Bale v Kimberley Developments Pty Ltd (No 3)

[2023] NSWSC 973

Supreme Court

New South Wales

Medium Neutral Citation:

Bale v Kimberley Developments Pty Ltd (No 3) [2023] NSWSC 973

Hearing dates:

6 July, 11 August 2023

Decision date:

18 August 2023

Jurisdiction:

Equity

Before:

Leeming JA

Decision:

1. Note that Kimberley Developments has retransferred title to the Forest Lodge land to Ms Bale.

2. Ms Bale to pay Kimberley Developments the amount of $301,560.99 within 21 days of today.

3. Note that the effect of orders 3 and 4 made by the Court on 23 June 2022 is that Kimberley Developments has the benefit of a charge over the Forest Lodge land securing the obligation in order 2 above.

4. Discharge the freezing order over Kimberley Developments’ bank accounts made on 23 January 2019 and varied on 29 January 2019, and discharge the undertakings given on 9 August 2022.

5. Exhibits to be returned.

Catchwords:

PROCEDURE – adjustments and allowances – retransfer of land held to be on constructive trust – plaintiff to account for payments discharging mortgage – defendant to account for rent received less expenses reasonably incurred in the maintenance of the land – calculation of interest – relevance of principle in Ghana Commercial Bank v Chandiram [1960] AC 732

ORDERS – construction of court orders – ambiguity – regard to reasons – regard to context

Legislation Cited:

Civil Procedure Act 2005 (NSW), ss 56, 100

Evidence Act 1995 (NSW), ss 64, 80, 91

Local Government Act 1993 (NSW), s 550

Uniform Civil Procedure Rules 2005 (NSW), r 36.16

Cases Cited:

Adams v Angell (1877) 5 Ch D 634

Athens v Randwick City Council (2005) 64 NSWLR 58; [2005] NSWCA 317

Australian Competition & Consumer Commission v Advanced Medical Institute Pty Ltd (No 2) (2005) 147 FCR 235; [2005] FCA 1357

Australian Hardboards Ltd v Hudson Investment Group Ltd (2007) 70 NSWLR 201; [2007] NSWCA 104

Bale v Kimberley Developments Pty Ltd [2022] NSWSC 820

Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44

Cochrane v Cochrane (1985) 3 NSWLR 403

Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215; [1997] HCA 17

Ganesh v National Australia Bank Ltd [2021] VSCA 45

Ghana Commercial Bank v Chandiram [1960] AC 732

Gnych v Polish Club Ltd (2015) 255 CLR 414; [2015] HCA 23

Gollan v Nugent (1988) 166 CLR 18; [1988] HCA 59

Hagan v Waterhouse (1991) 34 NSWLR 308

Jason Hall t/as JHL Lawyers v Val Eco Homes Pty Ltd (in liq) [2021] QCA 236

Kartinyeri v Commonwealth (1998) 195 CLR 337; [1998] HCA 22

Kimberley Developments Pty Ltd v Bale [2023] NSWCA 25

Kimberley Developments Pty Ltd v Bale (No 2) [2023] NSWCA 95

Kimberley Developments Pty Ltd v Cicihour Pty Ltd [2020] NSWCATAP 213

Kimberley Developments Pty Ltd v Cicihour Pty Ltd (No 2) [2020] NSWCATAP 250

Morgan Equipment Co v Rodgers (No 2) (1993) 32 NSWLR 467

Owston Nominees No 2 Pty Ltd v Branir Pty Ltd (2003) 129 FCR 558; [2003] FCA 629

Paul v Speirway Ltd (in liq) [1976] Ch 220

Rogers v Resi-Statewide Corporation Ltd (No 2) (1991) 32 FCR 344

Ross v Lane Cove Council (2014) 86 NSWLR 34; [2014] NSWCA 50

Talacko v Talacko (2021) 272 CLR 478; [2021] HCA 15

Thorne v Cann [1895] AC 11

Wende v Horwath (NSW) Pty Ltd (2014) 86 NSWLR 674; [2014] NSWCA 170

Woodman v Australian and New Zealand Banking Group Ltd [2021] NSWCA 230

Category:

Consequential orders

Parties:

Françoise Bale (Plaintiff)
Kimberley Developments Pty Ltd (First Defendant)
Albert Darwiche (Second Defendant)
Martin Churchill (Third Defendant)
Chyna Schein (Fourth Defendant)
Theofanis Trigas (Fifth Defendant)
Super Start Batteries Pty Ltd (Sixth Defendant)

Representation:

Counsel:
DP O’Connor (Plaintiff)
R Perla (6 July 2023); J Hart (11 August 2023) (First, Second, Fifth and Sixth Defendants)

Solicitors:
SCB Legal (Plaintiff)
Weinberger Lawyers (First, Second, Fifth and Sixth Defendants)

File Number(s):

2018/00237019

Publication restriction:

Nil

JUDGMENT

1. LEEMING JA: I am determining, pursuant to orders made by the Supreme Court on 23 June 2022, varied slightly by the Court of Appeal on 16 May 2023, the monetary adjustments or allowances to be made following the return to the plaintiff Ms Françoise Bale of land at Forest Lodge in Sydney which was sold by her father to the first defendant, Kimberley Developments Pty Ltd, on 21 February 2011 at a gross undervalue. The sale was set aside as unconscionable. It is now established that from 21 February 2011 until its retransfer on around 26 July 2023, Kimberley Developments held the land as a constructive trustee for Ms Bale’s father and, after his death, for his executrix (and only daughter) Ms Bale. Broadly speaking, the regime required Kimberley Developments to account for the rent it had received over the period, but to make allowance for (i) an amount of $288,242.63 paid to discharge a mortgage in favour of Suncorp-Metway Ltd granted by Ms Bale’s father, (ii) amounts properly referable to expenses reasonably incurred in the maintenance of the property, and (iii) interest.

2. This judgment quantifies those adjustments and allowances.

The orders governing the hearing

3. The starting point is to identify the nature of the issues before me. Contrary to some of the submissions, I am not exercising a discretion. I am instead performing a task which was originally assigned to a referee, which involves determining whether particular amounts in dispute between the parties are (a) established to have been incurred and if so (b) answer the description in one of the Court’s orders. There is one issue of law, namely, the construction of the reference in an order to “the rate specified in the Suncorp mortgage”.

4. The background, relevantly, is as follows. The primary judge found in favour of Ms Bale, declaring that Kimberley Developments held the Forest Lodge Property as a constructive trustee, and had to return it: Bale v Kimberley Developments Pty Ltd [2022] NSWSC 820. The ancillary orders addressing Kimberley Developments’ accountability for rent and entitlement to allowances were as follows (the emphasised words are those giving rise to issues requiring resolution):

3. [O]rder the plaintiff, as executor of the estate of the late Michel Schein, following transfer of the title to the Forest Lodge Property, to pay the sum of $288,242.63 to the sixth defendant (Super Start Batteries Pty Ltd) or at the direction of its director, the fifth defendant (Mr Theofanis Trigas), being the sum paid to discharge the Suncorp mortgage, plus interest calculated at the rate specified in the Suncorp mortgage.

9. Order the plaintiff, as executor of the estate of the late Michel Schein, to pay to the first defendant such amounts as are determined by the Court appointed referee (to be appointed pursuant to order (12) below) to be properly referable to expenses reasonably incurred in the maintenance of the Forest Lodge Property since 2011.

10. Order the first defendant to account to the plaintiff, as executor of the estate of the late Michel Schein, for all amounts received by way of rent or other income in respect of the Forest Lodge Property since 21 February 2011 to date, and interest thereon pursuant to s 100 of the Civil Procedure Act 2005 (NSW).

11. Order that the sums payable in orders (3), (9) and (10) be offset against each other with the sum remaining to be paid to the relevant party within 21 days of determination by the Court appointed referee of that amount.

5. Orders 12 and 17 need not be reproduced but they addressed the appointment of the referee and have been set aside (see below).

