Australia's Residential Builder Pty Ltd (In Liq) v Robert Wiederstein
[2018] VSC 37
•9 February 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2014 03528
| AUSTRALIA’S RESIDENTIAL BUILDER PTY LTD (ACN 136 733 732) (IN LIQUIDATION) AND ANOR | Plaintiffs |
| v | |
| ROBERT WIEDERSTEIN AND OTHERS (according to the schedule attached) | Defendants |
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JUDGE: | Randall AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 19 August 2016 and 22 August 2016 |
DATE OF JUDGMENT: | 9 February 2018 |
CASE MAY BE CITED AS: | Australia’s Residential Builder Pty Ltd (In Liq) & Anor v Robert Wiederstein & Ors |
MEDIUM NEUTRAL CITATION: | [2018] VSC 37 |
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FUNDS IN COURT – Net proceeds of sale of joint interest realised pursuant to the provisions of the governing Joint Venture Agreement – Application for payment out – Competing claims – Plaintiffs’ claims pursuant to a constructive trust, a proprietary remedy under s 588FF of the Corporations Act 2001 (Cth) (‘Corporations Act’) or pursuant to the rule in Universal Distributing Company Limited (in liq) – Claim by corporate trustee (now in liquidation) as the former holder of the joint venture interest to a right of indemnity secured by a charge or lien over the fund in court – Claim by beneficiary of the trust that the joint venture interest had been distributed to another trust prior to realisation pursuant to the Joint Venture Agreement.
BREACH OF FIDUCIARY DUTY BY DIRECTOR – Constructive trust – Personal obligation attaching to trust property – Interrelationship between a constructive trust and tracing.
CORPORATIONS – Corporations Act, s 588FF(1)(d) – Availability of proprietary remedy – Identification of property to which the remedy could attach.
TRACING – Equitable tracing – Money paid to meet liabilities – Money paid into bank account to extinguish debt or meet expenses.
RULE IN UNIVERSAL DISTRIBUTING – Creation of fund – Increase in fund paid into court – Benefit to trust property.
TRUSTEES RIGHT OF INDEMNITY – Whether deed of settlement – Can exclude the trustee’s right of indemnity.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr I Upjohn QC Mr E Moon | Thomas Egan & Associates |
| No appearance for the First and Second Defendants | ||
| For the Third Defendant | Mr T Sowden | John Anile Pty Ltd |
| For Wiederstein Corporation Pty Ltd (In Liquidation) as the former Trustee of the Weiderstein Investment Trust | Mr A Purton | Mills Oakley |
HIS HONOUR:
This is an application for payment of funds out of Court.
Claimants
The first group of claimants comprise of the following:
(a) Australia’s Residential Builder Pty Ltd (In Liq) (‘ARB’);
(b) ARB Developments Pty Ltd (In Liq) (‘ARBD’); and
(c) Richard Rohrt in his capacity as liquidator of each of ARB and ARBD.
The second claimant is Wiederstein Corporation Pty Ltd (In Liq) (‘WC’)
The third set of claimants comprise of:
(a) Bronwyn Wiederstein; and
(b) Wiederstein Corporation No. 1 Pty Ltd as trustee for the Wiederstein Superannuation Fund.
Relevant Personnel
ARB
On 7 August 2013, the directors of ARB resolved to appoint Richard Rohrt and Leigh Dudman as joint and several administrators of ARB. Subsequently, on 11 September 2013, Richard Rohrt and Leigh Dudman were appointed joint and several liquidators of ARB.
The directors of ARB were:
(a) Robert Wiederstein (1 February 2010 to 31 May 2013); and
(b) Graeme Arthur Varcoe (from 23 April 2009 to 1 June 2010). He was re-appointed as a director on 31 May 2013 and remained so until the winding up of ARB.
(c) Raymond Francis De Weerd (from February 2010 to 31 May 2013). He acted as a shadow director despite his disqualification on 29 November 2011 from managing any corporation for a period of 18 months. Raymond Francis De Weerd participated fully in ARB’s executive meetings, maintained an office in ARB’s premises and notably received a consulting fee of $4,527 per week for his services, which was the same amount paid to ARB’s directors.[1]
[1]Affidavit of Richard Trygve Rohrt, sworn 16 July 2014, exhibit ‘RTR-5’.
ARBD
ARBD was incorporated on 31 January 2008 and acted as trustee of the ARB Developments Unit Trust. The directors of ARBD were:
(a) Robert Wiederstein (from 15 September 2010 to 30 July 2014); and
(b) Raymond Francis De Weerd (from 31 January 2008 to 20 September 2010).
On 16 September 2014, default judgment was entered against ARBD in the amount of $2,812,594.18 for monies owed to ARB.[2] On 24 September 2014, ARBD was wound up in insolvency and Mr Rohrt was appointed as the liquidator.[3]
[2]Affidavit of Richard Trygve Rohrt, sworn 3 March 2016, exhibit ‘RTR-54’, 6.1.1.
[3]Ibid exhibit ‘RTR-54,’ 3.2.1.
WC
WC was the Trustee of various trusts, including the Wiederstein Investment Trust, until WC was wound up on 31 July 2014. Initially, Gregory Stuart Andrews and Andrew Juzva were appointed joint and several liquidators of WC but were replaced by Wayne Edward Benton and Alice Fay Ruhe on 15 August 2014.
The directors of WC were Robert Wiederstein and Robert Wiederstein’s wife, Bronwyn Maree Wiederstein. Robert Wiederstein had presented a debtor’s petition on 5 August 2014 and ceased to be a director on that day. Bronwyn Maree Wiederstein was a director of WC from the period 2 July 1997 to 1 July 2008 and then again from 15 September 2010 to 12 July 2011.[4]
[4]Affidavit of Wayne Edward Benton sworn 3 March 2016, exhibit ‘WEB-01’.
Patpel Pty Ltd (‘Patpel’)
On 29 June 2014, Patpel became the trustee of the Wiederstein Investment Trust.[5] Robert Wiederstein was a director from 29 June 2014 through to 31 July 2014. Tom Kotsimbos was a director of Patpel from 14 February 2014 through to 29 June 2014. On 31 July 2014, Bronwyn Wiederstein became the sole director of Patpel.[6]
[5]Ibid, exhibit ‘WEB-05’.
[6]Ibid, exhibit ‘WEB-06’.
Wiederstein Corporation No. 1 Pty Ltd
In about April 2014, Wiederstein Corporation No. 1 Pty Ltd replaced WC as the sole trustee for the Wiederstein Superannuation Fund, following which the superannuation fund property was transferred to it.[7] On 15 May 2014, Bronwyn Wiederstein was appointed as the director of Wiederstein Corporation No. 1 Pty Ltd.
[7]Affidavit of Bronwyn Wiederstein, sworn 1 August 2014, [18]–[19].
Factual Background
The Coomera Joint Venture was constituted by a joint venture agreement entered into on 5 April 2005. The joint venture was to undertake the development of three pieces of land in Queensland. It was proposed to develop more than 1000 dwellings, in addition to other commercial ventures.
The joint venture entered into a development agreement with Icefire Developments Pty Ltd. The joint venturers also entered into a shareholders agreement styled ‘Icefire Shareholders Deed.’
Under the joint venture agreement, the land was purchased by the joint venturers contributing $5.2 million with the remainder amount being borrowed to complete the purchase. Further, pursuant to the agreement, the joint venturers were required to contribute to the joint venture from time to time. This was done by way of payment to the Coomera Joint Venture such amounts as nominated by the Coomera Joint Venture.[8] If a joint venturer failed to pay any of the nominated funds, the other joint venturers were entitled to require the joint venturer to dispose of the entire interest by sale to the other joint venturers in proportion to their interests.[9]
[8]Affidavit of Gary John Caulfield, sworn 18 May 2015, exhibit ‘GJC-2’, 4.8.
[9]Ibid exhibit ‘GJC-2’, 17.3.
In November 2005, WC in its capacity as trustee of the Wiederstein Investment Trust entered into an agreement under which it agreed to purchase a 3.125 per cent interest in the Coomera Joint Venture, 1A class share in Icefire and 3 shares in Coomera Joint Venture Pty Ltd (‘CJV’) for the sum of $250,000. $240,000 of that purchase money was borrowed by WC.[10]
[10]ARB and ARBD’s Outline of Submissions, 12 August 2016, [24]-[25]; Affidavit of Gary John Caulfield, sworn 18 May 2015, exhibit ‘GJC-5’; Affidavit of Wayne Edward Benton, sworn 3 March 2016, exhibit ‘WEB-07’.
In or about December 2006, WC in its capacity as trustee of the Wiederstein Investment Trust entered into a sale agreement under which it agreed to pay $21,237.12 to increase its interest in the Coomera Joint Venture from 3.125 per cent to 3.3183 per cent.[11] At the time of that purchase, the land was valued in excess of $17 million.
[11]Affidavit of Richard Trygve Rohrt, sworn 3 March 2016, exhibit ‘RTR-34’.
In the period between January 2006 and December 2007, CJV made and WC satisfied various calls, pursuant to the joint venture agreement.[12]
[12]ARB and ARBD’s Outline of Submissions, 12 August 2016, [28].
Following the Global Financial Crisis, the value of the land fell considerably. In July 2009, $8.5 million was owed by the joint venture,[13] and by February 2010, the land was valued at $9.5 million.[14] The National Australia Bank (‘NAB’) then began to actively manage its loan. In November 2010, it required a reduction in the debt to loan valuation ratio to 75 per cent by 31 December 2010 and to 50 per cent by no later than 30 April 2011.[15] By the end of January 2011, the equity in the land barely exceeded $500,000.
[13]Affidavit of Richard Trygve Rohrt, sworn 3 March 2016, exhibit ‘RTR-35’.
[14]Ibid exhibit ‘RTR-36’.
[15]Affidavit of Richard Trygve Rohrt, sworn 3 March 2016, exhibit ‘RTR-37’.
The following summarises the calls made by CJV after 1 January 2011:[16]
[16]ARB and ARBD’s Outline of Submissions, 12 August 2016, [32].
Date WC Share Paid by or on WC’s behalf Purpose 8 February 2011 $88,438.16 ARB - $26,000 + $44,438.16
ARBD - $18,000Debt reduction 31 March 2011 $31,523.40 ARBD - $31,523.40 Debt reduction 14 September 2011 $16,600 ARBD - $16,600 Development expenses 19 January 2012 $43,160 ARB - $43,160 Debt reduction 20 September 2012 $36,520 ARBD - $36,520 Primarily, debt reduction. 4 July 2013 $16,600 WC - $8,300
WSF - $4,150 + $4,150Development expenses 23 January 2014 $19,200 WSF - 17 x $1,000 payments 7 July 2014 $38,180 Not paid 27 January 2015 $38,180 Not paid Procedural History
On 17 July 2014, ARB obtained a freezing order against Robert Wiederstein and Bronwyn Wiederstein.[17]
[17]Before Ginnane J in the Practice Court.
On 22 September 2014, the freezing order was amended to prevent Bronwyn Wiederstein from dealing with her assets up to an increased unencumbered value.[18]
[18]Before McMillan J in the Practice Court.
On 18 June 2015, CJV made an application to vary the freezing order to permit it to sell WC’s interest in the Coomera Joint Venture.[19]
[19]Outline of Submissions of Wiederstein Corporation Pty Ltd (in liquidation), 12 August 2016, [15].
On 14 August 2015, the orders were varied to permit CJV to sell WC’s interest in the Coomera Joint Venture and required CJV to pay the sum of $200,000 into Court following settlement of that sale. The sum of $200,000 was paid into Court by CJV on 11 December 2015.[20]
[20]See orders by McMillan J on 14 August 2015; Outline of Submissions of Wiederstein Corporation Pty Ltd (in liquidation), 12 August 2016, [17].
On 22 January 2016, Gardiner AsJ made orders requiring any person claiming an interest in the fund to file and serve points of claim setting out such claim together with an affidavit in support.[21]
[21]Orders by Gardiner AsJ on 22 January 2016.
Payment into Court: The Sale of the Coomera Joint Venture Interest
Prior to January 2011, WC had purchased the interest in the CJV. The Joint Venture Agreement contained the following provisions:
(a) The Joint Venturers will each contribute to the Joint Venture, by payment to the [CJV], such amounts as the [CJV] may notify from time to time as being required for the Project and to enable the [CJV] to comply with its obligations under the Development Agreement;[22]
[22]Affidavit of Gary John Caulfield, sworn 18 May 2015, exhibit ‘GJC-2,’ [4.8]
…
(b) [Each Joint Venturer shall] pay all moneys due… when called under the terms of the [Joint Venture] Agreement;[23]
[23]Ibid [clause 11(d)].
…
(c) If a Joint Venturer:
(i) Defaults in payment of any moneys payable under the [Joint Venture] Agreement and such default continues for a period of 30 days after notice in writing requiring such default to be remedied has been given by the [CJV] to the Joint Venturer;[24]
[24]Ibid [17.3](a).
