Moyes v J & L Developments Pty Ltd (No 2) - [2007] SASC 261

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
MOYES & ANOR v J & L DEVELOPMENTS PTY LTD & ANOR (No 2)
[2007] SASC 261
Judgment of The Honourable Justice Debelle
11 July 2007
PROCEDURE - COSTS - RECOVERY OF COSTS
EQUITY - TRUSTS AND TRUSTEES - POWERS, DUTIES, RIGHTS AND LIABILITIES OF TRUSTEES - INDEMNITY, LIEN AND REIMBURSEMENT - IN RESPECT OF LEGAL COSTS AND COMMISSION
Recovery of costs ordered on appeal – applicants had benefit of order for costs against first respondent – first respondent registered proprietor of land as trustee – first respondent entitled under trust deed to indemnity for liability incurred as trustee – trust deed amended to negate the indemnity – whether amendment enforceable whether applicants entitled to be subrogated to indemnity – first respondent resigned as trustee - first respondent transfer land to new trustee - whether costs payable by new trustee – application allowed.
Corporations Act 2001 (Cth) s 197, s 565(1); Supreme Court Act 1935 s 40(1); Supreme Court Act 1981 (UK) s 51(1); Supreme Court Rules 1987 r 101; Trustee Act 1936 s 35(2); Trusts Act 1973 (Q) s 65; Trustee Act 1958 (Vic) s 2(3), s 36(2), referred to.
Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965; Bowmaker Limited v Tabor [1941] 2 KB 1; JA Pty Ltd v Jonco Holdings Pty Ltd (2000) 33 ACSR 691; Jessup v Queensland Housing Commission [2002] 2 Qd R 270; Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576; Knight v F P Special Assets Ltd (1992) 174 CLR 178; Mogul Steamship Company v McGregor, Gow and Co [1892] AC 25; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; RWG Management Ltd v Commissioner for Corporate Affairs (Vic) [1985] VR 385; Worrall v Harford (1802) 8 Ves Jun 4; 32 ER 250, applied.
ex parte Edmonds (1862) 4 De GF & J 488; 45 ER 1273; Marginson v Ian Potter & Co (1976) 136 CLR 161; National Trustees Executors and Agency Co of Australasia v Barnes (1941) 64 CLR 268; Re Jacob Morris deceased (1943) 43 SR (NSW) 352; re Johnson (1880) 15 Ch D 548; re Raybould [1900] 1 Ch 199; re Staff Benefits Pty Ltd [1979] 1 NSWLR 207; Vacuum Oil Company Pty Ltd v Wiltshire (1945) 72 CLR 319, considered.

MOYES & ANOR v J & L DEVELOPMENTS PTY LTD & ANOR (No 2)
[2007] SASC 261
Land and Valuation Division

DEBELLE J. This is an application for an order for payment of costs against a non-party or, in the alternative, that the costs be paid out of the assets of a trust. The application is made by the appellants, Professor and Mrs Moyes and by Mr and Mrs Brooks as well as by the second respondent, the Adelaide Hills Council (“the Council”). The application follows the hearing of an appeal to the Land and Valuation Division of this Court in which the appellants and the Council succeeded. One of the orders made on the appeal was that the first respondent, J & L Developments Pty Ltd pay the costs of the appellants and of the Council. I set out the events leading to the application.
The History of this Action
J & L Developments Pty Ltd (“J & L Developments”) applied to the Council for provisional development plan consent to construct a two-storey dwelling and associated development at 33 Birch Road Stirling. Professor and Mrs Moyes and Mr and Mrs Brooks occupy adjoining land that would have been affected by the proposed development. They lodged representations with the Council objecting to the proposed development. For convenience, I will call them “the appellants”. The Council resolved not to grant development consent. J & L Developments appealed to the Environment, Resources and Development Court (“the Environment Court”) against the Council’s decision.
