Lun v Barry Road Project Pty Ltd
[2024] VSC 525
•30 August 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2022 03071
| XUFENG LUN (and others according to attached Schedule) | Plaintiffs |
| v | |
| BARRY ROAD PROJECT PTY LTD (ACN 605 828 877) AS TRUSTEE FOR THE BARRY ROAD PROJECT UNIT TRUST (and others according to attached Schedule) | Defendants |
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JUDGE: | Attiwill J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 9 August 2024 |
DATE OF RULING: | 30 August 2024 |
CASE MAY BE CITED AS: | Lun v Barry Road Project Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2024] VSC 525 |
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PRACTICE AND PROCEDURE – Application by plaintiffs to vacate consent order setting out process for first defendant to be paid reasonable legal costs from funds in Court account – No dispute that Court has power to set aside consent order if there has been a material change of circumstances – There has been a material change of circumstances – Court ordered that first defendant is not entitled to reasonable legal costs incurred after date of material change of circumstances.
COSTS – Application by first defendant to seek release of funds in Court account to pay reasonable legal costs incurred within certain period – Application not opposed – Costs concern a period prior to the material change of circumstances – Remaining issue is costs of the application – Court ordered plaintiffs to pay costs of application.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms K E Foley SC | Gilbert + Tobin |
| For the First and Third Defendants | Mr D V Aghion KC with Ms J Lindgren | Hall & Wilcox |
TABLE OF CONTENTS
A.. Introduction.................................................................................................................................. 1
B.. Background................................................................................................................................... 1
C.. Submissions................................................................................................................................ 11
D.. Analysis........................................................................................................................................ 16
Plaintiffs’ summons.................................................................................................................... 16
First defendant’s summons....................................................................................................... 18
E... Conclusion and orders.............................................................................................................. 20
HIS HONOUR:
A. Introduction
There are two applications before the Court.
The plaintiffs, by their summons filed 12 July 2024, seek, inter alia, an order that paragraph 2 of the order made by the Court on 19 August 2022 (as amended by the order made by the Court on 31 August 2022) be vacated. The plaintiffs also initially sought an order that the first defendant not take any further steps in this proceeding, but subsequently abandoned that application.
The first defendant, by its summons filed on 16 July 2024, seeks, inter alia, the release of funds from the Court account to pay its reasonable legal costs incurred with respect to invoices dated February to June 2024. The parties have agreed that the order should be made. The remaining issue before the Court is costs.
B. Background
This proceeding relates to a failed residential property development of two adjacent parcels of land known as the Barry Road Property and the Downs Road Property, conducted by the first defendant on behalf of the Barry Road Project Unit Trust (the Trust).
The Trust is a unit trust established by trust deed on 19 June 2015. The first defendant is the trustee of the Trust.
There is no dispute between the plaintiffs and the first, second and third defendants, that the Trust initially consisted of units held as follows:
(a) Xufeng Lun, the first plaintiff, holding 200 units;
(b) Wenzhan Li, the second plaintiff, holding 100 units;
(c) Xinyi Investment Pty Ltd, the third plaintiff, holding 100 units;
(d) Ping Wang, the third defendant, holding 200 units; and
(e) Bo Jiang, the fifth defendant, holding 400 units.
There is also no dispute between the plaintiffs and the first, second and third defendants that the current unitholders include the following (and that these persons were unitholders as at August 2022 when the order the subject of the plaintiffs’ summons was made):
(a) Xufeng Lun, the first plaintiff, holding 200 units;
(b) Wenzhan Li, the second plaintiff, holding 100 units;
(c) Ping Wang, the third defendant, holding 200 units; and
(d) Bo Jiang, the fifth defendant, holding 400 units.
There is a dispute concerning the current unitholding of Xinyi Investment Pty Ltd, the third plaintiff. The plaintiffs allege that the third plaintiff sold 20 of its 100 units in the Trust on July 2018, and is currently the registered owner of 80 units in the Trust. The first and third defendants allege that since 4 July 2018, the third plaintiff has not held any units in the Trust, and that on or around 4 July 2018, the third plaintiff executed a Standard Transfer Form for the transfer of 80 units in the Trust to Wang & Zeng Investments Pty Ltd. This is denied by the plaintiffs.