(ii) Defaults in the performance of any of its obligations under the [Joint Venture Agreement] and such default continues for a period of 30 days after notice in writing requiring such default to be remedied has been given by the [CJV] to the Joint Venturer;[25]
[25]Ibid [17.3](b).
…
the other Joint Venturers may require that the Joint Venturer dispose of its entire interest by sale to the other Joint Venturers in proportion to their interests or in other proportions agreed between them on no terms or conditions other than the price.[26]
(d) A formula was set out for payment of the interest of the defaulting Joint Venturer.[27]
[26]Ibid [17.3].
[27]Ibid [17.4].
The Icefire Shareholders Deed dated 5 April 2005, in effect, required shareholders to be participants in the Joint Venture.
By notice dated 27 January 2015, CJV set out that:
(a) the Wiederstein Trust is in breach of clause 4.8 and clause 11(d) of the Joint Venture Agreement in that it failed to make its pro rata contribution of capital in the sum of $38,180 on 30 August 2014 or at any time since that date.[28]
[28]Affidavit of Gary John Caulfield, sworn 18 May 2015, exhibit ‘GJC-6’.
On 17 July 2014, ARB and Mr Rohrt sought, inter alia, ex parte freezing orders, search orders and a warrant against the assets of Robert and Bronwyn Wiederstein. Ginnane J made orders on 17 July 2014.
On 27 August 2014, ARB and Mr Rohrt sought a continuation of the freezing order, which was granted. The amount of the freezing order against Bronwyn Wiederstein was increased from $434,500 to $1,227.920.65. The amount of the order made against Robert Wiederstein remained at $9,000,000.[29] Those orders were made by McMillan J on 22 September 2014.
[29]Ibid [21], exhibit ‘GJC-12’.
On 18 May 2015, during the freezing order proceeding, Mr Gary Caulfield, on behalf of CJV, deposed that:
Due to the failure by [WC], Mr and Mrs Wiederstein and the Wiederstein [Investment] Trust to remedy the [default] notice, the [CJV], on behalf of the joint venture parties, wishes to arrange a sale of the interest held by the Wiederstein [Investment] Trust in the Coomera Joint Venture.
In order that the sale may proceed, the [CJV] seeks a variation of the Freezing Order to the extent required as proposed in the application filed herein.[30]
[30]Ibid [24]–[25].
Mr Caulfield referred to the procurement of an independent valuation dated 10 March 2015.[31]
[31]Ibid [29], exhibit ‘GJC-16’.
Mr Caulfield also referred to an email from the liquidator of WC contending that the value of the JV interest was $871,562.16, comprising of costs plus contributions and revaluations.[32]
[32]Ibid [31].
Mr Caulfield then set out:
On 17 March 2015, I received a letter from NAB in which it advised me that the outstanding monies owing under the senior debt from NAB was $4.75 million.…
Accordingly, I have calculated that the value of the JV interest net of the debt is $187,015 [3.31 per cent by ($10.4 million – $4.75 million)] with interest not being capitalised but rather paid monthly by the [CJV].
The [CJV] does not seek to claim any interest in the proceeds of sale of the JV interest other than the sum of $76,360, which is the value of the two calls (of $38,180 each) made against Wiederstein [Investment] Trust on 7 July 2014 and 27 January 2015, which it has failed to pay and the costs relating to the sale of the JV interest.[33]
[33]Ibid [32]-[34].
Accordingly, after the sale of the CJV interest a figure less than $100,000 would have been available for payment to WC.
The claims to the funds in Court
ARB, ARBD and Richard Rohrt each seek an order for the payment of $200,000 paid into Court by CJV pursuant to:
·a constructive trust;
·a proprietary remedy under 588FF of the Corporations Act 2001 (Cth) (‘Corporations Act’); or
·alternatively, pursuant to the rule in Universal Distributing Company Limited (In Liq) (‘Universal Distributing’).[34]
[34](1933) 48 CLR 171.
Constructive Trust
ARB and ARBD submit that Robert Wiederstein paid a total of $216,241.56 of each company’s money to CJV in breach of his fiduciary and statutory obligations as a director of ARB and ARBD.[35]
[35]ARB and ARBD’s Outline of Submissions, 12 August 2016, [1].
It is contended that ARB’s money was paid without authorisation in circumstances where Robert Wiederstein was able to operate its bank account in contravention of the agreement reached with his other directors and the account authority card.[36] As outlined above, Graeme Varcoe was a director of ARB. Graeme Varcoe advised that although he and Robert Wiederstein were recorded as directors, Raymond De Weerd also acted in the position as a director. In effect, the business was run by the three of them in a quasi-partnership. Further, the bank authority agreed to by the three of them did not grant sole authorisation to any single director. Mr Varcoe contended that Robert Wiederstein deceived him in relation to the NAB bank transaction authority and the opening of another company account to which he was not a signatory.[37]
[36]Ibid [37]; Affidavit of Richard Trygve Rohrt, sworn 16 July 2014, exhibit ‘RTR-5’; Affidavit of Richard Trygve Rohrt, sworn 4 August 2014, [33]-[43].
[37]Affidavit of Richard Trygve Rohrt, sworn 4 August 2014, [38]-[41].
It is contended that ARB and ARBD derived no benefit from the making of the payments. If the advances were intended to be by way of loan, there was no agreement supporting the same, there was no repayment date nor was there any commercial interest rates struck or any interest rate struck at all. Moreover, there was no proper purpose for ARB or ARBD to preserve WC’s interest in the Coomera Joint Venture.
Furthermore, the ARBD payments were made while the company was insolvent.[38] ARB was insolvent from at least December 2011.[39] ARBD was insolvent from at least December 2010.[40]
[38]Further Affidavit of Richard Tryve Rohrt, sworn 3 March 2016, [20], exhibit ‘RTR-54’.
[39]Ibid [21], exhibit ‘RTR-3’.
[40]Ibid exhibit ‘RTR-54’.
It is submitted that Robert Wiederstein placed himself in a position of conflict whereby his interests, and those of his family as beneficiaries under the Wiederstein Investment Trust, conflicted with the interests of ARB and ARBD. The money was paid to CJV in order to preserve WC’s interest in the Coomera Joint Venture. But for Robert Wiederstein’s wrongful misappropriation of ARBD and ARB’s moneys, the WC interest in the Coomera Joint Venture would have been lost at an earlier date than it ultimately was.
By January 2011, WC was required to contribute significant moneys to the joint venture’s debt reduction program in response to calls made by the CJV. WC had no means of satisfying the calls.
ARB and ARBD submit that in these circumstances, the law will impose a constructive trust, giving ARB and ARBD an immediate propriety interest in the Coomera Joint Venture and to the moneys paid into Court, as beneficiaries under that constructive trust.[41]
[41]ARB and ARBD’s Outline of Submissions, 12 August 2016, [41].
The concept of a constructive trust have received much judicial and academic consideration, and for reasons that follow, it is unnecessary to discuss this comprehensively. Suffice to say, like express and resulting trusts, the staple ingredients of a constructive trust are: (1) subject matter (2) trustee (3) beneficiary (4) a personal obligation attaching to the trust property.[42]
[42]Muschinski v Dodds (1985) 160 CLR 583, 613-614; Australian Broadcasting Commission v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, 316.
A breach of a fiduciary duty, where established, may lead to the imposition of a constructive trust.[43] ARB and ARBD contend that where a director has breached a duty to a company and caused the wrongful disposition of the company’s property, the company may recover that property under a constructive trust.[44] The decision of Linter Group Ltd v Goldberg,[45] is relied upon, whereby Southwell J considered whether or not the transaction constituted a loan and noted the following:
[43]Barnes v Addy (1874) LR 9 Ch App 244.
[44]ARB and ARBD’s Outline of Submissions in Reply, 22 August 2016, [2].
[45](1992) 7 ACSR 580, 619-620 (‘Linter’).
Linter’s case is that whether or not there was a loan, the use of Linter’s funds constituted breaches of the fiduciary duty which Goldberg and Furst [both directors of Linter] owed to Linter.
They were at all material times directors of Linter, Gibraltar, Bacharach and Arnsberg. I have said that Goldberg was in control of all companies; but it is clear also that in the relevant transactions Furst was an active participant. …
The general principle relating to the fiduciary obligations of directors was stated by Dixon J in Mills v Mills (1938) 60 CLR 150 at 185 in these terms:
Directors of a company are fiduciary agents, and a power conferred upon them cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power. It is only one application of the general doctrine expressed by Lord Northington in Aleyn v Belchier:
No point is better established than that, a person having a power, must execute it bona fide for the end designed, otherwise it is corrupt and void.
The question whether a director at all times owes a duty not only to the members of a company, but also to its creditors, present and future, or whether such a duty is owed only in respect to a company which is insolvent, or nearly insolvent or of doubtful insolvency, was debated at some length during the trial. The divergence of authority is apparent from a study of Jeffree v NCSC … where Wallace J adopting dicta of Lord Templeman in Winkworth v Edward Barron Development Co Ltd … was of the view that the duty is present irrespective of the question of solvency; compare Nicholson v Permakraft (NZ) Ltd (in liq) [1985] 1 NZLR 242 where Cooke J considered that the question of solvency was relevant to the existence of such a duty.
…
It is important to recognise that the duty is owed to the company of which the director in question is a director, and not to other companies, whether part of a group or not. It was here submitted for Goldberg (and Furst) that the lending of the money by Linter benefited the group as a whole, and accordingly, there could be no breach of duty to Linter.
However, in Walker v Wimborne (1976) 137 CLR 1 at 6–7 Mason J said:
To speak of the companies as being members of a group is something of a misnomer which may well have led his Honour into error. The word `group’ is generally applied to a number of companies which are associated by common or interlocking shareholdings, allied to unified control or capacity to control. In such a case the payment of money by company A to company B to enable company B to carry on its business may have derivative benefits for company A as a shareholder in company B if that company is enabled to trade profitably or realise its assets to advantage. Even so, the transaction is one which must be viewed from the standpoint of company A and judged according to the criterion of the interests of that company.
Then, after observing that the company in question was not of the nature described, his Honour continued:
Indeed the emphasis given by the primary judge to the circumstance that the group derived a benefit from the transaction tended to obscure the fundamental principles that each of the companies was a separate and independent legal entity, and that it was the duty of the directors of Asiatic to consult its interests and its interests alone in deciding whether payments should be made to other companies. In this respect it should be emphasised that the directors of a company in discharging their duty to the company must take account of the interest of its shareholders and its creditors. Any failure by the directors to take into account the interests of creditors will have adverse consequences for the company as well as for them. The creditor of a company, whether it be a member of a `group’ of companies in the accepted sense of that term or not, must look to that company for payment. His interests may be prejudiced by the movement of funds between companies in the event that the companies become insolvent.
Counsel for both Linter and Goldberg agreed that the appropriate test to be applied in deciding whether a director has acted in breach of his fiduciary duty is as stated in Charterbridge Corp [sic] Ltd v Lloyds Bank Ltd [1970] 1 Ch 62 at 74 where Pennycuick J said:
The proper test, I think, in the absence of actual separate consideration, must be whether an intelligent and honest man in the position of a director of the company concerned, could in the whole of the existing circumstances, have reasonably believed that the transactions were for the benefit of the company.
As stated above, it is well-recognised that the position of director and company is a fiduciary relationship. In relation to whether Robert Wiederstein, as director, has acted in breach of his fiduciary duty using the test in Charterbridge Corporation Ltd v Lloyds Bank Ltd,[46] I determine that it is not reasonably arguable that Robert Wiederstein could have ‘reasonably believed’ that the transactions were for the benefit of ARB and ARBD. That determination is made irrespective of how the transactions were recorded. If I were to hold that they were simple loans, in the circumstances, without a commercial rate of interest, a designated repayment date and without any demonstrated countervailing benefit for ARB or ARBD, the advances must be considered as transactions not for the benefit of ARB nor ARBD. Additionally, there are the exacerbating circumstances that support this view, most notably the failure of Robert Wiederstein to consult with the other directors and what seems to be an attempt to disguise the transaction from the point of view of ARB and ARBD. This is notwithstanding the fact that the advances were recorded in the books of WC as loans.
[46]Charterbridge Corporation Ltd v Lloyds Bank Ltd [1970] 1 Ch 62, 74.
In Linter, the ‘loan funds’ were used to purchase shares. Linter had argued that the actual receipt of the trust funds with the requisite knowledge entitled Linter to invoke the first limb of Barnes v Addy,[47] but in addition, Arnsberg holds the share as constructive trustee under the second limb. Counsel for ARB and ARBD advised they were not relying upon the second limb of Barnes v Addy.[48]
[47](1874) LR 9 Ch App 244, 251.
[48]ARB and ARBD’s Outline of Submissions in Reply, 22 August 2016, [18].
