Franz Boensch as trustee of the Boensch Trust v Pascoe

[2019] HCATrans 198

[2019] HCATrans 198

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S216 of 2019

B e t w e e n -

FRANZ BOENSCH AS TRUSTEE OF THE BOENSCH TRUST

Appellant

and

SCOTT DARREN PASCOE

Respondent

KIEFEL CJ
BELL J
GAGELER J
KEANE J
NETTLE J
GORDON J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 11 OCTOBER 2019, AT 9.45 AM

Copyright in the High Court of Australia

MR C.J. BEVAN:   May it please the Court, I appear with my learned friend, MR M.J. WELLS, for the appellant.  (instructed by John D Bingham Solicitor)

MR D.A. PRIESTLEY, SC:   May it please the Court, I appear with my learned friend, MR M.F. NEWTON, for the respondent.  (instructed by Gilchrist Connell)

KIEFEL CJ:   Yes, Mr Bevan.

MR BEVAN:   Thank you.  Your Honours, we will address your Honours on the seven issues we have identified in our written submissions, taking the order in which they appear in those submissions, and as identified in our outline of oral argument, the necessary starting point is a caveat over the trust property Rydalmere which lies at the heart of Mr Boensch’s claim for compensation against Mr Pascoe and the Boensch Trust which was declared over Rydalmere some six years before the caveat was lodged on the title by Mr Pascoe some two days after his appointment.

We start with the caveat and the trust in order to put the findings on the vesting of trust property by force of the Bankruptcy Act which we appeal against in their correct evidentiary context before we address on the findings about the vesting of trust property.  The caveat, which is dated 25 August 2005, is located in volume 1 of the appellant’s materials book page 117.  It was lodged hard on the heels of the sequestration order made on 23 August 2005 which is at page 113.  Mr Pascoe received that formal notice the day after the caveat was lodged it would seem by certificate of appointment dated 25 August 2005, page 115 of volume 1 of the booklet.

Mr Pascoe learned about the ownership of the land, Rydalmere, by Mr Boensch and about the existence of an alleged trust over it from Ms McLean, the solicitor for Mr Costin, the petitioning creditor, who so informed him shortly after the sequestration order was made on 23 August 2005.  The caveat at page 117 specified the interest in land claimed at page 118 at line 5 in box one of Schedule 1 and it claimed it on the ground specified in box three in Schedule 1 at line 12, based upon the one and only document referred to in box two at line 10, which is the sequestration order.  The interest claimed is:

Legal interest pursuant to the Bankruptcy Act 1966.

Based upon the sequestration order on the ground that the property of the bankrupt, Mr Boensch, vests in his trustee in bankruptcy, Mr Pascoe, pursuant to sections 156A(3) and 58(1)(a) of the Bankruptcy Act.  At this early stage of our argument, your Honours, we would earmark no more than at this purely evidentiary level and invite your Honours to make a number of observations about the claim to the proprietary interest in Rydalmere from the terms of the caveat, and this initial analysis involves simply a reading of the caveat on its face.

Firstly, the interest claimed is a legal interest under the Bankruptcy Act.  Secondly, Mr and Mrs Boensch held title to Rydalmere as joint tenants despite a property settlement six years earlier in 1999 because the State Bank would not consent to transfer of the joint interest from Mrs Boensch to Mr Boensch to give effect to their otherwise consummated property settlement made in the middle of 1999.  The title search undertaken by Mr Pascoe on 23 August 2005 is located in volume 1 of our booklet at page 87.  The unregistered transfer of title from Mrs Boensch to Mr Boensch dated 9 June 1999 is found at page 27 of the booklet and the primary judge’s findings on the caveat and the state of the title of Rydalmere your Honours will find in volume 1 of his Honour’s judgment, core 7, and paragraph 11, core 9.

Further, your Honours, viewed objectively, the interest claimed on the grounds of the claim, having regard to the language of the caveat, the identity of the registered proprietors at Rydalmere at that time and the reliance placed by Mr Pascoe as caveator on the caveat on only the sequestration order in box 2 of Schedule 1 of the caveat, constitute the caveatal interest claimed in the caveat by Mr Pascoe is Mr Boensch’s estate in fee simple as a joint tenant with his former wife ‑ ‑ ‑

EDELMAN J:  Why would it not just be whatever interest it is that is conferred by section 58(1)(a) of the Bankruptcy Act?  That is literally what it says, is it not?

MR BEVAN:   Literally what it says, but ‑ ‑ ‑

EDELMAN J:   The context in which it says that is the context in which a trustee in bankruptcy is caveating to protect whatever interest has been conferred on that trustee.

MR BEVAN:   Correct.

EDELMAN J:   Why would that not be the meaning?

MR BEVAN:   I cannot cavil with that because it makes a number of assumptions but what we are trying to do is to superimpose the claims he has with what the state of the title was at that time.

GAGELER J:   The trial judge made a very clear finding on this exact point at page 36, line 10.  Do you quibble with that?

MR BEVAN:   Is the sentence starting with “The intention”?

GAGELER J:   You could start with the previous sentence and then add that one.

MR BEVAN: We quibble with the intention test. We say the test is an objective test and it does not turn on what Mr Pascoe intended to do; it turns on what the terms of the caveat state and the caveat simply states legal interest under section 58 of the Bankruptcy Act, which makes a number of assumptions about the vested interest under section 58 of the Bankruptcy Act.

Now, our case on issues 3 and 4 is that the test is an objective test of what is interpreted in the caveat rather than a subjective test. 

NETTLE J:   Are you still on SU1, whether their legal interest is sufficient to sustain ‑ ‑ ‑

MR BEVAN:   I am.  I am coming to issue 1, your Honour.

NETTLE J:   Are we really concerned about the way in which it was described in the caveat, given that if it were deficient it could have been corrected, as the trial judge pointed out?

MR BEVAN:   Yes, your Honour.

NETTLE J:   Why do we not get to the real issue in issue 1, the Ritchie point?

MR BEVAN:   Right.  If I could turn to the findings of the primary judge on this, the ratio of the primary judge’s reasoning on issue 1 starts at paragraph 103, core 35, it culminates in the conclusion reached at paragraph 107, core 36.  Its ratio is acknowledged by his Honour – its status, I should say, as ratio is acknowledged by his Honour at paragraph 108.

It relies upon the reasoning in paragraphs 97 through to 102 concerning the principle about the vesting of trust property in the trustee in bankruptcy of a bankrupt estate, in particular in this case an express trust being the principle enunciated by Justice Powell in the Supreme Court of New South Wales in Official Trustee v Ritchie, authorities volume 6, item 51, page 1792, and more recently by the Court of Appeal in New South Wales in Lewis v Condon, authority 6, item 45, page 1608, albeit in the latter case without citing the former case.  The primary judge recited this principle at paragraphs 99 to 100, core 33.  We take no issue with the recital of the principle.  We have addressed this in paragraphs 35 through to 39 of our written submissions.