6. It may be noted that order 3 identifies interest “at the rate specified in the Suncorp Mortgage”, order 10 specifies interest at the rates specified pursuant to s 100 of the Civil Procedure Act and order 9 is silent as to interest. After the amounts in each of orders 3, 9 and 10 have been calculated, they are to be offset against each other pursuant to order 11. The offsetting gives rise to a technical difficulty to which no attention was paid during the hearing. Strictly speaking, order 3 requires a payment to the sixth defendant Super Start Batteries Pty Ltd, whereas orders 9 and 10 require an accounting as between Ms Bale and Kimberley Developments, and yet order 11 requires all three sums to be offset against each other. The reason that nothing turns on this is that Kimberley Developments and Super Start Batteries are owned and controlled by the fifth defendant Mr Theofanis Trigas, and indeed there was undisputed evidence that Mr Trigas made large payments in cash on behalf of Kimberley Developments for which Kimberley Developments seeks to include as expenses pursuant to order 9. There is more than enough detail and complexity in the evidence addressed in this judgment without needlessly distinguishing Mr Trigas from his companies, and so for simplicity in what follows I shall mostly adopt the same approach which is apparent in order 11 and where nothing turns on it refer simply to Kimberley Developments, rather than Mr Trigas or Super Start Batteries.

7. Kimberley Developments and three of the other defendants appealed from the orders made by the Equity Division. However, none of the 19 grounds of the original notice of appeal, or the 9 grounds of the amended notice of appeal, challenged any aspect of the regime contained in those orders.

8. The appeal was largely directed to the findings that the land was held on constructive trust and had to be returned. All those grounds were dismissed: Kimberley Developments Pty Ltd v Bale [2023] NSWCA 25. However, the Court of Appeal accepted a submission that the orders should incorporate an amount of $350,000 received by Ms Bale from the insurer of one of the defendants, which the primary judge did not (and had not been asked to) bring to account. That led to a relatively minor variation of the regime, for reasons explained in Kimberley Developments Pty Ltd v Bale (No 2) [2023] NSWCA 95, where the operative order was:

3. Set aside orders 9, 12 and 17 made on 23 June 2022 insofar as those orders were directed to a Court appointed referee, and in lieu thereof remit the balance of the proceeding to the Equity Division, with a view that there will be a further hearing of the issues raised on the submissions exchanged by the parties before a single judge who is a member of this Court, at a date to be fixed but in the expectation that it will be in some 6-8 weeks hence.

9. The shift from determination by a Court-appointed referee to a single Judge of Appeal sitting in the Equity Division had been flagged in the earlier judgment at [101]:

Further, my present view is that it will be faster, and cheaper, if the relatively straightforward accounting exercise, which the primary judge directed to be determined by a referee, is conducted by a Judge of Appeal who is apprised of the issues in this litigation, to whom there should also be a general grant of liberty to apply. A similar course was taken in Doyle v Commissioner of Police [2020] NSWCA 11 at [84]-[93]. I presently favour making directions for the appellants to quantify the matters identified in the orders made at first instance and to file and serve the materials which in their submission sustain that calculation, for Ms Bale to indicate whether she agrees or disagrees and to the extent she disagrees, to adduce the materials on which she relies, and to give the appellants an opportunity to be heard in reply.

10. The partial amendment of orders 9, 12 and 17 (and, implicitly, order 11), so as to replace the referee by a single Judge of Appeal, is analogous to the indirect express amendment to which the High Court referred in Kartinyeri v Commonwealth (1998) 195 CLR 337; [1998] HCA 22 at [9]. I did not understand there to be any dispute as to the legal effect of the orders as amended. In particular, the determination of the amounts in orders 3, 9 and 10, and those amounts being offset against each other pursuant to order 11, was uncontroversial in its methodology, although highly controversial on the evidence.

11. Thereafter the parties exchanged submissions and evidence bearing upon the outstanding matters, on a relatively relaxed timetable, repeatedly extended by consent.

12. A little regrettably, there was delay in Kimberley Developments transferring the land to Ms Bale. Indeed, that had not occurred by the time of the hearing on 6 July 2023. The circumstances for that delay were ventilated in directions hearings prior to that hearing, and need not be summarised here, although in fairness I should note that they were not wholly attributable to Kimberley Developments. Nothing turns for present purposes on any question of blame or fault for the delayed re-transfer of the land. I mention this to explain the procedural history of the litigation.

13. A deal of the hearing on 6 July was directed to competing evidence about the state of the premises, and in particular the amount of rubbish and waste which had been left there. But what was not known, and could not be known, on 6 July, was whether when title and possession were returned to Ms Bale, she would make some claim based on the state of the premises which had been returned. To that end, a regime was ordered whereby the parties were to notify my chambers when title and possession were returned to Ms Bale, following which there would be a directions hearing to discuss the most efficient way any further claim would be prepared and heard and determined.

14. Pursuant to that regime, my chambers were notified by Kimberley Developments’ solicitor on 26 July 2023 that a discharge of mortgage and memorandum of transfer of title had been lodged. Ms Bale’s solicitor advised on the same day that she had taken possession and was likely to make a claim. Dates in the first week of August were not suitable to the parties, leading to 11 August 2023 as the first available date for a directions hearing. However, on 9 August, Ms Bale’s solicitor advised that her client was no longer seeking to make any additional claim. On 10 August, Kimberley Developments’ solicitor confirmed that there should be a directions hearing, and, at the directions hearing on 11 August 2023, application was made to discharge a freezing order over two of Kimberley Developments’ bank accounts made so long ago as January 2019. When I indicated that the order would be discharged as soon as the remaining issues were resolved, that I intended to do so in the next week, and that but for the delay occasioned by the directions hearing, judgment would already have been delivered, that application was not pressed.

15. Constructively, both sides confirmed at the directions hearing on 11 August 2023 that nothing further was outstanding. It was also confirmed that the calculations of interest (which affected both sides) were intended to be updated by reference to the time judgment was delivered. The parties offered to do so, but the calculations are straightforward and I indicated that I saw no reason to burden them any further with that task. Of course, if there is any disagreement with the calculations, either side may apply within the time specified by r 36.16 of the Uniform Civil Procedure Rules 2005 (NSW).

The issues for determination

16. Agreement has been reached on the amount of rent received during the period, and interest thereon pursuant to s 100 of the Civil Procedure Act. The amount of (gross) rent received over the period is agreed to be $383,238.18. Kimberley Developments advised in its submissions dated 14 April 2023 that the interest calculated in accordance with s 100 of the Civil Procedure Act was $99,243.25. The calculations at pp 25-27 of Exhibit B make it clear that the interest has been calculated to 27 February 2023. I shall return to interest at the end of these reasons.

17. The principal matters in dispute may be summarised as follows:

1. The “interest calculated at the rate specified in the Suncorp mortgage” to which Kimberley Developments is entitled pursuant to order 3 on the $288,242.63 paid by it on 25 February 2011: Ms Bale says $310,181.75; Kimberley Developments says $568,046.32. At the hearing, Kimberley Developments abandoned a claim that the interest should be $916,357.95,

2. A variety of expenses pursuant to order 9, comprising $192,602.35 recorded on a real estate agent’s ledger, $5,578.05 management fees paid to the previous agent, land tax of $24,359.25 and water rates of $4,977.72 not recorded on the ledger, payments to ABS Recycling & Services not recorded on the ledger totally $19,000 and building insurance of $20,642.22. Some expenses are agreed in their entirety. Some are agreed in part, for example Ms Bale accepts that an amount is claimable for management fees but disagrees on the amount which Kimberley Developments claims. Some larger items are wholly disputed, for example Ms Bale disputes Kimberley Developments’ claim for land tax and removal of waste costs in their entirety.

3. Whether Kimberley Developments is entitled to interest on expenses reasonably incurred in maintaining the property, and if so at what rates and whether it is simple or compound. The interest is a substantial component of the total claim: Kimberly claims in excess of $60,000.

18. Significantly for present purposes, it is to be borne in mind that the orders made on 23 June 2022 as varied by the Court of Appeal bind the parties and reflect a regime following a substantially unsuccessful appeal. Plainly enough, and it is borne out by Ms Bale’s written submissions at trial, specific attention was given by the primary judge to a differentiated interest rate applicable to the amount paid to Suncorp in order to discharge existing indebtedness on the property. Neither side disputed that the effect of the differently worded orders 3 and 10 yielded a significantly different interest calculation for the amount paid to Suncorp and the amount received by way of rent.