I will not delve into the conundrum faced by Southwell J, it is sufficient to note that his Honour determined ‘Arnsberg became a constructive trustee for Linter of the funds, which can be traced directly into the purchase of the brick and pipes shares.’[49]
[49]Linter Group Ltd v Goldberg (1992) 7 ACSR 580, 623.
However, the arguments in favour of a constructive trust in the present case are confronted by the difficulty of identifying the asset that is the subject of the fiduciary obligation. The constructive trust must have an asset upon which to attach, as it is a necessary component that the subject matter of the trust be identifiable. In the present case, this necessarily involves the process of tracing in order to determine whether the sum of money taken from ARB and ARBD by WC, and used towards the CJV interest can be traced into the money in court.
Tracing refers to the process by which a plaintiff traces what has become of his property, by identifying the persons who have handled or received it, and justifies the claim to such money that has been handled or received, to reveal that the property can still be properly regarded as belonging to the plaintiff.[50] Tracing is distinct from following, as the latter refers to following the same asset as it moves from hand to hand, whereas tracing is the ‘process of identifying a new asset as the substitute for the old.’[51]The interrelationship between a constructive trust and tracing was discussed in Re Goode,[52] whereby White J observed the following:
If the constructive trust arising in relation to property held by a broker for his Client is “not a substantive concept in the sense that an express trust is”, but nothing more than “a formula for equitable relief” it is possible that the words “in trust” in s 116 are confined to express trusts and do not extend to constructive trusts, and that property subject to a constructive trust does pass to the trustee subject to the tracing equity. The same result is achieved for the Client as under a trust properly so called, because the tracing finger can be pointed directly at the property in specie still remaining in the hands of the trustee, to whom property may have passed. Whether by way of trust or by way of tracing the property in specie is preserved and obtainable for the Client. However, once there has been some change in the property by mixing or sale and conversion into another representative form, the question of trust or no trust is irrelevant; it must surely become a matter of tracing rather than constructive trust, the tracing involving the right to an equitable charge.[53]
[50]Boscawen v Bajwa[1996] 1 WLR 328, 334; Sutherland Re; French Caledonia Travel Service Pty Ltd (in liq) (2003) 59 NSWLR 361, 381 [64]: ‘Tracing is the means by which the court identifies what property of the trust the trustee still retains, for the purpose of the court crafting orders which aim to make the trustee perform this obligation.’
[51] Foskett v McKeown [2001] 1 AC 102, 127 (Lord Millett).
[52]Re Goode; Ex parte Mount (1974) 4 ALR 579.
[53]Ibid 597 (citations omitted) (emphasis added); See also, Boscawen v Bajwa [1996] 1 WLR 328, 334.
Furthermore, the Federal Court decision of Jones (as trustee of the property of Heather Macneil-Brown, a bankrupt) v Southall & Bourke Pty Ltd concerned an appeal, inter alia, as to whether the learned trial judge was correct in finding that a constructive trust existed in circumstances whereby the stolen funds were unable to be traced on the evidence.[54] The respondent contended that he was entitled to the proceeds of the sale of the property as a beneficiary of a constructive trust, despite the fact that the ‘stolen funds could not be followed to a fund or traced to a substituted asset, mixed fund, or mixed substitution, used in or for the purchase of the property.’[55] The essential question in this respect was whether the ability to trace was essential to an equitable proprietary claim to the proceeds of the sale. In holding that a constructive trust could not be imposed, Crennan J made the following observations:
There is no doubt that the courts will hold that moneys stolen, whether in cash or by cheque, by a fiduciary (that is the bankrupt) which can be traced remain the moneys of the beneficiary (that is the respondent): see for example Menzies v Perkins [2000] NSWSC 40 (“Menzies”) at [8]; Cashflow at [406]; Australian Postal Corp v Lutak (1991) 12 NSWLR 584 at 589. However, even if a constructive trust of this type arises, evidence that there was once property received which at the time of its receipt was subject to a constructive trust is insufficient to found judgment in favour of the respondent. What the respondent must provide, if it is to establish there is any property now held by the bankrupt that is to be declared to be subject to a constructive trust, a proprietary remedy, is that identifiable property subject to such trust is still held by the bankrupt. See: Menzies at [14-16]; Cashflow at [451]-[453]. On the evidence before the magistrate, this is the vital element which cannot be made out on the facts of this case.[56]
[54][2004] FCA 539.
[55]Ibid [56].
[56]Ibid [76].
Crennan J’s observations in this regard have been considered by this court in Beiser v Topoljski.[57] Whilst it was unnecessary in that case to decide whether a constructive trust could be imposed, Kaye J stated the following:
In this case the imposition of a constructive trust may be problematic where, as here, the funds alleged to have been received by the fiduciary are no longer held by the fiduciary, but, rather, have been used to reduce the level of fluctuating debt owed by the fiduciary, and which debt is secured over a property partly owned by the fiduciary. It is not necessary, and in a proceeding such as this undesirable, for me to decide whether or not in such circumstances a constructive trust may arise. However, both on a factual and legal basis, it can be seen that the third named plaintiff’s claim to the constructive trust relied on by it in support of the caveat rests on a difficult foundation.[58]
[57][2006] VSC 415.
[58]Ibid [25].
In light of these observations, it is unnecessary to set out a comprehensive analysis as to whether a constructive trust can be imposed, rather, the essential question is whether the assets that are asserted to form the basis of the constructive trust can be traced to the payment in court. I will turn to this issue below.
Remedy pursuant to the Corporations Act
ARB and ARBD submit that s 588FF(1)(d) allows the court to craft an order in the form of a proprietary remedy.[59] In contrast, it is contended that s 588FF is only enlivened on application by the liquidator in question and that absent such an application, the court has no jurisdiction.[60] Therefore, it is contended by WC that as no application has been made by the liquidator, then it follows that no relief under s 588FF may be granted.[61]
[59]ARB and ARBD’s Outline of Submissions in Reply, 22 August 2016, [1] citing Re Great Wall Resources Pty Ltd (in liq) [2013] NSWSC 354, [26].
[60]WC’s Outline of Further Submissions on s 588FF(1)(d) of the Corporations Act, 22 August 2016, [1] citing Gordon v Tolcher (2006) 231 CLR 334.
[61]Ibid [3].
In the event that the Corporations Act does apply, WC submits that s 588FF(1)(d) permits a form of tracing into substitute assets though a constructive trust.[62] Moreover, it is submitted that this section should be interpreted consistently with equitable tracing principles.[63]
[62]Ibid [5], citing Robson’s Annotated Corporations Legislation [588FF, 80].
[63]Ibid.
The relevant provision is set out below:
588FDA Unreasonable director‑related transactions
(1)A transaction of a company is an unreasonable director‑related transaction of the company if, and only if:
(a) the transaction is:
(i) a payment made by the company; or
(ii)a conveyance, transfer or other disposition by the company of property of the company; or
(iii) the issue of securities by the company; or
(iv)the incurring by the company of an obligation to make such a payment, disposition or issue; and
(b) the payment, disposition or issue is, or is to be, made to:
(i) a director of the company; or
(ii) a close associate of a director of the company; or
(iii)a person on behalf of, or for the benefit of, a person mentioned in subparagraph (i) or (ii); and
(c)it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:
(i)the benefits (if any) to the company of entering into the transaction; and
(ii)the detriment to the company of entering into the transaction; and
(iii)the respective benefits to other parties to the transaction of entering into it; and
(iv) any other relevant matter.
The obligation referred to in subparagraph (a)(iv) may be a contingent obligation.
Note:Subparagraph (a)(iv)—This would include, for example, granting options over shares in the company.
(2) To avoid doubt, if:
(a) the transaction is a payment, disposition or issue; and
(b)the transaction is entered into for the purpose of meeting an obligation the company has incurred;
the test in paragraph (1)(c) applies to the transaction taking into account the circumstances as they exist at the time when the transaction is entered into (rather than as they existed at the time when the obligation was incurred).
(3)A transaction may be an unreasonable director‑related transaction because of subsection (1):
(a)whether or not a creditor of the company is a party to the transaction; and
(b)even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
In the present case, the evidence does not show that any of the payments were made to ‘a director of the company’ or to a close associate of a director of the company; nor to a person on behalf of or for the benefit of a person mentioned in sub-paragraph (i) or (ii). Each of the payments were made to WC or for the benefit of WC. Although, it is possible that such payments may have benefited the beneficiaries of the Wiederstein Investment Trust, which included Robert Wiederstein and Bronwyn Wiederstein, these payments were not actually made to either of those two people or to a close associate of Robert Wiederstein. A close associate is defined as:
(a) a relative of the director; or
(b) a relative of a spouse of the director.[64]
[64]Corporations Act 2001 (Cth) s 9.
Accordingly, the payments are not strictly within the umbrella of s 588FDA.[65]
[65]See Verge v Stinson [2011] WASC 158.
However, that does not say that s 588FB would not apply. That provision is as follows:
588FB Uncommercial transactions
(1)A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to:
(a)the benefits (if any) to the company of entering into the transaction; and
(b)the detriment to the company of entering into the transaction; and
(c)the respective benefits to other parties to the transaction of entering into it; and
(d) any other relevant matter.
(2)A transaction may be an uncommercial transaction of a company because of subsection (1):
(a)whether or not a creditor of the company is a party to the transaction; and
(b)even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
I do not need to thoroughly analyse all of those provisions. This is not a curial proceeding seeking orders pursuant to s 588FF. This is an application for payment of funds out of Court and the claim using s 588FB as a platform would be sufficient if it was prima facie made out. In particular, the material deposed to pursuant to the breach of fiduciary duty is also germane to this provision.
In summary, I note that there is no benefit to ARB or ARBD by entering into the transaction, being the payments towards the CJV interest. Instead, there is a clear detriment to ARB and ARBD given that the funds advanced are not recoverable, save to the extent an order is made in this proceeding or that proof of debt is accepted in the liquidation of WC. Furthermore, Mr Rohrt points to the transactions as being payments occurring during the period of insolvency of both ARB and ARBD.[66]
[66]Further Affidavit of Richard Tryve Rohrt, sworn 3 March 2016, [20]-[22], exhibits ‘RTR-54’ and ‘RTR-3’.
In the absence of material to the contrary, I am satisfied that Mr Rohrt would make out a prima facie case that each of the payments individually or as a whole constituted voidable transactions pursuant to s 588FE. That opens the doorway to s 588FF.
Section 588FF provides as follows:
588FF Courts may make orders about voidable transactions
(1)Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:
(a)an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;
(b)an order directing a person to transfer to the company property that the company has transferred under the transaction;
(c)an order requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction;
(d)an order requiring a person to transfer to the company property that, in the court’s opinion, fairly represents the application of either or both of the following:
(i)money that the company has paid under the transaction;
(ii)proceeds of property that the company has transferred under the transaction;
…
(2) Nothing in subsection (1) limits the generality of anything else in it.
…
Senior counsel for Mr Rohrt submits that s 588FF(1)(d) is the gateway to orders which have a propriety effect rather than simply personal orders.
In oral submissions, senior counsel took me to material in the text Voidable Transactions in Company Insolvency,[67] and noted the following passage:
Section 588FF(1)(d) permits the court to order a person to transfer to the company property that, in the court’s opinion, fairly represents the application of money that the company has paid under the transaction or further, or alternatively, proceeds of property that the company has transferred under the transaction. The provision allows the court to craft an order in the form of a proprietary remedy,[68] for example where the court has found property is held on behalf of the company under a resulting trust.[69]
[67]Farid Assaf, Brett Shields and Hilary Kincaid, Voidable Transactions in Company Insolvency (LexisNexis Butterworths, 2015) 333 [8.35].
[68]Re Great Wall Resources Pty Limited (In Liq) [2013] NSWSC 354, [26] (Brereton J) (‘Great Wall’).
[69]Bellach v Chamberlain [2011] NSWSC 528 (‘Bellach’).
In the New South Wales Supreme court decision of Great Wall, Great Wall and its liquidator claimed against the defendant relief under s 588FDA, in respect of payments made to the company in connection with the purchase of properties in its name at Greenwell Point and Alleena, which were said to be ‘unreasonable director-related transactions’. There was an alternate claim for a monetary judgment. Relevantly, Brereton J stated:
The next issue in the case is whether so much of the Greenwell Point payments as were made after 15 September 2006, and the Lees Lane payments, were “unreasonable director-related transactions” within s 588FDA. If so, the Court may craft a propriety remedy under s 588FF(1)(d).[70]
[70]Re Great Wall Resources Pty Limited (In Liq) [2013] NSWSC 354, [26].
Despite these observations, Brereton J found that there was insufficient evidence to show that the payments were made in the nature of a loan were contributions to the purchase price of the properties. Therefore, the court found that the payments were not unreasonable director-related transactions’.[71]
[71]Ibid [51].