Your Honours, the Full Court upheld this approach at paragraphs 101 to 106 which is core 99, having carefully summarised our contentions to the contrary in paragraphs 96 to 101 in the Full Court judgment, that is core 97, before rejecting them in favour of the principle enunciated in Ritchie and Lewis.  Your Honours will find recited in Justice Powell’s judgment in Ritchie essentially the case that we are arguing on issue 1 that was put by Mr Mason, QC, then the Solicitor‑General for New South Wales, which was rejected by Justice Powell.

Now, we contend before your Honours, as we did below, that this approach is fundamentally flawed.  We say it is contrary to the long‑standing authority on the vesting of property of a bankrupt who holds office as trustee of an express trust as enunciated by Lord Chief Justice Willes in Scott v Surman and that is reproduced in the authorities book volume 6, item 55 page 1837.  The principle in Scott v Surman is recited by the Full Court at paragraph 98, core 98, about which we make no complaint about the accuracy of the recital, before the Full Court rejected the Scott v Surman principle in favour of the contrary principle enunciated in New South Wales in Ritchie and Lewis v Condon.

NETTLE J:   Mr Bevan, do you take issue with what the Court held in Carter Holt that a property, even if held by the bankrupt on trust for another, will vest in his trustee and bankruptcy unless there be not the merest possibility of a beneficial interest in the trust – in the bankrupt?

MR BEVAN:   We do, that is coming from paragraph [94] of Carter, your Honour?

NETTLE J:   Wherever it was, that was the thrust of the message.

MR BEVAN:   We do, in that paragraph [94] ‑ and I will read it to your Honours:

From the outset, courts of equity construed the earliest bankruptcy statutes according to a presumption that assignees in bankruptcy, who were considered as volunteers, took subject to equities.  To avoid circuity of action, courts of law went further, by holding that property the subject of a trust or assignment would not pass at all – unless the bankrupt had even “the most remote possibility of interest” in the property.

It is citing authority:

Consistently with this history –

I will come back to that in a moment:

the reference to property “held by the bankrupt in trust” in successors to s 15(1) of the Bankruptcy Act 1869 . . . such as s 116(2) of the Bankruptcy Act 1966, is understood to mean held on trust solely for another person.

Then, jumping to the last sentence in that paragraph of the second plurality:

That allows for the payment of creditors out of property held on trust to the extent that the bankrupt has a beneficial interest in the trust assets, and thus to the extent of the bankrupt’s right of indemnity.

Now, we submit the following.  Firstly, that that is making allowance for the trustee having a beneficial interest in the trust by virtue of a right of indemnity, whether it is doctrinally reimbursement or ‑ ‑ ‑

NETTLE J:   Well, it does not matter whether it is by right of indemnity or whether he is a cestui que trust, does it, as long as he has some sort of beneficial interest, it is sufficient.

MR BEVAN: Correct, correct. Now, the way we read [94] ‑ and we invite your Honours to read [94], keeping in mind that your Honour Justice Nettle was part of the plurality is this ‑ that the qualification on that statement is the sentence “consistently with its history” and then it goes on and says how section 116(2) must be interpreted.

Now, if I could just take two moments to unpack that proposition in paragraph [94], your Honours. Section 116(2)(a), in particular, carves out of the definition of “trust property” in 116(1). The definition of “divisible property” and the carve‑out in 116(2) is a carve‑out for property held by the bankrupt on trust for other persons.

Now, that carve‑out requires some established beneficial interest in the trust by the trustee.  It cannot mean, we would submit with respect, the most remote possibility of an interest in the trust because, if that were right, then keeping in mind the personal nature of the Office of Trustee and the liability of the trustee for the debts of the trust subject to the right of indemnity, as analysed in many cases – perhaps most recently and thoroughly in this Court in Commissioner of Stamp Duties v Buckle – every trustee of an express trust has a remote possibility of an interest in the trust by reference to a right of indemnity because of his or her right to recoupment or reimbursement.

EDELMAN J:   Remote possibilities is just a rhetorical device to say any interest, no matter how minor that interest might be, will vest.

MR BEVAN:   Correct, but it requires an established beneficial interest in the trust.

NETTLE J:   Is it not the position that it will vest in the trustee unless a Court of Equity would compel the bankrupt to convey it to the cestui que trust?

MR BEVAN:   The way we would invite your Honours to interpret that is it would not vest unless the trustee in bankruptcy, and indeed the trustee of the trust, demonstrates the beneficial interest, otherwise ‑ ‑ ‑

NETTLE J:   He does it by saying, “A Court of Equity would not compel me to convey this land to the cestui que trust because I have a right of indemnity and until and unless there has been an accounting and the extent of that has been determined, equity will permit me to hold this as a security”.

MR BEVAN:   With respect, the problem with that analysis is 116(2)(a) has virtually no work to do in the case of an express trust because every trustee of an express trust and every trustee in bankruptcy of a bankrupt trustee of an express trust will say, “I have the remote possibility of a right of indemnity unless and until there is ‑ ‑ ‑

NETTLE J:   An account.

MR BEVAN:   ‑ ‑ ‑ an accounting”.

NETTLE J:   Just so.  That is why the trustee in bankruptcy takes it, subject to equities, in favour of the beneficiary, but with such benefit as may inure it to the creditors in what is beneficially the property of the bankrupt.

MR BEVAN:   Can I answer it this way, your Honours, by saying that if that broad interpretation of the history that is acknowledged in paragraph [94] of Carter is superimposed on 116(2), then it means that the trustee in bankruptcy of the bankrupt trustee would always have a vesting of the trust property.

NETTLE J:   Virtually always, yes.

MR BEVAN:   Yes, virtually always, unless and until this accounting occurs.

EDELMAN J:   That is for the very reason to protect the interests of the trustee in bankruptcy.

NETTLE J:   And thus the creditors.

MR BEVAN:   Of the trust.

NETTLE J:   Of the trustee, the bankrupt.

MR BEVAN:   Of the bankrupt trustee.

NETTLE J:   Correct, and that is pretty close to what Ritchie says, although it slightly overstates the position – ever so slightly.  And importantly in this case it would not make the slightest degree of difference, would it, because there is every possibility you had a right of indemnity?

MR BEVAN:   Sorry, there is every possibility that?

NETTLE J:   In this case that the bankrupt had a right of indemnity.

MR BEVAN:   There is a possibility, until an accounting was taken.  We accept that.  We do not cavil with that because it is common ground that he ‑ ‑ ‑

GORDON J:   You had mortgage payments, you had payment of rates.

MR BEVAN:   Rates, correct. 

EDELMAN J:   So if you are wrong on the test, which is one of your later issues, for the lodging of the caveat, then it was entirely proper to lodge a caveat here.

NETTLE J:   He reasonably believed on the basis of good cause that he had an interest, or at least that there was a sufficient possibility of it, to lodge a caveat; namely, such beneficial interest as the bankrupt had in the fund.

MR BEVAN:   Well, that comes to a later issue, but that is assuming – that is lodging the caveat based on an assumption about a beneficial interest in the trust property, keeping in mind this caveat was lodged two days after appointment at a time when ‑ ‑ ‑

NETTLE J:   The fact that the man is a registered proprietor is not a bad start, is it, for grounds to believe that there is a beneficial interest?

MR BEVAN:   Yes.

KEANE J:   And he was in occupation of the property.