The appeal in the Environment Court was heard by a Commissioner of that Court. On 5 April 2004 the Commissioner allowed the appeal and granted provisional development plan consent subject to 17 conditions. The appellants appealed to this Court. The protagonists on the appeal were on the one hand the appellants and the Council seeking to reverse the decision of the Environment Court and to restore the Council’s decision and, on the other, J & L Developments seeking to uphold the Commissioner’s decision. The appeal was heard by this Court on 4 June 2004. On 7 October 2004 judgment was delivered, allowing the appeal. The following orders were made:
1.     Appeal allowed.
2.     Set aside the order of the Environment, Resources and Development Court herein made on 5 April 2004 and, in lieu thereof, order that the appeal to that court be dismissed.
3.     That the first respondent pay the costs in this court of the appellant and of the second respondent.
The order, therefore, required J & L Developments to pay the costs of the appellants and of the Council. On 21 October 2004, J & L Developments filed a notice of appeal, appealing to the Full Court against the decision of the judge. On 31 May 2005 a notice was filed discontinuing that appeal.
On 30 May 2006 the Council filed its bill of costs. On 1 June 2006 the appellants filed their bill of costs. On 8 September 2006 Master Lunn made an interim order allowing the costs payable by J & L Developments to the appellants and to the Council in the amounts of $30,000 and $28,000 respectively. Interim allocaturs were issued for the payment of the interim order. J & L Developments has not paid these costs and refuses to pay them. It has no money to pay the costs and has no other assets.
Orders for costs have also been made in the Environment Court. On 5 April 2004, the Environment Court had ordered J & L Developments to pay certain costs of both the Council and of the appellants. On 24 July 2006 those costs were taxed and allowed at $5,408.68 for the Council and $3,982.70 for the appellants. J & L Developments has not paid these costs to either the Council or the appellants. The Council and the appellants have sought orders to enforce the payment of costs. The proceedings to enforce those orders have been adjourned pending the hearing and determination of the application in this Court.
The refusal of J & L Developments to pay the costs has caused the appellants and the Council to bring this application.
J & L Developments and Related Entities
It will be necessary to note dealings in relation to the land at 33 Birch Road. Before doing so, I note the different legal entities involved in those dealings and those who control those entities. It will be apparent that ultimate control was at all material times in the hands of Mr J. Viscariello. Mr Viscariello is a solicitor.
J & L Developments was incorporated in 1991. According to a search of the records of the Australian Securities and Investment Commission (“ASIC”) made on 30 August 2006, the directors of the company at that time were Mr Viscariello and Mr NC Nicolaou. Mr Viscariello had been a director since the incorporation of the company. He was also the secretary of the company. Mr Viscariello and Mr Nicolaou were the only shareholders. The place of the business of the company was at 140 Montacute Road, Hectorville. The company’s registered office was at 553 Magill Road, Magill.
On 1 October 2002, the Stirling Property Trust was formally constituted. The trust is evidenced by a deed dated 1 October 2002. J & L Developments was trustee of the trust. The trust deed provides for two classes of beneficiaries. They are the persons included in what the trust deed calls “the discretionary class and any corpus beneficiary”. Beneficiaries in the discretionary class are defined by clause 2 of the deed. The definition includes those named as specified beneficiaries in the schedule to the trust deed as well as children or grandchildren of the specified beneficiaries. The persons named in the schedule as specified beneficiaries are Mr Viscariello and Ms Tanya Hamilton-Smith. Ms Hamilton-Smith is the de facto wife of Mr Viscariello. Ms Hamilton-Smith has three children. Mr Viscariello’s evidence was that the beneficiaries under the trust deed are himself, Ms Tanya Hamilton-Smith and her three children.
J & L Developments was entitled to be indemnified out of the trust fund for any liability it incurred as trustee. That indemnity was provided by clause 20(b) of the trust deed which was in these terms:
The Trustees shall be indemnified out of the Assets of the Trust Fund for all liabilities incurred by them in the course of acting for the Trust.
On 1 June 2004 the trust deed was amended by deleting clause 20(b) and substituting the following clause:
The Trustees shall not be indemnified out of the Assets of the Trust Fund or at all for all or any liabilities incurred by them in the course of Acting for the Trust.
I will return to the circumstances in which that amendment was made.