19. Further, the regime fell short of purporting to strip from Kimberley Developments the entirety of the benefits it had derived from the 12½ years of ownership of the property. In particular the orders did not require Kimberley Developments to account to Ms Bale for the benefits flowing from the property being mortgaged shortly after acquisition to secure some $700,000 from the National Australia Bank (to be fair, that may not reflect any curial choice but instead merely the ambit of the orders sought by Ms Bale).

20. I shall address each of those categories of disputed items in turn.

The Suncorp interest

21. The difficulty in relation to the Suncorp interest is that the facility provided by Suncorp to Mr Schein specified two rates, namely a “Higher Rate” and a “Lower Rate”, with the lower rate being applicable if interest were paid within 7 days of the date for payment and there was no existing default. The Higher Rate was Suncorp’s Bill Rate at relevant times plus 7% per annum; the lower rate was the Bill Rate plus 4% per annum. In point of fact, in the months and indeed years preceding February 2011, interest had been accruing at the Higher Rate because Mr Schein had been in default. Indeed, no repayments at all had been made in the previous 6 months. It is to be borne in mind that the reason for the conveyance which gave rise to this litigation was Mr Schein’s inability to service his indebtedness, and on that basis, Kimberley Developments submitted that the Higher Rate should be used. Against this, Ms Bale contended that the bank was threatening to enforce its security and there was no basis in the evidence to think that interest would continue to accrue for years at the Higher Rate.

22. The parties exchanged expert evidence on this point. Mr Neil Hayward, formerly a partner of PricewaterhouseCoopers and KordaMentha, calculated the interest on the $288,242.63 at both the Higher and Lower Rates, and his calculations were uncontroversial. He formed the view that the Lower Rate was appropriate because (a) Suncorp would not have let the account to remain in default of 12 years, but would have exercised its power of sale, (b) by paying out Suncorp, the default was extinguished, and (c) because the loan to value ratio was in the order of 24%, the loan could easily have been remortgaged with another bank at a much lower rate than the Higher Rate.

21. Mr Andrew Monckton was a chartered accountant with some three decades of professional experience. He was of the view that it was irrelevant that Suncorp would not have permitted the loan to remain in default for 12 years, and said that he did not understand the significance of the default being extinguished when the loan itself was discharged. He did not agree that the loan could easily have been refinanced. He did not dispute that the property could provide adequate security, but also stated that lenders would require the borrower to demonstrate that the borrower’s income was sufficient to fund their living expenses and to service the loan repayments. He said that:

No evidence has been provided to me that confirms that the borrower (or the plaintiff) had the borrowing capacity to re-finance the loan. In my experience, it is not uncommon for a borrower to be trapped in a higher-rate facility because a change in circumstances means they can no longer demonstrate to the satisfaction of an alternative lower rate lender that they have the capacity to service the existing loan.

In my opinion, the more likely scenario is that the fact that the borrower had not re-financed the Suncorp debt between 2005 and 2011 was a result of a failure to demonstrate adequate borrowing capacity to a suitable new lender. When I refer to suitable, I note that there may well have been lenders at the time who would have taken on the loan, but on the balance of probabilities and based on historical experience with numerous clients, their rates would have been higher than Suncorp’s Development Finance Facility Higher Rate.

In my opinion, if the loan continued to be in default, Suncorp would have continued to charge the Development Finance Facility Higher Rate, and any alternative lender would have charged an equal or higher rate.

24. Neither expert was cross-examined.

25. While conveying no disrespect to either expert, and accepting that both were entitled to express their opinions about the ultimate issue (Evidence Act 1995 (NSW), s 80), I think that the reasoning in which both have engaged diverged from what was required by the orders. I have been assisted by the opinion each expert has expressed, but ultimately the meaning of the order is a question of law, and informed by more considerations than those identified by either expert.

26. First, the issue required to be resolved is not to determine the appropriate rate of interest by reference to the traditional distinctions between the “trustee” rate and the “mercantile” rate, with the latter being awarded where a fiduciary “has been guilty of fraud or serious misconduct” (a distinction from which departures are now regularly made: see Hagan v Waterhouse (1991) 34 NSWLR 308 at 391-393 and Morgan Equipment Co v Rodgers (No 2) (1993) 32 NSWLR 467 at 486). My task is simply to work out the legal effect of order 3 made on 23 June 2022. That is not (or at least is not principally) a question involving accounting expertise. It is a question of law.

27. Secondly, it is clear that the order is ambiguous on its face. The order refers to “the rate specified in the Suncorp mortgage”. The reference to the Suncorp mortgage is naturally to be understood as the “Development Finance Facility” to which Suncorp and Mr Schein were parties, and in respect of which Mr Schein’s obligations were secured, inter alia, by a mortgage over land. But the Development Finance Facility specifies two rates of interest.

28. Regard may be had to extrinsic material in order to ascertain the legal meaning of “the rate specified in the Suncorp mortgage”. No differently from the position in Ross v Lane Cove Council (2014) 86 NSWLR 34; [2014] NSWCA 50 at [31], it is unnecessary to engage with the debate about whether ambiguity is necessary before resort to extrinsic materials is permissible, although I note Hodgson JA’s view that the ability to advert to extrinsic material extended at least to “assist in construction of an instrument if the language is ambiguous or susceptible of more than one meaning, but not admissible to contradict the language of the instrument when it has a ‘plain meaning’”: Athens v Randwick City Council (2005) 64 NSWLR 58; [2005] NSWCA 317 at [29]; and the Victorian Court of Appeal has observed that resort to the reasons for judgment may be appropriate “even where the order is unambiguous on its face, since the reasons form part of the context for the making of the order”: Ganesh v National Australia Bank Ltd [2021] VSCA 45 at [74]. Here, the reasons for judgment, which are ordinarily the primary source (Wende v Horwath (NSW) Pty Ltd (2014) 86 NSWLR 674; [2014] NSWCA 170 at [62]-[65]; Jason Hall t/as JHL Lawyers v Val Eco Homes Pty Ltd (in liq) [2021] QCA 236 at [27]), shed no light upon the meaning of the order.

29. Regard may also be had to the occasion for making the orders. For example, one aspect of the reasoning in Athens v Randwick City Council was the meaning of an injunction restraining the defendants from use of premises as “backpacker accommodation”, a term not defined in the order but defined in the LEP, which had been the source of the jurisdiction of the Land and Environment Court to make the order. Hodgson JA regarded it to be plain from those circumstances that the order on its true construction prohibited use as “backpacker accommodation” as defined in the LEP: at [30]. This is doing nothing more and nothing less than having regard to the context in which the orders were made, in order to determine the legal meaning of the language used.

30. An example of such reasoning may be seen in the approach adopted by Allsop J in Owston Nominees No 2 Pty Ltd v Branir Pty Ltd (2003) 129 FCR 558; [2003] FCA 629 at [55] where his Honour said:

As I said earlier, the Disputed Mango Land is either within or without the declaration of Owston’s entitlement. If it is without, then the order was made contrary to the claims of the applicants, contrary to the evidence, without argument and contrary to what can be seen as the common ground of the parties that the Disputed Mango Land was within the current Sanctuary.

31. It is, presumably, with authorities such as those in mind that during the hearing I was taken to the parties’ submissions on the form of the order.

32. Kimberley Developments made no submissions at trial on interest to which it might be entitled in the event that the land was ordered to be retransferred on terms that Ms Bale pay back the $288,242.63. Its submissions were directed to questions of fact and refuting the claim that it and the other defendants were liable, and did not descend into the issue of the terms upon which relief by way of a constructive trust should be given.

33. At trial, Ms Bale said that no interest should be imposed, but if the primary judge were against that, it should be at the Suncorp rate. Indeed, three pages of Ms Bale’s written submissions at trial were made available during the hearing, and although not formally tendered were treated as being before me (Transcript, 6 July 2023, p 70), for the purposes of construing the orders made on 23 June 2022. Ms Bale’s primary submission had been “to refuse the defendants any interest on the mortgage sum amount”, on the basis that “the paying out of the mortgage in order to effect the transfer was simply the culmination of the reprehensible plan to divest the late Ms Bale of his last significant asset” (paras 51, 52). That submission was necessarily rejected, and there was no cross-appeal.