The second defendant is a company which purportedly loaned funds to the first defendant. The third defendant is the sole director of the first defendant. The fourth defendant is the sole director of the second defendant (and the third defendant’s wife). The fifth defendant is a unitholder in the Trust.
This proceeding was commenced on 12 August 2022 against the first and second defendants. The plaintiffs’ claims at that time may be broadly summarised as follows:
(a) the first defendant breached its trustee duties by, inter alia, preferring the interests of the Bo Jiang, Haiyan Song, Ping Wang, and the second defendant over the plaintiffs’ interests;
(b) the first defendant breached the trust deed by failing to keep sufficient accounting and other records, failing to sufficiently prepare profit and loss accounts, and failing to have the books of account and records properly audited;
(c) the purported loan facility between the first and second defendants (Flagstar loan facility), and the purported mortgages over the Barry Road Property and Downs Road Property given by the first defendant in favour of the second defendant (the purported mortgages), were a sham and entry into those purported transactions constituted unconscionable conduct.
In summary, the plaintiffs claimed the following relief:
(a) against the first defendant, an order that the first defendant provide all necessary accounts, an order that the first defendant have its financial statements from each of the 2015 – 2022 financial years audited, an order that the Flagstar loan facility and the purported mortgages be set aside, a declaration that the first defendant breached its trustee duties and breached specific clauses of the trust deed, and an order that the first defendant be replaced as trustee of the Trust, and costs;
(b) against the second defendant, an order that the Flagstar loan facility and the purported mortgages be set aside, and costs.
On 12 August 2022, the plaintiffs filed a summons seeking, inter alia, that the first defendant pay the proceeds of sale of the properties held on trust for the Trust into Court or into an interest bearing trust account in the names of the parties’ solicitors, with these proceeds to be held on trust for the parties until the final hearing and determination of this proceeding or further order.
On 19 August 2022, the Court ordered by consent, inter alia:
1.Subject to order 2, the proceeds of sale of the properties held on trust for the Barry Road Project Unit Trust (trust) at 135 – 161 Barry Road, Thomastown, Victoria more particularly described in Certificate of Title Volume 9013 Folio 760 and Certificate of Title Volume 8519 Folio 440, and at Downs Road, Thomastown, Victoria more particularly described in Certificate of Title Volume 12285 Folio 737 pursuant to the contract of sale between the first defendant and 135 Barry Road Pty Ltd dated 26 August 2021 be paid into a joint interest bearing account in the names of the solicitors for the parties or into Court (joint account), and not be disbursed except by agreement of the parties or further order of this Court.
2.Notwithstanding order 1, the following may be disbursed out of the joint account with the agreement of the parties:
(a)rates, charges, taxes, costs and expenses of the sale referred to in order 1;
(b)ordinary expenditure incurred by the first defendant in the administration of the trust; and
(c) the first defendant’s reasonable legal costs of this proceeding;
(disbursements).
In the event of a dispute regarding the disbursements, any party may approach the Court on 2 working days’ notice to the other parties and seek an order in respect of the disbursements.
On 31 August 2022, the Court ordered by consent, inter alia:
1.Paragraphs 1 and 2 of the order made by the Honourable Justice Attiwill on 19 August 2022 are vacated and replaced with the following:
1.Subject to order 2, the proceeds of sale less the deposit, rates, charges, taxes, costs and expenses of the sale of the properties held on trust for the Barry Road Project Unit Trust (Trust) at 135 – 161 Barry Road, Thomastown, Victoria more particularly described in Certificate of Title Volume 9013 Folio 760 and Certificate of Title Volume 8519 Folio 440, and at Downs Road, Thomastown, Victoria more particularly described in Certificate of Title Volume 12285 Folio 737 (the Properties) pursuant to the contract of sale between the first defendant and 135 Barry Road Pty Ltd dated 26 August 2021, be paid into the trust account of HDME Lawyers Pty Ltd to be held on trust for the Senior Master of the Supreme Court of Victoria (Senior Master) and then paid by HDME Lawyers Pty Ltd into Court within seven days (the Court Account) and not be disbursed except by agreement of the parties or further order of the Court.