Palm Hills Pty Ltd is a company incorporated on 1 May 1998. A search of the ASIC records on 4 September 2006 showed that it has only one director, Mr Viscariello. Mr Viscariello is also the secretary and only shareholder of the company. The principal place of business is 140 Montacute Road, Montacute and the registered office of the company is at 553 Magill Road, Magill. It will have been noticed that they are the same addresses for both the place of business and registered office of J & L Developments. It will also have been noticed that, at all material times, Mr Viscariello was able to control both J & L Developments and Palm Hills.
The Land Dealings
On 25 March 2002, Mr Viscariello and Ms Hamilton-Smith entered into a contract to purchase the land at 33 Birch Road. They executed a contract in their own names as purchasers or on behalf of a nominee. I find that they nominated J & L Developments as purchasers. On 16 October 2002 a transfer of the land to J & L Developments was registered. It will be recalled that the deed constituting the Stirling Property Trust was executed on 1 October 2002. That concatenation of events points to the conclusion, and I find, that the Stirling Property Trust was established for the purpose of being the beneficiary of the intended transfer of land and that J & L Developments purchased the land as trustee of the Stirling Property Trust. Mr Viscariello confirmed that fact in evidence. In an affidavit sworn in support of the application he said, “J & L Developments bought the land as trustee for the Stirling Property Trust”. He adhered to that statement in the witness box.
The land at 33 Birch Road is within the area of the Adelaide Hills Council. In 2003, not long after it had acquired the land, J & L Developments applied for provisional planning consent to construct a dwelling on 33 Birch Road. The Council refused development consent. As already mentioned, J & L Developments then appealed against the Council’s decision to the Environment Court. A Commissioner of that Court allowed the appeal and granted development consent. The appellants then appealed to the Land and Valuation Division of this Court against the decision of the Environment Court. They were joined in that appeal by the Council. This Court allowed the appeal and set aside the decision of the Environment Court. The Court thereby restored the Council’s refusal of development consent.
Before the hearing of that appeal, two short directions hearings were held on 5 May and on 2 June 2004. It is unnecessary to note the orders then made. It is sufficient to note only that they were held. There is a coincidence of timing between, on the one hand, those hearings and the imminent hearing of the appeal on 4 June 2004 and, on the other, the fact that on 1 June 2004, the deed amending the trust deed of Stirling Property Trust was executed. That amendment amended clause 20(b) to provide that the trustee could not be indemnified out of the trust assets.
Mr Viscariello’s evidence was that when J & L Developments had applied to the Council for the development consent and at all stages thereafter, it had been acting in its own right (to use his words) and not as trustee of the Stirling Property Trust. On that footing, he said that J & L Developments is not liable for costs. He also said that the amendment to clause 20(b) precluded the trustee from being indemnified out of trust assets. He denied that the amendment had been made in order to frustrate any potential order for costs made by this Court. He said that it had been made out of an abundance of caution and for no purpose other than to make it clear that J & L Developments could not be indemnified out of assets of the Stirling Property Trust. For the reasons which follow, I reject these assertions.
Mr Viscariello was a most unsatisfactory witness. His answers were at times inconsistent with one another. His demeanour in the witness box was most unconvincing. More significantly, he did not produce any documentary evidence to support his assertions. He did not produce any minutes, financial returns or other records of either J & L Developments or of the Stirling Property Trust other than the trust deed, the deed amending it and the contract to purchase 33 Birch Road. There was no document to verify his assertion that J & L Developments was not acting as trustee of the Stirling Property Trust when it made the application for development consent or conducted the appeals thereafter. It was quite apparent that his evidence was of a self-serving kind designed to provide an ex post facto version of the facts for the purpose of defeating any liability for costs. Apart from these considerations, other evidence and the objective facts belie his assertions. When the facts are viewed as whole, it is quite apparent that his evidence was as contrived as it was dishonest.