34. Ms Bale’s alternative submission was that if interest were to be awarded, the rate was discretionary, and informed by the principles “to (1) return the parties as close as possible to status quo ante, while (2) avoiding delivering up an ‘unwarranted benefit’ to the wrongdoer” (para 55). Ms Bale sought to invoke the principle applicable to cases of payment out of prior securities where a third party who pays off a mortgage is presumed to “keep the mortgage alive” for the third party’s own benefit, citing Ghana Commercial Bank v Chandiram [1960] AC 732 at 745 and Cochrane v Cochrane (1985) 3 NSWLR 403 at 405. I think this was incorrect.

35. There is a very old presumption that a third party who pays off a mortgage is presumed to intend that it be “kept alive” for his or her own benefit. In Woodman v Australian and New Zealand Banking Group Ltd [2021] NSWCA 230 at [14], the Court of Appeal said, by reference to Kearney J’s judgment in Cochrane v Cochrane, that:

the payment out of a prior security is one of the well-recognised areas in which the doctrine of subrogation operates. Thus, where a third party pays off a mortgage, that party is presumed, unless the contrary appears, to intend that the mortgage shall be kept alive for the benefit of that party. That principle is based on Equity’s concern to prevent one party obtaining an advantage at the expense of another that, in the circumstances of the case, would be unconscionable. The conscience of the mortgagor in such circumstances should be affected so as to cause the mortgage to be kept alive. A third party is so entitled to keep a pre-existing mortgage alive when that party advances the money to pay out the mortgage on the understanding that security would be provided for such advance upon the mortgage being paid out. (Citations omitted.)

36. In this country this presumption is regarded as part of the law of equitable subrogation: see Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 at [98]. For the most part, the point is that equity regards there to have been an assignment to the payer of the rights of the secured creditor whose debt has been discharged, and most of the cases fall well short of any reference to the calculation of interest, let alone which of two rates would be applicable. An exception is the judgment of von Doussa J in Rogers v Resi-Statewide Corporation Ltd (No 2) (1991) 32 FCR 344 at 354 where it was said that “Resi-Statewide is entitled to a declaration that it has a right to a charge on the Aberfoyle Park property for an amount totalling $63,375.77 (being the amount paid to discharge the Westpac first and second mortgages) and interest thereon calculated according to the rates which would have applied from time to time under the Westpac first and second mortgages, or the Resi-mortgage, which ever is the less …”. It is not necessary for me to express any view on how any of this might apply, because the main point is that this is merely a presumption.

37. This is settled law. Sir George Jessel MR said in Adams v Angell (1877) 5 Ch D 634 at 647 that “in all these cases the question is one of intention”, and in the same case Baggallay LJ said at 648 that it was clear that “the parties intended the first mortgage to be kept on foot as against the second mortgagee”. Or, as Lord Macnaghten put it in Thorne v Cann [1895] AC 11 at 18-19:

Nothing, I think, is better settled than this, that when the owner of an estate pays charges on the estate which he is not personally liable to pay, the question whether those charges are to be considered as extinguished or as kept alive for his benefit is simply a question of intention. You may find the intention in the deed, or you may find it in the circumstances attending the transaction, or you may presume an intention from considering whether it is or is not for his benefit that the charge should be kept on foot.

38. Thus as Oliver J explained in Paul v Speirway Ltd (in liq) [1976] Ch 220 at 232:

[W]here on all the facts the court is satisfied that the true nature of the transaction between the payer of the money and the person at whose instigation it is paid is simply the creation of an unsecured loan, this in itself will be sufficient to dispose of any question of subrogation.

39. This point was made during the hearing, when I was told that it was on the basis of the principle in Ghana Commercial Bank v Chandiram that the Suncorp interest rate had been propounded on behalf of Ms Bale (Transcript, 6 July 2023, pp 72-73):

HIS HONOUR: … there is no intention of keeping the mortgage alive here. … This isn’t a third party, really. This is just the new purchaser [paying] off the mortgage. Anyway, that’s helpful though because it does bear upon why her Honour has done what she has done.

40. In the present case, the facts are antithetical to a presumed intention on the part of either Mr Schein or Mr Trigas that the mortgage in favour of Suncorp be kept alive so as to benefit Kimberley Developments. Mr Trigas caused Super Start Batteries to discharge the mortgage for a simple purpose: so as to permit Kimberley Developments to obtain full legal and (so it hoped) beneficial ownership of the land. An imputed intention that Kimberley Developments or Super Start Batteries be regarded as a secured creditor in relation to the Mr Schein’s former indebtedness to Suncorp, which Kimberley Developments discharged, is utterly inconsistent with Mr Schein’s sale of the property to Kimberley Developments. Another way of putting this is that Super Start Batteries is not to be regarded as having lent money to Mr Schein so that he could repay Suncorp, with Kimberley Developments or Super Start Batteries standing in Suncorp’s shoes; instead Mr Schein’s indebtedness was discharged as part of the consideration for its purchase of the land.

41. The submissions advanced on behalf of Ms Bale explain why the orders contain a reference to “the Suncorp rate”, but for the reasons indicated above shed no light on whether, in its application to the present facts, the Higher Rate or the Lower Rate is to be applied. They also explain why the exercises undertaken and opinions expressed by the experts do not greatly bear on the answer to that question.

42. The issue arises in circumstances which are entirely hypothetical. The issue arises because (a) Kimberley Developments obtained title to the land in circumstances where equity would intervene so as to set aside the transfer but also (b) after obtaining title, Kimberley Developments dealt with the land (namely, by paying out Suncorp and borrowing much more heavily against the land, thereby gaining a benefit outside the scope of the orders). Thus there is no question of determining amounts of interest actually paid to Suncorp. Instead, the question is the determination of a notional amount of interest by reference to one of two rates in the Suncorp Development Finance Facility.

43. I have found it helpful to consider the position which would obtain if a position closer to the status quo had occurred. Suppose Kimberley Developments had wrongly obtained title, and used the land for its own purposes thereafter, but had otherwise preserved the status quo, making payments of interest but not principal on the mortgage debt. That is to say, rather than discharging the Suncorp loan and borrowing substantially greater funds against the property, suppose Kimberley Developments had instead merely continued to pay off interest as it accrued, without reducing the principal indebtedness (ie, leaving the land in the same condition as it had been, and not committing further breaches of trust). Then Kimberley Developments would be incurring and paying interest at the Lower Rate. There is no good reason to give to Kimberley Developments the benefit of interest calculated at the Higher Rate when in fact Kimberley Developments did not pay interest at the Higher Rate and indeed gained a greater benefit for which it is not liable to account by its further breach of trust in borrowing against the security of the trust property.

44. For why, since Kimberley Developments chose to discharge the existing indebtedness to Suncorp and obtain (it may be presumed) a greater benefit from the land, should it also gain the benefit of interest calculated at the Higher Rate? I do not think it is to the point to say that, for the purposes of determining the legal meaning of the order, that Mr Schein had been paying interest at the higher, default rate. The order is premised upon there having been a wrongful transfer of title to Kimberley Developments. True it is that either Kimberley Developments or Super Start Batteries should be entitled to the benefit of having discharged Mr Schein’s indebtedness to Suncorp, and should also be entitled to compensation for the fact that it conferred that benefit upon Mr Schein in 2011. But it does not follow that the time value of that benefit should be calculated at the Higher Rate as if Kimberley Developments were in default. To proceed on that basis has the effect of causing Mr Schein’s estate to bear a default interest rate for a notional indebtedness as if the trustee breached the terms of the Suncorp facility. Instead the preferable approach is to presume, for the purposes of working out the order, that Kimberley Developments as trustee had complied with the obligations attaching to the Suncorp facility while it was the registered proprietor of the land.

