Mills v Rothmore Farms Pty Ltd (in Liquidation) No. Scciv-99-1032

MILLS v ROTHMORE FARMS PTY LTD (IN LIQUIDATION)
[2002] SASC 265
Full Court: Perry, Williams and Gray JJ

PERRY J. This is an appeal against a costs order made by a Master.
Initially the appeal was brought by Robert John Mills (“Mr Mills”). Before the appeal came on for hearing, Noelene Michelle Cooper (“Noelene Cooper”) was joined as an appellant. Her joinder was simply as a party appellant, so as to give her status to be heard on the appeal. An application by Mr Mills to amend the notice of appeal so that Noelene Cooper might advance the same grounds of appeal as he advanced, was reserved for the consideration of the Full Court on the hearing of the appeal, and I will deal with it later in this judgment.
Background
Both Mr Mills and Noelene Cooper were among six parties sued in the Federal Court by Rothmore Farms Pty Ltd (In Liquidation) (“Rothmore Farms”).[1] The other four respondents to those proceedings were Belgravia Pty Ltd (“Belgravia”), Andrew Charles Cooper (“Mr Cooper”), Agri-Steel Pty Ltd (“Agri-Steel”) and Tennyson Turner (“Mr Turner”).
[1] Rothmore Farms was placed in provisional liquidation on 14 September 1998.
The proceedings came to trial before Justice Mansfield (“the trial judge”), who delivered judgment on 4 June 1999.
By a deed dated 6 October 1981, Rothmore Farms was appointed trustee of the Jill Cooper Family Trust (“the Trust”). It was not disputed in the Federal Court proceedings that pursuant to the trust deed, and at common law, the trustee of the trust had a right of indemnity from the assets of the trust with respect to liabilities incurred in the course of carrying on the business of the trust, more particularly, but not limited to, its liability to two banks to which I refer below.
Between its appointment as trustee in 1981 until 1993, Rothmore Farms as trustee of the trust conducted the main business of the trust, which was a farming operation.
In 1993, pursuant to what was described by the trial judge as “the first transaction”, Rothmore Farms retired as trustee of the trust, and Belgravia was appointed trustee in its stead. All of the assets of the trust were transferred from Rothmore Farms to Belgravia, which took over the farming operation.
At the relevant times Mr Mills and Noelene Cooper were the sole directors of Belgravia. As such, they resolved to accept its appointment as trustee. Furthermore, the trial judge specifically held that Noelene Cooper and Mr Mills took part in the decisions taken to effect the first transaction.
Given the right of indemnity which Rothmore Farms had over the assets of the trust prior to the first transaction, Rothmore Farms contended at the trial that the right of indemnity in respect of the property of the trust at the time of the first transaction persisted after its removal as trustee, and gave rise to an equitable charge or lien over the assets of the trust, and over is income.
The trial judge upheld that contention.
At the time of the first transaction, Rothmore Farms was indebted to the Commonwealth Bank of Australia (“CBA”) and the Commonwealth Development Bank of Australia (“CDBA”) with respect to various advances which had been made by those entities to Rothmore Farms.
For some time before May 1998, the banks, more particularly CBA, began to increase pressure on Rothmore Farms to discharge its indebtedness to them.
In April 1998, CBA was instrumental in securing sequestration orders against the estates of three members of the Cooper family, not including the appellants. In May 1998, CBA served upon Rothmore Farms a statutory demand for the moneys then owing.
A few days after the service of the statutory demand, Belgravia resolved, pursuant to the deed of trust, to vary the “vesting day” and to declare 19 May 1998 to be the vesting day. It further resolved by its directors, who remained the appellants, that “both the corpus and all and any accrued income of the Trust” be forthwith distributed to Andrew Charles Cooper, one of the eligible beneficiaries of the trust (the second transaction).
The trial judge held that Andrew Cooper took the assets of the trust by virtue of the second transaction, without any consideration on his part. The transaction “... enabled him at law to assume those assets without having to assume the liability to the Banks”. Given the circumstances of the second transaction, the trial judge held that the vesting of the assets in Andrew Cooper was subject to the equitable interest of Rothmore Farms in the assets.