J & L Developments was, as Mr Viscariello admitted, not only the trustee of the Stirling Property Trust but had also purchased the land at 33 Birch Road as trustee for the Stirling Property Trust. As he said in his evidence, the land was purchased with the intent of constructing a dwelling on the land for his family, that is to say, for himself, Ms Tanya Hamilton-Smith and her three children. The only asset of the Stirling Property Trust was the land at 33 Birch Road, Stirling. The application made by J & L Developments to the Council was an application for development consent to construct a dwelling on the land. Plainly, the intent was that if development consent was granted, it would be used to construct a dwelling to house Mr Viscariello’s family. Mr Viscariello admitted in his evidence that the purpose of the trust purchasing the land was to construct a dwelling for his wife and family. All of that evidence points to the conclusion that J & L Developments, at the direction of Mr Viscariello and with Mr Viscariello acting as its agent, was seeking development consent for and on behalf of the Stirling Property Trust. The fact that the contract to purchase the land at 33 Birch Road was executed by Mr Viscariello and Ms Hamilton-Smith and that they nominated J & L Developments as purchaser emphasises that the intent was that J & L Developments would do what was necessary to obtain consent to construct a dwelling on the land. In addition, Mr Viscariello did not identify any other person for whom J & L Developments was seeking to obtain the development consent. His evidence that J & L Developments was not acting as trustee of the Stirling Property Trust but in its own right strains credulity to breaking point. I do not believe it. I find that at all times when J & L Developments was seeking development consent and, once having obtained it in the Environment Court, was seeking to defend it, it was acting as trustee for the Stirling Property Trust.
I find that everything done on behalf of J & L Developments was done by Mr Viscariello as its agent. He was a director and had the controlling interest in the company. He made the decisions for J & L Developments and implemented them. I find also that every step taken by J & L Developments towards obtaining development consent was taken on behalf of the Stirling Property Trust with the intent of benefiting that trust. Mr Viscariello was one of those who would benefit if development consent was obtained. Once development consent was obtained as a result of the decision in the Environment Court, it was necessary for J & L Developments to seek to defend that decision on the appeal in the Land and Valuation Division of this Court. Although no financial statements have been proved, I find that the land at 33 Birch Road was the only major asset held by J & L Developments.
In addition, I do not accept Mr Viscariello’s assertion that the amendment to delete clause 20(b) from the trust deed on 1 June 2004 was not made for the purpose of seeking to avoid any potential liability as a result of an adverse order as to costs on the appeal to the Land and Valuation Division of this Court. Mr Viscariello’s evidence shows that he knew that, if J & L Developments failed to uphold the order made by the Environment Court, J & L Developments would be liable to pay costs to the appellants and to the Council. He knew that J & L Developments had a potential liability for costs. He admitted that the amendment was made in contemplation of the appeal to the Land and Valuation Division. I find that, when the appeal to the Land and Valuation Division of this Court was instituted, Mr Viscariello wished to do whatever was possible to prevent J & L Development being exposed to any liability for costs should it fail on the appeal. He therefore arranged for the amendment of the trust deed to amend clause 20(b) so that the trust was not under any liability to indemnify the trustee. I reject his evidence that the amendment was because J & L Developments was not acting in its capacity as trustee when it was seeking to obtain development consent and, having obtained it, to defend it. The fact that J & L Developments was seeking development consent for the Stirling Property Trust from which Mr Viscariello and Ms Hamilton-Smith would benefit as well as the fact that amendment to the trust deed was made just before the hearing in the Land and Valuation Division also belies his evidence.
For these reasons, I find that, at all times after the execution of the contract to purchase 33 Birch Road, the intention of Mr Viscariello and J & L Developments was to construct a dwelling on Birch Road in which Mr Viscariello and his family would reside. I find that, at all times when J & L Developments applied to the Council and contested both the appeal in the Environment Court and in this Court, it acted as trustee for the Stirling Property Trust for the purpose of obtaining a grant of development consent to construct a dwelling on the land at Birch Road and thereby to benefit the trust. I find also that the amendment to the trust deed to delete clause 20(b) was deliberately made for the purpose of seeking to avoid any liability for costs should J & L Developments fail in the appeal by the appellants against the decision of the Environment Court.
The Events of 2006
It is necessary to note later events in 2006 concerning the Stirling Property Trust.
On 15 April 2006, J & L Developments retired as trustee of the trust and appointed Palm Hills trustee in its place. Clause 6(t) of the trust deed invests the trustee with power to appoint a new trustee. The retirement of J & L Developments and the appointment of Palm Hills was effected by a deed executed on 15 April 2006.