In the New South Wales Supreme Court decision of Bellach v Chamberlain,[72] the director of the company had purchased property for personal use, using a portion of the company’s account. The liquidator of the company had entered a caveat against the title to the property claiming an interest in it was held by the director on a resulting trust. Windeyer AJ found that there was a resulting trust in favour of the company. In view of that decision, Windeyer AJ briefly dealt with the Corporations Act claim:
In each case the payment was uncommercial. That is because Bulk received no benefit from the payments unless perhaps in the case of the deposit it was to obtain cost-free agistment but this was not suggested. It was Mr Bellach who obtained the sole benefit having the moneys with no obligation to pay interest on them or give any security for them. Having regard to the financial position of the company as to current assets and liabilities after each payment was made, it was clearly detrimental to the company. I consider a reasonable person in the position of the company would not have entered into the transaction.
I will now address the argument of Mr Martin as to transaction. Here, as in every other aspect of the case, Mr Martin carefully argued everything that could be put forward for his client. “Transaction” is defined in s 9 of the Act in a non-exclusive way. It does include “a payment by the company” and “a loan to the company”. It does not specifically include a loan by the company. Payment by way of loan is still a payment in ordinary language. I consider the payments, if made as loans, were transactions. Thus if necessary an order would have been made under s 588FF of the Act that Mr Bellach pay to Bulk $188,666. In the alternative I may have made an order requiring the same interest to be transferred as results from my finding on resulting trust. That is an order which could be made under s 588FF(1)(d)(i) of the Act. There is no need to consider this further.[73]
[72]Bellach v Chamberlain [2011] NSWSC 528.
[73]Bellach v Chamberlain [2011] NSWSC 528, [19]–[20].
It is clear that Windeyer AJ also posited that s 588FF(1)(d)(i) of the Corporations Act permitted a propriety order to be fashioned:
In the alternative I may have made an order requiring the same interest to be transferred as results from my finding on resulting trust. That is an order which could be made under s 588FF(1)(d)(i) of the Act. There is no need to consider this further.[74]
[74]Ibid [20].
I am satisfied that a propriety claim could be fashioned by this Court pursuant to s 588FF. However, both parties have recognised that the money paid by ARB and ARBD must still be able to be traced into the payment into court by way of application of equitable principles of tracing.[75] Therefore, I will not consider the claim pursuant to s 588FF in detail, as I determine that the Corporations Act claim suffers from the same difficulties in relation to tracing as the constructive trust argument.
[75]Transcript of proceedings, Australia’s Residential Builder Pty Ltd (In liq) v Robert Wiederstein (Supreme Court of Victoria, S CI 2014 03528, Associate Justice Randall, 19 August 2016) 48. (‘Transcript 19 August’)
Tracing
It is submitted on behalf of ARB and ARBD that each is entitled to trace into the funds held in Court. As outlined above, tracing refers to the process by which the plaintiff identifies an asset which formerly belonged to the plaintiff. Essentially, it entails identifying the new asset as a substitute for the original, thereby subjecting it to the same claim.[76] However, the ability to trace in common law dissipates when the account is mixed and thereby equitable principles of tracing apply.[77] As discussed, the funds in the present case have been converted, therefore it becomes necessary to trace these funds before any claim in relation to the Corporations Act or a constructive trust could be determined.[78]
[76]Boscawen v Bajwa [1996] 1 WLR 328, 334.
[77]Taylor v Plumer (1815) 3 M & S 562.
[78]Re Goode; Ex parte Mount (1974) 4 ALR 579; Jones(as trustee of the property of Heather Macneil-Brown, a bankrupt) v Southall & Bourke Pty Ltd [2004] FCA 539; Beiser v Topoljski [2006] VSC 415; Boscawen v Bajwa [1996] 1 WLR 328, 334.
In Foskett v McKeown, Millett LJ relevantly stated the following in relation to the process of tracing:
The claimant claims the new asset because it was acquired in whole or in part with the original asset. What he traces, therefore, is not the physical asset itself but the value inherent in it…Tracing is thus neither the claim or a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property.[79]
[79][2001] 1 AC 102, 128 (‘Foskett’).
ARB and ARBD rely upon such principles as set out by Millett LJ.[80] This case concerned a number of purchasers who entrusted a total of £2.6 million to an associate for a property development scheme in Portugal. The scheme was never carried out and the associate, in breach of trust, used some £20,000 of the purchasers money to pay two annual premiums on a whole life insurance policy, which had been effected some years earlier. The House of Lords held that the remedy claimed was a propriety remedy and:
…since the policy proceeds were paid in consideration of the receipt of all the premiums payable under the policy, the purchasers were able to follow their money into the policy when the premiums were paid and from there into the hands of the trustees when the death benefit was paid to them, so as to obtain reimbursement from the policy proceeds of the amount of the premiums paid with their money with interest…[81]
[80]ARB and ARBD’s Outline of Submissions, 12 August 2016, [42].
[81]Foskett v McKeown [2001] 1 AC 102, 102.
In the court’s view, what the insurer actually did with the misappropriated monies was irrelevant. The insurer might have paid down debt or otherwise supplied the premiums in its insurance business, but that is of no moment in the tracing exercise. The claimants were entitled in equity to a proportionate share in the insurance policy, being the proceeds of the premiums paid with their monies. Alternatively, they could have asserted a lien or charge securing their personal claim but they chose the proportionate share as it was more advantageous to them. Lord Millett noted that:
If the traceable proceeds are worth less than the original asset, it does not usually matter how the beneficiary exercises his option. He will take the whole of the proceeds on either basis. This is why it is not possible to identify the basis in which the claim succeeded in some of the cases. [82]
[82]Ibid [130].
ARB and ARBD submit that in the circumstances it is irrelevant whether the monies paid by ARB and ARBD were ultimately used by CJV to pay down debt, to pay development costs or to pay other expenses of the CJV.[83] Tracing is not sought into those accounts, monies or end users. ARB and ARBD need only to trace into the chose in action that WC held in the Coomera Joint Venture, which is now the monies in Court. It is contended that the monies paid by ARB and ARBD were not paid into an overdraft account, rather they were paid into the account of CJV, upon which WC’s interest in the Coomera Joint Venture was preserved. The monies were then transferred by CJV to its matured facility account, which is a variable bills account and not an overdraft account.[84] As a matter of fact, it is contended that there is no overdraft account identified by WC. As a matter of law, it was the payment to CJV which matters, not what it thereafter did with the monies pursuant to the joint venture agreement.[85]
[83]ARB and ARBD’s Further Submission (on tracing in equity into the Funds in Court), 12 September 2016, [8].
[84]ARB and ARBD’s Outline of Submissions in Reply, 22 August 2016, [20]-[21]; Affidavit of Gary John Caulfield sworn 18 May 2015, exhibit ‘GJC-15’; Affidavit of Richard Trygve Rohrt sworn 3 March 2016, exhibits ‘RTR-46’ and ‘RTR-40’.
[85]ARB and ARBD’s Further Submission (on tracing in equity into Funds in Court), 12 September 2016, [4].
Further, it is submitted to the extent that there is a mixing of funds, being funds initially paid by WC, with those funds paid by ARB and ARBD in answering calls made by CJV, WC’s interests are postponed to the equitable interest of ARB and ARBD under a constructive trust. That is because WC is a wrongdoer and the usual rule of ‘first in, first out’ rule is displaced.[86]
[86]Ibid [6].
In contrast, WC’s primary position is that a constructive trust is not available as ARB and ARBD cannot trace into the funds in Court. The amount advanced by ARB and ARBD was not applied to the purchase of an asset. The interest in the CJV was already in existence. All that was paid was purely to meet the calls to pay down debt.[87]
[87]Outline of Submissions of Wiederstein Corporation Pty Ltd (in liquidation), 12 August 2016, [36].
The Joint Venture Account Activities
Mr Rohrt summarises what occurred in relation to the funds in his affidavit of 3 March 2016.
NAB required the debt owed by the joint venture to be reduced, which was advised by email from Benni Aroni, manager of the joint venture, in late 2010.
CJV made a call on the joint venturers in January 2011. The amount of that call was subsequently reduced by email sent by Benni Aroni on 8 February 2011. The amount raised pursuant to that call was applied to reducing the joint venturers debt owed to NAB. In March 2011, the NAB facility reduced from the original $8,475,000.00 to $7,125,000.00.
CJV made a further call on the joint venturers in March of 2011. The 31 March 2011 email set out:
I again remind everyone that the current date for the next reduction [in NAB debt] is the 31st May. The reduction is from $7,125,000.00 to $6,175,500.00 ($949,500.00).
On 14 September 2011, Benni Aroni sent a revised cashflow in which a joint venture call was made of $500,000.00 for September 2011. The cashflow forecast did not indicate a further reduction in the NAB loan balance, however, it does show those funds raised through the call were spent on interest, bank fees and/or development costs (ie lodgement fees and master plans).
A further call was made on 19 January 2012. In effect, the email sent by Benni Aroni set out a revised cashflow and referred to the NAB requirements. The email relevantly set out that the CJV is:
…required by the 10th February to repay $712,500.00 but we have prepared a revised cash flow addressing estimated consultant fees, finance and other costs for the next 12 months. In order to deal with the reality of the next six months we are making a call for $1,300,000.00 and the breakdown for each stakeholder appears on the attached cashflow.
That cashflow set out the NAB loan being reduced from $6,175,000.00 to $5,325,500.00.
On 20 September 2012, Benni Aroni sent out an email to the joint venturers attaching two cashflows for the next six months. One was prepared on the basis of further reduction to the NAB facility and one without. However, NAB seems to have insisted on further reduction of the facility and the overall $1,100,000.00 raised by the call was predominantly used to pay down that debt.
In my opinion, ARB and ARBD’s reliance on Foskett is misconceived as Lord Millett stated that the basic rule is as follows:
Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money.
It does not matter whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments (whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset.[88]
[88][2001] 1 AC 102, 131.
ARB and ARBD submit that the ‘asset’ in which they seek to trace is the chose in action representing WC’s interest in the Coomera Joint Venture. This is not the relevant asset for the purpose of tracing because the calls were not used as part of the costs of acquiring it. WC’s interest in the CJV already existed at the time when the calls were made. Accordingly, for the tracing enquiry, the relevant ‘asset’ is the bank account into which the money was paid.
It is therefore submitted that any entitlement of ARB and ARBD to trace fails because the evidence shows that the funds that were advanced under the calls were ultimately used to pay down debt or were otherwise dissipated.[89]
[89]Outline of Submissions in Reply to ARB and ARBD’s Further Submission, [9].
Principles of Equitable Tracing
The relevant equitable tracing principles state that any property that is claimed to be a traceable asset will fail if the trust money is paid into an overdrawn account.[90] When trust funds are placed into another account and that account is at that time or subsequently becomes exhausted, equity treats the property as being dissipated.[91]
[90]Re Mowbray College (in liq) (rec & mgr apptd) [2013] VSC 565; Russell Gould Pty Ltd v Ramangkura (2014) 87 NSWLR 552; Conlan v Registrar of Titles (2001) 24 WAR 299.
[91]Bishopsgate Investment Management Ltd (in liq) v Homan [1995] Ch 211; Viscariello v Bernsteen Pty Ltd (in liq) (2004) 235 LSJS 277.
Further, where funds are deposited in a partially depleted account, the lower immediate balance rule applies. As stated in Re French Caledonia Travel Service Pty Ltd,[92] relying on James Roscoe (Bolton) Ltd v Winder:
…absent any payment in of money with the intention of making good earlier depredations, tracing cannot occur through a mixed account for any larger sum than is the lowest balance in the account between the time the beneficiary’s money goes in, and the time the remedy is sought. In a case where the type of tracing being attempted involves detailed analysis of what has become of the property of a particular beneficiary, and into what other assets it has been converted or mixed, the lowest intermediate balance rule is fundamental to a principled approach to tracing.[93]
[92] (2003) 59 NSWLR 361, 417 [175].
[93]Ibid 417-418, [174]-[175] citing James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62.
The rationale said to be behind the rule which prevents equitable tracing into an overdrawn bank account is that the property which is sought to be traced must continue in existence in some form up to the time of, and through to, the traceable product.[94] In the case of an overdrawn bank account, it reflects a debt owed to the bank, as ‘the effect of a payment into an overdrawn bank account is to reduce or cancel the trustee’s indebtedness to the bank. Tracing is a factual process and a trust fund or part of it which is dissipated cannot be traced. The extinguishment or reduction of the trustee’s indebtedness is regarded in effect as the disappearance of the property.’[95]
[94]See also Global Finance Group Pty Ltd [2002] WASC 63, 129.
[95]Ibid [135].
In Re Goode,[96] White J held that money dissipated in the discharge of existing liabilities could not be traced. The Court referred to the following passage:
Even if the recipient has used the trust money to pay off secured or unsecured loans or other identifiable debts, there can be no tracing; for the payment purchases no asset, but merely extinguishes the debt and there is no equity to revive it or create a new debt in its place.[97]
[96](1974) 4 ALR 579.