MR BEVAN:   He was.  That comes back to his answer of a mutually beneficial arrangement, which was his answer to the indemnity claim.  I do not know that there is much more that I can say on issue 1, your Honours.  If I could deal with issue 2, and I accept that issue 2 to some extent is subsumed – perhaps not subsumed, but is affected by the line of questioning that I have just addressed from your Honours Justices Edelman and ‑ ‑ ‑

EDELMAN J:   Just before you move from issue 1, the decision in Lewis itself is not necessarily inconsistent with the proposition in paragraph [94] or [28] of Carter Holt, is it?  As I read Lewis, the bankrupt’s interest in the property had not been properly disclaimed.

NETTLE J:   In other words, you have got to read what Justice Leeming says there in the context of the facts with which he was dealing, and it was a correct assumption on his part that there existed some at least real possibility of a beneficial interest at the time at which they were speaking.

MR BEVAN:   Your Honours, our case would be that – well, our case was the Scott v Surman principle which was nothing vests unless there is some demonstrated interest in the trust property and that the vesting occurs at the time when there is demonstration by the bankrupt trustee, or the trustee in bankruptcy standing in his or her shoes, that there is a beneficial interest in the trust property, that the vesting occurs then rather than at an earlier point in time based on a mere possibility.

NETTLE J:   I think, Mr Bevan, all that Justice Edelman is putting to you is that if the true test is as Lord Justice Farwell said in of St. Thomas’s Hospital that it vests in the trustee in bankruptcy unless a Court of Equity would compel the bankrupt to convey the property to the beneficiaries.  There is no inconsistency between what is said in those paragraphs and Carter Holt and what Justice Leeming said in Lewis v Condon.  Would you agree with that?

MR BEVAN:   Yes, I think I would have to agree with that, your Honours.  That is Justice Lemming’s reference?

NETTLE J:   Yes.

MR BEVAN: Who, by dint of section 58 – yes, I think I would have to agree with that, your Honours.

NETTLE J:   So issue 2?

MR BEVAN:   Issue 2 asks whether there was a right of indemnity, and we say the case conducted at trial by Mr Pascoe on this is summarised by the primary judge at paragraph 9, which is core 9.

KIEFEL CJ:   You say that the primary judge did not take the submission seriously.

MR BEVAN:   Yes.

KIEFEL CJ:   Which part of the three paragraphs, 50, 110 and 129 do you say makes that out because, speaking for myself, I cannot see it?  Rather to the contrary, paragraph 129 seems to be an acceptance that Mr Pascoe had reasonable grounds for such a belief.  Am I missing something?  Which part of those paragraphs supports your contention?

MR BEVAN:   Well, if I could perhaps just go through it sentence by sentence.  In the first sentence he said he thought he “might have a right of indemnity out of trust” property.  He said that occurred in May 2009 at the latest, as the Full Court interpreted this.  That was because that was when he prepared his insolvency report just before the end of the life of the caveat.

His Honour took into account the fact that there had been some rates paid on the property.  He had regard to the “mutually beneficial arrangement” concerning occupation of the property.  To the extent that there was any right of indemnity it:

was unclear to Mr Pascoe, although he accepted that he ultimately came to the view that such a right was likely to have little value.

Now, the reason we say it was not taken seriously is this; firstly, there is no finding of an actual right of indemnity, and that is reinforced in paragraph 150 of the Full Court judgment.  Secondly, we say 129 is a finding that he really did not give serious consideration to it until ‑ ‑ ‑

KIEFEL CJ:   Well, how do you get that out of paragraph 129?  Which part of it?  The part which says:

Mr Pascoe had reasonable grounds for such a belief.

MR BEVAN:   Yes, we say he first turned his mind to this in a serious way in May 2009 and at that point the caveat has been lodged and the three requests to remove it have all come and past.  The interpretation we put on it is the interpretation the Full Court put on it at paragraph 157, which is core 114.  The Full Court said:

Mr Pascoe sought a finding by this Court that he not only had an honest belief that he might have a right of indemnity by at least November 2005, but also reasonable grounds for that belief from that date.  That is not the finding of the primary judge and there is no notice of contention raising the issue.  Furthermore, it is likely the primary judge had in mind Mr Pascoe’s insolvency report dated 29 May 2009 where the mortgage payments are mentioned, in selecting the date, “by May 2009 at the latest”.

In his current notice of contention, Mr Pascoe says he first thought about it in November 2005, although I am not quite sure whether that is pressed but it seems that he first gave consideration, serious consideration, to it in May 2009 and by September 2009 he makes the decision that it is not worth maintaining the caveat for, that is at paragraph 130:

Mr Pascoe was served with a lapsing notice on 23 August 2009.  Even though he had filed an application for leave to appeal against the dismissal of his proceedings, he decided to allow the caveat to lapse.  It appears that one of a number of reasons for letting the caveat lapse was that any right of indemnity possessed by Mr Boensch was likely to be of limited value.

And we have made the point in our written submissions that one can draw the inference.

NETTLE J:   Mr Bevan, it was incumbent upon the bankrupt to demonstrate, was it not, that the trustee in bankruptcy lacked an interest sufficient to sustain a caveat, or the caveat?

MR BEVAN:   We accept that because, we say, that is part of our onus of proof, but we say ‑ ‑ ‑

NETTLE J:   Very well.  As you also accept, ex facie, at least, the bankrupt had a right of indemnity out of the property until and unless it was established on the taking of accounts that nothing was due?

MR BEVAN:   We had not, with respect, put it that highly.  We say until the taking of accounts occurs there is no right of indemnity because ‑ ‑ ‑

GORDON J:   Assume you are wrong about that, assume for the moment that, as we have put to you, that the right of indemnity arose and the interest arose subject to the accounting.

MR BEVAN:   If I am wrong about that then I accept your Honour’s proposition flowing from what we see in paragraph [94] in Carter.

NETTLE J:   So, whatever Mr Pascoe thought about the right of indemnity, as the matter stood the trustee in bankruptcy was entitled to have the property vested him by reason that there existed a right of indemnity which might be found to render something to the creditors upon the taking of accounts.  So, that unless the bankrupt disproved the possibility of a right of indemnity that cannot – Mr Pascoe was sound, was he not?

MR BEVAN:   No, we take issue with that, your Honour, because we say that the bankrupt in this case as the representative of the beneficiaries needs to know what he is disproving and in this case there was a wide array of possible rights of indemnity that were identified in Mr Pascoe’s affidavit, they were not identified in his defence, and we address them in detail in our written submissions and say that at least in the context of a 74P case under the Real Property Act the registered proprietor needs to know what he was disproving.  It is not an aspect of his onus of proof to disprove every conceivable possible right of indemnity.

NETTLE J:   You have to disprove the identified bases alleged by Mr Pascoe, one of which was a right of indemnity.

MR BEVAN:   Yes, but we say there were a number of inconsistent rights of indemnity identified here in the affidavit.

NETTLE J:   They were alternative rights of indemnity, some as a beneficiary, some under the right of indemnity by reason of the expenses incurred on behalf of the trust, and some under the right of indemnity because he was a guarantor of the mortgage to the Commonwealth Bank.