On the same day, J & L Developments transferred the land at 33 Birch Road to Palm Hills. The consideration for the transfer was expressed as being “pursuant to a supplemental deed of trust dated 15 April 2006”. There is no trust deed dated 15 April 2006. The only document dated 15 April 2006 is the deed by which J & L Developments retired and Palm Hills agreed to be appointed as the new trustee. I find that is what is meant by “a supplemental deed of trust”.

I find also that the appointment of Palm Hills as trustee of the Stirling Property Trust in place of J & L Developments and the transfer of the land at 33 Birch Road to Palm Hills was also effected with the intent of seeking to distance J & L Developments from any liability for costs.
On 1 May 2006, Mr Viscariello and Mr Nicolaou resigned as directors of J & L Developments and sold their shares to Ms Hamilton-Smith and Ms Smith. On the same day Ms Hamilton-Smith and Ms Smith were appointed directors. No minute or other record of those transactions was proved. The only evidence of those facts was the oral evidence of Mr Viscariello and an extract from the records of ASIC dated 4 September. The extract from ASIC dated 4 September 2006 differs from that of 30 August 2006. I infer that the documents recording the change in the directorships and the sale of the shares were lodged at ASIC between 30 August and 4 September 2006.
Notwithstanding the change in the directors of J & L Developments, Mr Viscariello retained control of the Stirling Property Trust because Palm Hills was trustee of that trust and Mr Viscariello controlled Palm Hills.
On 23 August 2006 Palm Hills entered into a contract to sell 33 Birch Road. The contract provided that settlement was to occur on 6 October 2006. It seems that at that time the transfer from J & L Developments to Palm Hills had not been registered because on 31 August 2006 Palm Hills lodged a caveat claiming an equitable interest in the fee simple as the new trustee.
The Present Application
On 29 September 2006, the appellants and the Council joined in making this application. Among the orders they sought was an order that Palm Hills pay into Court the proceeds of the sale of 33 Birch Road. They also sought an order that Palm Hills be joined as a party to these proceedings, an order that their costs be paid out of the proceeds of sale, or, in the alternative, that J & L Developments is entitled to be indemnified for its liability to costs out of the assets of the Stirling Property Trust. The application was served on both J & L Developments and Palm Hills on 29 September.
Affidavits had been sworn in opposition to the application by Mr Viscariello and Ms Hamilton-Smith. The affidavit of Mr Viscariello contained all the relevant evidence. The affidavit of Ms Hamilton-Smith referred to Mr Viscariello’s affidavit and added other facts. These affidavits were filed on 3 October. They contained evidence of the material facts, in particular the facts outlined earlier in these reasons.
The application was heard by Sulan J on 4 October 2006. Mr Sallis appeared for J & L Developments and Mr Duggan for the appellants and the Council. On behalf of Palm Hills and others, Mr Sallis consented to the following order:
Order
1.By consent and on the basis of a denial of liability by J & L Developments Pty Ltd, the Stirling Property Trust, The Littlehampton Trust, Palm Hills Pty Ltd, the John Viscariello Family Trust, John Viscariello and Tanya Hamilton-Smith, and upon the appellants and second respondent giving the usual undertakings as to damages the parties agree as follows:
(1)     The amount of $92,318.38 be paid into court by Palm Hills Pty Ltd from the proceeds of the sale of the property at 33 Birch Road, Stirling, as soon as practicable following settlement of the sale of such property and that the monies so deposited remain in Court until further order.
(2)     That J & L Developments Pty Ltd by its proper officer file and serve within seven days an affidavit exhibiting the financial statements, tax returns and tax assessments of, first, J & L Developments Pty Ltd in its own capacity and, secondly, in its capacity as the trustee of the Stirling Property Trust for each of the financial periods commencing from 1 June 2004 and, if there are no such financial statements, tax returns and/or tax assessments, the first respondent by its proper officer file and serve within seven days an affidavit verifying that fact.
(3)     That the final orders sought in the notice for specific directions dated 29 September 2006 and filed on that date be adjourned to a date to be fixed.
(4)That the application proceed by way of affidavit evidence.
(5)     That each party file and serve any further affidavits upon which that party seeks to rely within 14 days of today’s date.