2.Subject to further order, the following process is to be followed in relation to payments out of the Court Account for ordinary expenditure incurred by the first defendant in the administration of the Trust and the first defendant’s reasonable legal costs of this proceeding and related proceeding S ECI 2022 02872:
(a)the first defendant must provide written notice to the other parties of any request for monies to be paid out, including the specific amount together with any supporting materials and any additional materials reasonably requested by the other parties;
(b)within 7 days of receiving any such request, the other parties must notify the first defendant if they agree with the request;
(c)if the other parties agree with the request, the parties shall provide a written authority signed by each party’s solicitor to the Senior Master and the Senior Master may then pay out such monies to the first defendant’s solicitors pursuant to r 79.02(3) of the Rules;
(d)if the other parties do not agree with the request, the first defendant may file and serve a summons, together with a supporting affidavit, and also provide such documents to the chambers of the Honourable Justice Attiwill;
(e)if the plaintiffs and/or the second defendant oppose any such summons they must file and serve, within 21 days of service of the summons, a notice of objection setting out a concise statement of their objection to the summons and an affidavit exhibiting a report from a costs consultant; and
(f)if the plaintiffs and/or second defendant do not file and serve the documents provided for in paragraph 2(e) above, the Court may pay out such monies to the first defendant’s solicitors pursuant to r 79.02(2) of the Rules.
For convenience, I will refer to the order made on 31 August 2022 as ‘the Order’. Paragraph 1 of the Order vacated and replaced paragraphs 1 and 2 of the order made on 19 August 2022.
On 12 October 2022, the second defendant filed its defence. On 13 October 2022, the first defendant filed its defence.
On 7 December 2022, the Court ordered that, inter alia:
1.The sum of $11,096,360 be disbursed from the funds held in Court in this proceeding (‘Court fund’) to the first defendant via its solicitors, Hall & Wilcox.
2. Paragraph 2 of the orders of the Honourable Justice Attiwill dated 19 August 2022 (as varied by the orders of the Honourable Justice Attiwill dated 31 August 2022) continues to apply to the balance of the Court fund.
On 22 May 2023, the third defendant was joined to this proceeding. The plaintiffs filed an amended writ and a further amended statement of claim.
On 16 June 2023, the first and third defendants filed a joint defence.
By its summons filed on 16 October 2023, the first defendant sought the following orders:
1The sum of $39,899.05 be released from the funds in court to the trust account of the first defendant’s solicitors pursuant to paragraph 2 of the orders of the Honourable Justice Attiwill dated 19 August 2022 (as amended by the orders dated 31 August 2022).
2 The plaintiffs pay the costs of and incidental to this application.
3 Such further and other orders as the Court considers appropriate.
The first defendant’s application was heard and determined on 17 November 2023. At the hearing, the plaintiffs accepted that their position may be summarised as follows: the plaintiffs object to the costs of the first defendant that have also been for the benefit of the third defendant and they object to the extent of that benefit. The plaintiffs submitted that the objected to costs do not constitute the costs of the first defendant. The plaintiffs also submitted that the objected to costs are not reasonable as they ought to have been billed to the third defendant. In the Court’s ruling made 17 November 2023, the Court found that the legal costs in the amount of $39,149.95 incurred by the first defendant were reasonable and should be released as stipulated in paragraph 1 of the first defendant’s summons. This amount was lower than the amount sought in the first defendant’s summons due to concessions made by the first and third defendants. The Court accepted the first and third defendants’ submissions that the mere fact that the first defendant’s legal costs benefited the third defendant did not mean that the legal costs claimed were unreasonable. The Court also accepted the first and third defendants’ submissions that if the plaintiffs considered that the defendants’ interlocutory cost regime should no longer apply as the third defendant had been joined to the proceeding, the appropriate course would be to make a separate application or modify the court order. No such application was made at that time.
On 21 March 2024, 22 April 2024, and 17 May 2024, the first and third defendants’ solicitors sent emails to the other parties’ solicitors attaching draft written authorities and seeking approval for the release of funds for the invoices issued by their solicitors, Hall & Wilcox, for February, March, and April 2024.