45. Another way of making this point is that the amount of the allowance to be made in favour of the defaulting trustee turns on whether for the entirety of a period when the trustee was (wrongly) the legal owner of the land, interest for a debt of the beneficiary which the trustee had discharged should be calculated on the basis that the borrower was or was not in default. I do not see why the trustee should gain the benefit, and why Mr Schein should bear the burden, of the trustee notionally being in default. That result accords with the so-called “wrongdoer principle” which in various contexts provides that a party is not permitted to take advantage of its own wrongdoing: see Talacko v Talacko (2021) 272 CLR 478; [2021] HCA 15 at [51], Gnych v Polish Club Ltd (2015) 255 CLR 414; [2015] HCA 23 at [45], Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215 at 228-230; [1997] HCA 17 and Gollan v Nugent (1988) 166 CLR 18 at 46; [1988] HCA 59.

46. Neither side applied for the application of the order to be clarified, although the primary judge expressly granted liberty to apply: see Australian Hardboards Ltd v Hudson Investment Group Ltd (2007) 70 NSWLR 201; [2007] NSWCA 104 at [50]-[57]. Had I been asked to clarify the meaning of the order, as presently advised I would have regarded it as indicating the Lower Rate. The interest represents compensation for the time-value of money – the fact that the payment of $288,242.63 in 2011 was a greater burden than the payment of that amount in 2023. If the time value of the money is to be assessed using the rates charged by Suncorp, then the working assumption ought to be that the cost to the trustee was the cost which would be incurred if the trustee was not in default. Another way of putting this is that the trustee should not gain a benefit under a counterfactual calculation from the fact that it was deemed to be non-compliant; the time-value should be assessed on the basis that the trustee complied with the loan facility. This conclusion is reinforced by Ms Bale’s submissions at trial, to the effect that the interest rate should not confer an unwarranted benefit upon Kimberley Developments.

47. The consequence is that interest in order 3 should be calculated at the Lower Rate, namely, $310,181.75 upon the $288,242.63 paid to discharge the Suncorp debt. Those interest calculations were made as at 28 February 2023 (see Annexure 5 of Mr Hayward’s report). I shall return at the end of these reasons to the further interest calculations required to bring this up to date.

Expenses reasonably incurred in the maintenance of the Forest Lodge Property

48. Much of the hearing was occupied with the evidence bearing upon the expenses claimed by Kimberley Developments. It was voluminous, and much was served shortly before the hearing. During the course of Ms Bale’s submissions against some of the claims, there was the following exchange:

HIS HONOUR: … it is understandable from both sides that they wanted to bring the evidence as close to the date of the hearing as they can, which is fair enough. That, in turn, has led to an exchange of evidence on both sides very close to the heel of the hunt; but, being constructive about it, as you probably worked out, I take the view that I should be moderately critical of each side’s evidence, but bear[ing] in mind that it has come late and because just you haven’t had a chance to interrogate, I propose to interrogate it myself. If it seems, as you say really, if it seems reasonable then, yes, and if it seems untoward, bearing in mind ultimately the onus is passed upon [Kimberley Developments] to fall within the order, then formally they haven’t made out their case.

O’CONNOR: Quite so.

HIS HONOUR: How that works itself out in practice I don’t know, [I’ve] not done the work.

O’CONNOR: Thank you for that.

HIS HONOUR: You can’t spend two days arguing it.

49. I have adopted that course in determining which of the payments claimed by Kimberley Developments fall within order 9. I will deal with them all in turn, but it is necessary first to explain the two ways in which Kimberley Developments sought to prove these payments.

50. For the period since 2 June 2014, INTL Management Services Pty Ltd, trading as I Group Real Estate, has managed the property under a management agency agreement with Kimberley Developments. The sole director of I Group, Mr Rabie Chehade, who is a licensed real estate agent, gave unchallenged evidence about a property management database system called PropertyTree into which receipts and expenses were entered contemporaneously. A 22 page print out of the ownership ledger, and a two page summary derived from that ledger, were in evidence before me. The details in the ownership ledger identified dates and amounts, and also in many cases a primary invoice number and in some cases a bank account or EFT receipt number or BPAY reference number for the particular transaction. Mr Chehade’s affidavit was read without objection and he was not required for cross-examination.

51. Speaking generally, and subject to one qualification, I accept that amounts were actually received or paid in accordance with the descriptions in the ownership ledger at approximately the times and for the reasons there stated. The exception is that there are very substantial payments throughout the period recorded to “Aussie Insulation Batts” and “ABS RECYCLING SERVICES”. Many of these are shortly after rent was paid. However, these translate to “Owner Payments” in the table at the end of the schedule, and are not the subject of a claim in these proceedings.

52. So far as I can see, the amounts paid which are the subject of a claim by Kimberley Developments based on entries in the I Group ledger correspond with expenses which are of the magnitude and nature and timing of expenses which one would expect to be incurred by a landlord. I have also (by way of audit) checked the ledger against one primary document from a separate source. As considered further below, there is a relatively large and disputed claim for land tax. Mr Trigas exhibited records of land tax being levied, and payments made, obtained from NSW Revenue (Exhibit TT-2, pp 3-5). The NSW Revenue spreadsheet is on letterhead and bears every indication of being an internal, reliable document recording entries in a running account representing the land tax for the Forest Lodge Property (for example, it includes a number of automatic calculations of trivial amounts of interest, which are thereafter written off). For the period from February 2019 to May 2023, the NSW Revenue spreadsheet records payments of land tax in the amounts of $2,697.65, $2,697.55, $2,697.55, $3,338, $6,352.09, $2,886.60, $2,886.60, $2,886.60, $2,529.40, $2,529.30, $2,529.30, $1,793, $1,793, $1,793, and $1,805.36. All of those payments are in precisely the same amounts, with an annotation referring to land tax, in the I Group ledger, with dates a few days earlier than those recorded in the NSW Revenue spreadsheet. That corroboration tends to confirm the reliability of the ledger as a basis for inferring that a payment was made at the time it was recorded. (I shall return to the fact the ledger only records payments of land tax after 2019 below.)

53. The questions which arise are whether Kimberley Developments has discharged the onus it bears of showing that each of the claimed expenses (a) answers the description of an expense incurred in the maintenance of the property and (b) is reasonable.

54. Kimberley Developments claims the entirety of the property expenses as recorded in the ledger, together with other expenses which pre-date I Group being retained to manage the property. Ms Bale accepted that Kimberley Developments was entitled to an allowance for council rates and management fees and did not substantially challenge Kimberley Developments’ entitlement to a large number of minor fees, such as administration fee ($280), document preparation fee ($30), incoming and expenditure fee ($150) and a letting fee ($850).

55. There is no reason to doubt that the ledger records actual expenses paid, nor that the times and descriptions are broadly accurate. The large majority of the expenses appear on their face to be reasonable. However, I am cautious of expenses which have been incurred in light of the litigation, and especially expenses incurred after the regime determined the primary judge came into being, whereby there was an incentive for Kimberley Developments to inflate expenses incurred by it.

56. A question arises as to the impact of GST. There seems no reason to doubt that insofar as Kimberley Developments incurred an expense in its capacity as landlord, it was entitled to the benefit of an input tax credit for the GST it paid. That is to say, a premise of the regime for determining the allowances to which Kimberley Developments is entitled is that it was not the ultimate consumer and was thereby not out of pocket for any GST. Kimberley Developments is not entitled to obtain an allowance for GST it has paid. I did not understand any submission to be made to the contrary, in response to Ms Bale’s contention that it should not obtain an allowance for GST paid. The amounts mentioned below are all exclusive of GST, save that where the evidence is unclear as to whether an amount includes or excludes GST, I have not deducted an amount for GST.

57. I now address the individual amounts claimed.

Various fees

58. Management fees. The $21,684.74 management fee reflects only the actual management fees charged by I Group; in addition Kimberley Developments claims fees of $5,578.05 charged by Raine & Horne Ashfield for the period from 22 February 2011 until 1 June 2014 when that company managed the property. Ms Bale says that a reasonable fee is 5.5% of the total amount of all monies received by the agent. There is no evidence for that proposition, although I am prepared to accept it. But it is not to the point. The question is whether the actual expenses claimed by Kimberley Developments, which in this case reflect the actual management fees paid, are expenses “reasonably incurred in the management of the property”. The fact that there is evidence that one agent will charge at 5.5% (including GST) is evidence that that is a reasonable rate, but it does not preclude the actual amounts charged by Raine & Horne and I Group from also being reasonable.