[97]Ibid 594: quoting Edmund Henry Turner Snell, Principles of Equity (Sweet & Maxwell Ltd, 26th ed) 314.
Furthermore, in Rea v Russell,[98] the New Zealand Court of Appeal held:
When money is paid into a bank account, the money as such does not remain identifiable. It becomes legally and beneficially the property of the bank and not the account holder. An asset is substituted for the money that is paid into the bank, that asset being the debt of the bank back to the account holder. To put it another way, the account holder no longer has the money, but has a chose in action against the bank. The money is not traced in and out of the account as there is no traceable money in the account. Rather, a single debt (the chose in action) can be identified that is of an amount equal to the final credit of the account holder. The new asset, the chose in action, can be traced in place of the old property…In the case of a payment into an overdrawn account, there is no new asset created, as there is no debt of the bank to the account holder that is created, and the account holder gains no chose in action against the bank. Instead, the account holder’s debt to the bank is in whole or in part repaid. The monies paid by the account holder can no longer be identified and there is no property or replacement asset that can be restored.[99]
[98][2012] NZCA 536.
[99]Ibid [42]-[43].
In Russell Gould Pty Ltd v Ramangkura,[100] a director caused the plaintiff company to make an unauthorised payment from its account to the defendant’s home loan. The plaintiff failed on all grounds, however, on the question of tracing the Court held that:
Neither the common law nor equity allows money to be traced into a bank account which is overdrawn and remains so after the money is paid into it.[101]
[100](2014) 87 NSWLR 552.
[101]Ibid 559 [33].
Importantly, the NSW Court of Appeal held that it would have not been possible to trace to the defendant because the process of tracing was futile due to the payment being made into the loan account. Relevantly, the Court noted that the ‘money had no identifiable existence after the payment’[102] and that ‘no process of following or tracing countenanced by the common law allows to be identified in the Defendant's hands anything that represents that money.’[103]
[102] Ibid [36].
[103] Ibid 560 [38].
Further, in Conlan v Registrar of Titles,[104] the court considered whether the claims of investor clients who had paid money into a trust account when it was overdrawn could trace the proceeds of a mortgage for which they had made their contributions but had not required a registered interest. In determining that the money could not be traced, the court made the following observation:
However, I return to the central issue. Once the moneys were paid into the overdrawn trust account the right to trace was lost. As I have already said, the investors have an interest in the loan arrangements represented by the mortgage. However, in my view it is an interest which, in terms of characterisation, can only be described as a mere equity. It is not possible to ascribe to it any proprietary characteristics. There is a personal claim against the defaulting broker. But this is not sufficient to convert it to a claim of a proprietary nature that could attach to the mortgage itself. In the circumstances of this case the loss of the right to trace is critical. If that right were present the personal equity may be more than something that is merely ancillary to an interest in property. It would become a species of proprietary interest in its own right. However, if it cannot attach to the mortgage I have difficulty in seeing how it could form the basis of a claim against the proceeds from the discharge of the mortgage.[105]
[104](2001) 24 WAR 299.
[105]Ibid 372 [366].
The New South Wales Court of Appeal decision in Raulfs v Fishy Bite Pty Ltd,[106] concerned a partnership agreement between Raulfs and Fishy Bite Pty Ltd, which was a corporation owned and controlled by Ajaka. Raulfs contributed the sum of $400, 000 to the capital of the partnership. Ajaka withdrew these funds and used it to pay out a mortgage over the house he owned with his de facto partner, Ablett. However, the commercial partnership broke down rapidly and consent orders were made for the winding up of the partnership, during which time, the relationship between Ajaka and Ablett terminated in accordance with the Property (Relationships) Act 1984 (NSW).
[106][2012] NSWCA 135.
As a result, Ablett became the sole registered owner of the house and Raulfs sought to trace the partnership contribution into the house and secure a charge over the house. The New South Wales Court of Appeal held that Raulfs could not trace the proceeds, as when the money was paid to the partnership it had become a partnership asset, and thereby did not belong to Raulfs. As there was no claim over the money once paid, there was no property which could be traced.
Therefore, the authorities make clear that it is not possible to trace into an overdrawn or loan account. Once the call was made and the call was paid by ARB and ARBD, it was paid directly to CJV, which was then applied to meet the loan. The funds were deposited in an account entitled ‘Coomera Joint Venture Pty Ltd.’ This is a loan account with a debt facility.[107] The Coomera Joint Venture account 176873390 states that the balance as at 1 March 2011 to be $7, 125, 000.00 Dr. Whilst the account may be titled ‘matured facility account’, the ‘Dr’ refers to a debit or overdrawn amount.[108] Moreover, the Draft Term Sheet refers to the Coomera Joint Venture Pty Ltd as the ‘borrowing company’ with a limit of $8,475,000, as a ‘draft facility schedule.’[109] I agree with WC’s submissions that no significance attaches to the name of the account, rather the focus must be on the nature and substance of the account.
[107]Further Affidavit of Richard Trygve Rohrt, 3 March 2016, exhibit ‘RTR-39’.
[108]Ibid, exhibit ‘RTR-40’.
[109]Ibid, exhibit ‘RTR-39’.
Moreover, the various aforementioned emails by Benni Aroni speak to the nature of the joint venture account as being a loan or debit account, particularly given NAB’s requirement to seek a reduction in the limit of its facility. Therefore, I am not satisfied that the property in its current form, being the proceeds from the sale of the joint venture, can properly be regarded as a substitute for ARB and ARBD’s original form of property, being the payments made to the joint venture account used primarily towards debt reduction.[110]
[110]Alesco Corporation Limited v Te Maari [2015] NSWSC 469; Heperu Pty Ltd v Belle (2009) 76 NSWLR 230, 252 [89]; Re Global Finance Group Pty Ltd (2002) 26 WAR 385, 406 [94].
As the property has been dissipated, the authorities show that there is no remedy, as an overdrawn or loan bank account is a liability, as opposed to an asset. It is only possible to trace in equity funds which had continued existence, actual or notional, and which could be identified at every stage of their journey through life.[111] Whilst the logic of these principles may have been criticised,[112] I am bound to apply them.
[111]Bishopsgate Investment Management Ltd (in liq) v Homan [1995] Ch 211, 221 quoting Borden (U.K.) Ltd v Scottish Timber Products Ltd [1981] Ch 25, 46.
[112]See, eg, Re Rowena Nominees Pty Ltd [2006] WASC 69 [67] citing Susan Barkehall Thomas, ‘Tracing into an Overdrawn Mixed Bank Account’ (2004) 12 Insolvency Law Journal 95, 101; Justice James Edelman, Judge of the Federal Court of Australia (as he then was), ‘Understanding Tracing Rules’ 16 QUT Law Review 1, 13; G E Dal Point, Equity and Trusts in Australia (Thomson Reuters, 6th ed, 2015) [39.20].
To the extent that the funds were not paid into the overdrawn loan account, they were applied to meet the expenses of CJV. WC does not concede the point but submits that even if it is possible to trace into the account in spite of the fact that the funds advanced had been dissipated, the maximum amount that could be claimed by CJV is $4,881 being the lowest balance of the cash account operated by CJV.[113]
[113]Outline of Further Submissions on s 588FF(1)(d) of the Corporations Act, 22 August 2016, [9].
Liquidator’s Claim for Remuneration and Expenses
Mr Rohrt contends that by virtue of applying for the freezing order, he was responsible for the realisation of the joint venture interest. However, the affidavit sworn in support of the application for freezing orders and other orders is supported by an affidavit filed 16 July 2014.[114] That affidavit dealt with a range of subjects. Those included:
·Reference to his insolvency report and the opinion that ARB was insolvent from 31 December 2011 and that the principal cause of ARB’s insolvency was related party debts of approximately $5.2 million to $6.8 million.[115] The projected creditors’ claims at that time were estimated to total $9.3 million. The creditors were comprised by NAB as a secure creditor, building trade creditors, employees and related party claims.[116]
·Mr Rohrt set out that there was a danger of removal or loss of assets. He based that contention upon his investigation which led him to believe that a substantial part of missing money of ARB was paid to or otherwise received by Robert Wiederstein, Raymond De Weerd, Bronwyn Wiederstein or by entities owned or directed to be controlled by Robert Wiederstein. Those entities included, inter alia, ARBD and WC.[117]
·There was a further contention that Robert Wiederstein was likely to attempt to conceal assets which he or his spouse Bronwyn Wiederstein owned or to which he or she are beneficially entitled or controlled. In support of those contentions Mr Rohrt set out a number of transactions and referred to the lack of supporting documentation.[118]
·With respect to payments to WC which were the subject of other proceedings commenced by Mr Rohrt, Mr Rohrt contends that they were paid into a NAB account designated as [WC] atf Wiederstein Investment Trust.[119]
[114]That is one of several affidavits filed in support of the application.
[115]Affidavit of Richard Trygve Rohrt, sworn 16 July 2014, [4](a)(i).
[116]Ibid [4](a)(ii).
[117]Ibid [4](b)(i).
[118]Ibid [4](b)(ii).
[119]Ibid [4](b)(ii)(r)(ii).
Notwithstanding this far reaching investigation, I cannot distil any material in the 16 July 2014 affidavit which refers to the CJV interest. Further, CJV was not a party to the application for freezing and other orders.
The affidavit sworn by Mr Rohrt on 3 March 2016 deals directly with the payments made by ARB to CJV on behalf of WC. By reference to his affidavit of 3 July 2015, Mr Rohrt set out that in addition to the payments referred to therein, ARB also paid $43,160 to CJV on or about 10 February 2012. He had not been able to detect the payment in his earlier investigation because it was treated as a loan to ARBD.[120] Furthermore, Mr Rohrt articulated ‘that further investigations have revealed that ARB paid the sum of at least $113,598.16 to CJV. ARBD paid the sum of not less than $102,643.40, making a total of $216,241.56.’[121]
[120]Further affidavit of Richard Trygve Rohrt, sworn 3 March 2016, [23].
[121]Ibid [24].
The affidavit of 3 July 2015 sets out investigations with respect to ‘the Coomera transactions of ARB and [ARBD]’.
At that time Mr Rohrt had not completed his investigations into all transactions completed by ARBD because not all of its books and records had been provided to him. Robert Wiederstein, the director of ARBD, declined to meet with Mr Rohrt to discuss the whereabouts of the company’s books and records or to answer other queries. At that time, Mr Rohrt was able to determine that during the trading life of ARBD in the period 2008 to 2014, ARBD had never filed any tax returns nor produced any management accounts (despite having engaged in millions of dollars in transactions). The only exception were a number of isolated financial reports that were produced for NAB, even though these financial reports bore no resemblance to ARBD’s actual financial position.[122]
[122]Affidavit of Richard Trygve Rohrt, sworn 3 July 2015, [19].
Furthermore, Mr Rohrt pointed to ARB’s Databuild ledger as recording the CJV payments as an intangible asset, pursuant to the sub-heading “Partners IP” in an account labelled “BH settlement.”[123] Mr Rohrt had identified the ‘BH Settlement’ account as a specific purpose fund established to extinguish identified NAB debt of WC in its capacity as trustee of the Wiederstein Land Development and Home Lending Trust. The CJV payments were incorrectly described in the books and records of ARB for the reason that the ‘BH Settlement’ account in ARB was as far as Mr Rohrt could tell, entirely unrelated to CJV.[124]
[123]Ibid [20], exhibit ‘RTR-31.’
[124]Ibid [21].
Mr Rohrt made extensive enquiries about the use of the ARB account and the signatures required or who was authorised to make electronic transfers.
Mr Rohrt was informed by Graeme Varcoe that Graeme Varcoe understood that no single signatory authorisation could operate ARB’s banking account. Further, Graeme Varcoe also informed Mr Rohrt that he had no idea of and had never heard of the ‘Coomera Joint Venture’ [125] and deposed the following:
I have not at the time of swearing this my [sic] affidavit had sufficient opportunity to assess the accuracy of the Coomera joint venture valuation exhibited to Gary John Caulfield’s affidavit in support of Coomera’s summons. My scrutiny of the valuation suggests that the fundamental basis of its conclusions, including the nature and extent of the assets to be valued pursuant to the provisions of the joint venture agreement and the soundness of the methodology of the valuation, are required to be tested before I can satisfy myself as to its accuracy. Subsequent to the issue of Coomera’s summons I have sought to make enquiries with Coomera’s in-house counsel, Benni Aroni, as to these issues…[126]
[125]Ibid [32].
[126]Ibid [34].
Mr Rohrt concluded:
I request that this Honourable Court refuse to release the proceeds of any sale of the WC interest in the Coomera Joint Venture pending the completion of my investigations into ARB’s NAB bank account transactions and any proceeding in respect thereof.[127]
[127]Ibid [35].
