Auzora Pty Ltd v The Commissioner of the Office of Business and Consumer Affairs - [2009] SASC 344

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
AUZORA PTY LTD v THE COMMISSIONER OF THE OFFICE OF BUSINESS AND CONSUMER AFFAIRS
[2009] SASC 344
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice White and The Honourable Justice Kourakis)
16 November 2009
EQUITY - TRUSTS AND TRUSTEES
STATUTES - ACTS OF PARLIAMENT - INTERPRETATION - PARTICULAR WORDS AND PHRASES - SPECIFIC INTERPRETATIONS
A mortgage financier (Growden) would accumulate individual investments for the purpose of lending to borrowers on first mortgage security – a solicitor (Morgan) controlled two companies (Shelvan and the appellant) – Shelvan invested $70,000 through Growden in a loan made before 1 June 1995 – after that loan was repaid, but before Growden remitted the money to Shelvan, Morgan assigned the principal from Shelvan to the appellant – contemporaneously with that assignment, the appellant (through Morgan) instructed Growden to reinvest the $70,000 in another loan arranged by Growden for a corporate borrower – Growden advanced the loan to the corporate borrower after 1 June 1995 – in late 1996 Growden went into liquidation and the appellant only received back about $25,000 of the capital sum it had invested – the appellant argued that the respondent should compensate it from an indemnity fund pursuant to Sch 2 of the Conveyancers Act 1994 – the respondent only accepted the appellant’s lesser compensation claim made pursuant to Sch 2A of the Land Agents Act 1994 – whether the capital sum of $70,000 held by Growden for the appellant immediately before the money was advanced to the corporate borrower was “trust money received by way of payment of principal under a loan made before 1 June 1995” within the meaning of cl 3 of Sch 2 of the Conveyancers Act 1994 – whether that phrase should be construed to extend to money held on any trust that can be traced back to the payment of the principal of an earlier loan – whether, if the appellant’s primary ground of appeal fails, the compensation paid to the appellant under Sch 2A of the Land Agents Act 1994 by the respondent was incorrectly quantified.
Held (by Kourakis J, Doyle CJ agreeing): The noun clause “trust money received by way of payment of principal made under a loan” in cl 3 of Sch 2 of the Conveyancers Act 1994 must be given a purposive interpretation – the phrase should be construed to mean trust money to which the mortgage financier is not wholly entitled because it is held on trust for the persons who are entitled in equity to the principal of the repaid loan; it is money received on, and subject to, a trust to remit it to the equitable owners of the principal – the equitable duties owed by Growden to Shelvan, which arose before 1 June 1995, were discharged when the interest in the principal sum of the earlier loan was assigned to the appellant on Shelvan’s instruction and the appellant contemporaneously instructed Growden to retain the capital for the purposes of the loan to the corporate borrower – Growden then became the trustee of a capital for the purpose of investing it in a new loan for the appellant – since this occurred after 1 June 1995, the appellant is not indemnified by Sch 2 of the Conveyancers Act 1994 – the primary ground of appeal is dismissed – cl 2 of Sch 2A of the Land Agents Act 1994 provides that a claim for compensation cannot exceed the claimant’s eligible capital loss – “eligible capital loss” is calculated by deducting the capital amount recovered by the claimant and any other amount that the claimant received in reduction of his or her pecuniary loss – therefore any recovery made after the loan fails reduces the claimant’s eligible capital loss – it follows that the sum of about $25,000 must be deducted from the qualifying capital investment of $70,000 – the alternative ground of appeal is dismissed.
(by White J in dissent): Schedule 2 of the Conveyancers Act 1994 does not define “trust money” by any express reference to the beneficial owner of the trust money – in contrast, Sc 2A of the Land Agents Act 1994 defines an “eligible claimant” who re-invests money by reference to the person who originally paid or invested the money – Sch 2 of the Conveyancers Act 1994 should be given a plain reading – accordingly, the appellant is entitled to have its claim for compensation determined under Sch 2 of the Conveyancers Act 1994 – the appeal should be allowed.
Conveyancers Act 1994 s 14, s 32, Sch 2; Land Agents Act 1994 s 12, s 29, s 54, Sch 2A; Land Agents, Brokers and Valuers Act 1973 s 6, s 62, s 75, s 76, Sch, cl 15; Land Agents, Brokers and Valuers (Mortgage Financiers) Amendment Act 1993 s 3, s 4, referred to.
Drabsch v Commissioner for Consumer Affairs [2003] SADC 124, discussed.

WORDS AND PHRASES CONSIDERED/DEFINED
"TRUST MONEY RECEIVED BY WAY OF PAYMENT OF PRINCIPAL UNDER A LOAN"

AUZORA PTY LTD v THE COMMISSIONER OF THE OFFICE OF BUSINESS AND CONSUMER AFFAIRS
[2009] SASC 344
Full Court: Doyle CJ, White and Kourakis JJ

DOYLE CJ: I would dismiss the appeal. I agree with the reasons given by Kourakis J. There is nothing that I wish to add to his reasons.
WHITE J: The appellant (Auzora) suffered losses as a result of an investment made in December 1995 through the firm G C Growden Pty Ltd (Growden). The principal question on this appeal is whether Auzora’s recovery of compensation for those losses from the indemnity fund established under the Land Agents Act 1994 (SA) (LAA) is governed by Sch 2 to the Conveyancers Act 1994 (SA) or by provisions in the LAA itself.
For the reasons which follow, my opinion is that it is Sch 2 to the Conveyancers Act which governs the recovery.
Factual Background
In the 1990s, Growden carried on business both as a conveyancer and as a mortgage investment broker. It matched borrowers with investors who lent on the basis of first mortgage security. With the consent of the investors Growden would commonly pool their money so as to make up a larger amount which was then lent to a single borrower. The total lent was not to exceed 70 per cent of the value of the property securing the loan. The properties were valued by valuers nominated by Growden. Growden attended to the formalities associated with the registration of the mortgage, obtained and distributed the monthly interest payments, and attended to the discharge of the mortgage at its expiry.
In April 1993, Mr David Morgan provided $70,000 to Growden and authorised the lending of that money to borrowers on the basis of a first mortgage security (the Hampel mortgage). The named lender was Shelvan Pty Ltd (Shelvan) and the mortgage was for a term of two years. However, in circumstances not disclosed in the evidence, that term must have been extended.
The Hampel mortgage was discharged on 20 December 1995 and, on Shelvan’s instructions, the $70,000 due to it was paid into Growden’s trust account. Earlier, on 12 December 1995, Growden had invited Shelvan to contribute the $70,000 to be repaid on the discharge of the Hampel mortgage to a loan of $925,000 for a period of 12 months to Share Investment Concepts Pty Ltd (SIC) and invited it to execute and return a First Mortgage Investment Authority to that effect. Mr Morgan signed and returned the Authority on 21 December 1995 but substituted Auzora as the investor in place of Shelvan. It was common ground on the appeal that the effect of the substitution was to indicate to Growden that the beneficial ownership in the $70,000 had been transferred from Shelvan to Auzora.
Both Shelvan and Auzora are companies associated with Mr Morgan. The appeal proceeded on the basis that at relevant times Shelvan had two shareholders, the directors being Mr Morgan and his accountant, with the latter holding his share on trust for Mr Morgan. Auzora was incorporated on 15 December 1995 and Mr Morgan is its sole shareholder and director.
Settlement on the loan to SIC occurred on 27 December 1995. Auzora was one of multiple investors whose funds made up the loan of $925,000. Growden applied the $70,000 held in its trust account from the discharge of the Hampel mortgage to make the contribution by Auzora to the sum of $925,000.
SIC defaulted in making the monthly interest payment which was due on 27 October 1996 and subsequently defaulted in repaying the principal sum. The mortgaged property securing the loan was found to be worth substantially less than $925,000, and each of the investors recovered only part of their original principal. Auzora recovered $25,652.39.
It was common ground that in recommending the loan to SIC, Growden had failed to disclose material facts concerning the investment, so that its conduct amounted to a “fiduciary default” within the extended meaning given to that expression by Sch 2, cl 3(1) of the Conveyancers Act and Sch 2A, cl 1(4) of the LAA.
Auzora applied for compensation from the indemnity fund established under Part 3 of the LAA. The Commissioner for Consumer Affairs, who administers the Fund, held that Auzora was entitled to compensation to be assessed under Sch 2A of the LAA. On that basis, the Commissioner assessed Auzora’s compensation at $44,347.61. The Commissioner rejected Auzora’s claim that its compensation should be assessed under the more generous provisions applicable to claims under Sch 2 of the Conveyancers Act.
Auzora’s appeal to the District Court against the Commissioner’s decision was dismissed. The present appeal is brought against that decision.
Statutory Provisions
Many of the statutory provisions relevant to the appeal, together with their history, are set out in the reasons of Kourakis J. I will endeavour to avoid unnecessary repetition.
Until 31 May 1995, land agents, valuers and land brokers were regulated by the Land Agents, Brokers and Valuers Act 1973 (SA) (the LABV Act). The LABV Act established a fund, entitled the “Agents’ Indemnity Fund”, as a source of compensation for those who suffered pecuniary loss as a result of the fiduciary default of a land agent or broker.
The LABV Act was repealed on 1 June 1995 and, since that date, the activities of land agents, land brokers and valuers have been governed by the LAA, the Conveyancers Act, and the Land Valuers Act 1994 (SA) respectively. Section 29 of the LAA required the Commissioner for Consumer Affairs to establish an indemnity fund into which would be paid, amongst other things, monies required to be paid under that Act, and under any other Act. Section 31 of the Conveyancers Act required certain monies to be paid into the same fund. Monies held in the Land Agents Indemnity Fund established under the LABV Act were also paid into the indemnity fund established under s 29 of the LAA.
Thus, the LAA and the Conveyancers Act contemplated that the one fund could be a source of compensation for the consequences of fiduciary default committed by persons governed by the two Acts. The differing statutory regimes in those two Acts concerning the recovery of compensation is one circumstance giving rise to the present appeal.
Division 3 of Pt 4 of the Conveyancers Act contains the provisions regulating claims for compensation from the indemnity fund in respect of fiduciary defaults by conveyancers. In s 14(1), “fiduciary default” is defined to mean “a defalcation, misappropriation or misapplication of trust money” occurring while the money is in the possession or control of a conveyancer or a firm of which a conveyancer is a member.
Section 14(1) defines “trust money” as follows:
trust money, in relation to a conveyancer, means money—
(a)that is received by the conveyancer when acting on behalf of another in connection with a dealing with land; and
(b)to which the conveyancer is not wholly entitled in law and in equity,
but does not include money received by a conveyancer in the course of mortgage financing.
The effect of the definitions of “fiduciary default” and “trust money” in s 14(1) is to preclude the indemnity fund being a source of compensation for those who suffer loss as a result of fiduciary defaults in relation to money received by conveyancers who had received the money in the course of a mortgage financing business. As Kourakis J has pointed out, this was a continuation of the position under the LABV Act which had been effected by the Land Agents, Brokers and Valuers (Mortgage Financiers) Amendment Act 1993 (SA) (the 1993 Amendment) which had come into operation on 25 March 1995.