59. The I Group management fee of $21,684.74 excludes GST. The Raine & Horne management fees included GST (and also postage of $7 per month). The ex-GST amount is $5,070.95. I find that both were reasonably incurred in the management of the land. The total amount of management fees allowed pursuant to order 9 is $26,755.69.

60. Miscellaneous modest fees. There are a series of relatively modest fees, comprising administration fee of $280, document preparation fee of $30, income and expenditure fee of $150, letting fee of $850 and “locks, keys, card keys” of $2,000, all contained on the I Group ledger. Although at one stage Ms Bale disputed the latter, because it could not be found on the ledger, it was pointed out that an invoice number, BSB and account number for that payment were at p 14 of the ledger, following which counsel moved to his next objection. Consistently with the approach indicated by me during the hearing, I accept all of those expenses, all of which exclude GST. Their total is $3,310.

61. Mortgage fee. Kimberley Developments claims an amount of $1,100, which is claimed as “mortgage”. So far as I can see, this relates to an entry in the I Group ledger dated 14 November 2019 described as “Inv Ref: VNSW 21545 – Sworn Valuation Batch: 707, EFT: Australian Valuation & Advisory Group”. That amount was incurred after proceedings had commenced. There is no other testimonial evidence explaining the payment. Prima facie an amount spent to value the property does not without more answer the description of an “expense reasonably incurred in the maintenance of the Forest Lodge Property”, and I reject this claim.

62. Water rates. There was at one stage a submission that in fact the tenant had paid water rates. I understood this to be withdrawn ultimately, and in any event I would find that water rates were paid by Kimberley Developments, but also that Kimberley Developments received small amounts by the tenant referable to water usage. Both the water rates paid by Kimberley Developments and the amounts of water usage received by Kimberley Developments related to the same thing: water consumed on the premises. Accordingly, and contrary to Kimberley Developments’ submission, it is necessary to deduct one from the other. I note that that approach is taken in I Group’s management statement. That yields an amounts of $17,167.41 paid, less $733.26 received, or a net expense of $16,434.15. This amount is GST-free. In addition, Kimberley Developments has calculated, by reference to Sydney Water primary documents, an amount of $4,977.72. I accept this aspect of the claim, in circumstances where there is no reason to doubt the rates were paid. It is unclear whether this second amount of water rates includes GST, but in the absence of evidence or submissions, I will accept it in its entirety. The total claim for water rates is therefore $21,411.87.

63. Council rates. There was no substantial dispute that council rates of $27,001.30 in the I Group ledger fell within the order (Ms Bale had contended for a slightly smaller amount, but said the difference was “so small it is not to be worth arguing about”). Kimberley Developments also claimed an earlier amount of $4,776.26 for amounts of rates prior to I Group managing the property. He was unable to locate proof of payment, but adduced evidence of the assessment notices issued by Council. In the case of council rates, I am persuaded that the amounts were paid. The notices from Council do not suggest there is any unpaid amount of rates. Further, the Council is entitled to a charge on land in respect of unpaid rates (Local Government Act 1993 (NSW), s 550) and is empowered to bring proceedings to receive such amounts. I accept that these amounts are within order 9. Thus, the total amount allowed for council rates is $31,777.56.

64. Land Tax. Land tax of $38,427.95 plus GST of $3,842.80 was recorded on the I Group ledger. A submission was made on behalf of Ms Bale that Kimberley Developments inevitably had to pay land tax, as a corporate registered proprietor, while it seemed that Mr Schein may not have in fact been paying land tax, although it was common ground that the premises could not be used as a residence. On that basis Ms Bale challenged the entitlement to the entirety of land tax of $38,427.95. I do not accept her submission. The issue however is whether the land tax actually incurred and paid by Kimberley Developments was an expense reasonably incurred in the maintenance of the property. I find that it was such an expense. It could not derive rent without paying land tax. I allow the entirety of that amount in favour of Kimberley Developments.

65. Mr Trigas gave evidence that he had calculated land tax “prior to 2 June 2014 (or which are not otherwise on the Ownership Ledger) as $24,026”. He did not expose how the calculation was made (affidavit of 30 June 2023, para 11). He corrected this amount to $24,359.25 by an affidavit of 5 July 2023. Again, he did not expose his calculations.

66. I have not been able precisely to reconstruct how Mr Trigas reached either of those amounts. However, relying merely on the NSW Revenue statement, I can see that a total amount of land tax of $64,263.75 (inclusive of GST) has been paid over the period (this includes the amounts shown in the I Group ledger). That is slightly less than both of the amounts asserted by Mr Trigas (inclusive of GST). It is true that there are credits in the ledger which I have not included, because they are described as “Write-offs – Interest” (they mostly correspond to automatically assessed amounts of interest which are debited and do not have the appearance of monies actually paid), but their inclusion would be insufficient to reach either of the sums determined by Mr Trigas.

67. Faced with the relatively minor divergence in amounts, I prefer the record of payments obtained from NSW Revenue. It is clear that the NSW Revenue amounts are inclusive of GST. Accordingly, I allow an amount of land tax for the whole period of $64,263.75 x 10/11 = $58,421.59.

68. Total for various fees. Those amounts total $26,755.69 + $3,310 + $21,411.87 + $31,777.56 + $58,421.59 = $141,676.71.

Removal of rubbish/waste

69. A relatively large claim is made for the removal of rubbish/waste from the site. One component is a claim for $13,000 described as “Truck loads and Machine Hire, Labour Hire, Removal of Timber, Removal of Debris”. Kimberley Developments points to email communications between it and the Council which refer to a Council clean-up order which had not been complied with. A council officer wrote that “I understand that you are attempting to contact the former tenant to arrange the clean-up of accumulated materials stored at the premises”. In response, I Group stated “The previous tenant has also be[en] advised he has until the 2^nd of December 2019 to remove any items he deems valuable from the laneway, as Kimberley Developments has hired a contractor to clear the laneway at its own expense.”

70. There were other expenses which were attributable, directly or indirectly, to large amounts of waste being removed from the premises. These include $5,270 paid to hire skip bins, $38,018.08 for rubbish, and $1,000 for the hire of a forklift. No evidence was adduced by Kimberley Developments for the source of the rubbish on the property which required removal. The inference (which I raised during the hearing) was that some activities were being carried out on the premises involving leaving large amounts of waste. It is to be borne steadily in mind that the orders involve determining expenses reasonably incurred in order to be subtracted from the rent received which must be accounted to Ms Bale. I am unpersuaded that expenses for removing rubbish, which have the character of operating a business, rather than administering a lease, fall within that category, and I would not allow any of them.

71. It is possible that expenses may be incurred by a landlord in removing waste from premises at the end of a lease, which are necessary in order to relet the premises, because the former tenant has not complied with a covenant. And it is possible that the landlord is unable to, or it is uneconomic for the landlord, to recover those funds from the tenant. However, there is no suggestion that Kimberley Developments had recourse to a bond. Nor was any of the above developed by way of evidence or submission. Further, the expenses for rubbish removal occurred throughout the period, which distinguishes the situation from the one-off costs a landlord may incur when a lease comes to an end or at the commencement of a new lease (cf the $12,000 for removing power lines when Kimberley Developments acquired the land which is addressed below). On balance, I am unpersuaded that any of these expenses fall within the description of expenses reasonably incurred in the maintenance of the property.

Payments to solicitors

72. Kimberley Developments claims amounts of $5,500 paid to Abbas Jacobs Lawyers, $3,850 and $6,765 paid to Weinberger Lawyers, and a fee of $4,070 for a Tribunal application. The amounts paid to law firms included GST, the fee charged by the Tribunal was GST-free.