(6)     That the question of costs in respect of the application for charging orders and the interlocutory relief sought in the notice for specific directions referred to herein be reserved and be determined by the judge hearing the application.
The fact that Mr Sallis consented to the order on behalf of Palm Hills shows that Palm Hills submitted to the jurisdiction of the Court. Mr Sallis had appeared for it and consented to the order. The contract for the sale of 33 Birch Road was completed. On 9 October 2006, Palm Hills paid the sum of $92,318.38 into Court.
The application was listed for hearing before me on 1 December 2006. On 29 November 2006, J & L Developments filed an application seeking an adjournment of the hearing. I heard the application on 1 December. The application was made on the ground that Mr Viscariello’s mother had died from cancer on 21 October 2006. Because of her illness, J & L Developments had failed to comply with the order of Sulan J requiring affidavits to be filed by 18 October. Sulan J had extended the time to file the affidavits until 3 November. After the death of Mr Viscariello’s mother, Mr McNamara applied by letter dated 6 November 2006 for a further extension of time. The appellants gave notice by letter dated 9 November that they opposed the application and wished the hearing to proceed on 1 December 2006. By letter dated 14 November from their solicitors, the appellants and the Council gave notice to J & L Developments that they sought the financial information ordered by Sulan J. Notwithstanding those events, the application for an adjournment was not made until 29 November.
The facts in support of the application are set out in an affidavit sworn on 29 November 2006 by Mr McNamara, who is the partner of Mr Viscariello in a firm of solicitors. He deposed to the fact that Mr Viscariello had been on bereavement leave from 27 October 2006 until 26 November 2006 and to the fact that between 12 November and 22 November 2006 he had been on a business trip to China with his wife. It was also said that Mr Viscariello wished to place other affidavit evidence before the Court.
No reason was given as to why Mr Viscariello could not have sworn the affidavit. He had returned to South Australia on 22 November and could have sworn the affidavit.
When the application was called on for hearing on 1 December, Mr Sallis appeared for J & L Developments. He applied for an adjournment. He advanced no argument to justify the application. Mr Duggan, who appeared for the appellants and the Council, opposed the application. Mr Sallis informed the court that Mr Viscariello was not present because he was involved in a matter which had been listed for hearing before a judge of the Federal Court of Australia that morning. It transpired that Mr Viscariello could be available a little later that morning. I stood the matter over until after Mr Viscariello had completed the matter before the Federal Court judge. When the matter resumed at 10.30 am, I refused the application for an adjournment. In my view, the application for the adjournment was made in an attempt to delay the hearing. All the relevant facts had been proved in Mr Viscariello’s affidavit filed on 3 October. That was later made clear when Mr Viscariello gave evidence. He did not adduce any new evidence of any moment. Mr Duggan tendered the affidavits in which his clients relied. Mr Sallis tendered the affidavits on which J & L Developments relied. I then adjourned again in order to give Mr Sallis an opportunity to confer with Mr Viscariello before Mr Viscariello was called to be examined on his affidavit. Mr Sallis was content with that course. He said he was “more than happy with that”. The hearing then proceeded after the adjournment.
On 18 December 2006 the solicitors for J & L Developments informed the Court that the company had been placed in voluntarily administration. I do not have regard to that fact as it occurred after the application had been heard and judgment had been reserved.
It is against that background that the applicants seek payments of their costs out of the proceeds of the sale of 33 Birch Road. There are two routes by which the Court may order that the appellants and the Council are entitled to be paid their costs out of the proceeds of the sale of 33 Birch Road.
A Subrogated Right
A trustee is personally liable for debts incurred in carrying on the business of the trust: Vacuum Oil Company Pty Ltd v Wiltshire (1945) 72 CLR 319 at 324. Equity has provided for the circumstances in which a right of indemnity is available to a trustee. A trustee is entitled to be indemnified from trust funds for the discharge of liabilities incurred in the authorised conduct of the trust: Worrall v Harford (1802) 8 Ves Jun 4 at 8; 32 ER 250 at 252; Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 371; Kemtron Industries Pty Ltd v Commissioner of Stamp Duties [1984] 1 Qd R 576 at 584-586. The right extends to the payment of the costs of an action which are properly incurred: National Trustees Executors and Agency Co of Australasia v Barnes (1941) 64 CLR 268. The right to indemnity is implied in the trust. Lord Eldon described that right in these terms in Worrall v Harford (at 8).