Coomera Joint Venture Pty Ltd filed a summons dated 18 June 2015 in the proceeding. That summons sought orders that:
1.The order of his Honour Justice Ginnane made 17 July 2014 and varied by the orders of her Honour Justice McMillan made 9 September 2014 and 22 September 2014 be further varied so as to permit Coomera Joint Venture Pty Ltd (Coomera) to sell any interest held by Wiederstein Corporation Pty Ltd (In liquidation) as trustee for the Wiederstein Trust in the Coomera Joint Venture subject to Coomera on the terms set out in paragraphs 33 to 35 of the affidavit of Gary John Caulfield sworn 18 May 2015.[128]
[128]Summons filed on 18 June 2015.
By affidavit of 18 August 2016, Mr Rohrt referred to his 3 July 2015 affidavit and the findings in relation to the accounting of Coomera transactions by ARB and ARBD. The general ledger referred to as recording ARB payments to Coomera under the intangible asset heading ‘Partners IP’ and ‘BH Settlement’ was then produced.[129]
[129]Affidavit of Richard Trygve Rohrt, sworn 18 August 2016, [2], exhibit ‘RTR-57’.
Apart from that material, there is no explanation set out in any of the affidavits as to how it came about that the $200,000 was paid into Court rather than the sum of $110,655.00.[130] However, it was submitted on behalf of Mr Rohrt that it was only by his efforts and negotiations that the sum of $200,000 was paid in. Further, WC accepts that proposition. Accordingly, I am willing to accept that the increase in the payment was as a result of Mr Rohrt’s efforts. However, I do not know what was actually involved in such negotiations or efforts.
[130]The sum of $110,655.00 represents the maximum amount calculated by Mr Caulfield.
The Claim pursuant to Re Universal Distributing
ARB and ARBD rely on the seminal case of Re Universal Distributing in their submission that Mr Roht is entitled to recoup the money paid into court for his expenses and remuneration, and that this interest takes precedence over the interests of the other secured creditors.[131] Dixon J in Re Universal Distributing addressed the question as to whether the liquidator can charge against the fund, the remuneration for work done in the winding up ‘as is referable to the calling in and conversion of the assets producing the fund.’[132]
[131](1933) 48 CLR 171.
[132]Ibid [174]-[175].
The High Court in Stewart v Atco Controls Pty Ltd (in liq),[133] has summarised Dixon J’s principles in Universal Distributing in the following manner:
The principle in Universal Distributing is stated at some length, no doubt because Dixon J was concerned to identify its sources. It may be more shortly stated as: a secured creditor may not have the benefit of a fund created by a liquidator’s efforts in the winding up without the liquidator’s costs and expenses, including remuneration, of creating that fund being first met. To that end, equity will create a charge over the fund in priority to that of the secured creditor.
The circumstances in which the principle will apply are where: there is an insolvent company in liquidation; the liquidator has incurred expenses and rendered services in the realisation of an asset; the resulting fund is insufficient to meet both the liquidator’s costs and expenses of realisation and the debt due to a secured creditor; and the creditor claims the fund. In these circumstances, it is just that the liquidator be recompensed. To use the language of Deane J in Hewett v Court, it might be said that a secured creditor would be acting unconscientiously in taking the benefit of the liquidator’s work without the liquidator’s expenses being met. However, such a conclusion is avoided by the application of the principle stated in Universal Distributing.[134]
[133](2014) 252 CLR 307.
[134]Ibid 320, [22]-[23].
Whilst WC concedes the principle enunciated in Re Universal Distributing, it is submitted that the principle is confined to the situation whereby it is the liquidator of the company in liquidation seeking to get in its own assets. It is submitted the principle does not extend to third parties.
However, I do not read any such limitation into Dixon J’s judgment. Relevantly, Dixon J said:
The question is not whether moneys available for unsecured creditors should be relieved at the expense of the security. In such a case it may be said that the service of collecting enough to discharge the debenture must in any event be performed in order that a surplus may then arise in which the unsecured creditors may participate. The question in the present case is whether the liquidator can charge against the fund passing through his hands as between himself and the person to whom it is payable, so much of the remuneration fixed for work done in the winding up as is referrable to the calling in and conversion of the assets producing the fund. I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it.[135]
[135]Re Universal Distributing Co Ltd (In Liq) (1933) 48 CLR 171,174-175.
Furthermore, it is stated by Dal Pont in Law of Costs that:
Aside from an agreement between the parties, costs are payable out of a fund only pursuant to a court order. Generally speaking, two requisites justify such an order:
That the expenditure resulted in a benefit to the common property represented by the fund; and
That the expenditure has been reasonably incurred.
Expressed another way, if proceedings properly instituted by persons interested in a fund results in a benefit to the fund, or its owners, the costs of the persons instituting those proceedings are, generally speaking, payable out of the fund. This principle is illustrated in its application to proceedings involving trusts, deceased estates and insolvent estates in this chapter.[136]
[136]G E Dal Pont, ‘Law of Costs’ (LexisNexis Butterworths Australia, 3rd ed, 2013) 10.1 (Citations omitted).
In Re Berkeley Applegate (Investment Consultants) Ltd (In Liq),[137] Edward Nugee QC, sitting as a Deputy Judge of the High Court, made an order for the liquidators’ costs and remuneration out of trust property given that, in the court’s view, the work performed by the liquidator was of substantial benefit to the trust property and to the investors. Absent the liquidator, this work would have needed to be completed by the investors or by a court appointed receiver, whose fees would have ultimately been borne by the trust property.[138]
[137][1989] 1 Ch 32.
[138]Ibid [51].
Edward Nugee QC referred to Stuart V–C in Morrison v Morrison,[139] observing the following:
Questions arose concerning priority of title to a fund in court, being the amount of the compensation money awarded to the owner of the estate in respect of slaves on the estate upon their emancipation. Stuart V-C said … :
To permit the mortgagee to take this compensation money, or any other part of the proceeds of this estate, or any fund in this cause belonging to the mortgagee or other owners of the estate, without reimbursing the consignee the debt found due to him for the management on behalf of all the owners, would be a violation of the principles of natural justice on which Lord Eldon said he proceeded in the case of Scott v Nesbitt.[140]
[139](1854) 2 Sm & G 564, cited in Re Berkeley Applegate (Investment Consultants) Ltd (In Liq) [1989] Ch 32 [49].
[140]Ibid (citations omitted).
Further, Edward Nugee QC said:
In my judgement [counsel’s] submissions are based on too narrow view of the principles on which the court acts. … As a condition of giving effect to their equitable rights, the court has in my judgement a discretion to ensure that a proper allowance is made to the liquidator. His skill and labour may not have added directly to the value of the underlying assets in which the investors have equitable interests; but he has added to the estate in the sense of carrying out work which was necessary before the estate could be realised for the benefit of the investors. As was the case in Scott v Nesbitt … if the liquidator had not done this work it is inevitable that the work, or at all events a great deal of it, would have [been] done by someone else, and on an application to the court a receiver would have been appointed whose expenses and fees would necessarily have had to be borne by the trust assets.[141]
[141]Ibid [50].
Edward Nugee QC also invoked equitable principles and said:
The authorities establish, in my judgement, a general principle that where a person seeks to enforce a claim to an equitable interest in property, the Court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property. It is a discretion which will be sparingly exercised; but factors which will operate in favour of it being exercised include the fact that, if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest … or by a receiver appointed by the court whose fees would have been borne by the trust property … and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity …[142]
[142] Ibid [50]-[51]; See also, Freelance Global Ltd v Bensted Ltd (in liq) [2016] VSC 181.
In Shirlaw v Taylor,[143] the Court referred to Hewett v Court,[144] where Deane J dealt with the treatment of the subject in Pomeroy’s Equity Jurisprudence:
The view is there expressed (s 1239) that in addition to equitable liens arising from contractual dealings in property, equity may raise liens based either upon general considerations of justice or upon the principle that he who seeks the aide of equity in enforcing some claim (eg an administration of assets) must admit the equitable rights of others directly connected with or arising out of the same subject matter; … Thus, where a party has by his efforts brought into court a fund in the administration of which various parties are interested, his costs and expenses should be a first claim upon the fund: Batten v Wedgewood Coal and Iron Co (1884) 28 Ch D 317 at 324-5; Re Universal Distributing …Another illustration of these principles is provided by cases where the claim to contribution by one co-owner upon the other to recoup expenditure which benefits their joint property will be supported by an equitable lien or charge upon the undivided share of the other co-owner…[145]
[143](1991) 31 FCR 222.
[144](1983) 149 CLR 639 cited in Shirlaw v Taylor (1991) 31 FCR 222, 228.
[145]Ibid.
Importantly, the court in Shirlaw v Taylor found that ‘those taking the benefit of the administration should not escape bearing the burden of the proper cost of it.’[146]
[146]Shirlaw v Taylor (1991) 31 FCR 222, 230.
The Victorian Court of Appeal recently discussed a number of these authorities in Primary Securities Ltd v Willmott Forests Ltd (recs and mgrs apptd) (in liq).[147] The case concerned an appeal from Efthim AsJ’s orders to the effect that the liquidators were entitled to be indemnified out of the assets of the managed investment forestry scheme (‘the scheme’). Importantly, for the present case, the liquidators were appointed for the administration of Willmott Forests Limited (‘WFL’) and sought indemnification out of the assets of the scheme for the expenses incurred in administering the scheme and/or caring for, protecting, preserving and/or realising the assets and/or property, notwithstanding that the liquidators efforts had not resulted in the creation of a fund.
[147][2016] VSCA 309.
The central issue for determination was whether the existence of a fund which had been realised by the liquidators was a pre-requisite to the application of the principle set out in Universal Distributing; to which the court answered in the negative.[148] Although the issue in the current proceeding differs, the court did make the following relevant observation:
It is important to be mindful of the fact that what is under consideration is a position where a claimant seeks to recover out of property, in relation to which the claimant has no proprietary interest and no statutory entitlement, in priority to those who do hold the proprietary interests. The claimant, in effect, seeks priority over the owner of the property in circumstances where the owner has not agreed to employ the claimant or to pay the claimant for the work done, and where no statute provides for that priority. Accordingly, the circumstances where a claimant might obtain such priority must be strictly confined.[149]
[148]Ibid [119]-[120] (Whelan and Santamaria JJA).
[149] Ibid [122].
After a consideration of the relevant authorities, the Victorian Court of Appeal made the following observation:
In our view the authorities also make it clear that the principle may apply where the claimant has cared for or preserved an asset, and not simply where the claimant has realised it and created a fund. One circumstance where the principle may apply is where the claimant has acted as a kind of ‘stand in’, undertaking activities which the holder of the proprietary interest would have had to undertake itself had the claimant not done so. In essence, that is what happened in Pattison v Lockwood. On the other hand, if the claimant’s activities are properly characterised as unrelated to the interests or objectives of the holder of the proprietary interest then the claimant may have no entitlement to priority over that proprietary interest holder. It seems to us that that was the position in Dean-Willcocks.[150]
[150] Ibid [124].
Of relevance, the Court of Appeal referred to the High Court decision of Stewartv Atco.[151] The facts of which are usefully summarised by the High Court, and concerned a secured creditor of a company who demanded payment of a fund paid by the liquidator of a company to an unsecured creditor by way of reimbursement under a series of indemnity agreements between the liquidator and unsecured creditor of costs and expenses incurred in litigation by the liquidator against the secured creditor and receivers appointed to the company by the secured creditor relating to the validity of the secured creditor’s security and the receivers’ appointment. The fund was constituted by a payment made by the receivers to the company in settlement of the proceedings against them (‘the settlement sum’). The company declined to pay the settlement sum to the secured creditor, on the basis that the liquidator was entitled to an equitable lien over the sum.
[151] Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307.
The issue before the High Court was whether the liquidator was entitled to an equitable lien over the fund constituted by the settlement sum with respect to the costs and expenses incurred in the litigation against the secured creditor and receivers. The High Court upheld the claim.[152]
[152]Ibid 330 [65].
The Victorian Court of Appeal in Primary Securities also considered authorities in relation to insolvency practitioners to an equitable charge or lien over assets over which, absent the claimed charge or lien, there are proprietary interests.[153] Relevantly, the Court of Appeal referred to the Western Supreme Court decision of Coad v Wellness Pursuit Pty Ltd (liq),[154] which concerned the appointment of an administrator to a company that had given three charges over its assets and undertakings. The administrator continued negotiations for the sale of the company’s business and related assets, without objection. The net proceeds of the sale were held in a solicitor’s trust account, pending distribution by the court. The administrator applied to the court for approval of his remuneration and an order that it be paid from the trust funds. Although the Master approved the administrator’s remuneration, the order that it be paid out of the trust fund was refused.
[153]Primary Securities Ltd v Willmott Forests Ltd (recs and mgrs. Apptd) (in liq) [2016] VSCA 309, 78.
[154]Coad v Wellness Pursuit Pty Ltd (in liq) (2009) 71 ACSR 250.