On 23 May 2024, the plaintiffs’ solicitors sent an email to the other parties’ solicitors in response to the first and third defendants’ requests for the release of funds for the February, March and April 2024 invoices, stating, inter alia, that ‘our clients do not consent to the release of Funds in Court for payment of your firm’s invoices.’ Later that day, the plaintiffs’ solicitors sent an email attaching a minute of proposed consent orders. This minute included orders in the terms later sought by the plaintiffs in paragraph 1 and 2 of their summons filed on 12 July 2024.
On 3 July 2024, the first and third defendants’ solicitors sent an email to the other parties’ solicitors, attaching a draft written authority and seeking the release of $28,912.37 to their trust account to pay two Hall & Wilcox invoices dated May 2024 and June 2024. They had previously provided draft written authorities in relation to the Hall & Wilcox invoices dated February 2024, March 2024 and April 2024.
On 9 July 2024, the plaintiffs’ solicitors sent an email to the other parties’ solicitors, stating:
Dear Colleagues
We refer to the extensive correspondence that we have exchanged in relation to the Trustee’s entitlement (or lack thereof) to have its legal costs paid out of the Funds in Court.
As you are aware, these matters have been articulated at length in that previous correspondence and will be the subject of the application that the plaintiffs are to file on 12 July 2024 (Application).
So that the plaintiffs can further consider their position in relation to below request, as well as the Application, please provide us with copies of all invoices that your firm has issued to Mr Ping Wang for work in this proceeding since he was joined as a party (Invoices).
We consider that the Invoices ought to be produced pursuant to s 26 of the Civil Procedure Act 2010 (Vic) as they are critical to the issues that will be the subject of the Application. We look forward to receiving the Invoices within 7 days from the date of this email.
Regards.
In this response, the plaintiffs did not provide any written authority or consent to the release of funds.
On 12 July 2024, the plaintiffs filed written submissions in support of their summons filed on the same date. The submissions stated at paragraph [27] that (emphasis added):
…the plaintiffs do not seek to recoup past costs which have already been paid out of the sale proceeds, but only an order preventing the disbursement, out of the sale proceeds, of costs incurred from the date of the 2FASOC (and amended writ), and the joinder of Bo Jiang and Haiyan Song.
On 16 July 2024, the first defendant filed its summons seeking the release of funds from the Court account to pay its legal costs incurred from February to June 2024, and for the plaintiffs to pay the costs of and incidental to this application.
On 16 July 2024, the Court ordered by consent that the plaintiffs have leave to file and serve a further amended writ and second further amended statement of claim in substantially the form annexed to the orders and that the fourth and fifth defendants be added as defendants.
On 17 July 2024, the plaintiffs filed a further amended writ and a second further amended statement of claim. This included claims against the fourth and fifth defendants.
On 17 July 2024, the first and third defendants’ solicitors sent an email to the other parties’ solicitors, referring to paragraph [27] of the plaintiffs’ written submissions filed 12 July 2024, and stating (emphasis added):
Given that your clients have now confirmed that they agree (or do not object) to the disbursement of costs incurred prior to the date of the 2FASOC and amended writ (being 17 July 2024), please promptly provide your clients’ consent to our clients’ requests for the release of funds from the Court fund, as set out in the Trustee’s summons.
On 25 July 2024, the plaintiffs’ solicitors sent an email to the other parties’ solicitors, stating that the plaintiffs do not oppose paragraph 1 of the orders sought in the first defendant’s summons, and that this is consistent with the position taken by the plaintiffs in their application that they do not seek to recoup past costs.
On 31 July 2024, the first and third defendants’ solicitors sent an email to the other parties’ solicitors requesting that the plaintiffs’ solicitors sign and return the authority forms (attached again to the email) authorising the release of the amount sought in the first defendant’s summons into the Hall & Wilcox trust account. The authority forms had been previously provided by the first and third defendants’ solicitors.
On 2 August 2024, the plaintiffs’ solicitors sent an email to the other parties’ solicitors attaching the signed authority forms for the amount sought in the first defendant’s summons.
The fourth and fifth defendants filed a notice of appearance on 9 August 2024.
Gilbert + Tobin act for the plaintiffs. Hall & Wilcox act for each of the first and third defendants. Tisher Liner FC Law act for each of the second, fourth, and fifth defendants.