Importantly for present purposes, the trial judge held that the second transaction was undertaken by Belgravia through its directors, Noelene Cooper and Robert Mills, neither of whom gave evidence before him. As for their intention in effecting the second transaction, he held:
“What was the intention of Belgravia through Noelene Cooper and Robert Mills in undertaking the second transaction? I conclude .... that their general intention was to defeat or delay creditors of Rothmore Farms, and to defeat or delay Rothmore Farms in any claim it might have against Belgravia or the assets of the Trust, and also to defeat or delay creditors of Mrs Cooper, Simon Cooper and Richard Cooper ...”.[2]
[2] Citing Glegg v Bromley [1912] 3 KB 474 at 492.
Between May and August 1998, Andrew Cooper continued to conduct the farming business in his own name. But as the trial judge found, in a practical sense it was the farming business previously operated by Belgravia as trustee of the trust.
On 7 August 1998, Andrew Cooper entered into a memorandum of agreement with Mr Turner. Pursuant to the agreement, Andrew Cooper agreed to purchase a quantity of unpolished opal stones for $700,000, payable as to $89,000 in cash and the balance of $611,000 by transferring to Mr Turner what were effectively all of the assets of the trust, including a growing crop (the third transaction).
The trial judge found that the value of the opals, which were sold for $700,000, was much less, “of the order of $2,000 to $10,000”.
Following the third transaction, Mr Turner and Agri-Steel between them operated the business previously conducted by the trust. Agri-Steel was a company of which the sole director was Mr Turner. It appears that following the third transaction, it operated the engineering business, and at least in part the farming business.
By the time of the third transaction, probably earlier, the trial judge found that Mr Turner was and had been an adviser to the Cooper family and Belgravia. Further, the disproportion in the consideration proffered by Mr Turner, and other surrounding circumstances, led him to the conclusion that the third transaction was not a genuine transaction and was a sham.
He specifically held that Mr Turner was aware of both the first and second transactions, and for that reason could not be regarded as a bona fide purchaser for value of the trust assets.
In the result, the equitable charge or lien of Rothmore Farms survived the third transaction. It followed that Rothmore Farms had “... the right to trace the assets of the Trust through Andrew Cooper and into the hands of Tennyson Turner”.
Against the background of those findings, the trial judge made a formal order declaring Rothmore Farms to be entitled to be indemnified from the assets of the trust to the extent of its indebtedness to CBA and CDBA. He further held that Rothmore Farms’ equitable charge or lien over the assets of the trust was exercisable against such of the trust assets as were then held by Mr Turner or by Agri-Steel subject to an adjustment by reference to any sums expended by Mr Turner or Agri-Steel in the conduct of the business which was carried on by them by utilising the assets in question.
As an aid to the enforcement of the equitable charge or lien to which Rothmore Farms was entitled, the trial judge went on to order that an inquiry and account be conducted by the Registrar of the Federal Court to identify the assets of the trust; to identify the moneys received by Mr Turner or Agri-Steel in their conduct of the farming and engineering businesses; and to identify all moneys paid by Mr Turner or by Agri-Steel in the conduct of the farming and engineering businesses from the date of the third transaction.
As part of the order directing an inquiry and the taking of accounts, the trial judge directed that the respondents, which included the appellants, Noelene Cooper and Mr Mills, forthwith deliver up all keys held by them with respect to the plant and equipment of the farming and engineering businesses, and preserve all of the assets of the trust and not otherwise deal with them.
The trial judge further directed that on completion of the inquiry and the taking of accounts, the respondents, including the appellants, were to deliver to Rothmore Farms all assets of the trust, subject to the adjustment to be made in favour of moneys expended by Mr Turner and Agri-Steel.
Removal into the Supreme Court
As I have indicated, judgment was delivered in the Federal Court on 4 June 1999. About a fortnight later the High Court delivered its decision in Re Wakim: ex parte McNally.[3] In consequence of the decision of the High Court and its impact upon the validity of the Federal Court proceedings, in August 1999, the Federal Court (State Jurisdiction) Act 1999 (SA) came into operation.
[3] (1999) 198 CLR 511.
Pursuant to that Act, on 26 August 1999, proceedings were instituted in this Court, the practical effect of which was to continue in this Court the action which had been brought to trial in the Federal Court. An application was then filed in this Court to proceed with the inquiry and account which had been ordered by Mansfield J. This Court ordered that the inquiry and account be taken by a Master of the Court.
It is unnecessary to refer to various other steps taken in the course of the proceedings in this Court during which the constitutional validity of the State Court (Federal Jurisdiction) Act 1999 was put under challenge.
