 it would have been due and payable, if immediately repayable).  Objectively, this also supports the terms of the agreement being one which provided an ongoing loan facility.

110 The Respondents rely on the repayments that were made, as the balance of the Directors’ Loan decreased, without any evidence of a request for repayment.  This, the Respondents accepted, might also be consistent with a loan facility, but it was submitted to be inconsistent with a requirement of a precondition for a demand for repayment.  I do not accept this submission.  It is not inconsistent with requiring a preconditional demand however, it is certainly consistent with the terms of the agreement being one by which there was an ongoing relationship, with future debits and credits.

111 The Respondents submitted that the Applicants were seeking to imply a term that the Directors’ Loan would not be immediately repayable, but required a precondition (being a demand), which was based on an application of legal policy rather than the specific facts of this case.  Further, the Respondents also rely on the stringent requirements to imply a term from BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266.  However, this is not a case of seeking to imply a term into a formal written contract and as such, I do not accept this submission by the Respondents.  The agreement here is an informal agreement.  As such the approach explained by Deane J in Hawkins and conveniently encapsulated in GMH, is the appropriate approach.

112 The objective purpose of the Directors’ Loan was to provide the Respondents with a flexible ongoing source of funds, in the nature of a running account, a line of credit or a revolving loan.  The income that the Respondents respectively generated was received by the Chow Family Trust.  Some of which was paid to each of Mr and Dr Chow as a salary or wage.  However, they also accessed additional funds from the Chow Family Trust to support their lifestyle.  The Directors’ Loan was not a fixed sum lent at a particular point in time (and hence not, applying the “normal rule” repayable immediately).  Amounts were added by way of additional borrowings and amounts were repaid (or credits were applied) to reduce the borrowing, year after year.  The construction of this agreement regarding the Directors’ Loan, does not support the application of the normal rule.

113 The loan in Ogilvie was a single sum of $63,200 lent on 29 April 1957.  There were three loans in Young at 561, dated 14 February 1950, 21 September 1951 and 18 February 1952.  The first loan comprised of multiple receipts (at 561, 571 and 572) however these were considered as one loan of the relevant date.  In Australian Medico-Legal the loan comprised ten advances between 12 July 2006 and 25 June 2009, with the proceedings being commenced on 25 June 2015.  White JA observed that all but the last advance on 25 June 2009 would have been prima facie statute barred by application of the “normal rule” (at [38] and [40]).  Although this loan was recorded as a single loan in the financial statements (at [41]) the observations regarding application of the “normal rule” support the notion that each loan was separately identifiable and fixed when money was simply lent.  In Haller the first note, which recorded the loan was dated 25 July 1989 and the second note was dated 29 March 1990 (at [12]-[13]).  Each were considered as a separate loan and statute barred when the proceedings were commenced in May 2003. Similarly, the loans sought to be recovered in V L Finance were single fixed loans, each made on a particular day, as was the loan recorded in the agreement in Suh.

114 The Respondents submit that the particular circumstances where a court has been prepared to imply a precondition to the obligation of repayment was where a demonstrated commercial need, usually in the business, was identified to retain the loan or the money.  This was usually in circumstances where the loan was made to the business, for business uses, as opposed to the circumstances of this case. This was with reference to GMH, re Brookers and Woodhouse.

115 It can be accepted that those cases (GMH, re Brookers and Woodhouse) were in circumstances where the loan being considered was one whereby the monies lent were to the company or business for such commercial and business purposes.  However, as a matter of principle, those cases would not be so constrained.  The principle to be adopted is one whereby due to the relationship between the parties and the loan of money as between them, it would be expected that those parties would require, as a precondition, a demand for payment.  Here there is no evidence before the Court of the Respondents’ ability to repay the Directors’ Loan.  However, all of the earnings generated by the Respondents, by provision of the personal services, were received by the Chow Family Trust.  Hence there appears to be a practical need of the Respondents, when they were required to repay the Directors’ Loan, for notice, as a precondition, to be given.

116 Objectively, the parties intended that the Directors’ Loan would be in the nature of an ongoing continuing relationship of debtor and creditor with an expectation that further debits and credits would be recorded to the Directors’ Loan.  Therefore, the Directors’ Loan was not immediately repayable, either when amounts were lent, or at the end of any identified financial year.  A separate demand prior was required.  The written demand of the Liquidator on 19 October 2015 satisfied this requirement.

What is the position of Subdivision Holdings?

117 The Applicants contend that the Directors’ Loan has not been transferred to Subdivision Holdings.  This is on the basis that s 9(1) of the Trustee Act is subject to the remaining provisions of that section, including s 9(5), which states:

9 Vesting

…

(5)    In the case of any property that is only transferable in books kept by a corporation company or other body, or in manner directed by or under any Act, whether of this State or otherwise, the property shall not vest until it is duly transferred.

118 The Directors’ Loan, the Applicants submit, is property that is only transferrable in a manner directed by or under any Act, being the Conveyancing Act. Section 12 of the Conveyancing Act requires such a transfer to be absolute, in writing, signed by the assignor and with written notice to the debtor (the Respondents).  The Respondents submit that this provision does not apply and relies on Lemery for this proposition. The Respondents also rely on the observations in the 2024 Judgment at [37].  It is accepted that the requirements of s 12 of the Conveyancing Act have not been complied with.  In the particular circumstances of this case, it is not necessary to decide whether compliance was necessary, for the following reasons.