However, each of the Conveyancers Act and the LAA contained, when first enacted, transitional provisions relating to trust monies received before their commencement (1 June 1995) by conveyancers or land agents, as the case may be, engaged in mortgage financing. Those transitional provisions meant that claims could continue to be made against the indemnity fund in respect of certain defalcations in the conduct of a mortgage financing business by a conveyancer or land agent who was also a mortgage financier. The transitional provisions were (relevantly) in the same terms as the transitional provision contained in cl 15 of the Schedule to the LABV Act, which had been inserted into the LABV Act by the 1993 Amendment.
The purpose of the transitional provisions is readily apparent. When Parliament moved to preclude the Land Agents Indemnity Fund established under the LABV Act and, later, the indemnity fund established under the LAA, from being a source of compensation for those who suffered losses as a result of defalcations by mortgage financiers who were also land agents or conveyancers, it recognised that there may be some who had made investments through mortgage financiers who should not be peremptorily denied the protection which the existing law afforded to them. The protection available for such investors was to be continued until such time as they could make new investment decisions in the light of the changed statutory regime. Kourakis J has set out in his reasons a passage from the second reading speech made by the relevant Minister on 26 November 1992 which evidences this purpose.
It is convenient to repeat certain of the provisions in Sch 2, cl 2 of the Conveyancers Act:
Schedule 2—Transitional provisions
2 —   Mortgage financiers
(1)     In this clause—
mortgage financier means a person who—
(a)     is—
(i)    a conveyancer; or
(ii)     an associate of a conveyancer; and
(b)     engages in mortgage financing;
trust money, in relation to a mortgage financier, means money received by a mortgage financier in the mortgage financier's capacity as such to which the mortgage financier is not wholly entitled at law and in equity.
(2)     …
(3)     This clause applies—
(a)to trust money received by a mortgage financier before the commencement of this Act; and
(b)where trust money received by a mortgage financier was lent to another on the security of a mortgage before the commencement of this Act—to trust money received by the mortgage financier (whether before or after that commencement) by way of payment of principal or interest, or both, under that loan.
(4) Part 4 applies to a mortgage financier as if—
(a)a reference in that Part to a conveyancer were a reference to a mortgage financier; and
(b)a reference in that Part to trust money were a reference to trust money to which this clause applies.
(5)     …
The effect of cl 2(4) in Sch 2 is to apply the provisions contained in Part 4 of the Conveyancers Act relating to claims on the indemnity fund to a mortgage financier (as defined) and to trust monies to which cl 2 applies.
A mortgage financier is defined (relevantly) to be a conveyancer who engages in mortgage financing. It was common ground that Growden was a mortgage financier for the purposes of Sch 2.
Schedule 2 limits the money which may be subject to a defalcation by a mortgage financier and which may give rise to a claim against the indemnity fund in two ways. First, the money must be “trust money” as defined in cl 2(1), ie, money received by a mortgage financier in the mortgage financier’s capacity as such and to which the mortgage financier is not wholly entitled at law and in equity. Clause 2(3) then confines further the trust monies to which the transitional provision applies. The trust monies must have been received by the mortgage financier before the commencement of the Conveyancers Act (1 June 1995) or, if both received and lent to a borrower on security of a mortgage before 1 June 1995, have been received by the mortgage financier by way of payment of principal or interest, or both, under that loan, ie, the loan made before 1 June 1995 (cl 2(3)). For the purposes of the second limb, it does not matter whether the receipt of the principal or interest by the mortgage financier occurred before or after 1 June 1995: the only requirement is that the money received by the mortgage financier be a payment of either principal or interest (or both) on a loan made by the mortgage financier before 1 June 1995.
Schedule 2, cl 3 of the LAA contains provisions which mirror (relevantly) those in Sch 2, cl 2 of the Conveyancers Act, save only that its provisions refer to agents and not to conveyancers.
In 2004 each of the LAA and the Conveyancers Act were amended by the Land Agents (Indemnity Fund – Growden Default) Amendment Act 2004 (the Growden Amendment) so as to incorporate special provisions relating to Growden investors. The purpose of the Growden Amendment was to permit recovery from the indemnity fund established under the LAA by investors who had suffered losses by the conduct of Growden but who were not eligible for such compensation under the existing provisions in the LAA and the Conveyancers Act. It did this in three ways.
First, the Growden Amendment extended the definition of “fiduciary default” so as to include a failure by Growden to make disclosure of material facts relating to an investment.[1] The apparent purpose of this amendment was to reverse the effect of the judgment in the District Court in Drabsch v Commissioner for Consumer Affairs[2] but it also had the incidental effect of extending the application of the transitional provisions to an investment after 1 June 1995 of money received by Growden by way of principal or interest (or both) on a loan made before 1 June 1995.
[1] Land Agents Act 1994 (SA) Sch 2A, cl (1)(4); Conveyancers Act1994 (SA) Sch 2, cl 3(1).
[2] [2003] SADC 124.
Secondly, the Growden Amendment divided the indemnity fund established under the LAA into two parts, Part A and Part B, and provided that Part B, which was to be credited with $13.5m, was to be available to meet the claims of the Growden investors who had not previously qualified for compensation from the indemnity fund for whom provision was made in a new Sch 2A.
Thirdly, the Growden Amendment inserted a new Sch 2A into the LAA entitled “Special Provisions Relating to G C Growden Pty Ltd”. Schedule 2A provides (relevantly):
1 — Interpretation
(1)     In this Schedule—
eligible capital loss of an eligible claimant is the qualifying capital investment made by the eligible claimant less any capital amount recovered by the eligible claimant with respect to that investment before the qualifying date and less any other amount that the eligible claimant has received or may reasonably be expected to recover (apart from this Schedule) in reduction of the eligible claimant's pecuniary loss;
eligible claimant means a person who—
(a)    has made a qualifying capital investment; and
(b)has suffered pecuniary loss with respect to that investment as a result of fiduciary default on the part of Growden Investments; and
(c)as at the qualifying date, has been unable to recover with respect to that loss an amount or amounts equal to or totalling the amount of the qualifying capital investment,
but does not include a person who is (or has at any time been) an associate of G.C. Growden Pty. Ltd.;
Fund means Part B of the indemnity fund (see section 29A);
Growden Investments means G.C. Growden Pty. Ltd. and includes any associate of G.C. Growden Pty. Ltd. (as in existence at any time);
prescribed period means the period commencing on the day on which this Schedule comes into operation and ending on 21 December 2004;
qualifying capital investment means—
(a)any investment of money effected by making a payment to Growden Investments, or to another person on the advice of Growden Investments, on or after 1 June 1995, on the understanding that the money would be lent to a person on the security of a mortgage; or
(b)any reinvestment of money effected by Growden Investments, or on the advice of Growden Investments, on or after 1 June 1995, where the money was originally paid to Growden Investments, or invested on the advice of Growden Investments, on the understanding that the money would be lent to a person on the security of a mortgage (including in a case where the original payment or investment occurred before 1 June 1995),
but does not include any investment or reinvestment of money that constitutes trust money to which clause 2 of Schedule 2 of the Conveyancers Act 1994 applies (by virtue of the operation of clause 2(3) of that Schedule);
qualifying date means the date on which this Schedule comes into operation.
(2)     …
(3)     For the purposes of this Schedule, a reinvestment of money within the ambit of paragraph (b) of the definition of qualifying capital investment in subclause (1) will be taken to be a qualifying capital investment made by the person who originally paid or invested the money.
(4)     For the purposes of this Schedule, fiduciary default on the part of Growden Investments will be taken to include—
(a)a defalcation, misappropriation or misapplication of another person's money; or
(b)a failure to disclose material facts with respect to the investment of another person's money.
(5)     …
2 — Entitlement to claim compensation
(1)     Subject to this Schedule, an eligible claimant may claim compensation under this Schedule.
(2)     A claim for compensation under this Schedule by an eligible claimant cannot exceed the eligible claimant's eligible capital loss.
(3) To avoid doubt, an eligible claimant is not prevented from making a claim under this Schedule by virtue only of the fact that he or she has made a claim under clause 2 of Schedule 2 of the Conveyancers Act 1994 (but recognising that a claim that gives rise to an entitlement under that clause cannot be the subject of a successful claim under this Schedule).
…

The Growden Amendment did not amend in any relevant way the terms of the existing Sch 2, cl 2 to the Conveyancers Act or the existing Sch 2, cl 3 to the LAA referred to above.
The new Sch 2A permits an “eligible claimant” who has suffered losses from a “qualifying capital investment” with Growden to recover compensation for that loss from Part B of the indemnity fund. This means that there are now two means by which a Growden investor may recover losses from the indemnity fund established under the LAA: under Sch 2, cl 2 of the Conveyancers Act and under Sch 2A of the LAA.
Schedule 2A contains two provisions precluding the recovery of compensation under both Sch 2A itself and under Sch 2, cl 2 of the Conveyancers Act. The concluding words to the definition of “qualifying capital investment” state that that expression does not include an investment or re‑investment of money which constitutes trust money to which Sch 2 of the Conveyancers Act applies. Further, Sch 2A, cl 2(3) provides that a claim which gives rise to an entitlement to compensation under cl 2 of Sch 2 of the Conveyancers Act cannot be the subject of a successful claim under Sch 2A.
The concluding words to the definition of “qualifying capital investment” and the terms of cl 2(3) in Sch 2A are significant as they indicate that the special provisions relating to Growden in Sch 2A are not to be understood as the only means of recovery of compensation from the indemnity fund by a Growden investor. It is apparent that Parliament intended that Sch 2A should be a new and additional means by which a Growden investor may recover compensation and, further, that it was not to be understood as confining the entitlement to compensation established by Sch 2, cl 2 of the Conveyancers Act.
The Decision of the District Court Judge
The District Court Judge considered that the sum of $70,000 lent to SIC by Auzora on 27 December 1995 was not trust money to which Sch 2, cl 2(3) of the Conveyancers Act applied. The Judge said:
I reject the argument advanced on behalf of Auzora that the transaction complained of falls within clause 2(3) of Schedule 2 of the Conveyancers Act. Auzora was the lender, and Auzora did not come into existence until 15 December 1995. Auzora could not, therefore, have either provided funds or entered into a loan prior to 15 December 1995. … Growdens must have held the $70,000 on account of Shelvan until the authority in Auzora’s name was received, at which point Growdens must be treated as having ceased to hold the money on account of Shelvan and as having received it on account of Auzora. Mr Ross-Smith argued that the payment made to Growdens by Mr Morgan in April 1993 was “the trust money received” for the purposes of clause 2(3) of Schedule 2, and that the identity of the entity from which the money was received was irrelevant. I reject this argument. It is implicit in clause 2(3) that the entity from which the money was received by Growdens is the entity which made the investment.
The payment to Growdens the subject of this claim was made in December 1995. A claim against the indemnity fund can therefore only be made pursuant to the Land Agents Act.[3]
[3] Auzora Pty Ltd v Commissioner of Consumer Affairs [2008] SADC 139 at [29]-[30].
It can be seen that the Judge construed Sch 2, cl 2(3)(b) as requiring regard to be had to the identity of the investor on whose account the mortgage financier had received and held the money. If a change in the identity of that investor occurred, the mortgage financier could no longer be said to have “received” the trust money in the manner contemplated by sub-cl 2(3)(b).
Kourakis J would reach a similar conclusion by holding that sub-cl 2(3)(b) should be understood as referring to money received by a mortgage financier by way of principal or interest, or both, under a loan made before 1 June 1995 and which remains subject to a trust in favour of the investor who had made the loan.