73. The fee paid to Abbas Jacobs was dated 2 May 2019 and related to work concerning a proposed change by the local council of the land’s rating. It is entirely unclear whether the landlord derived any benefit from the dispute. Moreover, it is unclear whether the work related to the reasonable maintenance of the property. I accept that the registered proprietor, which is liable to pay rates, has an interest in any decision made by the local council as to the classification of the land. However, insufficient explanation has been given to explain how this expenditure falls within the landlord’s reasonable maintenance expenses of the land.

74. There is a separate difficulty with fees said to have been paid to Weinberger Lawyers. The evidence was limited and contradictory. Mr Chehade said that I Group made payments to “Weinberger Lawyers in the sum of $3,850 on 17 October 20022 and $6,765 on 13 January 2023 for work done on behalf of the landlord in relation to a dispute about the dividing fence between the Forest Lodge Property and a neighbouring property falling into disrepair.” He exhibited an invoice dated 11 October 2022 which stated that the total professional fees were $15,800 exclusive of GST, from which $3,850 was deducted as “Amount received”, and which concluded that $6,765 was due on 25 October 2022 and $13,530 was due on 25 November 2022. The bill attached an itemised account of work done by Mr Weinberger over the period 9 July 2020 until 28 September 2020 totalling $15,800.

75. During the hearing, the following exchange took place concerning these expenses:

HIS HONOUR: I can see those amounts, but it is a little peculiar. Behind the invoice is an itemised bill for work done in July, August and September 2020.

PERLA: Yes, your Honour.

HIS HONOUR: The bill, the invoice itself is dated 11 October 2022.

PERLA: Yes, your Honour.

HIS HONOUR: And it suggests that $3,850 was received at that date. And then the balance or then there are two amounts of $6,765 and $13,530, one of which you claim. So putting that together, where 33B says that $3,850 was paid on 17 October 2022, that may not be right or there may be something wrong with the invoice, because on the face of the invoice $3,850 had been paid prior to 11 October 2022.

PERLA: Yes.

HIS HONOUR: I thought that I should give you a chance to clarify that at some stage, if there is anything that can be clarified.

PERLA: I am sure that those who instruct me have been listening attentively and I will take some instructions about that in a moment.

HIS HONOUR: It looks as though work was done years beforehand, some payment was made at some unspecified time beforehand, not the time set out in 33B. And then more recently, an itemised bill of costs, in effect, was generated which has come up with the second component of $6,765.

PERLA: I will hopefully be in a position to answer that.

HIS HONOUR: I will give you an opportunity to do that.

76. Notwithstanding that exchange, no explanation was given. These expenses were incurred in 2020, but only charged in late 2022, after Kimberley Developments had lost at trial, and unless successful on appeal, would have to return the land but with allowances for expenses. The reasons explaining why the client was charged, and paid, and then a couple of years later re-charged in a much larger amount, are peculiarly within the knowledge of Kimberley Developments and its solicitors. Left unexplained as they were, I am unpersuaded that anything except perhaps the $3,850 was reasonable.

77. The itemisation in the Weinberger Lawyers bill makes it plain that the expenses related to proceedings in NCAT in 2020. Kimberley Developments Pty Ltd v Cicihour Pty Ltd [2020] NSWCATAP 213 is a dispute about the dividing fence. It records that at first instance, the parties were self-represented, but that before the Appeal Panel, each appeared by solicitor. The dispute arose because the neighbour sought a contribution for a “like-for-like” replacement of what it said was a 40 year old fence running 26.49m on the boundary: see at [11]. Kimberley Developments said that the fence should be repaired rather than replaced. Kimberley Developments failed at first instance, but succeeded on appeal, by which time the fence had been replaced. Both sides sought costs, and NCAT dismissed both applications: Kimberley Developments Pty Ltd v Cicihour Pty Ltd (No 2) [2020] NSWCATAP 250. Significantly for present purposes is paragraph [14] of the second decision:

CPL pointed to its communications about what it said was [Kimberley Development’s] repeated non-compliance with the first instance Tribunal order, and the subsequent Local Court judgment to enforce that order in the amount of $1,692 ($1,498.20 plus $194 costs) to share the cost of the fence, and with the Tribunal orders at first instance by removing debris obstructing the replacement of the old fence. CPL said it incurred costs of $3,367 ex GST to move the debris. The non-compliance was in the face of refusal of a stay of the first instance orders. The Local Court judgment was offered to be withdrawn after our substantive decision.

78. It is possible (I do not express a view) that I should not have regard to the reasons of NCAT as evidence of the proposition that the dispute over the dividing fence involved a trifling amount of money. It is not clear to me that s 91 of the Evidence Act precludes me from doing so, for NCAT is not an Australian court. But it is not necessary to reach a conclusion on that issue. The onus rests on Kimberley Developments to establish that it was reasonable to spend thousands of dollars on lawyers as part of “expenses reasonably incurred in the maintenance” of the land. I am unpersuaded that it was reasonable to do so. The same applies to the claim for $4,070 representing filing fees for applications in the tribunal.

Fire protection and general repairs and maintenance

79. It was conceded that Kimberley Developments was entitled to an expense of $4,454.15 for fire protection, Ms Bale objected to the claim for $11,035 for general repairs and maintenance recorded in the I Group ledger, but despite the absence of primary documents, I am satisfied by their description, timing and magnitude that the amounts fall within order 9. These amounts exclude GST.

Payments to ABS Recycling

80. Kimberley Developments claims amounts of $12,000, $6,000 and $1,000. The first is supported by a handwritten tax invoice in the amount of $12,000 dated 2 March 2011 and is said to relate to “remove power lines from old post rear of house going to factory, remove old post and dispose, update power box, fix new wires from new connection to power box”. The second refers to an invoice charging $2,500 for “rear yard awning (design + build)”, $1,000 for flooring, and then $2,500 for a hot water system, a toilet, a sink and a cooker. The third is $1,000 for supplying and erecting a front gate to block access to the laneway. All these items are of a capital nature. Nonetheless, I am satisfied that all these are expenses reasonably incurred in the maintenance of the property. In a practical sense, they represent costs of installing improvements to the property which could be used to derive income from it, and indeed in relation to the $6,000 of works, there is the unchallenged evidence of Mr Trigas’ belief that the tenant would have left the property had the work not been done. I am conscious that none of the tax invoices are compliant, and that the evidence is that all were paid in cash by Mr Trigas, who said he was doing so on behalf of Kimberley Developments. However, in circumstances where that evidence was adduced without objection or challenge, I accept it. In the absence of a tax invoice which identified an amount of GST, and where Mr Trigas paid in cash, it is to be doubted that Kimberley Developments was entitled to an input tax credit, and so I have allowed the entirety of these amounts.

Building insurance

81. Finally, Kimberley Developments makes a claim of $20,642.22 for building insurance. Mr Trigas said he had not been able to obtain proof of payment from the council or from his bank accounts. Counsel for Ms Bale said, “it is a significant amount of money, and in my respectful submission it is without something more than Mr [Trigas’] merest assertion it should not be accepted”. The point is sound. Many thousands of dollars have been spent establishing claims for adjustments and allowances for much smaller claims. The onus rests upon Kimberley Developments to establish its case. I have been prepared to accept claims for comparably sized amounts where supported by invoices, even ones that are not compliant, in circumstances where Mr Trigas has given an explanation, and in many cases they were supported by photographs. In contrast, the amount of $20,642.22 is bare assertion. I accept Ms Bale’s submission that more is required.

Summary of conclusions on expenses

82. The result is that Kimberley Developments has established expenses of $141,676.71 + $4,454.15 + $11,035 + $19,000 = $176,165.86.

Interest on expenses

83. The position as to interest on expenses is more straightforward than the issue of interest on the $288,242.63. Contrary to some of the submissions advanced, I am not exercising a discretion. The primary judge, Ward CJ in Eq, exercised a discretion, and did so differentially in the orders made on 23 June 2022. No challenge was made on appeal, in an appeal where many grounds were advanced, to the absence of an entitlement to interest on expenses claimed by Kimberley Developments as a deduction from the rent for which it had to account. The parties are bound by the orders made at first instance. Nor was any application made to vary those orders (even assuming it was open to do so).