On appeal, Buss JA (with whom Wheeler and Pullin JJA agreed) reviewed the authorities in respect of the Universal Distributing principle and said:
An administrator’s equitable lien for his or her proper remuneration, and properly incurred costs and expenses, attributable to work done exclusively in caring for, preserving and realising the company’s assets will have priority over, relevantly, a prior charge that was fixed from its creation if, in the particular circumstances of the case, the holder of the fixed charge would be acting unconscientiously if it were to assert priority over the assets realised by the administrator, without the relevant remuneration, costs and expenses having been discharged. This is not intended to be an exhaustive statement as to when equity will depart from the statutory scheme of priority.[155]
[155]Ibid as cited in Primary Securities Ltd v Willmott Forests Ltd (recs and mgrs apptd) (in liq) [2016] VSCA 309, [102] (emphasis added).
In Ex Parte Patience; Makinson v The Minister, Jordan CJ said:
A solicitor has no lien for his costs over any property which has not come into his possession. If, however, as the result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment or award or compromise for the payment of money, although the solicitor requires no common law title to his client’s right to receive the money or to any part of that right, he acquires a right to have his costs paid out of the money, which is analogous to the right which would be created by an equitable assignment of a corresponding part of the money by the client to the solicitor. That is to say, the solicitor has an equitable right to be paid his costs out of the money …[156]
[156](1940) 40 SR (NSW) 96, 100.
Jordan CJ further said:
In cases of applications by solicitors for statutory charging orders it has always been held that the solicitor’s claim is in the nature of a claim to salvage, and that the charge will therefore be made upon all the property recovered or preserved as the result of the solicitor’s exertions and not merely on his client’s interests therein …[157]
[157]Ibid [107].
In Re S&D International Pty Ltd (in liq)(rec and mgr apptd),[158] Robson J was required to determine whether a liquidator of a corporate trustee was entitled to be indemnified out of trust assets for performing work, including initiating court proceedings, to compel a first mortgagee who had realised charged assets to pay the net proceeds into court. Relevantly, the activities of the liquidator in this respect, was characterised as having ‘preserved’ those net proceeds, albeit from ‘misuse’ by the first mortgagee.[159]
[158][2009] VSC 225.
[159]Ibid [273]-[276].
Robson J conveniently set out a number of principles drawn from the relevant authorities, many of which have been discussed therein, and stated the following:
From these authorities the following principles referrable to a liquidator may be stated:
(a)At equity, an equitable lien arises in favour of a liquidator over the funds realised from the sale of company property for the costs he incurs for the care, preservation and realisation of the property in priority to those otherwise interested in the fund.
(b)The costs include those that the liquidator fairly incurs in the discharge of his duty to care, preserve and realise the property.
(c)The lien may arise whether or not the ultimate sale is affected by the liquidator and entitles the liquidator to be paid in priority out of the fund whether or not he is in possession of the fund.
(d)The costs and expenses secured by the lien must be incurred exclusively for the care, preservation or realisation of the property and not otherwise expended in the general administration of the mortgagor.
(e)The costs and expenses include the liquidator’s reasonable remuneration.[160]
[160]Ibid [273].
Ultimately, Robson J held that the costs and expenses of the liquidator that had been directed exclusively towards the recovery of the funds out of the hands of the first mortgagee and into the court constituted a lien over the fund, in priority to all other claimants, except for the first mortgagee. His Honour made orders to the effect that the liquidators’ costs would be limited to costs of and incidental to the application, including the liquidator’s reasonable remuneration incurred exclusively for that purpose.[161]
[161]Ibid [274]-[276].
What these cases illustrate is that although the concept of ‘salvage’ usually arises in generally considered special relationships, such as liquidator and company or solicitor and client, the underlying rationale is founded upon equitable principles. Put simply, if costs or expenses are incurred in the ‘care, preservation and realisation of property’[162] it is inequitable not to recognise such expense. Moreover, it would be against equitable principles to allow someone to take the benefit of the liquidator’s work without sharing the burden of the expense of obtaining it.
[162]Re Universal Distributing Co Ltd (In Liq) (1933) 48 CLR 171.
Having said that, I do not recognise that Mr Rohrt has been responsible for the whole of the realisation of the $200,000. His actions in seeking the freezing orders and other orders could not be characterised as anything more than being a ‘catalyst’ for action by CJV. The freezing order froze not only assets of Mr and Mrs Wiederstein but also the assets of various entities in which they had an interest. Additionally, the freezing order extended to WC as trustee of the Wiederstein Investment Trust.[163]
[163]Freezing Order by Ginnane J on 17 July 2014.
The joint venture agreement has a mechanism for the realisation of the interest. However, given the terms of the freezing order, it was prudent of JVC to seek the imprimatur of the Court to embark upon the process set out in the joint venture agreement. At its highest, it might be said that the process was accelerated by the obtaining of the freezing order (to which proceedings CJV was not a party) rather than the process being embarked upon in due course. Accordingly, I determine that the obtaining of the freezing order did not constitute ‘care, preservation and realisation’ within the ordinary meaning of those words.
However, I accept Mr Rohrt’s efforts in negotiations in obtaining a payment into Court of $200,000 rather than approximately $100,000 did constitute a ‘realisation’ of the interest. After all, but for those efforts and negotiations I assume that either the sum of $100,000 or little more than that sum would have been paid in. Further, in line with the aforementioned authorities, if it had been necessary I would have considered that an equitable lien attached to that increased balance.
Accordingly, the remuneration and costs directly attributable to those negotiations which I assume will be considerably less than the increased amount should be paid out as first priority. If the parties cannot agree as to the quantum then I require the parties to file further submissions and I will approach the exercise as if it were similar to an assessment of remuneration and a taxation of costs.
WC’s claim – Right of Indemnity
WC was party to the joint venture. It claims to be entitled to the money in Court as it represents the sale of the asset held by WC in its capacity as trustee of the Wiederstein Investment Trust, being approximately 3.18 per cent of the shares in the joint venture vehicle. It is contended that WC, as trustee, has a right of indemnity secured by a charge or lien over the monies.[164]
[164]Outline of Submissions of Wiederstein Corporation Pty Ltd, 12 August 2016, [2].
Mr Wayne Benton, liquidator of WC, deposed that as at the time of his appointment, WC in its capacity as trustee of the Wiederstein Investment Trust was indebted to the National Australia Bank Limited in the amount of $927,051.65 in respect of the following facilities:
(a) Business Cheque Account ($7,620.55);
(b) NAB Introductory Rate Home Loan ($87,428.72);
(c) NAB Introductory Rate Home Loan ($275,027.10); and
(d) NAB Business Markets Loan ($556,975.28).[165]
[165]Affidavit of Wayne Edward Benton, sworn 3 March 2016, [47].
Further, the deed of settlement between National Australia Bank and WC in its own capacity and as trustee for the Wiederstein Investment Trust and others, the sum owing pursuant to the investment trust facilities is set out as at 31 August 2015 as:
(a) pursuant to the first investment trust home loan in the sum of $301,422.66;
(b) pursuant to the second investment trust home loan $99,128.67.
According to the report, as to the affairs verified by Robert Wiederstein, dated 31 July 2014, the following parties are unsecured creditors of WC with claims totalling $22,110.00:
(a) Bronwyn Wiederstein – $2,160.00;
(b) Burton Partners - $495.00;
(c) Champions Lawyers Pty Ltd – $12,005.00; and
(d) Wiederstein Family Trust – $7,450.00.[166]
[166]Ibid exhibit ‘WEB-23’.
In addition, as I have found that the payments made by ARBD and ARB are unable to be traced in accordance with equitable principles of tracing, the arguments in relation to a constructive trust and the Corporations Act have not been made out, and as such ARB and ARBD are also creditors.
It is well-established that a trustee has a right to be indemnified out of the trust assets against any personal liabilities incurred in the performance of the trust.[167] This interest will be preferred over those of the beneficiaries, so that the beneficiaries are not entitled to call for a distribution of any trust assets that are deemed to be subject to a charge in favour of the truste, until such charge has been satisfied.[168]
[167]Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360, 367 (Stephen, Mason, Aickin and Wilson JJ); see also Re Enhill Pty Ltd [1983] 1 VR 561, 563.
[168]Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360, 367.
In Dimos v Dikeakos Nominees Pty Ltd,[169] Heerey J said:
It was common ground that, at least prior to retirement, the respondent had a right to indemnity against liabilities incurred in the discharge of the trust. For the purposes of enforcing that indemnity the respondent had a charge over the assets of the trust which took priority over the right of beneficiaries: Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367… The respondent acquired in the assets of the trust “a beneficial interest commensurate with his right of indemnity”: Kemptron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576 at 590 per McPherson J: See also Re Enhill Pty Ltd [1983] 1 VR 561. The right of indemnity exists both for the discharge of liabilities incurred but not paid and for reimbursement where the trustee has paid: Kemptron at 585. This right of a trustee is “an incident of the office of trustee and it is inseparable from it”: Kemptron at 585. Statutory recognition of the right is contained in s 36(2) of the Trustee Act 1958 (Vic) which provides:
A trustee may reimburse himself or pay or discharge out of the trust premises all expenses incurred in or about the execution of the trust or powers.[170]
[169](1996) 68 FCR 39 (Heerey J).
[170]Ibid [43].
I am satisfied that there were trust liabilities incurred by WC in its capacity as trustee of the Wiederstein Investment Trust. Although WC acted as trustee of other trusts, the Griggs affidavit demonstrates that NAB designated the liabilities as having been incurred by WC in its capacity as trustee of the Wiederstein Investment Trust rather than some other trust or by WC in its own capacity.[171] The Wiederstein Investment Trust Deed provides at clause 5.1.2.7:
To pay out of the trust fund or the income thereof all costs charges and expenses incidental to the management of the trust fund or to the exercise of any power, authority or discretion herein contained or carrying out or performing the trusts hereof which the trustees may at any time incur including all income tax or other taxes payable in respect of the trust fund or the assets thereof costs in any way connected with the preparation …
[171]Affidavit of Ivana Griggs, affirmed 12 August 2016, exhibit ‘IG-1’.
I note that Re Enhill Pty Ltd,[172] and Suco Gold Pty Ltd (In Liq),[173] have been questioned by Robson J in Re Amerind Pty Ltd (rec and mgr apptd) (in liq).[174] On the question of whether distributions of trust property were subject to the relevant priority regime of the Corporations Act and whether the trustees right of indemnity is the property of the company available to all creditors, Robson J preferred the decision Re Independent Contractor Services (Aust) Pty Ltd (in liq) (No 2).[175] The Court of Appeal will further consider that decision. However, Robson J’s analysis of the particular issues does not affect whether the right of indemnity subsists in this particular instance.
[172][1983] 1 VR 561.
[173](1983) 33 SASR 99.
[174][2017] VSC 169.
[175](2016) 305 FLR 222.
By Deed of Appointment and retirement made 29 June 2014, which was merely a month before the wind up WC, WC retired as trustee. Patpel Pty Ltd was appointed the new trustee of the Wiederstein Investment Trust.[176]
[176]Affidavit of Wayne Edward Benton, sworn 3 March 2016, exhibit ‘WEB-05’.
Notwithstanding the change of trustee of the Wiederstein Investment Trust, WC’s right of indemnity subsists.[177]
[177]See Dimos v Dikeakos Nominees Pty Ltd (1996) 68 FCR 39.
WC Deed of Settlement
ARB and ARBD submit that WC released the Wiederstein Investment Trust from all ‘claims and liabilities’ that each now has, arising out of, or in connection with, the Facilities and the Securities (clause 5) of the Deed of Settlement.[178] According to the Deed, the terms ‘Claims’ and ‘liabilities’ are defined broadly and, it is submitted, include WC’s right of indemnity under the Wiederstein Investment Trust Deed. The Facilities covered by the Deed include the NAB account, which WC relies upon to establish a debt owed by WC to NAB in its capacity as trustee of the Wiederstein Investment Trust. The securities covered by the Deed include the debenture granted by WC, as trustee for Wiederstein Investment Trust, in favour of NAB to secure the Facility. Accordingly, it is submitted that WC has released Wiederstein Investment Trust from its right of indemnity in respect of all indebtedness to NAB. Therefore, it is contended that there is no amount owing by the Wiederstein Investment Trust to WC and WC has not established any entitlement to the monies paid into Court.
[178]ARB and ARBD Outline of Submissions In Reply, 22 August 2016, [10].
ARB and ARBD argue that WC’s right of indemnity had been compromised by entry into a Deed of Settlement with NAB (‘NAB deed’). The Deed of Settlement entered into on 4 September 2015 is between NAB, Bronwyn Wiederstein, WC (then in liquidation) in its own capacity and as trustee for the Wiederstein Investment Trust, WC in its capacity for Wiederstein Family Trust and WC as trustee of the Wiederstein Land Development and Home Lending Trust.[179]
[179]Affidavit of Bronwyn Wiederstein, sworn 4 March 2016, exhibit ‘BW-9’.