Eventually the account and inquiry got under way in this Court. The hearing commenced before a Master on 21 September 2001.
Orders giving effect to the outcome of the account and inquiry were pronounced by the Master on 2 November 2001. The formal order made by him on that day declared various assets to be or to have been assets of the trust. He made various consequential orders for the transfer and delivery up of the assets to the liquidator of Belgravia.
As a term of that order, he ordered that “the defendants pay the plaintiff’s [Rothmore Farms’] costs of action”. He did not give any written reasons for that order. The defendants were all six respondents who had been sued in the Federal Court, which of course included the two present appellants.
Mr Mills and Noelene Cooper (following her joinder as a party appellant and subject to the amendments sought to be made to the notice of appeal) appealed to this Court against the costs order insofar as it impacts on them.
The Competency of the Appeal
Initially the appeal was dealt with as though it was governed by s 50(1)(2)(b) of the Supreme Court Act 1935, with the result that there was an application for leave to appeal. Leave to appeal (to the extent that it might be needed) was given by a Master other than the Master who had conducted the inquiry and the taking of accounts, on 16 January 2002. The Master who made the order observed:
“I do not believe that the sixth defendant requires leave to appeal, but if I am wrong then I will grant it.”
Subsequently an application was made by Rothmore Farms, the respondent to the appeal, seeking an order that the notice of appeal be dismissed as incompetent, and that the leave be rescinded.
That application came before Lander J who dismissed it, and at the same time rescinded leave to appeal.[4]
[4] See ex tempore reasons 15 April 2002, judgment No [2002] SASC 134.
In the course of his reasons for dismissing the application, Lander J observed:
“This appeal is not governed by s 50(1)(2)(b) of the Supreme Court Act1935 (SA) which, in my opinion, only refers to orders of a judge. Orders of a master are dealt with separately under s 50(2). No leave was required and therefore that part of the Master’s order ought not to have been made.”
At the same time he noted that the appellant Mr Mills, who was the only appellant at that stage, had cast the notice of appeal in terms of an appeal to the Full Court. As to that aspect of the matter, Lander J observed:
“...Whether this is an appeal which ought to go to the Full Court or to a single judge depends upon the construction of r 106.05. If an order for costs is ‘a final finding, decision, direction, award or judgment’ then the appeal lies to the Full Court.
If, on the other hand, it is an interlocutory decision, then the appeal lies to a single judge.”
Lander J went on to hold that it was unnecessary for him to decide whether an order for costs is a final decision for the purposes of r 106.05.
Initially, in its outline of argument lodged with respect to the appeal to this Court, Rothmore Farms sought to re-agitate the question whether the appeal was competent and to renew the submission that it was incompetent. However, before the hearing of the appeal, Rothmore Farms indicated that it did not pursue that contention.
In the meantime, sitting as a single judge,[5] on the application of Noelene Cooper, I made the order to which I have referred, namely that she be joined as a party appellant. I declined, however, to entertain an application allowing the notice of appeal to be amended so that she be permitted to pursue the substantive grounds of appeal pursued in the notice, to the intent that, if successful, the costs order would no longer bind her, on the footing that that was best left for the Full Court to determine.
[5] See SCR r 95.12.
So that while the application to amend the notice of appeal stood unresolved, Noelene Cooper was in a position where she could properly support Mr Mills appeal if she chose to do so, but could not seek an order varying the order under appeal so as to exclude her as one of the parties against whom the costs order operates.
The Arguments on Appeal
The main thrust of the argument advanced by Mr Ross-Smith who appeared for Mr Mills and Noelene Cooper was to the effect that neither of them had actively participated in the inquiry and account and accordingly should not have been ordered to contribute towards the costs of it.
He submitted that the order of the Federal Court simply recognised and gave effect to an equitable charge or lien in favour of Rothmore Farms over the assets of the trust, which was enforceable against Belgravia, Mr Cooper, Mr Turner and Agri-Steel, but did not directly impact upon Mr Mills or Noelene Cooper, who simply occupied office as directors of Belgravia. He submitted that the equitable charge could only operate against the trustee and was not enforceable against his clients. As he put it, the charge was exercisable against assets presently held by Mr Turner and Agri-Steel to the exclusion of the appellants.
Mr Ross-Smith contended also that Mr Mills (but not Noelene Cooper) was entitled to the benefit of what he described as an undertaking by the solicitors for Rothmore Farms not to seek any order, which he submitted included any costs order, against Mr Mills.