The plaintiffs’ present claims may be broadly summarised as follows:
(a) the first defendant breached its trustee duties by entering into purported loan agreements and deeds of variation with the second, fourth, and fifth defendants, granting the second defendant the purported mortgages, and by failing to provide financial records in respect of the Trust;
(b) the first defendant breached the trust deed by failing to keep sufficient accounting and other records, failing to sufficiently prepare profit and loss accounts, and failing to have the books of account and records properly audited;
(c) the first defendant’s entry into the Flagstar loan facility and granting of the purported mortgages in favour of the second defendant was a breach of trust and a misapplication of trust property;
(d) the second and third defendants had actual or constructive knowledge as to the breaches of trustee duties and knowingly assisted with the breaches of trustee duties, and that the second defendant engaged in unconscionable conduct in procuring the Flagstar loan facility and the purported mortgages;
(e) the plaintiffs impugn the conduct of the fourth and fifth defendants, alleging, for instance, that the first defendant entered into loan agreements and deeds of variation and granted the purported mortgages to enable the fourth and fifth defendants to, inter alia, convert their claims from unsecured to secured liabilities of the Trust, and to procure benefits for the fourth and fifth defendants at the expense of the Trust and/or to the detriment of the plaintiffs and/or beneficiaries as a whole.
In summary, the plaintiffs presently claim the following relief:
(a) against the first defendant, inter alia, relief in substantially the same form as that sought in the initial statement of claim, in addition, an order that the first defendant make a final distribution to the unitholders, declarations that the purported loan agreements and deeds of variation entered into and the purported mortgages granted by the first defendant were in breach of trustee duties, orders setting aside these loan agreements, deeds of variation and purported mortgages and a declaration that the sale proceeds for the sale of the Barry Road Property and Downs Road Property represent traceable proceeds of Trust property;
(b) against the second defendant, inter alia, relief in substantially the same form as that sought in the initial statement of claim, in addition, a declaration that the Flagstar loan facility and the purported mortgages were entered into in breach of trustee duties, a declaration that the Flagstar loan facility (and the monies advanced under the facility) and the purported mortgages represent the traceable proceeds of traceable property, a declaration that the second defendant held the purported mortgages or their traceable proceeds as constructive trustee for the unitholders of the Trust, a declaration that the second defendant holds certain proceeds as constructive trustee for the beneficiaries of the Trust, a declaration that the plaintiffs’ equitable interest in the Barry Road property and Downs Road Property has priority over the purported mortgages, an order declaring the Flagstar loan facility and the purported mortgages void ab inito, an order that the second defendant provide an account of its profits or pay equitable compensation to the Trust, and that the second defendant pay damages to the plaintiffs;
(c) against the third defendant, inter alia, a declaration that the third defendant held traceable proceeds of the purported mortgages as constructive trustee for unitholders of the Trust, and account of profits or equitable compensation payable by the third defendant to the Trust;
(d) against the fourth and fifth defendants, inter alia, declarations that the loan agreements and deeds of variations that they each entered into with the first defendant were entered into in breach of the trustee duties, and orders setting aside those loan agreements and deeds of variations.
C. Submissions
At the commencement of the hearing the first and third defendants made what they described as a ‘partial concession’. It is convenient to refer to the transcript:
MR AGHION: If Your Honour is minded to consider the costs order or orders afresh - this is the second point - then we will not challenge that the proceeding is a beneficiary's dispute of the third kind described in Charlesworth's case. In other words, if the existing costs order is set aside, then we would concede that this is an appropriate matter in which the trustee should adopt a neutral position and stand aside, and the matter should continue as a dispute between beneficiaries.
Your Honour raised before lunch questions about matters going to a Charlesworth case and the Macedonian Orthodox Church case. From our perspective, we don't need to take Your Honour to any of that. Our friend may, but given the concession, we won't need to. The third point is this, if the costs order is set aside, then it should be set aside from the date of any order that Your Honour now makes and not from 17 July 2024 which is what our friend contends for, so there's a minor issue as to timing.