Consideration
Auzora contends that the money to which Sch 2, cl 2(3)(b) applies must satisfy two criteria, and two criteria only: the mortgage financier must have received trust money by way of payment of principal or interest, or both; and that principal or interest must have been paid to the mortgage financier under a loan secured by mortgage made before 1 June 1995 with money received by the mortgage financier. It contends that the construction adopted by the Judge is to incorporate an additional requirement not contemplated by Sch 2, cl 2 at all.
The Solicitor-General, who appeared for the Commissioner, supported the construction adopted by the Judge.
An appropriate starting point for consideration of the competing views is the definition of “trust money” in cl 2(1) and the words of sub-cl 2(3). Neither of those provisions contains any express reference to the beneficial owner of the trust money.
The criterion which Parliament has taken for the preservation of recourse to the indemnity fund in the transitional provisions is the receipt by a mortgage financier of trust money before a specified date. Schedule 2, cl 2(1) defines trust money without reference to a beneficiary of the trust. It refers to money received by the mortgage financier “to which the mortgage financier is not wholly entitled at law and in equity”. Of course, if the mortgage financier is not wholly entitled to the money at law and in equity, some other person or persons must have an interest in it. But it is pertinent to note that the expression “trust money” in sub-cl 2(1) is not defined by reference to the relationship of the beneficiary of the trust with the money, but by reference to the relationship of the mortgage financier with the money.
Sub-clause 2(3), which confines the trust money to which Sch 2, cl 2 applies, does so without any reference to the beneficiary of the trust. In sub-cl 3(a), the criterion is the date of the receipt of the trust money. In sub‑cl 3(b), there are three criteria: the date of receipt by the mortgage financier of the trust money; the date of the lending of the money on first mortgage security; and the nature of the subsequent receipt (being a payment of principal or interest or both under the loan made before 1 June 1995). The identity of the original investor, or the identity of the person on whose behalf the principal and interest on a loan made before 1 June 1995 are received, is not made part of the criteria at all.
In this respect, the provisions in Sch 2, cl 2 of the Conveyancers Act contrast with the provisions in Sch 2A of the LAA. The latter provisions do expressly make characteristics of the claimant part of the qualifying criteria. It is an “eligible claimant” who may claim compensation (sub-cl 2(1)). An “eligible claimant” is a person who has suffered pecuniary loss from the making of a “qualifying capital investment” (cl 1). A “qualifying capital investment” is a payment made to Growden or the re-investment of monies originally paid to Growden before 1 June 1995 (cl 1). A re-investment of monies is to be taken to be a qualifying capital investment made by the person who originally paid or invested the money (cl 1(3)).
The omission of any provisions in Sch 2, cl 2 of the Conveyancers Act which correspond with those contained in Sch 2A to the LAA is, in my opinion, striking. It tends to confirm that the identity of the beneficiary of the trust is not critical to the operation of Sch 2, cl 2 of the Conveyancers Act.
It is true that Sch 2, cl 2 was incorporated as part of the Conveyancers Act when it was first enacted in 1994. Similar provisions had been inserted in to the Schedule to the LABV Act by the 1993 Amendment. The provisions in Sch 2A which provide the contrast do not form part of the Conveyancers Act, and were inserted into the LAA some ten years after its enactment. It could accordingly be said that it is inappropriate to draw inferences about the construction of Sch 2, cl 2 of the Conveyancers Act from the terminology used in Sch 2A to the LAA. However, as noted earlier, Sch 2, cl 3 to the LAA is in relevantly the same terms as Sch 2, cl 2 to the Conveyancers Act. The LAA has to be read as a whole so that the contrast between the provisions contained in Sch 2, cl 2 and Sch 2A is pertinent to the proper construction of the former. It is accordingly therefore also pertinent to the proper construction of the mirror provisions of Sch 2, cl 2 of the Conveyancers Act.
Further, it is evident that the transitional provisions concerning mortgage financiers in each of the Schedules to the Conveyancers Act and the LAA were intended by Parliament to provide an integrated scheme relating to the recovery of losses arising from the conduct of mortgage financiers. This is an additional reason, in my opinion, why it is legitimate to draw an inference from the language used in Sch 2A to the LAA about the proper construction of Sch 2, cl 2 to the Conveyancers Act.
In my opinion, a plain reading of sub-cl 2(3)(b) does not support the construction for which the Commissioner contends. The construction proposed by the Commissioner would require this Court to read into sub-cl 2(3)(b) additional words. The substantive clause in sub-cl 2(3)(b) would have to be understood as though it read: “to trust money received by the mortgage financier whether before or after that commencement by way of payment of principal or interest, or both, under that loan, and held on behalf of the lender who had, before 1 June 1995, made the loan”. This involves a significant judicial rewriting of a statute, a course which I would be reluctant to adopt in the absence of clear indications that it is appropriate to do so. In my opinion, such indications are lacking.
The language of sub-cl 2(3) does not expressly limit the trust money to which it applies to that held on behalf of the same investor by whom the money was originally received by the mortgage financier or on whose behalf the payment of principal or interest was received. I am not able to identify any consideration giving rise to a necessary implication to that effect. Of course, to be trust monies, there must be an identifiable beneficiary for the monies. But it does not follow from the fact that there must be an identifiable beneficiary that there must be continuity of identity of the beneficiary in order for sub-cl 2(3) to have an effective operation. Sub-clause 2(3) can operate effectively whichever of the competing considerations at issue in this case is applied.
In my opinion, the focus of Sch 2, cl 2 to the Conveyancers Act is on the control exercised by the mortgage financier over trust monies, rather than upon the relationship of the mortgage financier with the beneficial owner of the money, or the relationship of the beneficial owner with the trust money. It is the existence of the mortgage financier’s control of money to which it is not wholly entitled at law and in equity upon which Sch 2, cl 2 fastens, provided that when the money is a payment of interest or principal on a loan previously made, that loan had been made on the security of a mortgage before 1 June 1995.
The construction proposed by the Commissioner also fails, in my opinion, to give proper effect to the word “received” used in the definition of “trust money” in sub-cl 2(1) and sub-cl 2(3). The definition of “trust money” in sub-cl 2(1) speaks of money “received” by a mortgage financier. Sub-clause 3(a) speaks of trust money “received” by a mortgage financier before the commencement of the Act. Sub‑clause 3(b) speaks of money “received” by the mortgage financier by way of payment of principal or interest, or both. The primary meaning given for the word “received” in the Macquarie Dictionary is “to take into one’s hand or one’s possession (something offered or delivered)”. Another meaning is “to hold or contain” and the notion of holding can be an appropriate meaning in relation to trust money. However, that meaning is less apt in the expression “money received by the mortgage financier … by way of payment of principal or interest, or both”. Those words seem more appropriately to be a reference to the delivery of monies to the mortgage financier at an identifiable point of time as they require consideration of the character or purpose of the making of the payment.
This gives rise to the question of whether there can be multiple receipts of the same money by a mortgage financier while it remains held in its trust account, ie, whether it can be said that there has been a new receipt by the mortgage financier on each change in beneficial ownership of the money, or perhaps on each change in the terms of the trust in which it is held. If so, it may be possible to construe sub-cl 2(3)(b) as referring only to the initial receipt of the trust money, and not to any later “receipt”.
In my respectful opinion, it is artificial to speak of multiple receipts of the same money. Money paid to a mortgage financier remains money received by it even if, subsequent to the initial receipt, the money becomes subject to a different trust. The receipt of trust money is something which occurs at an identifiable point of time and, under the legislation applicable to the issues in this case, is the subject of a distinct obligation. Section 63 of the LABV Act required an agent or broker, as soon as practicable after receiving trust money, to deposit it in an approved trust account.. Section 15 of the Conveyancers Act and s 13 of the LAA contain corresponding obligations. It does not seem sensible to regard the Conveyancers Act and the LAA as requiring some form of re-depositing of money already held in a trust account simply because there has been a change in the beneficial ownership of the money, or a change in the terms of the trust upon which the monies are held.
Perhaps this point can be made more shortly by saying that there is a distinction between the initial receipt of trust money by a mortgage financier, on the one hand, and the terms of the trust upon which the mortgage financier, having received the money, continues to hold it, on the other, and that the two concepts should not be equated.
To require continuity in the identity of the beneficiary from the time of making of the loan by the mortgage financier or, alternatively, from the time the mortgage financier receives the payment of principal or interest under that loan, could produce quite inconvenient and, one suspects, unintended results. I will give some examples. In considering these examples, it is to be remembered that a fiduciary default by a mortgage financier in relation to money received by way of principal or interest may be a misappropriation of the money while it is held in the trust account and not, as occurred in the case of Auzora, by a failure to disclose material facts with respect to the further investment of the money. That is to say, sub-cl 2(3) is not to be construed only by reference to losses arising from the re-investment of the monies.
Suppose a parent has invested money with a mortgage financier as trustee for a child who attains adulthood shortly after the original loan was repaid. The parent directs the mortgage financier that the beneficial owner of the money is now the child. The mortgage financier makes the appropriate entry in its accounts but subsequently misappropriates the money while it is still held in its trust account. Similar circumstances could arise under a matrimonial property settlement in which one spouse rather than the other, or the spouses jointly, is to be entitled to the money paid by the borrower to the mortgage financier, and the mortgage financier is advised accordingly.
Suppose again that an investor becomes bankrupt after the repayment of the principal and interest and before any re-investment of the money, with the effect that his or her property vests in the Official Trustee.[4]
[4] Bankruptcy Act 1966 (Cth) s 58(1).
In each of these examples, there will have been some change in the beneficial ownership of the money. The person who has the beneficial ownership at the time of the defalcation will not be the same person who lent the money originally to the mortgage financier and on whose behalf the money was lent. In my respectful opinion, it is not appropriate for this Court to read into sub-cl 2(3)(b) additional words which Parliament itself has not chosen to use if the effect would be to defeat claims of these kinds. I would not regard the circumstances described in these examples as inconsistent with the evident purpose of the transitional provisions to which I referred earlier.
I acknowledge that it is possible to postulate examples which, on the construction of sub-cl 2(3)(b) which I prefer, would produce results which are seemingly anomalous. The Solicitor‑General advanced the hypothetical example of an investor, A, who assigns his interest in a loan made through a mortgage financier to a creditor. The mortgage financier is not informed of the assignment and, on the expiry of the loan, invites investor A to make a further investment. Investor A refers the request to the creditor, who decides to make the investment offered, using the money assigned to it. It was submitted that it would be an unintended consequence if, in that circumstance, the creditor could recover compensation from the indemnity fund under Sch 2, cl 2 to the Conveyancers Act. Kourakis J has given other examples in his reasons.
I agree that the circumstances disclosed by these examples do not seem consistent with the evident purpose of the transitional provisions when first enacted in 1994. However, the postulated consequences could arise only in relation to an investment made through Growden, and could arise only because of Parliament’s extension in 2004 of the concept of “fiduciary default” to include a failure on the part of Growden to disclose material facts with respect to the investment of trust monies. In other words, the anomalies (if they be anomalies) would arise only because of the legislature’s alteration in 2004 in the effect of the transitional provisions which had been enacted in 1994. It may be that the legislature did not appreciate fully the implications of its amendment but, to my mind, that does not warrant this Court reading words of limitation into sub-cl 2(3)(b).