I will deal with the latter contention first.
On 4 and 5 September 2001, the solicitor for Mr Mills had a telephone discussion with the solicitors for Rothmore Farms. Subsequently, by letter dated 10 September 2001 the solicitors for Rothmore Farms wrote to Mr Mills’ solicitors in the following terms:
“We are instructed that our client is not presently aware of any evidence to suggest that Robert Mills has received any assets or income of the Jill Cooper Family Trust in the course of his acting as a director of Belgravia Pty Ltd. However, we note that it is possible that other defendants to the action who participate in the inquiry and account might seek to lead evidence at the hearing on 21 September 2001 that Robert Mills did receive assets or income of the Jill Cooper Family Trust. For example, our client has leave to cross-examine Richard Cooper at the hearing on 21 September 2001 and it is possible that Richard Cooper may make assertions that suggest that Robert Mills has received assets or income of the Jill Cooper Family Trust on the inquiry and account. If that occurred our client may seek orders as against Robert Mills. However, if no evidence is led by the other defendants, or no other evidence is provided to our client at or prior to the hearing on 21 September 2001 to suggest that Robert Mills has received assets or income of the Jill Cooper Family Trust, our client will not seek orders against him.” (emphasis added)
Mr White QC of counsel for Rothmore Farms contended that the letter did not contain an “undertaking”. Further, he submitted that the letter did not refer to costs orders, but did no more than indicate that substantive orders, that is, for the return of any assets or income, would not be sought against Mr Robert Mills in the absence of evidence emerging during the hearing of the account and inquiry that he had received any such assets or income.
In my opinion, given the context in which the letter was written, Mr White QC’s contention is correct. I would not construe the letter as precluding the making of an order for costs against Mr Mills.
I would reject the other arguments advanced by the appellants, which turn largely upon the nature and effect of the order made in the Federal Court insofar as it impacts upon them and the extent of their involvement in the taking of the account and inquiry.
When the taking of the account and inquiry commenced at a hearing before Master Bowen Pain on 21 September 2001, Mr Ross-Smith appeared for Mr Mills only to seek leave to withdraw from the hearing, which course he was permitted to take. But Mrs Cooper was at that stage represented by Mr P. Kerin. He did not, however, appear for her after the hearing was adjourned to the second day, which was 2 November 2001. Noelene Cooper then appeared on her own behalf. She was asked whether she wished to participate in the hearing, to which she replied, “Only if I need to”. It does not appear that she then played any active role in the completion of the hearing.
Although it is true that the findings made by the trial judge did not expressly uphold allegations against Mr Mills that he had knowingly participated in a breach of trust or wrongfully conspired to defraud and injure Rothmore Farms, as had been alleged in the pleadings, he and Noelene Cooper were unquestionably found to have been active participants in at least the first two transactions. He expressly found:
“Mrs Cooper[6] confirmed that the decisions taken to effect the first transaction were taken by herself, her sons and Noelene Cooper and Robert Mills. They were all the directors of Rothmore Farms and of Belgravia. They all took part in the ‘family discussion’ (as she described it) when it was decided to pass the Trust assets in the name of Rothmore Farms to Belgravia.” (emphasis added)
[6] This does not refer to Noelene Cooper, but to Jillian Helen Cooper, who, together with her sons, was involved in various aspects of the relevant transactions which it has not been necessary to deal with in these reasons.
There was the further finding that the purpose of the first transaction was to put the assets of the trust beyond the reach of Rothmore Farms “so that its creditors, namely the banks, could not preclude or prevent the trust from continuing to trade by seizing those assets”.
This was followed by the trial judge’s finding that the second transaction was carried out with the intention “to defeat or delay creditors of Rothmore Farms, and to defeat or delay Rothmore Farms in any claim it might have against Belgravia or the assets of the trust and also to defeat or delay creditors of Mrs Cooper, Simon Cooper and Richard Cooper”.
Note should also be taken of the fact that Belgravia, of which Mr Mills and Noelene Cooper were the directors, carried on the business of the trust during the five years intervening between the first and second transactions.

It must follow from the nature and effect of the findings of the trial judge to which I have so far referred, that, at least in part, it was the actions of Mr Mills and Noelene Cooper and their involvement more particularly in the first and second transactions, which precipitated the need for the account and inquiry which was ultimately undertaken.