The plaintiffs made the following key submissions:
(a) the plaintiffs confined their application to an order preventing the disbursement, out of the sale proceeds, of costs incurred from 17 July 2024, being the date the plaintiffs filed their second further amended statement of claim and further amended writ joining Haiyan Song as the fourth defendant and Bo Jiang as the fifth defendant;
(b) it was always contemplated by the parties and also the Court that the Court would have the power to revisit the Order, and if necessary, to make a further order;
(c) the first defendant has previously accepted that it was open to the plaintiffs to make an application to vary the Order given the joinder of Ping Wang;
(d) the Order, as a consent order, does not evidence a contract between the parties. The words ‘by consent’, in the circumstances, means ‘the parties hereto not objecting’ and the Order can be altered or varied by the Court in the same circumstances as any other order that is made by the Court without the parties’ consent. The plaintiffs submitted that they accept that they consented to the Order but that in the ordinary case when parties come to Court with consent orders they are generally treated as meaning ‘the parties hereto not objecting’. As the Order does not evidence a contract, the Order can be revisited if there is a material change of circumstances. It cannot be a contract as the words ‘Subject to further order’ are too uncertain;
(e) the plaintiffs relied upon the material change in circumstances being the joinder of the third to fifth defendants and the filing of the second further amended statement of claim. The plaintiffs submitted that the character of the proceeding by the joinder of the third to fifth defendants has materially changed the course of events. The third and fifth defendants as beneficiaries may contest the issues in dispute in the proceeding. They can take an active role. The joined beneficiaries may now ‘fight the battle’. There is no need for the first defendant to do so. They also submitted that the first defendant has been incurring and paying a significant amount of the legal costs despite the joinder of the additional defendants;
(f) the Order did not provide for how actively the first defendant could defend the proceeding;
(g) even if the Order does evidence a contract between the parties, then it is subject to further order;
(h) in addition, whether the Order is a contract or not a contract, the concession made by the first defendant is significant as it is conceding that, absent those consent orders, it would not be appropriate for it to take an active role and be paid out of the trust monies in order to conduct itself in that active way. Further, there is now a question as to whether the first defendant is only paying itself its reasonable costs;
(i) the first defendant’s submissions would have the Court’s order as excusing or exempting the first defendant from its duties to act in the best interests of the Trust;
(j) if the Order is a contract and the Order is vacated it should be vacated at the time the second further amended statement of claim was filed as there could no longer be any doubt the dispute was a beneficiaries’ dispute at that date;
(k) if the Order is a contract then the plaintiffs accepted that the appropriate date may be when the Order is set aside;
The first and third defendants made the following key submissions:
(a) the only question is whether it is open to the plaintiffs to seek to vitiate the agreement as embodied in the Order;
(b) the principle answer to the plaintiffs’ application is that the Order was made by consent;
(c) the plaintiffs consented to the Order even though it has always been a beneficiaries’ dispute;
(d) the first defendant obtained the consent and that obviated the need for it to obtain judicial advice on whether it was entitled to defend the claim and be indemnified on an interim basis;
(e) the plaintiffs’ application is not based upon an interpretation of the Order but based upon whether it should be set aside;
(f) the Order is a contract. The parties were each represented by solicitors and counsel. The consent was recorded on three occasions. The Order did not reflect that the ‘the parties hereto not objecting’ to the Order. It was an agreement between the parties. The words ‘Subject to further order’ do not make it uncertain as those words contemplate that if there is a material change in circumstances then a further order would be made;
(g) the first and third defendants made reference to this case being able to be distinguished from those cases in which the trustee sought judicial advice as in the present case the ‘complainant beneficiary’ has agreed to the trustee actively defending the proceeding;
(h) it makes no difference to the present application if the Order is a contract or not. This is because the test to be applied in each case is whether there has been a material change of circumstances;
(i) the first and third defendants accepted that there had been a change in circumstances by the joinder of the other parties but submitted that the change was not material. They submitted that the joinder of the additional parties added colour and movement and nothing more. They submitted that the joinder of the fourth and fifth defendants made no real difference to the allegations against the first defendant and that the claims against the third defendant did not alter the claims against the first defendant;
(j) there has been no material change in circumstances by the joinder of the additional defendants as the substance of the allegations concerning their conduct have been present from the commencement of the proceeding;
(k) the addition of the additional beneficiaries is a necessary consequence of the allegations that were first made and now maintained in a different form;
(l) if the first defendant adopted a neutral position then those beneficiaries would have needed to have been joined;
(m) the first defendant has been the contradictor under the contract between the parties. In those circumstances, the joinder of the beneficiaries is not a material change of circumstances;
(n) the way the parties structured the costs regime was that the first defendant’s reasonable costs were the costs of defending the proceeding;
(o) there was a compromise as recorded in the Order which reflected the fact that it would be the first defendant who would take on the active defence of the other beneficiaries and would be reimbursed for doing so. This is reflected in the ruling of the Court on 17 November 2023;
(p) the parties agreed that the active defence ‘was always going to be done by the first defendant in respect of those allegations made directly concerning the conduct of the beneficiaries’. The matters to be contradicted by the beneficiaries have always been contradicted by the first defendant;
(q) if there has been a material change in circumstances then the Order is reopened and the first and third defendants concede that it would then be appropriate for the first defendant to adopt a neutral position;
(r) in the event that the Court vacates the Order then it should be from the date the order is made as the Order expressly provides ‘Subject to further order’. It makes no difference as to whether the Order is a contract or not. The first and third defendants submitted that the order should not be made to take retrospective effect as the parties have been operating under the Order.