Finally, Sch 2 of the Conveyancers Act contains provisions which are intended to bestow a benefit, by preserving recourse to an indemnity fund which would otherwise have been removed. As such, it should, in accordance with ordinary principles of statutory construction, be construed beneficially, giving the fullest entitlement which a fair reading of its language will permit.[5]
[5] Bull v Attorney-General (NSW) (1913) CLR 370 at 384; Nilant v Macchia (2000) 104 FCR 238 at 247.
For these reasons, I conclude that the Judge erred in failing to find that Auzora was entitled to have its claim for compensation determined under cl 2 of Sch 2 to the Conveyancers Act. I would allow the appeal to give effect to that conclusion.
Quantum Issues
Auzora raised on appeal a number of issues concerning the proper quantification of its claim under Sch 2 to the Conveyancers Act. These issues were not addressed by the Judge as, on the view which her Honour took, the Conveyancers Act did not apply to Auzora’s claim.
In my opinion, it is inappropriate for this Court on appeal to determine these issues. If they are to be pursued by Auzora, it is preferable that they be considered by the District Court at first instance and I would remit the matter to the District Court for that purpose.
Auzora also argued that if, contrary to its contention, its claim was governed by Sch 2A to the LAA, the Judge had erred in one respect in her determination of the compensation to which it was entitled under that Schedule. The Judge should, it was said, have allowed the appeal against the Commissioner’s failure to include in the compensation damages by way of interest in respect of the period commencing on a date two years after Auzora first made its claim (21 December 2004) and concluding on 21 November 2008 (the date upon which the Commissioner paid Auzora the sum of $44,347.61). Counsel for Auzora indicated that this was the only ground of the appeal against quantum which it pursued if, contrary to its submission, it was the LAA which applied to its claim.

Auzora claimed that it was entitled to the damages by way of interest because of the breach which it alleged by the Commissioner of a statutory duty said to be owed by him to determine its claim within a reasonable time. Despite framing its claim as one of damages, Auzora maintained that the amount which it claimed should be included as a component of the compensation to be paid from the indemnity fund under Sch 2A to the LAA.
In my respectful opinion, the claim to damages made by Auzora before the Judge, and repeated on the appeal to this Court, is misconceived.
First, neither interest nor damages for the loss of use of money form part of an “eligible capital loss” which may be recovered as compensation under Sch 2A to the LAA. That Schedule governs entirely Auzora’s entitlement to compensation and does not include any other provision permitting the payment of interest or damages for loss of use of money by way of compensation.
Secondly, if the Commissioner did breach a statutory duty by a delayed determination of Auzora’s claim, the remedy (if one is available) must be in common law damages, and not compensation under the LAA.
Thirdly, any claim for damages for breach of statutory duty against the Commissioner should be pursued by Auzora as an ordinary civil action, on pleadings, and on proper notice to the Commissioner. It cannot be agitated as an incident to an appeal commenced under s 37 of the LAA. If the civil action had been commenced in the District Court, it would have been a matter for that Court to determine whether the claim should be heard and determined at the same time as the appeal. In the present case, Auzora did not commence any separate civil proceedings raising the alleged breach of statutory duty by the Commissioner.
Accordingly, if, contrary to my conclusion, it is the LAA which applies to Auzora’s claim, my opinion is that its appeal against the decision of the Judge concerning the quantification of its claim should be dismissed.
Conclusion
For the reasons given above, I would allow the appeal. I would set aside the order of the District Court dismissing the appeal against the decision of the Commissioner for Consumer Affairs dated 17 August 2007. I would remit the matter to the District Court with a direction that the appellant’s claim be heard and determined in accordance with these reasons and for consideration of the appellant’s appeal concerning the proper quantification of its claim.
KOURAKIS J:
Introduction
In late 1996 the firm Growden, a registered conveyancer, which had also conducted the business of mortgage financing, went into liquidation. As a mortgage financier, Growden would accumulate individual investments for the purpose of lending to borrowers on first mortgage securities. As a result of Growden’s financial collapse, many investors who had lent money through it were unable to recover the capital sum they had invested and were not paid the interest which had accrued on it.
The appellant (Auzora) has claimed compensation pursuant to s 32 of the Conveyancers Act 1994 for Growden’s fiduciary default. The default, which is admitted, occurred when Growden arranged a loan for a corporate borrower (SIC) on first mortgage security for the purchase of land at Aldinga. I will refer to the loan as the “SIC loan”. Auzora contributed the sum of $70,000 to the SIC loan. The capital sum of $70,000 had been invested through Growden in an earlier loan by the company Shelvan Pty Ltd (Shelvan). A solicitor, David Morgan (Morgan), was the sole shareholder and director of Auzora and, together with his accountant, had been a director and shareholder of Shelvan. Auzora accepts that the investments made by it and Shelvan were investments made by and for the companies themselves, and not as agents for each other or for Morgan.
After the principal of the earlier loan was repaid, and before Growden had remitted it, Morgan gave Growden written instructions which had the effect of assigning the principal from Shelvan to Auzora. Contemporaneously with that assignment, Auzora, through Morgan, instructed Growden to reinvest the money as part of the SIC loan. No question of a breach of the fiduciary duty Growden owed to Shelvan arises in this case; Shelvan did not reinvest the money and it did not suffer any loss in assigning the capital sum of $70,000 to Auzora. The relevant fiduciary default of Growden lay in its failure to warn Auzora that even though the total loan made to SIC was $925,000, the purchase price of the land was only just over half of that amount, $435,000. Instead, Growden advised Auzora that the total loan made was 70 per cent of a valuation which was later discovered to be badly overstated. The money was advanced to SIC and settlement on the Aldinga land took place on 27 December 1995. Growden stopped paying interest to Auzora after October 1996. Later that year, Growden was placed into receivership and later again into liquidation. In December 1998 the receivers sold the Aldinga land. On 18 December 1998 Auzora received only $25,652.39 of the capital sum of $70,000 that it had invested.
Auzora instituted a number of actions in attempts to recover the shortfall. It took proceedings against Growden, the valuer of the land, the guarantors of the loan and a conveyancer employed by Growden, but was unable to recover any of its losses or the legal expenses it had incurred in prosecuting the actions.
If s 32 of the Conveyancers Act 1994 applies to Auzora’s loss at all, it is because the scope of that section was extended in 2004 by the enactment of cl 3 of Sch 2 of that Act. Schedule 2 contains transitional provisions ancillary to the withdrawal of fiduciary defaults arising from mortgage financing from the scope of the statutory indemnity provided for the defaults of conveyancers. Clause 3 was enacted by the Land Agents (Indemnity Fund – Growden Default) Amendment Act 2004 (the Growden amendment) after years of political lobbying by Growden investors who had failed to recover their losses.
Clause 3 of Sch 2 of the Conveyancers Act 1994 extended the scope of the fiduciary defaults covered by s 32 to include a failure on the part of Growden Investments to disclose material facts with respect to the investment of trust money received by way of payment of principal or interest or both under a loan made before 1 June 1995. The Growden Amendment also enacted an additional Schedule, Sch 2A, to the Land Agents Act 1994 (Sch 2A). Schedule 2A conferred an entitlement to compensation, which was more limited than the compensation available under the Conveyancers Act 1994, to persons who had suffered loss as a result of a fiduciary default with respect to an investment made through Growden either by way of a payment made after 1 June 1995 or, by the reinvestment, after that date, of money that had been paid to or invested on Growden’s advice prior to that date. I deal further with the differences in the compensation payable in [122] below.
The second limb of the entitlement given by Sch 2A and the compensation available under Sch 2 of the Conveyancers Act 1994 overlap in their application to the first reinvestment after 1 June 1995 of a capital sum which had been lent through Growden before 1 June 1995. An investment so made has sometimes been referred to as a “first rollover” investment or loan. The legislature recognised the overlap and expressly provided that a claimant was not entitled to compensation pursuant to Sch 2A for any loss that was compensable pursuant to the Conveyancers Act 1994.[6]
[6] Land Agents Act 1994 Sch 2A, cll 1(b) and 2(3).
It is common ground in this appeal that, unless it is entitled to compensation under Sch 2 of the Conveyancers Act 1994, Auzora is entitled to compensation pursuant to Sch 2A, notwithstanding a difficulty, to which I shall later refer, in applying the text of Sch 2A to its investment.
Auzora first made a claim on the Indemnity Fund with respect to the fiduciary default of an individual conveyancer engaged by Growden in January 2000. That claim was rejected. Following the enactment of the Growden Amendment, Auzora made a second claim on 15 December 2004. On 17 August 2007 the Commissioner of Consumer Affairs accepted the claim made pursuant to Sch 2A; the claim under Sch 2 of the Conveyancers Act 1994 was rejected.
On 16 November 2007 Auzora appealed against the Commissioner’s determination to the Administrative Division of the District Court. The District Court dismissed Auzora’s appeal on 30 October 2008. Auzora now appeals against the decision of the District Court confirming the Commissioner’s rejection of its claim under the Conveyancers Act 1994 to this Court. In the alternative, it also appeals against the quantum of the claim allowed under Sch 2A.
I accept that if the capital sum of $70,000 had been reinvested by Shelvan, Shelvan would have been entitled to compensation for its loss by reason of the extended operation of s 32 of the Conveyancers Act 1994 effected by cl 3 of Sch 2 to that Act. However, I have concluded that the capital sum of $70,000 held by Growden for Auzora immediately before the money was advanced to SIC was not “trust money received by way of payment of principal under a loan made before 1 June 1995” within the meaning of Sch 2 of the Conveyancers Act 1994. That noun clause refers to the money received by Growden as agent for the ultimate lenders and subject to the equitable obligations owed to them. I would construe that noun clause to mean trust money to which the mortgage financier is not wholly entitled because it is held on trust for the persons who are entitled in equity to the principal of the loan; it is money received on, and subject to, a trust to remit it to the equitable owners of the principal.
The equitable duties which Growden owed to Shelvan on receipt of the principal sum from the earlier loan were discharged when the interest in that capital sum was assigned to Auzora on Shelvan’s instruction. Once that assignment was effected, the capital sum held by Growden was no longer repaid principal affected by a trust for the benefit of Shelvan as one of the ultimate lenders of the earlier loan. Even though Growden’s legal right to that capital sum as against the banker with whom the money had been deposited remained unchanged, by agreeing to hold the money for the purposes of the SIC loan after the entitlement to the money was assigned to Auzora, Growden was released from its obligations to Shelvan and instead held the money as trustee for Auzora. Accordingly, Growden became the trustee of the capital sum, not by reason of the repayment of the earlier loan, but by reason of the assignment to Auzora and Auzora’s instruction to retain the capital for the purposes of making the SIC loan. Growden’s equitable obligations were owed to Auzora as a new investor. The money ceased to be principal received under a loan made before June 1995. The receipt of the money as principal no longer had any legal or equitable significance. It was therefore no longer trust money within the special meaning of that phrase in Sch 2 of the Conveyancers Act 1994. I explain my reasons for so concluding below.