119 Relevantly, these proceedings were commenced on 12 March 2020, by the Applicants.  The Applicants were then proceeding as bare trustee, Subdivision Holdings having already been appointed on 29 August 2018.  The Applicants were entitled to commence these proceedings on that basis: Queensland Nikel Sales Pty Ltd v Park (2023) 299 FCR 169; [2023] FCAFC 150 at [174]-[187] (Markovic, Banks-Smith and Halley JJ).

120 However, the Respondents contend that on Subdivision Holdings being registered on 11 November 2020, s 9 of the Trustee Act vests all of the trust property for which the new trustee is appointed.  This is with reference to Lemery at [50]-[53].

121 This does not address the position that the Directors’ Loan is no longer properly described as “trust property”, within the meaning of that term in s 9 of the Trustee Act (see above at [77]-[80]).  If the Directors’ Loan was no longer “trust property” because the former trustee’s beneficial interest in that property, commensurate with its entitlement to indemnification exceeds the quantum of the trust assets, then such property may no longer be trust property.

122 Further, even on the Respondents’ contention this does not mean that Subdivision Holdings was the appropriate entity to seek recovery of the Directors’ Loan, such that consideration of when Subdivision Holdings was joined to the proceedings on 17 June 2024 is then the relevant date to consider the limitation period.  It is also not necessary to decide this issue.

123 The Applicants bring these proceedings based on the position of the former trustee, Sydney Subdivision.  The basis of the Applicants’ claim is one seeking the former trustee’s entitlement to indemnification and commensurate equitable proprietary interest in the trust assets of the Chow Family Trust.  This right survives any transfer of trust assets to Subdivision Holdings.  To this end, Subdivision Holdings is now joined to the proceedings.  The Liquidator of the former trustee has also been appointed Receiver over all present and after acquired property, rights and undertakings of the Chow Family Trust.  That would include the Directors’ Loan.

124 It is necessary to have Subdivision Holdings as a party to the proceedings, to ensure it is bound by the final orders.  However, no issues regarding any limitation defence, because of its joinder on 17 June 2024 arises.

Is the Respondents’ position unconscionable?

125 This was raised by the Applicants to argue that the contended for limitation periods did not apply.  Give the above findings it is unnecessary to decide this issue.

(3) Does the Respondents’ limitation defence, provide a complete defence?

126 The Respondents’ limitation defence does not, on any of the bases advanced, provide a complete defence to these proceedings.

127 The nature of the Directors’ Loan was such that, on a proper construction it was in the nature of an ongoing continuing relationship of debtor and creditor with an expectation that further debits and credits would be recorded to the Directors’ Loan.  A precondition for repayment was that a specific demand was necessary.  As this demand was made by the Liquidator on 19 October 2015 and these proceedings were commenced on 12 March 2020, no issue regarding a possible limitation defence would arise.

(4) What about Subdivision Holdings, the new trustee?

128 The Respondents submit that this proceeding should have been one commenced by Subdivision Holdings, as it holds the relevant legal right to sue.  The Respondents submit that on the registration of the successor trustee, being Subdivision Holdings on 11 November 2020, the entitlement to continue with the proceedings by the Applicants was lost.  This is with reliance on what occurred in Lemery and in reliance on Harker-Mortlock v Commonwealth Bank of Australia [2019] NSWCA 56 at [5] (Meagher JA, with whom Macfarlan and Brereton JJA agreed). It is on this basis that the Respondents submit that any claim by Subdivision Holdings, as it would now have to be, would be statute barred.  As Subdivision Holdings was only joined to the proceedings on 17 June 2024, and that is the relevant date for a consideration of any cause of action it seeks to advance.

129 However, that is to misconceive what it is the Applicants are seeking to enforce.  The Applicants are seeking, being the former trustee, to enforce its rights of indemnity.  There is no difficulty in the way that the proceedings are now advanced as Subdivision Holdings is a party to the proceedings.  The Directors’ Loan is (subject to the observations at [77]-[80]) is a trust asset of the Chow Family Trust.  The Liquidator has also been appointed as Receiver over all present and after acquired property, rights and undertakings of the Chow Family Trust.

130 It is well-established, and has already occurred in these proceedings, that a receiver can be appointed over any trust property to secure the former trustee’s right of indemnity over the assets of the trust: SMP Consolidated Pty Limited (in liquidation) v Posmot Pty Limited [2014] FCA 1382 at [7] (Yates J) and the authorities cited therein.

131 The equitable relief available to the chargee is directed against the property, the subject of the charge and is only for the purpose of satisfying out of that property the indebtedness secured by that charge: Naaman at [19]. The entitlement of the former trustee is a right to have the trust property applied in payment of the indemnified amount: Naaman at [24].  The remedy to enforce that right is an order that the trust property be applied in paying an amount due under the right of indemnity.  It is the availability of this remedy which characterises the right of indemnity as conferring on the former trustee an equitable proprietary interest in the trust property, akin to a conventional equitable charge: Naaman at [25].

132 It is this interest that the former trustee retains in the trust assets and the continuing ability that the former trustee, Sydney Subdivision has to obtain the assistance of the court to enforce its entitlement, which is the basis of the Applicants’ claim: Naaman at [26].

CONCLUSION

133 The Applicants are entitled to relief.

134 I will hear from the parties as to the appropriate form of final orders given that some of the relief sought by the Applicants in its Pleading has already been granted, because the Liquidator has also been appointed the Receiver, over all present and after acquired property, rights and undertakings of the Chow Family Trust and because the form of final orders can vary: Naaman at [27].

135 I will also make timetabling orders, for the provision of submissions and any necessary affidavits, relating to costs.

Associate:

Dated:    30 September 2026