84. Ms Bale submitted that Kimberley Developments was not entitled to interest when the orders did not provide for interest. I agree. This is not merely a consequence of what is apparent on the face of order 9 (which is silent as to interest) in contrast with orders 3 and 10 (which authorise interest). It is also a consequence of order 11, which proceeds on the basis that the amounts in orders 3, 9 and 10 will be determined and then offset. I reject Kimberley Developments’ claim that it is entitled to interest at any rate on the expenses which it claims as a deduction.

85. In any event, I would have rejected Kimberley Developments’ primary submission, which was that it was entitled to compound interest at monthly rests calculated by reference to s 100 of the Civil Procedure Act for the entirety of the 12 year period. It could not be right for Kimberley Developments to have to account for historic rent received at simple interest but to gain the benefit of expenses in maintaining the property historically incurred at compound interest. That would inevitably bring about the result that Kimberley Developments would fail to account for all of the (net) profits generated by renting the land.

86. A less unattractive submission was put forward by way of fallback position (effectively as a result of a question by me), of the same interest rates methodology being applied to rent and expenses, but on the view I take, that is precluded by the orders made on 23 June 2022 from which relevantly there was no appeal. The regime in orders 9, 10 and 11 is not to calculate a net rent (gross rent less expenses) to which interest is applied. It is to calculate gross rent plus interest, from which is to be offset certain expenses.

Interest up to the time of judgment

87. As noted at the outset, in working out the effect of the orders made by Ward CJ in Eq and confirmed by the Court of Appeal, there are two distinct interest rates: the rate specified in the Suncorp mortgage (applicable to Ms Bale’s obligation to allow for the repayment of her father’s indebtedness) and the rate in s 100 of the Civil Procedure Act (applicable to Kimberley Developments’ obligation to repay rent).

88. This judgment is to be delivered on 18 August. It is necessary to address the effect of the delay from 27 and 28 February 2023 (when the interest calculations have been made) to date.

89. Order 3. As of today, Ms Bale is required to pay $288,242.63 plus interest of $310,181.75 plus further interest for the period 1 March – 18 August 2023 at the Suncorp Lower Rate. Mr Hayward’s agreed calculations were (explicitly) based on the Interbank Overnight 30-day Cash Rate, monthly average, which is the series “FIRMMCRI” in the data maintained by the Reserve Bank of Australia available at to which he added 4.18% in accordance with the facility terms. I have used the same series. The rates for March, April, May, June and July are 3.51%, 3.57%, 3.8%, 4.02% and 4.07%. The August rate is naturally not as yet available, so I shall use the July rate for the first 18 days of August.

90. The interest calculations are:

1. March: 31 days at 7.69% on a balance of 598,424.38 = $3,908.45

2. April: 30 days at 7.75% on a balance of 602,332.83 = $3,836.78

3. May: 31 days at 7.98% on a balance of 606,169.61 = $4,108.33

4. June: 30 days at 8.2% on a balance of 610,277.94 = $4,113.11

5. July: 31 days at 8.25% on a balance of 614,391.05 = $4,304.95

6. August: 18 days at 8.25% on a balance of 618,696.00 = $2,517.16.

91. The total interest is therefore $310,181.75 + $22,788.78 = $332,970.53.

92. Order 9. As explained above, this order makes no provision for interest. The total amount is $176,165.86.

93. Order 10. As of today, Kimberley Developments is required to pay rent in the amount of $383,238.18, plus interest of $99,243.25 plus further interest for the period 28 February – 18 August 2023 pursuant to s 100 of the Civil Procedure Act. The interest rates applicable under s 100 have been 7.1% for the period 1 January 2023 until 30 June 2023, and 8.1% thereafter. Accordingly, to the amount agreed between the parties it is necessary to add further interest for 123 days at 7.1% and 49 days at 8.1% = 123 x $74.55 + 49 x $85.04 = $13,336.61. Thus, the total amount to be paid for rent is $495,818.04.

94. Order 11. The amounts in orders 3, 9 and 10 are to be offset against each other. Accordingly, as of today, Ms Bale must pay $288,242.63 + $332,970.54 = $621,213.17 pursuant to order 3, and $176,165.86 pursuant to order 9. Kimberley Developments is to account for rent and interest in the amount of $495,818.04 pursuant to order 10. Netting off those payments leaves Ms Bale with an obligation to pay $301,560.99. In accordance with order 11, that amount is to be paid within 21 days of today.

Evidence ruling

95. During the hearing I admitted into evidence a quotation obtained by Ms Bale from SSGM Group Pty Ltd dated 23 June 2023, of $49,000 plus GST to remove the rubbish from the premises. The quotation identified labour costs of $25,000 (based on one labourer, at $250 per hour, for 7-10 days), tip charges of $14,000 (based on $450-$470 per tonne) and “Machinery and truck fee plus all maintenance” of $9,000. (In fact, the items add to $48,000, not $49,000, but nothing turns on this.)

96. It was said that this was not a business record, because it was a document which was “prepared or obtained for the purpose of conducting, or for or in contemplation of or in connection with” an Australian proceeding. I was directed to Australian Competition & Consumer Commission v Advanced Medical Institute Pty Ltd (No 2) (2005) 147 FCR 235; [2005] FCA 1357, and although a copy was not made available during the hearing, I now see that Lindgren J’s reasons support the conclusion for which Kimberley Developments contended, namely, that Ms Bale was a person who “prepared” or “obtained” the document. However, in response to the objection, counsel for Ms Bale advised that he would call her to give direct evidence of the instructions provided to the contractor, and that occurred, and she was cross-examined concerning the circumstances in which the quotation was given. In those circumstances, s 64(2) of the Evidence Act displaces the hearsay rule. No notice was given of that course, but in circumstances where Ms Bale was only notified of the objection the previous evening, and where a swathe of evidence including expert evidence was only served by Kimberley Developments on the Friday before the hearing, all of this being brought about or at least contributed to in circumstances where the original intention was that the hearing take place after title and possession had been transferred to Ms Bale, I permitted that to occur in keeping with s 56 of the Civil Procedure Act. Accordingly, I indicated that I would admit the evidence noting the intention to adduce oral evidence from Ms Bale as to the instructions given for the making of the quote (Transcript, 6 July 2023, 22.38-44). In any event, it rapidly became apparent that the document and all other like it were of no assistance because of steps which had subsequently been taken in recent days by Kimberley Developments to clear up the rubbish on the premises.

Orders

97. The overall result is that Ms Bale must pay $301,560.99. To be clear, the nature of that obligation is in debt, not a mandatory injunction, and thus the remedies lie in execution of judgments, not contempt. Further, Ms Bale’s personal obligation to pay $301,560.99 is secured by the charge over the land ordered by Ward P by order made on 23 June 2022.

98. Various interlocutory orders remain in place. Some were made at the commencement of proceedings. Others were made pending appeal. All those orders are now spent, since the dispute between the parties has been wholly resolved. I shall order that the freezing order over Kimberley Developments bank accounts made on 23 January 2019 and varied on 29 January 2019 be discharged, as will the undertakings given on 9 August 2022.

99. As presently advised, no issue as to costs arises, by reason of an inter partes agreement as to costs struck after the delivery of the main judgment by the Court of Appeal: see Kimberley Developments Pty Ltd v Bale (No 2) at [4]. I understood this to have been confirmed at the hearing on 11 August 2023. But if that be wrong, either side may apply within the time specified by r 36.16 of the UCPR. It is also quite possible that I have made errors of commission, especially in the calculations above, or of omission. Either side may make application within the time specified by r 36.16.

100. I make the following orders:

1. Note that Kimberley Developments has retransferred title to the Forest Lodge land to Ms Bale.

2. Ms Bale to pay Kimberley Developments the amount of $301,560.99 within 21 days of today.

3. Note that the effect of orders 3 and 4 made by the Court on 23 June 2022 is that Kimberley Developments has the benefit of a charge over the Forest Lodge land securing the obligation in order 2 above.

4. Discharge the freezing order over Kimberley Developments’ bank accounts made on 23 January 2019 and varied on 29 January 2019, and discharge the undertakings given on 9 August 2022.

5. Exhibits to be returned.

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Decision last updated: 18 August 2023