The Investment
The $70,000 advanced by Auzora on 27 December 1995 had been earlier invested by Shelvan in a loan made through Growden to persons variously described as Marshall or Hampel (the Hampel loan). The Hampel loan was made by Growden in April 1993 and comprised the $70,000 invested by Shelvan together with the funds of other investors. The written authority to invest that capital sum executed by Shelvan authorised Growden to collect all payments due on that mortgage and directed it to “send me/us a monthly statement and forward the amount collected less your expenses as instructed below”. The instruction “below” referred only to “monthly interest payments”. The text of that authority reveals that Growden also operated what it described as an interest bearing “Call Account” in which money was deposited shortly before it was lent on first mortgage security.
It would appear from the particular practice of Growden, and from the way in which one would expect first mortgage financing to be conducted, that the terms on which investors advanced their capital were as follows: On repayment of the principal of the loan, the mortgage financier was subject to an obligation as a trustee of that principal to pay each investor’s proportion of the repaid principal, less its charges, directly to the investor or into an account like the Call Account, to await the receipt of further instruction on how to deal with the investor’s capital sum. In my view, this factual context, on which Sch 2 of the Conveyancers Act 1994 was intended to operate, supports a construction of the phrase “trust money received by way of payment of principal” which limits the phrase to the repaid principal whilst it is held on trust pending its remittal to the investor who provided the principal or its application to another purpose in accordance with the investor’s instructions.
Growden informed Shelvan on 5 December 1995 that the Hampel borrowers proposed to discharge the mortgage “as soon as possible”. Shelvan was invited to reinvest the principal to be repaid in another “sound first mortgage security”. On 12 December 1995 Growden put a proposal to Shelvan to reinvest its part of the principal of the Hampel loan in a new loan to SIC secured by a first mortgage on property at Aldinga. Growden informed Shelvan that, in addition to the security offered by the mortgage, it would secure two personal guarantors of the loan. On 20 December 1995 Morgan wrote to Growden. He enclosed executed documentation for the discharge of the Hampel mortgage and asked Growden to “hold the principal”.
On 20 December 1995 Shelvan was informed that the Hampel mortgage had been discharged and that the “proceeds from this settlement have been paid directly to the new Investment Mortgage as requested”. I infer that by that statement Growden meant that the money had been paid into the Call Account so that it could be advanced to SIC on settlement, instead of being remitted to Shelvan. The request referred to in Growden’s letter may have been the one communicated in Morgan’s letter or to a telephone conversation in which Morgan advised that he wanted to reinvest the money in the SIC loan. On the next day, 21 December 1995, a written acceptance of the proposal to invest in the SIC loan was executed by Morgan and soon thereafter provided to Growden. However, on that written acceptance Morgan changed the name of the investor from Shelvan to Auzora. In so doing the assignment by Shelvan to Auzora, and the change in the trust by which Growden was bound to which I have already referred, was effected.
The money was advanced to SIC on 27 December 1995 for a term of 12 months but, as has already been observed, SIC stopped paying interest in October 1996, even before the expiry of that term.
On 16 February 1999, after receiving the sum of $25,652.39 in December 1995 to which I have earlier referred, Auzora issued proceedings against the conveyancer engaged by Growden who had prepared the mortgage document on the SIC loan for negligently failing to disclose that the total sum advanced to SIC far exceeded the purchase price and for breach of fiduciary duties. Auzora also alleged that the conveyancer had settled on the loan contrary to Morgan’s instructions not to settle before he had seen the settlement documentation. On 22 March 2000 a Judge of the District Court dismissed Auzora’s claim. An appeal to the Supreme Court was eventually withdrawn on the basis that the defendant conveyancer would not seek her costs.
On 13 January 2000 Auzora applied for compensation from the Indemnity Fund pursuant to the Conveyancers Act 1994 for the default of that conveyancer, as a conveyancer, and not as a mortgage financier. Auzora relied on the conveyancer’s denial that she was a mortgage financier in pleadings in the civil action which it had unsuccessfully brought against her. Auzora also relied on an organisational chart produced by Growden showing that its operations were compartmentalised into separate conveyancing and mortgage financing departments.[7] Auzora claimed that the conveyancer’s failure to inform it of the difference between the purchase price, the sum advanced and the valuation constituted a fiduciary default as a conveyancer, and not as a mortgage financier.
[7] Letters from Morgans to Office of Consumer and Business Affairs 13 January 2000, 8 September 2000 (AB 142).
Auzora’s application was rejected; however, what is of present importance is that in formulating its claim as it did Auzora impliedly accepted that it was not entitled to compensation from the Indemnity Fund in accordance with Sch 2 of the Conveyancers Act 1994 as it then stood. For reasons that I shall come to shortly, it was right to proceed on that basis.
The legislation and its history
From 1973 land agents, brokers and valuers were regulated by the Land Agents, Brokers and Valuers Act 1973. The Land Agents, Brokers and Valuers Act 1973 gave those persons who had suffered pecuniary loss as a result of the fiduciary default of a member of any one of those professions a right to compensation from the Agents Indemnity Fund.[8]
[8] Land Agents, Brokers and Values Act 1973 ss 6, 62, 75 and 76.
That right was conferred in the following way. The Land Agents, Brokers and Valuers Act 1973 defined a “mortgage financier” to mean an agent or land broker, or an associate of an agent or a land broker, who received money from another on the understanding that the money would be lent to a third person on the security of a mortgage.[9] Section 76 gave a right to claim compensation, against the Agents Indemnity Fund created by that Act, for pecuniary loss suffered as a result of the fiduciary default of an “agent”.[10] “Agent” was in turn defined to include both a land broker and a mortgage financier.[11] A “fiduciary default” was defined to mean a defalcation, misappropriation or misapplication of trust money occurring while the money was in the possession or control of an agent.
[9] Land Agents, Brokers and Values Act 1973 s 6.
[10] Land Agents, Brokers and Values Act 1973 s 76.
[11] Land Agents, Brokers and Values Act 1973 s 62.
The provision of an indemnity for the conduct of mortgage financiers was to prove unsustainable. In the 1980’s substantial fiduciary defaults by a small number of mortgage financiers placed a great strain on the fund. The fund paid out over $10 million to claimants as a result of the collapse of the mortgage financing activities of just three landbrokers: Hodby, Schiller and Winzor. As a result stricter controls were imposed on the activities of mortgage financiers in 1989. There was at about the same time a substantial decrease in the number of agents involved in mortgage financing.
Later in 1991, changes in the Corporations Law made it possible to provide an even stricter regulatory regime nationally. The advent of national regulations amendments made by the Land Agents, Brokers and Valuers (Mortgage Financiers) Amendment Act 1993 denied persons who suffered pecuniary loss as a result of the mortgage financing activities of agents and brokers recourse to the Agents Indemnity Fund. The amendments were assented to on 25 March 1993 but only came into operation on 25 March 1995 by virtue of s 7(5) of the Acts Interpretation Act 1915. The Land Agents, Brokers and Valuers Act 1973 was itself repealed soon thereafter by the Land Agents Act 1994, which was enacted to regulate land agents; conveyancers were separately regulated by the Conveyancers Act 1994. Both the Land Agents Act 1994 and the Conveyancers Act 1994 were assented to on 15 December 1994 and came into operation on 1 June 1995. It appears therefore that the Land Agents, Brokers and Valuers (Mortgage Financiers) Amendment Act 1993 was operative for a short time before the Land Agents Act 1994 and the Conveyancers Act 1994 came into operation but that circumstance does not, I think, affect the application of the transitional provisions in the latter Acts.

The Land Agents, Brokers and Valuers (Mortgage Financiers) Amendment Act 1993 removed fiduciary defaults in the course of mortgage financing from the indemnity scheme by providing that a person who carried on the business of negotiating or arranging loans secured by mortgage was not, by reason of that fact, an agent within the meaning of the Act,[12] and by removing from the definition of “agent” a person who was a mortgage financier.[13] The effect of those provisions was then reinforced by amending the definition of “trust money” so that it applied only to “money received by the agent in the agent’s capacity as such”.[14] It followed that trust money received by land agents or conveyancers in the course of mortgage financing activity was not money received in their capacity as agents.
[12] Land Agents, Brokers and Values (Mortgage Financiers) Amendment Act 1993 s 3.
[13] Land Agents, Brokers and Values (Mortgage Financiers) Amendment Act 1993 s 4.
[14] Land Agents, Brokers and Values (Mortgage Financiers) Amendment Act 1993 s 4(b).
The removal of any right of recourse to the Agents Indemnity Fund raised an immediate policy problem with respect to those clients of the agents who were formerly protected and who had invested with agents before the amendments came into effect. An agent may have already misappropriated that money, in which case the client arguably had an accrued right to compensation. Alternatively, an agent might, after the amendment became operative, have misappropriated payments of principal or interest before, and instead of, remitting that money to the client.
Two measures were taken to meet this mischief. First, as we have seen, the amendment was not immediately proclaimed in the hope that the removal of protection might become widely known.
Secondly, transitional provisions were enacted by the Land Agents, Brokers and Valuers (Mortgage Financiers) Amendment Act 1993 with the effect that the indemnity would continue with respect to the defalcation, misappropriation or misapplication of money already invested by a mortgage financier. The transitional measures were enacted by way of an additional clause, cl 15, to the existing Schedule to the Land Agents, Brokers and Valuers Act 1973. Clause 15 applied the indemnity scheme of the Land Agents, Brokers and Valuers Act 1973 to mortgage financiers but only with respect to the defalcation, misapplication or misappropriation of money received by the financier before the commencement of the amending Act and to trust money received by the mortgage financier by way of payment of principal or interest on a loan made before the commencement of the amending Act. Clause 15 provided as follows:
(1)     In this clause-
‘the 1993 amending Act’ means the Land Agents, Brokers and Valuers (Mortgage Financiers) Amendment Act 1993;
‘mortgage financier’ means a person who-
(a)is-
(i)an agent or land broker;
or
(ii)an associate of an agent or land broker;
and
(b)     receives money from another on the understanding that the money will be lent to a third person on the security of a mortgage;
‘trust money’ in relation to a mortgage financier, means money received by a mortgage financier in the mortgage financier’s capacity as such to which the mortgage financier is not wholly entitled at law and in equity.
…
(3)     This clause applies
(a)     to trust money received by a mortgage financier before the commencement of the 1993 amending Act;
and
(b)     where trust money received by a mortgage financier was lent to another on the security of a mortgage before the commencement of the 1993 amending Act – to trust money received by the mortgage financier (whether before or after that commencement) by way of payment of principal or interest, or both, under that loan.
As I have already mentioned, the Land Agents, Brokers and Valuers Act 1973 was effective for only several months before discrete Acts were passed to regulate each of the professions to which it had applied. The substantive provisions of the Conveyancers Act 1994 excluded money received in the course of mortgage financing from the definition of trust money and limited fiduciary default to the defalcation misappropriation or misapplication of trust money.[15] It followed that loss resulting from a fiduciary default with respect to money held on trust in the course of mortgage financing was not compensable pursuant to s 32 of the Conveyancers Act 1994.
[15] Conveyancers Act 1994 s 14.
The Land Agents Act 1994 provided that a person did not act as an agent within the meaning of that Act insofar as that person engaged in mortgage financing,[16] and further defined fiduciary default to be a defalcation, misappropriation or misapplication of trust money while the money is in the possession or control of an agent.[17] It followed that s 30 of the Land Agents Act 1994 did not apply to the misappropriation of money held on trust for mortgage financing because an agent did not hold money committed to that purpose in his or her capacity as such.