The Wiederstein parties were defined as relating to Mrs Wiederstein, Wiederstein Corporation Pty Ltd (In Liq), the Investment Trust, the Family Trust and the Land Development Trust. The amount owing with respect to the Wiederstein Investment Trust was set out at 2.2 of the NAB Deed. As set out above, the amount owing to NAB pursuant to the First Investment Trust Home Loan as of 31 August 2015 was $301,422.66 and the Second Investment Trust Home Loan as of 31 August 2015 was $99,128.67.[180]
[180]Ibid, exhibit ‘BW-9’ [2.2].
The settlement sum of $1,976,670.44 was to be paid by Mrs Wiederstein. Clause 3(c) of the NAB deed set out as follows:
For the avoidance of doubt, the Parties agree that nothing in this Deed shall extinguish or limit in any way the rights, remedies and claims of NAB in respect of the Amount Owing by any borrowers or security providers other than Mrs Wiederstein under any Facilities and Securities (whether or not referred to in this Deed) remaining after payment of the Settlement Sum.
The NAB Deed contained a release in the following terms:
Upon execution of this Deed, the Wiederstein Parties release and forever discharge NAB, Wiederstein Corporation Pty Ltd (In Liquidation), the Land Development Trust, the Investment Trust and the Family Trust from all Claims and Liabilities of every description and whenever occurring that they have now or but for the execution of this Deed, may have had against any of them arising out of or in connection with the Facilities and the Securities.[181]
[181]Ibid exhibit ‘BW-9’ [5].
ARB and ARBD contend that as the definition of ‘Wiederstein Parties’ includes WC, the release should be construed that WC releases the Wiederstein Investment Trust from all liabilities of whatever nature. Accordingly, any claim under the right to indemnity is also released and WC is prevented from recovering thereunder.[182]
[182]ARB and ARBD’s Outline of Submissions in Reply, 22 August 2016, [9]-[11].
I determine that the reasoning set out by ARB and ARBD is flawed. A trust is not a legal person.[183] In Kemtron Industries Pty Ltd v Commissioner of Stamp Duties,[184] McPherson J said:
The right of the trustee to indemnity from the assets is an incident of the office of the trustee and is inseparable from it: see Worrall v Harford (supra). For that reason it is probably incapable of being excluded.[185]
[183]See Duckworth v Water Corporation (2012) 261 FLR 185, 193; Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576, 584.
[184][1984] 1 Qd R 576.
[185]Ibid [585]; See also JA Pty Ltd v Jonco Holdings Pty Ltd [2000] NSWSC 147, 50 [6].
Even if the right of indemnity could be excluded. Whatever was intended by the wording of clause 5 of the Deed, if on construction of that clause, NAB required WC not to exercise its right of indemnity against the Wiederstein Investment Trust property it would have needed to have specifically required WC to forego its rights pursuant to the right of indemnity or to refrain from exercising them. That has not occurred.
Accordingly, I determine that the right of indemnity is unaffected by the Deed of Release.
Bronwyn Wiederstein’s claim
Mr Snowden was instructed to attend on the first day of hearing to seek an adjournment. That adjournment application was refused and leave was given to Mr Snowden to be excused. Mr Snowden’s instructing solicitor stayed during the course of the hearing but did not participate.
Notwithstanding that the claims by Bronwyn Wiederstein were not pressed, it is appropriate to deal with the same.
Bronwyn Wiederstein in her points of claim dated 3 March 2016 and affidavits in support of the application set out that in September of 2012 she made an in species contribution of her interest in the Coomera Joint Venture to the Wiederstein Superannuation Fund. From September 2012, until it resigned as trustee for the Wiederstein Superannuation Fund, WC, acting as trustee for the Wiederstein Superannuation Fund held the interest for her beneficially.[186]
[186]Affidavit of Bronwyn Wiederstein, sworn 24 June 2016, [9]-[10].
At all material times, the interests in CJV were held by the various trustees of the Wiederstein Superannuation Fund.
Further, Bronwyn Wiederstein was at all material times the appointor and beneficiary of the Wiederstein Investment Trust, which was owed $1,442,002.55 by ARBD. Bronwyn Wiederstein set out that by reason of ARBD being indebted to her in the sum of $1,442,002.55, ARBD and ARB had no claim to the funds in Court.[187]
[187]Ibid [24]-[26].
Bronwyn Wiederstein also referred to a Deed of Settlement dated 20 November 2015.
None of the contentions made by Bronwyn Wiederstein are supported by any documents nor is her claim made out in the evidence. I note the following:
(a) Bronwyn Wiederstein was not a director of WC in September 2012;
(b) the Wiederstein Investment Trust is a discretionary trust. Bronwyn Wiederstein is specified as one of the primary beneficiaries and, as a primary beneficiary is also a member of the class of discretionary beneficiaries;[188]
[188]Affidavit of Wayne Edward Benton, sworn 3 March 2016, exhibit ‘WEB-04’.
(c) the appointor specified in the Trust Deed is Robert Wiederstein and not Bronwyn Wiederstein;[189]
[189]Ibid exhibit ‘WEB-04’.
(d) it is the trustee in each accounting period until the vesting day which is required under the Deed to pay or apply such part of the income of the trust to any beneficiary;
(e) even if contrary to what is set out in the Trust Deed, Bronwyn Wiederstein were the appointor, such power of appointment extended to the removal of the trustee and the appointment of a new or additional trustee. The power did not extend to making any distribution in species or otherwise;
(f) her contentions are inconsistent with the Deed of Appointment and Retirement of Trustee executed by Robert Wiederstein in his capacity as director of WC and as director of Patpel Pty Ltd made 29 June 2014;
(g) the Deed made 13 November 2015 inter alia between ARB, ARBD, Bronwyn Wiederstein and Wiederstein Corporation No 1 Pty Ltd referred to proceedings commenced by ARB and Mr Rohrt against Bronwyn Wiederstein and others, a proceeding commenced by ARB against Wiederstein Corporation No 1 Pty Ltd and a proceeding filed by ARBD and Mr Rohrt against Bronwyn Wiederstein.
Bronwyn Wiederstein was a defendant in two separate proceedings filed by ARB. Those proceedings related to the liability due to NAB. Bronwyn Wiederstein entered into a Deed of Settlement with NAB and also entered into a Deed of Settlement and Release with respect to each of the proceedings.
By reason of the provisions of the Deed of Settlement and Release, Bronwyn Wiederstein maintains that ARB and ARBD have no claim whatsoever in relation to the $200,000 paid into Court.[190]
[190]Affidavit of Bronwyn Wiederstein, sworn 4 March 2016, [86].
The $250,000 paid by WC for the 3.125 per cent share in the CJV was funded by an initial sum of $10,000 paid by Bronwyn Wiederstein and a further $240,000 paid subsequently. The $250,000 purchase price was from a loan which Bronwyn Wiederstein had obtained from NAB. On 10 November 2005, NAB transferred $300,000 into the account of WC as trustee for Wiederstein investment trust under a Business Mortgage account. The sum of $300,000 was transferred into the Business Account of Wiederstein Investment Trust on 10 November 2005 and on 15 November 2005, the sum of $240,000 was paid to Hall & Wilcox in relation to the CJV’s interest. The sum of $10,000 was paid to Wiederstein Investment Trust from Bronwyn Wiederstein’s personal funds.[191]
[191]Ibid [19].
Subsequent to the purchase of the interest in CJV, the CJV required various amounts to be paid. Bronwyn Wiederstein identified those calls from 6 January 2006 through to 27 June 2014 and set out the source of such payments as being from the ‘Trust Business Cheque Account,’ the ‘Wiederstein Family Trust Account at NAB,’ the ‘Wiederstein Family Investment Trust Business Cheque Account’, the ‘Wiederstein Superannuation Fund NAB Account’, and the ‘NAB Account’ totalling $514,292.82, which included the initial payment of $250,000.[192]
[192]Ibid [20].
The Deed of Settlement and Release was signed on 20 November 2015. It provided for payment of $300,000 to the plaintiffs. Of that sum an initial amount of $100,000 was paid and the balance of $200,000 was to be procured by the execution of a mortgage. However, by reason of the freezing orders that did not eventuate.
Bronwyn Wiederstein maintains that the $200,000 was subsequently paid into Court by CJV relating to her interest:
The Coomera interest were held initially by Wiederstein Investment Trust. During September 2012 I made an in species contribution of my Coomera interest to the Wiederstein Superannuation Fund (WSF) of which I was a member.[193]
[193]Ibid [75].
Bronwyn Wiederstein maintains that the sum of $200,000 paid into Court was paid in for the benefit of Wiederstein Corporation No.1 Pty Ltd as trustee for Wiederstein Superannuation Fund.
Further, Bronwyn Wiederstein maintains that by virtue of the Deed of Settlement dated 4 September 2015 and executed by the liquidators of WC, NAB and herself:
The liquidators of WC pursuant to the Deed of Trust of the Wiederstein Land Development and Home Lending Trust read with the Deed of Settlement executed by the trustees of WC, have no right of indemnity against any of the trusts let alone the Wiederstein Superannuation Fund which owns the Coomera interests.[194]
[194]Ibid [105].
The Deed of Settlement and Release between ARB, ARBD, Richard Rohrt, Bronwyn Wiederstein and Wiederstein Corporation No.1 Pty Ltd contains the following provisions:
(a) Bronwyn Wiederstein agreed to pay ARB the settlement sum as to the sum of $73,678 forthwith upon the discharge of the freezing order and as to the sum of $147,355 within six months of the date of the Deed;[195]
[195]Ibid exhibit ‘BW-8’ [6].
(b) In the event Bronwyn Wiederstein failed to pay the settlement sum, ARB was entitled to obtain judgment for the sum plus costs of entry of the judgment and any statutory interest;[196]
[196]Ibid exhibit ‘BW-8’ [8].
(c) the release and discharge was in the following form:
16.Subject to the matters contained in this Deed, ARB and Rohrt forever release and discharge Bronwyn [Wiederstein] and her children … from any and all Claims relating to or connected with or arising out of the subject matter of the ARB Proceeding, including any claims which they have or had or may have had but for the execution of this Deed.[197]
…
18.Subject to the matters contained in this Deed, ARB forever releases and discharges WC No.1, Bronwyn [Wiederstein] and her children … from any and all Claims relating to or connected with or arising out of the subject matter of the WC No.1 Proceeding, including any Claims which it has or had or may have had but for the execution of this Deed. [198]
…
26.Subject to the matters contained in this Deed, ARBD and Rohrt forever release and discharge WC No.1, Bronwyn [Wiederstein] and her children … from any and all Claims relating to or connected with or arising out of the subject matter of the ARBD proceeding, including any Claims which they have or had or may have had but for the execution of this Deed.[199]
[197]Ibid exhibit ‘BW-8’ [16].
[198]Ibid exhibit ‘BW-8’ [18].
[199]Ibid, exhibit ‘BW-8’ [26].
Notwithstanding that the releases and discharges are broad, the same have no bearing on the claims made by WC as trustee of the Wiederstein Investment Trust nor do the same act as a bar to ARB and ARBD seeking payment of the funds out of Court.
Without the benefit of submissions, prima facie the claims by Bronwyn Wiederstein appear to be without merit.
Orders
For the aforementioned reasons, I will allow a nominal amount for Mr Rohrt’s negotiations to increase the amount paid into Court by CJV. I require Mr Rohrt to provide details of what is sought in a form which would allow an assessment of what was involved to increase the amount paid in and to allow an assessment of the attendant remuneration in the usual way and in a form which would be similar to that required for a taxation insofar as any legal costs might have been incurred specifically attendant upon these negotiations. Next WC’s costs of this application including reserved costs are to be paid out of the fund. Finally, if there is any balance, such balance will be paid to WC. I decline to order that any costs incurred by ARB, ARBD or Mr Rohrt to be paid out of the fund. Each of those claimants were substantially unsuccessful. The claim by ARB, ARBD and the resistance to the WC claim required the majority of the hearing and substantially increased the costs to all.
Please submit a minute to that effect together with a timetable for the filing and provision of any submissions.
SCHEDULE OF PARTIES
| S CI 2014 03528 | |
| BETWEEN: | |
| AUSTRALIA’S RESIDENTIAL BUILDER PTY LTD (ACN 136 733 732) (IN LIQUIDATION) | First Plaintiff |
| RICHARD TRYGVE ROHRT IN HIS CAPACITY AS JOINT AND SEVERAL LIQUIDATOR OF AUSTRALIA’S RESIDENTIAL BUILDER PTY LTD (ACN 136 733 732) (IN LIQUIDATION) | Second Plaintiff |
| - v - | |
| ROBERT WIEDERSTEIN | First Defendant |
| RAYMOND FRANCIS DE WEERD | Second Defendant |
| BRONWYN WIEDERSTEIN | Third Defendant |
| WIEDERSTEIN CORPORATION PTY LTD (IN LIQUIDATION) AS THE FORMER TRUSTEE OF THE WEIDERSTEIN INVESTMENT TRUST | Other Party |
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