MR BEVAN:   Correct.  We say, for example, ones based on rates and taxes required some accounting and required an opportunity to establish that the mutually beneficial arrangement which arose from the occupation of the trust property by the trustee and the beneficiaries was equal to or greater than a right of indemnity sourced in a right of reimbursement.

EDELMAN J:   Does that not just mean that until the accounting is taken, you cannot disprove the existence of a right of indemnity?

NETTLE J:   That is what Lord Justice Farwell means, until and unless equity will compel the conveyance of the property from the bankrupt to the beneficiaries, it vests in the trustee, subject to equity.

MR BEVAN:   If one analyses it at the trust law level, I cannot take issue with that line of authority, but if one analyses it at what I call the caveat level, that is a 74P(1) level, we say there is a requirement that the caveator in defence of the interest in the caveat, assuming there is an interest sourced in the right of indemnity claimed, the registered proprietor is entitled to know what he is required to disprove under his ‑ ‑ ‑

NETTLE J:   We have done that already.  What know what has to be disproved, the three sorts of indemnities that were alleged, but Mr Boensch did not disprove any of them.  He could have adduced evidence if it existed, no doubt, to disprove them, but for one reason or another he chose not to.

MR BEVAN:   Well, the problem ‑ we have two problems.  Our complaint is he is given a barrage of possible rights of indemnity which are pitched at the level of the caveator’s honest belief.  There is no attempt by the caveator, for example, to say, “You paid $10,000 in rates, you paid $20,000 in mortgage payments”, and then Mr Boensch is able to come back and say ‑ ‑ ‑

NETTLE J:   Mr Boensch knew what he had paid, if he had paid anything.  Surely it was within his knowledge to prove or disprove that there were not amounts owing to him by reason that the so‑called beneficial arrangement had discharged the obligation to redeem.

MR BEVAN:   We say in circumstances where he bears the onus of proving negative, without reasonable cause, he was entitled to know what he was required to disprove.

EDELMAN J:   He is the very person that is going to be in the best position to be able to disprove the existence of any right of indemnity.

NETTLE J:   This is a civil Weissensteiner writ large, Mr Bevan.

MR BEVAN:   The problem we have with that approach is that superimposing the status of caveator and registered proprietor over bankrupt and trustee in bankruptcy, the registered proprietor needs to know exactly what he is required to answer and to the extent there was a case put against him, keeping in mind this was a fall‑back case, one Mr Pascoe based on right of indemnity, he needed to know exactly what he was being required to disprove and ‑ ‑ ‑

GORDON J:   He knew what he was required to disprove.  The caveat is a protection for the creditors of the bankrupt.  When we get to the trust position, it is there to protect the creditors of the bankrupt in relation to a source of funds that should come for trust debts.  The only person who knew what trust debts, whether it was by right of indemnity or otherwise, had been incurred by Mr Boensch, was him.  He was the one who had the facts.  He was the one who could say, listen, do the accounting now, it is zero. 

MR BEVAN:   The problem with that trust or analysis, your Honour, is that the case ‑ and again this is where it is difficult to analyse the concept that your Honour wants to analyse at a purely trust law level because this was being conducted within the confines of section 74P of the Real Property Act and the case that Mr Boensch was answering was a case that although pleaded in paragraph 7(e) of the defence, there was a right of indemnity, the case that was actually run was a case that was informed by the – what we have in our written submissions have called the Beca Developments test which is the trustee’s subjective belief and the case that Mr ‑ ‑ ‑

GORDON J:   I think the point we are putting to you is that we do not get to the subjective belief when we have got a caveat having been lodged, which I think you accept given the facts was able to be lodged to protect subject to a later accounting.  The mechanism for bringing it to an end was the accounting.  The facts giving rise sufficient to bring the accounting around and to an end were within your client’s knowledge.  One never gets to the justification question because we are dealing with the material in your client’s possession.

MR BEVAN:   The case that Mr Boensch answered was the case conducted by Mr Pascoe which said I believe I have a right of indemnity in these five or six things.  They are not based on hard facts, they are based on my belief, based on my insolvency report, my reading of the statement of affairs, what the petitioning creditor’s lawyers told me.  So, Mr Boensch was dealing with his trustee in bankruptcy state of mind rather than answering a case that was consistent with the pleaded defence in 7(e) of there is a right of indemnity based in 1, 2, 3, 4, 5.  So, he is answering this indemnity case, fall‑back indemnity case, within the confines of 74P.

The case that he is answering is not the case that we wanted him to be required to make out so that we could answer it, which is a case based on objective facts because 74P poses an objective test.  He was conducting a case based on the Beca test, which ‑ ‑ ‑

NETTLE J:   Mr Bevan, does it mean that, if you lose on the subjective belief based on reasonable grounds point this point this not arguable?

MR BEVAN:   If we lose on the?

NETTLE J:   Subjective belief based on reasonable grounds point.

EDELMAN J:   On the 74P argument.

NETTLE J:   If the Full Court and the judge at first instance were correct in adopting that test, which most of the rest of Australia has done, does this point have any currency?

EDELMAN J:   In other words, why does it matter whether there was actually a right of indemnity, or found to be a right of indemnity, if there is an honest belief based on reasonable grounds that there was one, and that is the test for 74P.

MR BEVAN:   It is.  If it is a subjective test, contrary to what we say ‑ and keeping in mind at no stage did we dispute the honesty of that belief on the part of Mr Pascoe, the only issue that we took was the reasonableness of that belief – but if your Honours are against us on issue 1 and indeed issue 2, then I think that is right.  I think the trust law analysis on issues 1 and 2 would defeat us on your Honours upholding Mr Pascoe’s case in this appeal on issue 5, which is the correct test postulated by 74P.

NETTLE J:   Well, what then is the argument for not following the Beca Developments test?  That was a fairly strong, with great respect, Court of Appeal – Justice Clarke and President Kirby.  The arguments, with respect, are not compelling, unless you have a basis to say to the contrary.

MR BEVAN:   We approach it this way.  Firstly, we say you do not get honest belief out of the language of 74P.  74P simply looks at objective facts.  The language of 74P is:

Any person who, without reasonable cause:

Then it cites the three relevant aspects of statutory conduct:

(a)      lodges a caveat . . . 

(b)      procures the lapsing of such a caveat, or

(c)       . . . refuses or fails to withdraw such a caveat . . . 

is liable to pay . . . compensation.

Now, we say the subject matter of reasonable cause from the language of 74P coupled with the context in Part 7A of the Real Property Act and what, we say, is the statutory purpose of compensating, in this case, registered proprietors, in other cases it could be the caveator in the case of paragraph (b).  We say that the subject matter of reasonable cause is the act of lodging the caveat, procuring the lapsing of the caveat or refusing or failing to withdraw the caveat or, as we have said in our written submissions, to summarise that, maintaining the caveat in the face of a request.  There is no introduction in the language there of the belief of the caveator ‑ ‑ ‑

EDELMAN J:   So, basically these arguments are directed towards saying that Beca Developments is wrong?

MR BEVAN:   Correct. 