Furthermore, in my view, it is not a correct analysis of the judgment pronounced by the Federal Court to suggest that it had no real impact upon the appellants. The order of the Federal Court bound Mr Mills and Noelene Cooper as much as it bound the other four respondents to the Federal Court proceedings. The fact that neither Mr Mills nor Noelene Cooper were found ultimately to be holding assets or to be in control of assets of the trust is nothing to the point.
As I have explained, after the action had been transferred to this Court, a further order was made for the taking of the inquiry and account. That included a direction that Noelene Cooper and Mr Mills provide schedules identifying the assets of the trust transferred from Rothmore Farms to Belgravia in 1993, and schedules identifying all assets of the trust vested in Andrew Cooper by Belgravia in May 1998. Further, all of the defendants to the Supreme Court proceedings, which included Mr Mills and Noelene Cooper, were directed to hand over the records in their custody, possession or power in respect of the businesses with respect to which the inquiry and account related.
Against that background, the fact that the appellants attempted to distance themselves from the hearing before the Master, is, for present purposes, nothing to the point.
Conclusions
In all the circumstances, in my view, the appellants arguments should be rejected. Contrary to their submission, there was an ample foundation laid for the making of the costs order against both of them relating to the account and inquiry.
The incidence of the costs of the taking of the account and inquiry was a matter entirely for the discretion of the Master. This Court will not readily interfere with the exercise of the discretion as to costs. Ordinarily, a person appealing from the exercise of the discretion as to costs must “... show that the discretion was so unreasonable and unjust as to require the appellate court to substitute its own discretion ...”.[7] In this case, the Master has not been shown to have made an error of principle or been guilty of any misapprehension of the facts.
[7] Southern Resources Ltd and Ors v Residues Treatment and Trading Co Ltd and Ors (1991) 56 SASR 455 per Jacobs ACJ, Prior and Mullighan JJ at 480.
Before parting with the matter, I note that not only was the volume of material which the parties thought necessary to put before this Court in order to understand the background of the making of the costs order, substantial, but the arguments put on the hearing of the appeal were lengthy and complex.
Recently this Court had occasion to observe:
“For an appeal court to be acquainted with the various factors which may be relevant to the exercise of the discretion as to costs will often be a lengthy and unrewarding task. In order to put before the Full Court all of the documents necessary to identify factors relevant to the exercise of the discretion, in this case, a substantial appeal book was prepared. On top of that, the parties submitted lengthy and detailed written outlines of argument, replete with the citation of much case law.
Reference to other cases was of no real assistance, as they can only illustrate the manner in which the costs discretion has been exercised in different circumstances ....
This Court should discourage parties from approaching arguments as to costs on the footing that they are entitled to embark on a mini-trial.”[8]
[8] Pilmer and Ors v The Duke Group Ltd (In Liquidation) (unreported) Full Court, 30 July 2002, Judgment No [2002] SASC 230, paras 39, 40 and 42.
The same comments may be made with respect to the nature and conduct of the appeal in this case.
I would refuse the application to amend the notice of appeal so as to advance on behalf of Noelene Cooper the grounds of appeal presently advanced only with respect to Mr Mills. I would do so on the footing that the amendment should not be permitted as the amended pleading has no reasonable prospect of success.
I would dismiss the appeal.
WILLIAMS J. I agree.
GRAY J.                I agree.
JUDGMENT CITATIONS
LISTED IN ORDER OF APPEARANCE IN JUDGMENT
1.    Rothmore Farms was placed in provisional liquidation on 14 September 1998.
2.    Citing Glegg v Bromley [1912] 3 KB 474 at 492.
3. (1999) 198 CLR 511.
4. See ex tempore reasons 15 April 2002, judgment No [2002] SASC 134.
5.    See SCR r 95.12.
6.    This does not refer to Noelene Cooper, but to Jillian Helen Cooper, who, together with her sons, was involved in various aspects of the relevant transactions which it has not been necessary to deal with in these reasons.
7.    Southern Resources Ltd and Ors v Residues Treatment and Trading Co Ltd and Ors (1991) 56 SASR 455 per Jacobs ACJ, Prior and Mullighan JJ at 480.
8.   Pilmer and Ors v The Duke Group Ltd (In Liquidation) (unreported) Full Court, 30 July 2002, Judgment No [2002] SASC 230, paras 39, 40 and 42.

[2002] SASC 265

5 September 2002