D. Analysis
Plaintiffs’ summons
As a result of the concessions made by the first and third defendants at the commencement of the hearing, the issues before the Court are confined.
The first issue is whether the Court should make any further order in relation to the Order, including setting it aside or varying its terms. I accept the first and third defendants’ submissions that regardless of whether the Order embodies a contract or otherwise, the Court has the power to make a further order in relation to the Order if there has been a material change of circumstances since the Order was made. The first and third defendants conceded that if the Court found there had been a ‘material change of circumstance’, then the ‘order is reopened, Your Honour has the power to remake, and we’ve already made the concession and so it would go against us’.
It was common ground that the Court has the power to set aside or vary the Order. This is clear from the terms of the Order that provide ‘[s]ubject to further order…’. The only issue is whether the Court should do so, and if so, whether any further order should have the effect of allowing the first defendant to its reasonable costs in the period from 17 July 2024 to the date of such an order.
As a result, the first issue that must be determined is whether there has been a material change of circumstances. In my view, there has been.
First, since the Order was made, the plaintiffs have joined three persons to the proceeding. The first and third defendants accepted that this is a change of circumstances but disputed that it is material.
Second, in my view, this change is material. Each of these joined persons are in a position to directly contradict the claims made against them in this proceeding and, as a consequence, also in a position to directly contradict the claims made against the first defendant insofar as those claims concern them. The fourth and fifth defendants are represented by different solicitors to the first defendant. As submitted by the plaintiff, the third to fifth defendants may now ‘fight the battle’. The present allegations and relief sought in the proceeding are also materially different to the allegations and relief sought in the statement of claim and the amended statement of claim. I refer to the following:
(a) extensive allegations are now made directly against the third to fifth defendants, as parties, concerning their conduct;
(b) relief is now sought against the third to fifth defendants;
(c) the relief sought against the first defendant now includes specific declarations and orders concerning the alleged loan agreements with the fourth and fifth defendants being in breach of the first defendant’s duties as trustee.
I accept that the substance of the allegations against the first defendant have not changed materially although they have been extensively amended.
Third, I do not accept the submission of the first and third defendants that by the Order the plaintiffs and the first defendant agreed that the ‘active defence’ was ‘always’ going to be conducted by the first defendant in respect of those allegations made directly against the beneficiaries. I do not accept this submission. The Order specifically provided that it was ‘Subject to further order’. In addition, no step had been taken at that time to join other parties to the proceeding.
As I have already said, the first and third defendants submitted that if there has been a material change of circumstances then they concede that this is an appropriate matter in which the first defendant should adopt a neutral position and stand aside.
The second issue is whether the first defendant is entitled to its reasonable costs in the period from 17 July 2024 to the date of the order. The plaintiffs accepted that the first defendant is entitled to its reasonable costs to 17 July 2024. In my view, the first defendant is not entitled to its reasonable costs from 17 July 2024. This is the appropriate course having regard to the following:
(a) the first defendant was on notice of the plaintiffs’ application no later than 12 July 2024 (i.e. the date when the plaintiffs filed their summons);
(b) there was a material change in circumstances by 17 July 2024. I refer to my reasons set out in paragraphs [46]–[49] above;
(c) the first and third defendants have conceded that if the existing costs order is set aside, then this is an appropriate matter in which the first defendant should adopt a neutral position and stand aside, and the matter should continue as a dispute between beneficiaries.