EDELMAN J:   Even if that were right, do you not have a further difficulty with the amendments that were introduced after Beca Developments to remove the requirement to prove wrongfulness and the explanatory note to those amendments that provided that the purpose was to reinstate the law that had applied.

MR BEVAN:   Yes, the law that applied between ‑ ‑ ‑

EDELMAN J:   As stated in Beca Developments.

MR BEVAN:   The law that applied between 88 and 97 was the law that contained wrongfully and that was the law that Beca Developments interpreting but it picked up the Bedford Properties test which was under the pre‑88 version which had – it did not have “wrongfully” in it, and then from 97 onwards “wrongfully” goes.

EDELMAN J:   You have an amendment here that is premised upon the correctness of the Beca Development test.

MR BEVAN:   Well, we say, your Honours, that the – there is no recognition by the Parliament that belief is part of the test at either stage and we say that doing the best we can the nearest analysis of this was what this Court said in Taylor, that is the workers’ compensation case, where reasonable cause was said to involve an objective test based on the facts and circumstances as found by a judge hearing the claim for compensation.

EDELMAN J:   In the context of a different statute with different words.

MR BEVAN:   Correct, correct.  But, nonetheless, we say, it is close to this statute and we have adopted ‑ ‑ ‑

KEANE J:   It is not that close, is it, because you really want to read “without reasonable cause” as meaning without a sufficient caveatable interest.

MR BEVAN:   I am not sure whether that is right, your Honour.

GORDON J:   Can I add a couple of facts to that proposition put to you by Justice Keane?  I just want to understand what the role of a caveat is?  It is there saying I claim a legal interest.  The registrar is not required to be satisfied that there is an interest, it is there, it is a statutory – it works like an injunction.  It does not determine their final claim.  That is why what is put to you by Justice Keane has to be right, does it not?  The whole framework of the way in which the scheme of the Act works is that way.

MR BEVAN:   The argument that we would put, as we have developed in writing, is that the caveat is different to an interlocutory injunction and explains the case law that was put against us by the respondents, Taajamba’s Case and – but a caveat is an extra statutory injunction addressed to the Registrar‑General.  It does not require an undertaking as to damages the way an injunction would.  In fact, I think we have made the point in our submissions in reply that the cases that are put against us, strictly speaking, did not have to be analysed in the context of what was then section 98, now section 74P of the Real Property Act.

That could have been dealt with as an action for damages under the undertaking as to damages because in the case of the caveat that is just supporting the claim of an interest in land as distinct from a caveat supporting a claim for interest in land that has the added protection of an interlocutory injunction.  There is no undertaking as to damages in a case like this where there is just the caveat, there is no injunction.

NETTLE J:   There is the ability to have it discharged rapidly upon application made to the Supreme Court.

MR BEVAN:   Well, there – if I can perhaps just take issue with that on a number of grounds, your Honour.  The first is if that analysis were right then it is hard to see how any registered proprietor could ever succeed under 74P because every caveator would say, “Well, you waived your right to apply by lapsing notice”.

Secondly, this case is perhaps a good example of why your Honours’ alternative approach would not be possible.  If at any stage before the lapsing notice was filed in this case and served on Mr Pascoe at the end of his litigation to impeach the trust, whilst that litigation was on foot the prospect of Mr Boensch being able to lapse the caveat, we would submit, would be so remote as to be impossible because Mr Boensch was the bankrupt trustee of the Boensch trust and he would have had to have defended an action to maintain a caveat being brought by his trustee in bankruptcy.  In order to do that there is a real issue as to his standing to bring that proceeding.

NETTLE J:   A fair number of people would have had the standing to apply to set aside the caveat.

MR BEVAN:   Perhaps your Honour is right, but the main point I seek to make is it is inevitable that Mr Pascoe would have said what he is saying in this case, which is, “I am conducting litigation seeking to have the trust struck down.  I am doing that on legal advice.  I have a good case to continue the caveat”.

NETTLE J:   Well, unless the Federal Magistrates Court’s judgment demonstrates that there was not a good basis, why should that not be so?

EDELMAN J:   Particularly given the potential liability of the trustee to creditors of the bankrupt if a caveat is not lodged and it turns out there is a very valuable interest not being protected has dissipated.

MR BEVAN:   Well, at a level of principle your Honour would be correct, but in this case we have the complication that the primary judge made findings that there was no evidence of an imminent transfer of the property at the date the caveat was lodged and there was no evidence of insolvency at the date the caveat was lodged.  So we also have the finding that the caveat was lodged as part of a usual practice for lodging a caveat whenever a bankrupt is found to have an estate in land, a registered proprietor of land.

EDELMAN J:   If you want to descend to the circumstances of this case, it would be an extraordinary proposition, would it not, to say that a trustee in bankruptcy is required to remove a caveat even when the trustee is in possession of legal advice saying it was a lay down misere of an interest?

MR BEVAN:   We take an issue with that in our written submissions and we adhere to that, which is we do not know the source of that advice.  There is no evidence that the lawyer who gave that advice had any of the trust documents which were in the possession of Mr Pascoe at the date the caveat was lodged.  There is no evidence that any instructions to that lawyer from Mr Pascoe and, indeed, any retainer those lawyers held at that time were from the petitioning creditor.  So we have no evidence of the basis for that advice.

Keeping in mind that that advice is given concurrently with notice of his appointment on the day of the sequestration order, we would submit one would expect any reasonable trustee in bankruptcy in the position of Mr Pascoe to say, well, what is the basis of that advice?  What documents do you have?  Here are my trust documents, my Registrar‑General search annexing the trust documents.  Here is the information I have obtained from the bankrupt in my conference with him the day after the appointment and I would like to obtain my own independent legal advice from my own lawyers on that proposal to lodge a caveat.  I would also like to get to the bottom of why the property remains jointly owned by the bankrupt and his wife.

Now, none of that happens.  The caveat is just put on two days after he learns of his appointment.   He learns of his appointment on the 23rd, the advice is given on the 23rd ‑ that is the lay down misere advice – the caveat goes on on the 25th.  If I can just revert to issue 5 for the moment ‑ ‑ ‑

BELL J:   Mr Bevan, can I just at that point raise this with you, and it is taking up really the matter that Justice Keane raised a few minutes ago, going to the question of the test.  If you look at the analysis of reasonable cause in the statutory context in Taylor, the joint reasons considered that a requirement for the subjective belief of the person seeking compensation would largely defeat the scheme.  Here it is put against you that, were reasonable cause to be the objective test that you posit, it would largely defeat the purpose of the inclusion of those words since it would reduce to effectively whether or not there was a caveatable interest.  It is difficult to see the argument against that.

MR BEVAN:   Well, we put one against it.  Perhaps it has not hit the mark, but I will develop it anyway.  The first aspect of this argument is, if honest belief based on reasonable grounds were the correct test, then it is inevitable that every caveator faced with an application for compensation under 74P will assert a claim which is best suited to answering the compensation claim as distinct from the claim that he or she had in mind when the caveat was lodged.

The second point we make is that, to take up your Honour Justice Bell’s point, and it was also equally made by the respondents in their written submissions, the test cannot distil down to caveatable interest because we say this case is a prime example of why the mere existence of a caveatable interest would not be sufficient, and to take the first category of caveatable interest found by the primary judge and upheld by the Full Court, that is the bare legal interest in Rydalmere subject to the trust. 