[16] Land Agents Act 1994 s 54.
[17] Land Agents Act 1994 s 12.
However, Schedules enacted to both Acts extended the application of the fiduciary default provisions of both Acts to mortgage financing activities for a transitional period. The transitional provisions, first enacted as cl 15 of the Schedule to the Land Agents, Brokers and Valuers Act 1973, were re-enacted in Sch 2 of the Land Agents Act 1994 and Sch 2 of the Conveyancers Act 1994. The relevant parts of the second Schedule of each Act provided:
Transitional provisions—mortgage financiers
(1)     In this clause—
mortgage financier means a person who—
(a)     is—
(i)    an agent; or
(ii)     an associate of an agent; and
(b)     engages in mortgage financing;
spouse includes a person who is a putative spouse (whether or not a declaration has been made under the Family Relationships Act 1975 in relation to that person);
trust money, in relation to a mortgage financier, means money received by a mortgage financier in the mortgage financier's capacity as such to which the mortgage financier is not wholly entitled at law and in equity.
…
(3)     This clause applies—
(a)     to trust money received by a mortgage financier before the commencement of this Act; and
(b)     where trust money received by a mortgage financier was lent to another on the security of a mortgage before the commencement of this Act—to trust money received by the mortgage financier (whether before or after that commencement) by way of payment of principal or interest, or both, under that loan.
(4)     [The fiduciary default provisions of this Act apply] to a mortgage financier as if—
(a)     a reference … to an agent were a reference to a mortgage financier; and
(b)     a reference … to trust money were a reference to trust money to which this clause applies.[18]
[18] Land Agents Act 1994 Sch 2; Conveyancers Act 1994 Sch 2.
It is the construction of subclause 3(b), reproduced in exactly the same form in the series of Schedules (the transitional provisions), which ultimately determines the outcome of this appeal. In my view Parliament must have intended that the transitional provisions it enacted in the Schedules to the Land Agents Act 1994 and the Conveyancers Act 1994 would have the same meaning and effect as the transitional provision it had enacted in identical terms in the Land Agents, Brokers and Valuers (Mortgage Financers) Amendment Act 1993; the text and legislative history does not allow for any different conclusion. The ambiguity in the text of the transitional provisions which has generated this controversy between the parties can only be resolved by directing attention to the legal and financial context on which the transitional provisions were intended to operate at the time of their enactment. That context includes the way in which the business of mortgage financing was transacted, the nature of the legal and equitable obligations which attached to those transactions, the risk to the Indemnity Fund created by that business and the effects on investors if the protection were removed.
In construing and applying the definition of trust money in the transitional provisions it is necessary to keep in mind the legal and equitable rights to which it expressly refers. The obligation of a trustee in equity is to account personally to the beneficiary for the property that is held on trust. A trust exists when the owner of a legal or equitable interest in property is bound by an obligation, recognised by and enforced in equity, to hold that interest for the benefit of others, or for some object or purpose permitted by law.[19] In Hardoon v Belilios,[20] Lord Linley thought that it was sufficient to establish the relation of trustee and beneficiary “to prove that the legal title was in the plaintiff and the equitable title in the defendant”.[21] It is an essential element of a trust that the trustee is under a personal obligation to deal with trust property for the benefit of the beneficiary, an obligation giving rise to co-relative rights in the beneficiary. The obligation attaches to the trustee in personam, but it is also annexed to the property, so that the equitable interest resembles a right in rem.[22] However, the legislative purpose in the transitional provisions in question here was not to give a right in the property to facilitate, for example, tracing of the misappropriated funds. The purpose was to identify fiduciary defaults for which compensation could be sought against the Indemnity Fund precisely because the trust property could not be fully recovered. This suggests that, in construing the transitional provision, it is the existing trust attached to the money by reason of its character as repaid principal that is important in the expression “trust money” and not the historical origins of the money.
[19] JD Heydon & MJ Leeming, Jacobs’ Law of Trust in Australia (7^th ed, 2006) at [101]. In Re Williams [1897] 2 Ch 12 at 18, Linley LJ said that trusts were “equitable obligations to deal with property in a particular way”.
[20] [1901] AC 118.
[21] Hardoon v Belilios [1901] AC 118 at 123.
[22] JD Heydon & MJ Leeming, Jacobs’ Law of Trust in Australia (7^th ed, 2006) at [110]. For a further discussion of the maxim that equity acts in personam and the proprietary nature of some equitable remedies, see R Meagher, D Heydon & M Leeming, Meagher, Gummow & Lehane’s Equity Doctrines & Remedies (4^th ed, 2002) at [3-220]-[3-260].
Having regard to the nature of the transactions involved in mortgage financing and the equitable principles to which I have referred, it can be readily appreciated that “trust money” is not a reference to the particular notes, cheques or bank credits provided to the mortgage financier. Rather the phrase is used as a shorthand reference to the legal or equitable obligation to deal with the money, in whatever form it might take, in a particular way and account for the money so provided because the agent is not wholly entitled to it.
The reification of the equitable obligation to account suggested by the phrase “trust money” should not obscure the fact that the transitional provisions were intended to operate on, and not to change, those equitable obligations. It remains a fact of mortgage financing that brokers, like Growden, pool the money they receive from a number of investors. Mortgage financiers do not keep the money in specie either by way of actual cash or individual cheques. A client’s bank cheque may be used to effect settlement, but money received from clients is, at least, just as likely to be deposited with a bank and maintained in a trust account until it is disbursed in accordance with the clients’ instructions. Mortgage financiers are under a personal obligation to deal with and account for the money they receive in accordance with their clients’ instructions but not to maintain it in specie. They are also bound not to mix their clients’ money with their own and to maintain records of their dealings with that money. Once the money invested is lent on mortgage security, the mortgage financier no longer holds it as “trust money” and therefore cannot misappropriate it. Instead, the mortgage financier holds the chose in action against the borrower, and the mortgage by which the debt is secured, on trust for the investors. Mortgage financiers do not hold as “trust money” the money invested through them because they have discharged their legal and equitable mortgage obligations by reinvesting the money in accordance with the terms of the trust on which they had held it.
With these premises in mind I turn to the nature of the obligations attaching to repayments of a loan made by a mortgage financier. The principal repaid by a borrower is not the same “trust money” that the mortgage financier had received from the investor. In this context it can be observed that the transitional provisions distinguish between the trust money received and “lent to another on the security of a mortgage” and, on the other hand, “trust money received by way of payment of principal or interest or both under that loan”. The principal repaid by a borrower is, however, impressed by a trust to remit it, less any charges, to the investors, or to otherwise deal with it in accordance with their instructions. When a borrower repays the principal or makes a payment of interest, a mortgage financier is not obliged to hand over to the investor the actual cash or cheque by which the payment was made. Indeed, because the loans made are generally accumulated from the funds of a number of investors, and because the mortgage financier must deduct his or her charges, it would be impossible to provide all of the investors with the single cheque paid by the borrower. The legal and equitable obligation of the mortgage financier is to account to each of the investors for the proportion due to them. On discharging his or her obligations in that way, the mortgage financier no longer holds the repaid principal on any trust because he or she has dealt with it in accordance with the equitable obligations attached to that capital sum. If a mortgage financier were to repay the investors their proportion of the repaid principal from his or her own resources and then use the borrower’s bank cheque or the credit outstanding in the Call Account for his or her personal purposes, he or she might breach particular regulations governing the banking of, and accounting for, of trust moneys. However, the bank cheque or credit in the Call Account in no sense continues to be trust money received by way of payment of principal under the earlier loan, even though in a loose sense that description befits the historical origin of the bank cheque or the credit in the Call Account.
With that understanding in mind it is possible to consider in greater detail the meaning of the noun clause of the transitional provisions which is at the centre of the controversy between the parties; “trust money received by a mortgage financier by way of payment of principal or interest under [an earlier loan]”.
To my mind, the legal and financial context to which I have referred suggests that the clause means money presently subject to a trust constituted by reason of the mortgage financiers receipt of the principal or interest for and on behalf of the investors who held the equitable interest in the loan. If that construction is accepted, it follows that as soon as the money received is dealt with in accordance with the terms of the trust constituted by the receipt of the principal or interest and the trust satisfied, the mortgage financier no longer holds any repaid principal or interest as trust money because he or she has satisfied and discharged the equitable obligation which attached to his or her receipt of the principal or interest. To put it in another way, the mortgage financier no longer holds any trust money to which the persons who had an equitable interest in the loan are entitled.
On this construction of the text of the transitional provisions, where the repaid principal of an earlier loan is assigned by an investor to another, the assignee who instructs the mortgage financier to continue to hold the principal for the purpose of investing in mortgage financing would not be entitled to the protection of the transitional provisions in the event of a subsequent fiduciary default. That construction is supported by the manifest purpose of the transitional provisions and the second reading speeches to which I am about to refer.
I referred in [96] above to the policy problem of protecting the interests of those investors who had invested money with mortgage financiers at a time when fiduciary defaults were covered by the Land Agents, Brokers and Valuers Act 1973 only to find the protection withdrawn mid-stream at a time when they had no capacity to protect themselves. The most obvious purpose of the transitional provisions is therefore to leave in place the protection which investors believed they had at the time of their investments until such time as the investors could choose whether or not to continue to invest in mortgage financing without that protection. Equally obviously it would be inconsistent with the purpose of withdrawing the protection previously provided for defaults committed in the course of mortgage financing effected by the amendment of the substantive provisions of the Land Agents, Brokers and Valuers Act 1973 to continue that protection through the transitional provisions enacted in the Schedule for those investors who decided to continue to invest in mortgage financing even after their earlier capital investment had been repaid. Even greater tension between the transitional provisions and the text and purpose of the amendments to the substantive provisions of the Act would arise if the former were to be construed to the indemnity for investments made by a third party to whom that capital sum was assigned.
The second reading speech given by the Minister of Consumer Affairs introducing the Land Agents, Brokers and Valuers (Mortgage Financiers) Amendment Bill confirms that the legislature only intended to provide the limited protection suggested by those policy considerations. The Minister referred to the payments made from the Fund to compensate for the Hodby, Schiller and Winzor defaults. She referred to the policy decision of the State government to withdraw from regulation of mortgage financing activity and to allow the activity to be regulated under the Corporations Law. Turning to the transitional position, the Minister said:
The protection of the Agents Indemnity Fund is retained for the benefit of people who currently have money placed with agents or brokers for mortgage financing investments. That protection will remain for the duration of the current loan. However the eventual effect of these amendments will be that mortgage financing schemes operated by licensed land agents or land brokers will be regulated entirely by the national Corporations Law. …
As mentioned, the Bill provides that existing investors will retain their protection for the duration of their present loans to third party borrowers.[23] (emphasis added)
[23] South Australia, Hansard, Legislative Council, 26 November 1992, at 1039-1040 (A Levy, Minister of Consumer Affairs).
In introducing the Conveyancers Act 1994, the then Attorney-General referred to the transitional provisions of that Act in this way:
These provisions are equivalent to those contained in the Land Agents, Brokers and Valuers (Mortgage Financiers) Amendment Act 1993 but not yet in operation.[24]
[24] South Australia, Hansard, Legislative Council, 25 August 1994, at 221 (KT Griffin, Attorney-General).