As a result, in my view, it is appropriate that the first defendant is only entitled to its reasonable legal costs up to and including 16 July 2024. I will hear the parties on the appropriate form of the order but in my preliminary view it would be appropriate to amend the Order by inserting the words after ‘reasonable legal costs’ in paragraph 1(2) of the Order: ‘(limited to legal costs incurred up to and including 16 July 2024).’ If the Order is set aside or vacated then the first defendant would not be entitled to any costs up to and including 16 July 2024.
First defendant’s summons
The issue is what order as to costs should be made on the first defendant’s summons.
The first defendant submitted that it is entitled to the costs of and incidental to its summons. It submitted that the plaintiffs did not agree with the first defendant’s request for monies to be paid out and as a result, pursuant to paragraph 1(2(d)) of the Order, the first defendant was entitled to proceed to file its summons and supporting documents. The first defendant submitted that the plaintiffs then notified the first defendant of its non-opposition to the first defendant’s application pursuant to paragraph 1(2(f)) of the Order.
The plaintiffs submitted that their position was made clear on 12 July 2024. They submitted that they confirmed at that time and subsequently that they did not oppose the substance of the orders sought by the first defendant, but that the first defendant nonetheless proceeded to file its summons and supporting material.
The plaintiffs also submitted in paragraph [5] of their submissions that if the proceeding is ultimately decided in the plaintiffs’ favour then it follows, inter alia, that the payment of the first defendant’s legal costs from the trust funds held by the first defendant, in the absence of any legal entitlement, would be a further breach of trust. In those circumstances, the plaintiffs submitted that there should be no order as to costs or alternatively that costs should be in the cause.
In my view, the first defendant is entitled to its costs.
The plaintiffs did not state that they consented to the request prior to the first defendant filing its summons. They were also very late in executing the relevant written authority. On 12 July 2024, the plaintiffs did not inform the first defendant that it consented to the request. The plaintiffs stated that they did not oppose paragraph 1 of the first defendant’s summons. In fact, even as late as 25 July 2024, the plaintiffs’ position was that that it did not oppose it. As a result, in the absence of agreement the first defendant was entitled to proceed pursuant to paragraph 1(2(d)) of the Order and file its summons and its material in support.
I refer to the matters set out in the plaintiffs’ submissions at paragraph [5] which I have summarised in paragraph [56] above. In my view, these submissions do not support the plaintiffs’ position. This is because the plaintiffs ultimately consented to the sum of $104,280.18 being released from the funds in court to the trust account of the first defendant’s solicitors pursuant to paragraph 1(2) of the Order.
As a result, the first defendant is entitled to its costs of and incidental to its application.
E. Conclusion and orders
As a result, subject to hearing from the parties on the precise form of order, my present view is that the following orders are appropriate:
(a) the sum of $104,280.18 be released from the funds in court to the trust account of the first defendant’s solicitors pursuant to paragraph 1(2) of the Order;
(b) the plaintiffs pay the first defendant’s costs of the first defendant’s summons filed 16 July 2024;
(c) paragraph 1(2) of the Order is amended by inserting after the words ‘reasonable legal costs’ in paragraph 1(2): ‘(limited to legal costs incurred up to and including 16 July 2024)’;
(d) the first and third defendants pay the plaintiffs’ costs of the application in paragraph 2 of the plaintiffs’ summons filed 12 July 2024;
(e) the plaintiffs’ summons filed 12 July 2024 is otherwise dismissed.
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SCHEDULE OF PARTIES
| XUFENG LUN | First Plaintiff |
| WENZHAN LI | Second Plaintiff |
| XINYI INVESTMENT PTY LTD (ACN 605 378 309) | Third Plaintiff |
| -and- | |
| BARRY ROAD PROJECT PTY LTD (ACN 605 828 877) AS TRUSTEE FOR THE BARRY ROAD PROJECT UNIT TRUST | First Defendant |
| FLAGSTAR HOLDINGS PTY LTD (ACN 640 351 613) | Second Defendant |
| PING WANG | Third Defendant |
| HAIYAN SONG | Fourth Defendant |
| BO JIANG | Fifth Defendant |
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