Now, that interest, we say, neither of negligible value or is worthless to some extent.  There is a recognition of that by Justice Brereton in Re Stansfield DIY Wealth which we have cited in our written submissions.  That would be so in this case for the reasons we have given in writing where we have cited the relevant paragraphs of the clauses of the trust deed which oblige Mr Pascoe or indeed any other trustee of the Boensch trust to perform the office of trustee gratuitously. 

We then move to the right of indemnity.  Now, we hold Mr Pascoe to his concession, upheld in paragraph 130 of the primary judge’s decision and, indeed, in the Full Court ‑ that is paragraph 119(a) of Mr Pascoe’s affidavit – that if there ever was a right of indemnity it was of little value.  By little value, that must be understood in the context of the evidence that he was giving.  The evidence that he was giving in paragraph 119 was outlining the grounds why he allowed the caveat to lapse on 8 September 2009.

NETTLE J:   What does it matter whether it is of little value or big value?  If it is extant it means that the property will vest in the trustee in bankruptcy subject to equities.  There is the caveatable interest; there is the end of the case.

MR BEVAN:   With respect, I am not dealing with the vesting point, I am dealing with the proposition that a mere caveatable interest, (a) is insufficient and (b) is not the consequence of our objective test postulated under 74P.  If the test were a mere caveatable interest test, as is enunciated in Beca Developments where the Court not only said it is a subjective and objective test on its belief based on reasonable grounds but that Court of Appeal and, indeed, subsequent courts of appeal, Mahendran, Brogue Tableau have held that the mere establishment of the caveatable interest is sufficient.  Now that, to some extent, comes back to your Honour Justice Bell’s proposition that as the test is currently formulated by the various courts of appeal, starting with Beca Developments in 1990, it is a caveatable interest test anyway. 

Now, we take issue with that because we say – and using the facts of this case is a good example, when you run through the possibilities for a caveatable interest, we say the first one is an estate in fee simple.  That did not exist, for the reasons found by various federal courts that ruled against Mr Pascoe on his challenges to the trust.  Secondly, we have the bare legal estate; now that, if your Honours are against us on issue 1, the bare legal estate would be worthless, effectively worthless.

That could not justify the trustee in bankruptcy statutorily injuncting valuable trust property for a four‑year period while he tries to establish caveatable interest number 1 which is the fee simple unencumbered by the trust and particularly in circumstances where there is no attempt to quantify or value their legal estate and then go to the – for example, Mrs Boensch is the other custodial parent of the beneficiaries of the trust and say, I think the bare legal estate is worth two and sixpence, I will withdraw the caveat if you pay me two and sixpence for the bare legal estate.

We then look at the third possibility, which is the right of indemnity.  Now, dealing with your Honours ‑ there is a joint line of questioning from your Honours Justices Nettle and Edelman ‑ that if it turns out, it ultimately turns out on an accounting, whether it is an equitable set‑off or the netting off which we have drawn a distinction at the level of principle between our written reply, if that comes back to what Mr Pascoe concedes it to be, which is not merely of little value in a vacuum but of such little value as to not warrant the continued maintenance of the caveat, right, because by September 2009 which is four years and one month after he has lodged the caveat he has worked out that if it exists it is not worth another court case to maintain the caveat.  It is not worth the trouble.

EDELMAN J:   The assessment is not taking place at that time.  The assessment of whether or not the refusal or failure to withdraw such a caveat was without reasonable cause takes place at the time of the request to remove, and at the time of that request the trustee in bankruptcy does not have the benefit of an account that has been taken and does not know what the value of any indemnity might be.

MR BEVAN:   Correct, and that is why we say ‑ ‑ ‑

EDELMAN J:   How could it be without reasonable cause to refuse to withdraw a caveat that might be protecting something of real value?

MR BEVAN:   We say the answer is this.  Firstly, the claim or the interest in the caveat and the extent of the dealings which are prohibited must be consistent with the interest claimed and on your Honour’s approach, assuming your Honours are right on issue 1, the interest claims, whatever, vests under the Bankruptcy Act.  Now, that is either a worthless ‑ ‑ ‑

NETTLE J:   That is the whole lot subject to equities.

MR BEVAN:   Yes, which, coming back to valuation questions, is either barely on the estate which is worthless or a right of indemnity which is effectively worthless in the context of continuing to maintain the caveat.  Now, if that is the position on 25 August 2005, we say objectively there was no reasonable basis for lodging the caveat, having regard to firstly the fact that all dealings in the property are statutorily injunct, not just the ability to sell the property, he cannot do anything with it.

Secondly, there is no evidence of imminent transfer.  He accepts that – by “he” I mean Mr Pascoe.  Thirdly, there is no evidence of insolvency at the date the trust was created almost to the day six years earlier.  Now, we say the current test of subjective belief based on reasonable grounds is a test which itself comes back to caveatable interest because Beca Developments says ‑ and indeed the primary judge in this case and the Full Court said ‑ Mr Boensch loses because there is a caveatable interest by virtue of the operation of section 58 of the Bankruptcy Act and its operation on anything, like the whole property vests up into equities.

We say if you extrapolate that caveatable interest is a complete answer test, which we squarely complain about in‑chief and in reply in our written submissions, because we have said there is no explanation by the Court of Appeal in Beca Developments as operating as a complete answer to a claim under 74P, it means that a caveator who, for example, claims an interest in an unregistered lease over 10 per cent of Blackacre puts a caveat on, tying up the whole of Blackacre for four years and, at the end of it, it turns out his caveatable interest is an unregistered lease which is upheld but it is only in 10 per cent of Blackacre, how can that be reasonable to statutorily injunct the whole property for four years.

And we say in this case how can it be reasonable to statutorily injunct Rydalmere for all purposes, all dealings, to secure a possible interest in fee simple, subject to the trust, which of course never eventuated because of the loss of the Federal Court litigation, a bare legal estate in the property subject to the equities, to adopt the language of your Honour Justice Nettle, worthless, how can you justify tying a property up for that period and in the case of the right of indemnity tying it up for four years while you work out that the right of indemnity is worthless, or it is worthless in the sense that it is not worth maintaining the caveat for ‑ ‑ ‑

NETTLE J:   Has it yet been worked out that it is worthless?

MR BEVAN:   Well, worthless in the sense that when he says “limited value”, he means it is not worth maintaining the caveat to realise it as – if it exists, keeping in mind that he never made his mind up as to whether there even was a right of indemnity.  He just says, if there is a right of indemnity, I worked out by September 2009 ‑ according to the primary judge in all probability based on what he had reported in his solvency report back on 29 May 2009 ‑ that it was not worth maintaining the caveat for.

EDELMAN J:   That is when it was allowed to lapse.

MR BEVAN:   Correct.

EDELMAN J:   Prior to that, there was reasonable grounds to believe it might be of some value.

MR BEVAN:   Well, that comes back to the belief test and if it is an objective test, the objective test looks at what the facts were at 25 August 2005.  It does not come back to what he believed.