The protection of current investments does include providing compensation for a defalcation of the principal or interest before it is remitted to the person who made the investment. However, it does not entail the protection of future investments made with the capital currently invested. Plainly there was no intention to extend the transitional provisions of the Conveyancers Act 1994 beyond the protection of current investments which was envisaged by the Land Agents, Brokers and Valuers (Mortgage Financiers) Act 1993.

The competing constructions of cl 15(3)(b) of the Schedule to the Land Agents, Brokers and Valuers (Mortgage Financiers) Amendment Act 1993 can be tested against the manifest purpose of that Act and the expectation of the Minister. It is uncontested that the transitional provisions were intended to protect against a defalcation committed by failing to remit repaid principal to an investor. The difference between the competing constructions emerges in the case of an investor who instructs the mortgage financier to retain the principal and to reinvest it. If, contrary to that instruction, the financier appropriates the principal to his own purposes or to an investment of a fundamentally different kind, the default is not made in connection with a current loan but occurs in the making of a new investment.
To bring that default within the meaning of cl 15(3) would be to go beyond the purpose of protecting investors who were already committed to an investment; it would provide protection beyond the duration of “current loans”. Moreover, it would produce anomalous results. Additional money invested with the repaid principal by the person entitled to it would not be protected. New investors who paid money for the purposes of the same loan in which the repaid principal was reinvested would also be left without compensation even though their loss was caused by the same fiduciary default for which the “rollover” investor was covered.
It can be seen therefore that a construction which limits the transitional protection to fiduciary defaults with respect to money which was received, and continues to be held, on a trust to remit it to equitable owners of the principal which has been repaid best fits the manifest purpose of the amendment and the expectation of the Minister. A construction which extends the transitional protection to money held by the mortgage financier on a trust to reinvest it is inconsistent with the intention to withdraw indemnity protection for mortgage financing after 1 June 1995 and produces anomalous results.
The Growden amendments
It is now necessary to turn to the effect of cl 3 of Sch 2 of the Conveyancers Act 1994 which was enacted in 2004, many years after the Growden collapse. It is important to understand that the Growden Amendment was conceived through political agitation and delivered by a political compromise. After the Growden collapse there was, understandably, considerable dissatisfaction amongst investors who had suffered pecuniary loss both before June 1995 and after. Of the 194 defaulting Growden loans only 55 were made before 1 June 1995. Investors who had lost money either by reason of a defalcation or a poor investment after 1 June 1995 complained that the government had withdrawn the statutory indemnity before ensuring that there was an adequate alternative in its place. They argued that a promised industry indemnity scheme which was intended to operate after 1 June 1995 was bound to fail. Such a scheme was established by the Finance Brokers Institute, which comprised agents who had decided to continue to operate pooled mortgage investments after the change in regulatory regime from the State to the National Corporations Law. However, at the time of the Growden collapse, the Finance Brokers Institute indemnity scheme had only accumulated about $100,000. Investors in Growden also complained that the government had not taken adequate steps to notify investors of the change in position.
Investors who had lent monies on first mortgage security before 1 June 1995 on properties that were worth less than the amount lent also complained of Drabsch v Commissioner for Consumer Affairs,[25] a decision of the District Court in October 2003. In Drabsch, it was held that a failure by Growden to fully disclose the material and substantial risks associated with an investment made before 1 June 1995 of money it held on trust was not a fiduciary default because there was no actual defalcation, misappropriation or misapplication of the trust money within the meaning of s 32 of the Conveyancers Act 1994.
[25] [2003] SADC 124.
It can be accepted that the District Court’s narrow construction of the statutory concept of a fiduciary default falls short of covering all of the mischief which the legislation might have been intended to cure when mortgage financing was accepted as part of the work of land agents and brokers. However, that business was expressly excluded by the Land Agents Act 1994 and the Conveyancers Act 1994 and therefore there was no real, contextual or purposive reason to read the expression more widely. Moreover, it will be immediately noticed that, if the District Court had held otherwise, the transitional provisions as they had then stood would have, to a limited extent, continued the protection against fiduciary defaults beyond the duration of the current loans; an investor induced to make a first rollover investment after 1 June 1995 by misleading advice would have been protected.
The Growden amendment allowed both the Conveyancers Act 1994 and the Land Agents Act 1994 to provide compensation for investors through Growden who had suffered pecuniary loss but were not entitled to any compensation under the existing transitional provisions of those Acts. By amendment to the Land Agents Act 1994, the Indemnity Fund was divided into two parts. Part B consisted of a sum of $13.4 million, which was the amount credited to that part of the Indemnity Fund at the commencement of the amendment. Part A consisted of the balance of the Indemnity Fund at any particular time less the amount standing to the credit of Part B.
Part B of the Fund was made available to fund claims made under Sch 2A of the Land Agents Act 1994, which was also enacted by the Growden amendment. Schedule 2A provides for the compensation of eligible claimants. Eligible claimants are defined to be persons who have suffered pecuniary loss, as a result of a fiduciary default committed by Growden, with respect to investments effected by making payment to or through Growden on or after 1 June 1995 or by any reinvestment of money effected through Growden on or after that date. It was necessary to define an eligible claimant for the purposes of Sch 2A because Sch 2A enacts a discrete and self-contained indemnity scheme. On the other hand, I can see no obvious reason for the enactment of cl 1(3) of Sch 2A, which deems a reinvestment of money made after 1 June 1995 to have been made by the original (before 1 June 1995) investor; it may possibly have been intended to prevent double recovery under both Sch 2A and the Conveyancers Act 1994 by the original investor or by the original investor and a subsequent investor who, after 1 June 1995, reinvests the principal assigned to him or her. Whatever the full effect of that clause may be, it does disclose a parliamentary intention to indemnify by Sch 2A only the original investor of the principal where a loss is sustained on the first rollover of that principal after 1 June 1995. I doubt that Parliament intended to give Sch 2 of the Conveyacers Act 1994 a wider operation.
The compensation provided by Sch 2A was more limited than the compensation payable pursuant to the existing provisions of the Land Agents Act 1994 and the Conveyancers Act 1994. Compensation was not payable under Sch 2A for the whole of the actual pecuniary loss of the claimant; claimants were not entitled to lost interest nor to reimbursement of the costs incurred in attempts to recover their investments.[26] Claims under Sch 2A could not exceed the capital investment made by the claimant less any capital amount recovered from another person or source. Moreover, if Part B of the Fund was found to be insufficient to pay all of the accepted claims made on it, payments were to be made “according to the relative amount of each entitlement”.
[26] Cf Conveyancers Act 1994 s 32(2); Land Agents Act 1994 s 30(2).
The Growden amendment also amended the Conveyancers Act 1994 by enacting an additional clause, cl 3, to the second Schedule of that Act. Clause 3 extended the concept of fiduciary default under the Conveyancers Act 1994 to include, in the case of investments made through Growden, a failure to disclose material facts with respect to the investment of trust money it held. It provides:
3—Special provisions relating to Growden Investments
(1)A failure on the part of Growden Investments to disclose material facts with respect to the investment of trust money to which clause 2 applies will be taken to be a fiduciary default for the purposes of Part 4.
(2)Subclause (1) applies with respect to any such failure on the part of Growden Investments (and accordingly the Commissioner must, to the extent that a relevant claim based on a failure on the part of Growden Investments to disclose material facts has been rejected, on application by the claimant, reassess the claim).
(3)Despite clause 2(4), no interest is payable under section 39(2) with respect to an entitlement to compensation arising from fiduciary default on the part of Growden Investments.
Clause 3 operates by deeming the failures specified in cl 3(1) to be fiduciary defaults for the purposes of the indemnity scheme established by Pt 4 of the Conveyancers Act 1994. It did not establish a new scheme and it was therefore unnecessary to define the conditions of entitlement or the quantum of that entitlement.
Clause 3 was intended to reverse the result of the decision of the District Court in Drabsch. Insofar as the clause operated on a failure to disclose material facts about loans made before 1 June 1995, it provided a more comprehensive indemnity that was better adapted to protect investors in the transitional period during which the fiduciary defaults of mortgage financiers was to be covered. However, it also had the effect of extending the protected transitional period beyond the duration of the current loans. It is the scope of that extension that is in question on this appeal.
It is convenient to explain my reasons for holding that cl 3 does not assist Auzora by first referring to the parliamentary debate over the Growden Amendment Bill. The Growden Amendment Bill was introduced by the opposition. In speaking in support of the Bill, the Honourable Iain Evans MP said:
In other words the vast proportion of the principal loss is therefore not covered by the current Act but would be covered by this bill. The other class are those who cannot claim because there was no fiduciary default on their mortgage. I outlined previously how I believe that definition has been narrowly interpreted by the Courts. The bill therefore seeks to broaden the definition of fiduciary default and also to allow claims for loans made after 1 June 1995.[27]
[27] South Australia, Hansard, House of Assembly, 25 February 2004, at 1436 (IF Evans).
That statement of course implicitly recognised that the Conveyancers Act 1994 as it then stood did not extend to investments made after 1 June 1995.
Mr Evans’ Bill was initially opposed by the government. After a conference convened by the Attorney-General, a compromise position was reached. It was agreed that Sch 2A would be added to the Land Agents Act 1994 and that cl 3 would be added to the second Schedule of the Conveyancers Act 1994 to make special provision for Growden investors. The compromise involved adding cl 2(3) to Sch 2A of the Land Agents Act 1994, which was to be inserted by the Growden Amendment Bill. Clause 2(3) of Sch 2A read:
To avoid doubt, an eligible claimant is not prevented from making a claim under this Schedule by virtue only of the fact that he or she has made a claim under clause 2 of Schedule 2 of the Conveyancers Act 1994 (but recognising that a claim that gives rise to an entitlement under that clause cannot be the subject of a successful claim under this Schedule).
In addressing that clause, the Attorney-General said:
The amendment is required to deal with an overlap in the Bill. Under the Land Agents Act investors are eligible to claim if they invested money with Growden’s before 1 June 1995 or if their money was a first roll-over investment of money after that date. The Bill treats all persons who invested after 1 June 1995 as new investors, ignoring the class of investor in the first roll-over category. This would make them eligible under both sets of provisions whilst other provisions in the Bill clearly state that they can be compensated only once. The amendment ensures that first roll-over investors continue to be treated as if they were investors under the existing provisions. This is the most generous way of dealing with these investors, as it allows them to be compensated from Part A of the fund and their claims will not be subject to the $13.5 million cap. It puts them on a par with first roll-over investors who have already been paid compensation.[28] (emphasis added)
[28] South Australia, Hansard, House of Assembly, 30 June 2004, at 2615-2616 (MJ Atkinson, Attorney-General).
In my view, by “first roll-over” the Attorney-General meant an investment after 1 June 1995 of the repaid principal of a loan made through Growden before that date. The reference to treating them as if they were investors under the existing provisions was meant to convey that the transitional provisions of Sch 2 of the Conveyancers Act 1994 were not to be abrogated by Sch 2A of the Land Agents Act 1994. A first rollover most naturally refers to an investment made of the principal of the earlier loan which had been repaid by the same person who held the equitable interest in that loan. It is quite artificial to speak of an investment by another person to whom the capital has been assigned as a “first rollover” or to the assignee as a “first rollover investor”. He or she is a first time investor of the capital assigned by the previous investor.