NETTLE J:   All injunctions quia timet come back to that.  You take your chance.  You get an injunction to hold the status quo until the true position is worked out.  You make your best estimate of what might be the ultimate outcome, knowing not what it will be.

MR BEVAN:   Correct, but if you are wrong, the loss suffered by the defendant who was injuncted is compensable under the undertaking as to damages.  Now, that is the big problem we have a caveat, particularly in this case, unlike the case that was put against us by the respondents.

NETTLE J:   You do have protection here statutorily.  If it is lodged without reasonable grounds, then you have got compensation.

MR BEVAN:   Correct, but the reasonable grounds must be assessed objectively at the date of lodgement or at a subsequent date of ‑ ‑ ‑

NETTLE J:   In a situation like this where the trustee cannot know all the facts, notwithstanding his best efforts to find them out, he cannot know in advance whether there is in truth a caveatable interest.  All he can know is that there is a pretty good indication that there is one and in case there is he should protect it by lodging a caveat, surely.

EDELMAN J:   It is even more difficult to determine what the value of the interest that there might be is.

MR BEVAN:   With respect to your Honours, that is putting the interest in Blackacre held by the bankrupt who is an owner in fee simple in the same category as the interest in Blackacre of the bankrupt who is the trustee of an express trust.

NETTLE J:   Well, it is not quite, because if there is any right of indemnity, no matter how small, equity will not compel the bankrupt trustee to convey the property to beneficiaries until the indemnity has been satisfied.

MR BEVAN:   Sure, but in the context of 74P, if we take the approach of your Honours Justices Nettle and Edelman, it is the reasonableness of the belief of the trustee in bankruptcy at the very start of the bankruptcy in circumstances where he does not know whether he has a caveatable interest or not, he just secures the property while he works it out over the course of the next four years ‑ ‑ ‑

GORDON J:   The one way of testing it is also at that point in time he had an obligation to the creditors of the bankrupt.  He had to protect them as well.  So part of the assessment has to be, does it not?  The whole purpose there was to make sure that the assets of the bankrupt were not being used to pay trust debts or, conversely, to recover over against trust debts already paid to which he was entitled.

MR BEVAN:   Correct, but can I just say this your Honour?  One would expect the caveat would not be lodged by the trustee in bankruptcy until – particularly in circumstances in this case where there is no threat of an imminent transfer at the date the caveat is lodged.

GORDON J:   I think it is, at least, arguable that it may have been negligent for him not to have lodged it in the circumstances.

MR BEVAN:   But, one would expect there to be a fairly prompt creditors’ meeting and the creditors to say, we want you to lodge a caveat and we will provide an indemnity for your potential liability of the compensation under 74P.

KIEFEL CJ:   Mr Bevan, does your submission come down to this – that unless a caveator has complete information which can establish a caveatable interest, the caveator would be liable to pay compensation?

MR BEVAN:   Correct, because otherwise a caveator is in a better position for not obtaining an interim injunction and if he obtained an interim injunction and gave an undertaking as to damages.

KIEFEL CJ:   I think that might be a convenient time for the Court to take its morning break.

AT 11:00 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.15 AM:

KIEFEL CJ:   Mr Bevan, have you completed issue 5?

MR BEVAN:   I just wanted to make one other submission, your Honours, before I move to section 7.  We rely on the citation by Justice Pullin in Brogue Tableau – that is authorities volume 5, item 32, page 1322 at paragraph 47, where his Honour, in questioning whether the test in 74P(1) or its equivalent in section 140 of the Western Australian Act enunciates an objective test, his Honour referred to Weiss v The Queen (2005) 224 CLR 300 at 305, paragraph 9, which is in the authorities, volume 4, item 29, page 1278, in order to sweep aside the 50 years of case law and the test in 74P, interstate equivalents which, we contend with respect, misinterpreted the test.

In Weiss, paragraph 9, the plurality of six members of this Court said that:

It is the words of the statute that ultimately govern, not the many subsequent judicial expositions of that meaning which have sought to express the operation of the proviso to the common form criminal appeal provision by using other words.

Your Honours, with respect to all the judges who have previously enunciated the two‑limb subjective and objective test in 74P(1) and its various interstate equivalents by engaging in statutory drafting, we submit that this statement in Weiss is on all‑fours with the judicial history of 74P(1) and its interstate equivalents.

Also unless there be passing observations of Justice Basten in New Galaxy Investments – that is authorities volume 6, item 50, page 1718 – where in his reasons at paragraph [16] Justice Basten also questioned the correctness of the two‑stage test in 74P(1).  So that we…..both Justices Pullin and Basten, not ratio but rather in passing, in support of our contention that 74P postulates an entirely objective test of the facts and circumstances in existence at the relevant statutory date, be it lodgment of the caveat, lapsing of the caveat or the decision to maintain the caveat in the face of a request.

Now, your Honours, if I could turn to issues 6 and 7 ‑ ‑ ‑

KIEFEL CJ:   In relation to issue 6, is there anything that you need to add to the summary that you have at paragraph 18 of your outline?

MR BEVAN:   Only this, your Honour.  I was going to just simply rely on what we said in writing.  But I did want to deal – looking at this last night I appreciated that we have probably been remiss in not adequately answering the complaint levelled at us in paragraph 32 of the respondent’s submissions to the effect that the facts which were found both by the primary judge and the Full Court are on the basis of the honest belief on reasonable grounds test.  There is no what I might term independent objective test fact finding undertaken and that is put beyond doubt by the primary judge’s findings at 108, which is core 36, 131, the primary judge, core 43, and paragraph 141 in the Full Court, which is core 111.

Now, against the possibility that that contention is upheld, we would – and if leave was required – seek the leave to amend paragraph 90 of our written submissions where we set out the relief we seek, and seek an alternative prayer in the alternative to the prayer in 90(e), which is the prayer asking for answers to the three separate questions favourably to Mr Boensch.

Your Honours, we appreciate that if your Honours were with us on issue 5 ‑ that is the objective test ‑ that it may well be that we are asking

your Honours to, by answering the three separate questions, to fit three square pegs into three round holes and that the questions simply cannot be answered on the available factual findings, on the bases identified in those three paragraphs in the core book that we referred your Honours to.

If that conclusion was reached by your Honours, again assuming we succeed on issue 5 and the nature of the test postulated by section 74P of the Real Property Act, your Honours, we would, in the alternative to 90(e), which is the prayer seeking favourable answers to the separate questions, we would, in the alternative, seek an order that the separate questions dated 15 May 2015 be remitted to the New South Wales Supreme Court, differently constituted, for redetermination in accordance with the reasons of this Court on issue 5 raised in this appeal.

Otherwise we, your Honours, seek the relief which we claimed in paragraph 90 of our written submissions, if your Honours were minded to uphold the appeal.  If your Honours please.

KIEFEL CJ:   Thank you, Mr Bevan.  Mr Priestley, the Court would be assisted if you would concentrate your oral argument on issue 1.

MR PRIESTLEY: May it please the Court. Your Honours, we submit that section 58 of the Act operated in equity to vest the bankrupt’s interest in the land in the trustee in bankruptcy, notwithstanding the ultimate finding in later proceedings that the bankrupt held the land as trustee, and notwithstanding what we would describe as the literal terms of section 116(2)(a).

In the exchanges this morning, a question arose, I think postulated by my learned friend, as to what work would be left to be done by section 116(2)(a) if the interpretation that was being put against him was correct. We would simply say, your Honours, that what 116(2)(a) does is to expressly preserve the trust interests from distribution amongst creditors, and thereby give statutory effect and preservation to the Scott v Surman Anshun principle.

It does no more and no less than needs to be done, to that extent, and it maintains the description, if you like, of Justice Powell in Ritchie’s Case of saying that these matters vest subject to equities.  And if it was not there, that would probably need to be applied at common law, as it is in the company law context, we submit.

It was also raised this morning, I think, by Justice Edelman, or perhaps by Justice Nettle, the possibility of Justice Ritchie’s – I am sorry, Justice Powell’s judgment in Ritchie’s Case overstating the position slightly.  We would not necessarily want to be heard to argue against that but rather to say if that is so it would only be a matter of perhaps simplification, or oversimplification, but we maintain that his Honour’s decision was correct in all respects and was consistent with that principle.

What we say can be derived from the passage that the Court went to earlier this morning at [94] in Carter Holt is that the history that has led to that reasoning demonstrates that there is no basis to approach the application of 116(2)(a) in the manner that is put against us because it was to avoid the circuity of action in the courts of equity where beneficiaries of the trust might come to court and say this property should not have vested, we have full beneficial interest, now we need fresh orders to take it back to us. 

To avoid that, courts of law would recognise the trust’s interests and not give effect to a vesting but against that background it was this remote possibility of interest that needed to be recognised and if it existed then there should be vesting.  So, to understand that point is to see that it would be, in our submission, a very rare case, perhaps difficult to contemplate a case, where a bankrupt was a registered proprietor of real property and, yet, there could be said to be no remote possibility of an interest even putting ‑ ‑ ‑

EDELMAN J:   Where the bankrupt holds the property on bare trust only for other people and the bare trust does not involve any substantive trust duties.

MR PRIESTLEY:   That is a description if there was no trustee’s right of indemnity, and wholly on bare trust, that could be the case, but what I am adverting to is the possibility or rather the circumstance where that could be known at the time in the 74P application.  It would be a rare case, in our submission, and difficult to contemplate a case where a trustee in bankruptcy would say, here is a situation where there is probably no vesting and so I probably should not caveat, because he would not know and how would anyone know even before we get to the legal principles about the necessity for an accounting of a trustee’s right of indemnity. 

In our submissions we have given the citations for those principles of the security of action, in particular, starting with what was said in Carpenter v Marnell and then Carvalho v Burn and The Governors of St Thomas’s Hospital and I do not think I need to take your Honours to the individual passages because they are described in our written submissions and they flow into the decision in Carter Holt, particularly what is said in paragraph [94], but we would submit that those parts of Carter Holt are consistent with all of the other judgments of your Honours in that case.

If more needed to be said about the difficulty for the position of a trustee in bankruptcy, we also make that in writing, to this extent.  The approach that we advocate for best addresses practical difficulties that might be presented to a trustee in bankruptcy where, as we would submit, perhaps often be the case, that initially it is difficult to ascertain what property might be held on trust, or the extent of the trust, and that was a difficulty that was referred to in Re Transphere by Justice McLelland, as his Honour then was, which is at 1832 in volume 6 of the joint book of authorities.

The context of that decision, we admit, had material differences.  It does not answer this question, it was a company law question, but his Honour was being asked whether or not to make orders that would affect or preserve property where there was an assertion of trust.  His Honour’s conclusion at 312(b) to (d), and going into (e) was to the effect that it would create real difficulties for receivers or liquidators under the separate provisions of the Corporations Act to know what to do if assertions of trust were made and yet orders of that sort could not be made.

We would say that that is the sort of reasoning that justifies our approach.  We accept that there is no particular statutory interpretation of 116(2)(a) that we urge.  It is not, strictly speaking, perhaps a statutory construction question.  We do not take issue with any way that anyone would read the terms; it is really a matter of application.  And we say that Justice Powell evidently carefully considered arguments that were clearly and particularly put that correspond to the arguments that are put against us in this appeal on this issue and we embrace his Honour’s resolution of that difficulty.

When Justice Leeming came to a situation which is more similar factually to this case, his Honour concluded that whilst it was not a point that was determinative in the appeal, he came to the conclusion that clearly there was a caveatable interest.  His focus was less so on whether there was a vesting, but the conclusion of vesting was also present in his Honour’s reasoning and we would again embrace that and it was supported by Acting Justice Sackville and Justice McColl in that case.

There is no reason, in our respectful submission, to doubt it.  Without any disrespect to the submissions that are put against us, there has not been, as far as we are aware, any authority in this country doubting the correctness of Official Trustee v Ritchie, or of the decision in Lewis v Condon.  They are my submissions on issue 1.  May it please the Court.

KIEFEL CJ:   Yes, thank you, Mr Priestley.

MR PRIESTLEY:   Your Honour, I have much to say on all the other issues but I am in your Honour’s hands.

KIEFEL CJ:   Thank you, that would suffice.

MR PRIESTLEY:   If it please the Court.

KIEFEL CJ:   Thank you.  Do you have anything in reply, Mr Bevan?

MR BEVAN:   Only two brief points, your Honour.  The first is apropos the answer to your Honour Justice Edelman’s question about the situation where there is no active trust, duties be – the situation may be different in a case like this where unlike Carter there is no trust business being conducted which is incurring liabilities.

In the Carter situation, it is quite clear from the commencement of a winding‑up order that there must be creditors of the trustee because the trustee was conducting a business, whereas in what I might term the classic express family trust, such as the Boensch trust, at the commencement of the bankruptcy it is not clear, indeed, whether there are any liabilities because there is no business being conducted, it is just simply passively holding property and, in this case, they are freeze framing what occurred here, at least in the context of lodgement, at 25 August 2005 which is two days after the making of the sequestration order.

The other submission we make in reply, your Honour, is my learned friend’s submission that all trustees in bankruptcy initially have a difficulty determining the position in relation to trust property and trust liabilities at commencement of a bankruptcy which, in itself, is a fairly uncontroversial proposition.  But, we would say, in the context of a caveat case – a 74P(1) case – we would expressly invite your Honours to be wary of postulating a test for the relevant statutory conduct – whether it is lodgement of a caveat, lapsing of a caveat, or maintenance of a caveat in the face of a request – which only deals with the parameters of the caveator who is a trustee in bankruptcy as distinct from every caveator who has either a caveatable interest or an arguable caveatable interest in the land.

The interpretation of 74P of the Real Property Act must take place in the context of interests in land and, in particular, proprietary interests in land, by every potential caveator not limited the facts of this case which is a caveator who happens to be the trustee in bankruptcy and who is assessing the position in terms of caveatable interest at the very commencement of the bankruptcy.  If your Honours please.

KIEFEL CJ:   Yes, thank you, Mr Bevan.  The Court reserves its decision in this matter and adjourns to 10.00 am on Tuesday, 15 October.

AT 11:36 AM THE MATTER WAS ADJOURNED