Next it is important to note the narrow way in which the scope of fiduciary default was extended by cl 3. It is limited to inadequate disclosure of information about a proposed loan. Any defalcation of the money after receiving instructions to invest it remained outside the scope of the transitional provisions even after the enactment of cl 3 for the reasons I gave in [115] above. The purpose of cl 3, in its application to trust money received by way of principal and reinvested after 1 June 1995, appears to be to benefit those investors who instructed Growden not to remit the principal to them in accordance with the trust on which they held it but to reinvest it precisely because of the failure to disclose material information about the rollover investment. Clause 3 appears calculated to operate in the limited period in which the repaid principal is impressed with a trust to remit the proper proportion, less any charges, to the investors. It is while that proportion is held in trust, in an account like Growden’s Call Account, that the advice about a reinvestment will be given or at least acted on. Clause 3 extends s 32 of the Conveyancing Act 1994 to the fiduciary defaults which induce an investor to rollover his or her capital sum instead of insisting that it be returned in accordance with the trust on which Growden held it. Clause 3 does not extend s 32 to fiduciary default committed in the course of making the subsequent investment or during the terms of the subsequent loan.
I acknowledge that the enactment of cl 3 creates the anomaly to which I earlier referred between the protected rollover investor and the “first time” investor. However, it must be remembered that cl 3 was enacted in the special circumstances to which I have referred to benefit the small group of investors involved with Growden. Moreoever, the anomaly was much reduced by the enacting of Sch 2A of the Land Agents Act 1994 to compensate first time investors. The express extension of the transitional provision effected by cl 3 therefore does not detract from the contextual considerations affecting the construction of the transitional provision to which I referred in [108] – [115] above.
Where, despite the misleading advice, an investor assigns the principal held by Growden to another, the original investor does not suffer any loss as a result of the fiduciary default with respect to the trust money. In this case it was the assignee, Auzora, which invested and lost the money assigned to it, but Auzuora was never entitled to any proportion of the principal sum of the Hampel loan. The effect of Auzora’s construction, therefore, is that a first time investor in first mortgage securities after 1 June 1995 is to be covered by s 32 of the Conveyancers Act 1994.
The interrelationship between cl 3 of Sch 2 of the Conveyancers Act 1994 and Sch 2A of the Land Agents Act 1994 can be summarised thus: Schedule 2A provides an additional, self contained, and more limited form of indemnity for losses suffered on a first time, or rollover, investment made after 1 June 1995 as a result of any fiduciary default whatsoever by Growden, whereas cl 3 extended the existing statutory indemnity in respect of the principal of loans made before 1 June 1995 to include a loss caused by a failure to disclose material information which induced the investment of that principal or its first rollover after 1 June 1995.
Nonetheless, Auzora contends that the transitional provisions should be read literally and that the noun clause “trust money received by way of payment of principal” should be construed to extend to money held on any trust that can be traced back to the repayment of the principal of an earlier loan. If that construction is given to the transitional provisions it would in my view defeat the very purpose of the substantive enactments to which the transitional provisions are ancillary; that purpose was to withdraw indemnity cover from mortgage financing after 1 June 1995.
I would illustrate how the construction put by Auzora defeats that purpose in this way. If the principal were repaid by way of cheques, reflecting the proportionate entitlement of the several investors, no-one would doubt that on delivery of the cheques to the investors the “trust money” received by way of repayment of the principal will have been dealt with in satisfaction of the terms of the trust and the trust terminated. Let it be assumed that the same cheques are endorsed by the first investor and thereby assigned to a second investor, whether in payment of a debt or by way of loan or gift. If the assignee then endorses the cheques to the mortgage financier with instructions to invest the proceeds on mortgage security, no-one would suggest that the returned cheques or their proceeds are trust money “received by way of repayment of the principal” of the earlier loan. An actual defalcation of the returned cheques, or a failure to properly inform the assignee about the investment, would not fall within the scope of the transitional provisions, notwithstanding the historical origins of the cheques.
Perhaps even more obviously, the same is true if the principal were to be repaid and distributed in cash to the investors, who then paid, even the very same notes, to Growden for the purpose of a subsequent investment.
Again let it be assumed that the repayment of the principal is placed into a trust account by Growden and a cheque drawn on that account in favour of the first investor, who then endorses it to a second investor. If the second investor invests the money on mortgage security with Growden, the analysis is again the same.
If all that be accepted then I cannot see how, consistently with the purpose of the transitional provisions, a different legal result ensues if the first investor’s cheques, cash or credit in the Call Account are not returned or remitted because the mortgage financier is instructed to hold the funds on trust for an assignee who then instructs Growden to invest the money in a first mortgage loan.
On the construction I would give the transitional provisions, in all of the cases described in the preceding paragraphs the money ceases to be trust money received by way of payment of principal because the equitable obligation, peculiar to the money in its character as repaid principal, has been discharged by dealing with it in accordance with the instructions of the investor; the relevant trust has been terminated. Those cases may be contrasted with cases where, after repayment of the principal, there is a defalcation by a finance broker who fails to remit the principal to a third person to whom he has been instructed to disburse it. Schedule 2 of the Conveyancers Act 1994 would plainly apply to those cases whatever book entry the broker may have made. However, if the third party instructs the finance broker to reinvest the principal before it is paid to him or her, then in my respectful opinion a claim under the Conveyancers Act 1994 would fail. That is the case here.

If, contrary to the construction I would adopt, it were to be concluded that the money retained the character of trust money received by way of repayment of principal, even after an instruction to reinvest it is given, the enactment of the transitional provisions in 1993 and again in 1994 will have failed to preclude recourse to the Indemnity Fund for investments made through mortgage financiers after 1 June 1995 by first time investors, notwithstanding the legislative removal of mortgage financing from the scope of the indemnities provided by the Land Brokers and Valuers Act 1973, the Land Agents Act 1994 and the Conveyancers Act 1994.
There is no discernible reason for the legislature to have enacted transitional provisions with the effect contended for by Auzora. In the absence of any strong textual reason to do so, I would not give the transitional provisions a construction which would yield such an anomalous result.
Claim under the Land Agents Act 1994
Auzora also appeals, in the alternative, against the quantification of the compensation that was paid to it pursuant to Sch 2A of the Land Agents Act 1994. It complains of the quantification of the capital loss it suffered. Even though Auzora did not put any oral or written submission in support of that ground, it was not expressly abandoned. The respondent did address it. In the circumstances, I have concluded that it is best to deal with the ground despite Auzora’s failure to address it.
Clause 1(1) of Sch 2A defines “eligible capital loss” to be the qualifying capital investment made by the claimant less any capital amount recovered by it and any other amount that the claimant may reasonably be expected to recover. “Qualifying capital investment” is in turn defined to mean an investment of money by making a payment to Growden after 1 June 1995 or by reinvesting money paid to Growden before that date. The difficulty to which I earlier referred in applying Sch 2A to Growden is that Auzora did not “pay” money to Growden; it accepted an assignment of the right to the principal repaid to Growden by the Hampel borrowers. Nor could Auzora rely on the second limb (reinvestment of money earlier paid to Growden) because, in accordance with cl 1(3) of Sch 2A, the reinvestment is taken to be a qualifying capital investment by the person who first paid it, in this case Shelvan. If the change in the equitable entitlement to the capital sum after 1 June 1995 is to be treated as a payment by Auzora for the purposes of Sch 2A, I fail to see how it can be said that the change in the trust relationship did not also change the character of the trust money so that it was no longer trust money received by way of payment of principal.
Clause 2 of Sch 2A provides that a claim for compensation made under that Schedule cannot exceed the eligible claimant’s eligible capital loss. Auzora contends that the sum of $25,652.39 it received on the sale of the Aldinga property must be first apportioned to unpaid interest. The unpaid interest on Auzora’s proportion of the SIC loan in fact exceeded that amount. Auzora contends that, as a result, its eligible capital loss was $70,000.
In support of that contention, Auzora relies on the provisions of the SIC mortgage which allow the mortgagee to allocate any amount outstanding towards capital or interest as it sees fit. In my view, the question of whether the sum of $25,652.39 should be apportioned in that way must be determined on a proper construction of the words “capital amount” in cl 1(1) of Sch 2A and not by reference to a private agreement between the mortgagee and the mortgagor. Clause 1 of Sch 2A defines “eligible capital loss” as follows:
eligible capital loss of an eligible claimant is the qualifying capital investment made by the eligible claimant less any capital amount recovered by the eligible claimant with respect to that investment before the qualifying date and less any other amount that the eligible claimant has received or may reasonably be expected to recover (apart from this Schedule) in reduction of the eligible claimant's pecuniary loss.
As can be seen, the eligible capital loss is calculated by deducting two different amounts from the capital investment made by a claimant.
The first sum deducted is the capital amount recovered by the claimant. Interest actually received and recovered by claimants before the failure of the investment forms no part of a claimant’s pecuniary loss precisely because it has been received and is not a capital amount. There was plainly no intention to compensate for the loss of interest thereafter, but it would have arguably worked an unfairness to deduct the interest payments received before the failure of the investment from the eligible capital loss. On the other hand, the second deduction was expressed more widely and included “any other amount” that the claimant received in reduction of his or her “pecuniary loss”. Unpaid interest is, together with lost capital, part of a claimant’s pecuniary loss. However, any amount received in reduction of those combined losses was to be deducted from the capital investment for the purposes of placing a ceiling on the amount that could be recovered. The provisions have the effect, albeit elliptically, that any recovery made after the loan fails reduces the claimant’s eligible capital loss even if part of the claimant’s pecuniary loss is lost interest.
I would observe that cl 7 of Sch 2A provides that a person’s entitlement under that Schedule is reduced by the amount he or she recovers “from another person or source … in respect of the fiduciary default for which the compensation is payable under this Schedule”. It may be that cl 7 is primarily directed towards recovery from persons responsible for the fiduciary default, but in my view the words of that clause are also wide enough to extend to money recovered from the borrowers or their guarantors or pursuant to the exercise of the power of sale given by the mortgage.
Accordingly, it follows that the full amount of the sum of $25,652.39 must be deducted from the qualifying capital investment of $70,000.
Auzora also complains of the failure to compensate it for some of its legal costs in pursuing its claims. The Commissioner agreed by letter dated 23 January 2007 to pay some of those costs. Ultimately, the Commissioner determined not to do so. The Commissioner’s letter cannot operate by way of an estoppel against her in the exercise of her administrative responsibilities for the Fund. Schedule 2A does not provide for the payment of counsel fees. The Commissioner had no power to make any such determination nor to pay money for counsel fees out of the Fund. Any determination to that effect is invalid and any payment would have been unlawful. Auzora’s appeal on this ground must also be dismissed.
Finally, Auzora complains that it did not receive compensation pursuant to Sch 2A for the delay of the Commissioner in determining its application. The Commissioner had no power to make a payment out of the Fund on account of the ongoing loss of use of the amount to which the applicant was entitled in the period that it took to determine the claim. Schedule 2A of the Land Agents Act 1994 gives no express right to recover damages for delays in assessing claims made under it. It would be unusual and surprising to find any such express provision. There is certainly no basis upon which to imply it. In any event, if Sch 2A gave an implied right to damages, that right must be pursued by proceedings on that statutory cause of action and not by way of an appeal against the Commissioner’s decision.
Conclusion
For all of the reasons that I have given, I would dismiss the appeal.