It is in the nature of the office of a trustee, whether expressed in the instrument, or not, that the trust property shall reimburse him all the charges and expenses incurred in the execution of the trust. That is implied in every such deed.
The question then arises whether the amendment made to the trust deed for the Stirling Property Trust on 1 June 2004 providing that the trustee could not be indemnified out of the trust assets is valid or enforceable. I have already found that the amendment was made for the purpose of defeating any liability for costs. The amendment may, therefore, be void against the liquidator: s 565(1) of the Corporations Act 2001 (Cth). In addition, Mr Viscariello as a director of a company acting as a trustee is liable to discharge the whole of the liability for costs: s 197 of the Corporations Act. However, neither of these remedies avails the appellants and the Council. They seek to recover their costs against the trust assets.
There is a division of judicial opinion on the question whether the trustee’s right to an indemnity under the general law can be excluded by the trust instrument. In Kemtron McPherson J (with whom Andrews SPJ agreed) relied on Worrall v Harford and held that the right of the trustee to indemnity from the trust assets is an incident of the office of trustee and is inseparable from it so that it is probably not capable of being excluded. He noted also that his view was reinforced by s 65 of the Trusts Act 1973 (Q) which provides that the right to such indemnity could not be excluded by the trust instrument. He affirmed that decision in Jessup v Queensland Housing Commission [2002] 2 Qd R 270 at 275. In JA Pty Ltd v Johnco Holdings Pty Ltd (2001) 33 ACSR 691 at [87] Santow J followed Kemtron.
In RWG Management Ltd v Commissioner for Corporate Affairs(Vic) [1985] VR 385 Brooking J came to a contrary view treating it as a matter of contract. If willing to accept appointment on those terms, the trustee could agree to an exclusion of the indemnity. He said (at 395):
So far as the trustee’s own position is concerned, although the right of indemnity out of assets has been described as arising out of the nature of the office of trustee, and as inseparable from it, I doubt whether this means any more than that the character of the office makes it unjust to throw burdens upon the trustee without at the same time enabling him to be reimbursed or exonerated out of the trust property. Hardoon v Belilios [1901] AC 118 grounds the trustee’s right to be indemnified by the beneficiary upon this same broad notion of justice. The Judicial Committee accepts, at p. 127, that the beneficiary’s obligation can be excluded, and it is difficult to see why the right against the trust estate should stand in a different position. Observations in Re German Mining Co; Ex parte Chippendale (1854) 4 De GM & G 19 at p.52; 43 ER 415 at p. 427 suggest that exclusion is possible. If a trustee is willing to accept office where the trust instrument ousts his indemnity, I do not see why he should not be free to do so.
That conclusion, he added, was reinforced by the fact that the terms of s 36(2) of the Trustee Act 1958 (Vic), which provided statutory recognition of the entitlement of the rule giving trustee an indemnity, was qualified by s 2(3) of that Act which stated that the powers conferred by s 36(2) only applied to the extent that a contrary intention is not expressed in the statutory instrument.
As these decisions indicate, the issue turns to a large extent on the terms of the relevant statutory provisions. Section 35(2) of the Trustee Act 1936 of this State is expressed in these terms:
A trustee may reimburse himself, or pay or discharge out of the trust premises, all expenses incurred in or about the execution of his trust or powers.
The Trustee Act does not contain any other provision which qualifies the operation of s 35(2). Section 35(2) has been enacted not only in the interests of trustees and beneficiaries but also in the public interest recognising, among other things, that the indemnity available to a trustee will also avail creditors of the trust. The amendment to clause 20(b) seeks to prevent the operation of s 35(2) and is, therefore, contrary to public policy. A contract is not enforceable if its enforcement would be opposed to public policy: Mogul Steamship Company v McGregor, Gow and Co [1892] AC 25 at 39, 51; see also the discussion of the principle by Jordan CJ in re Jacob Morris deceased (1943) 43 SR (NSW) 352 at 355-357. “Everyone may waive the advantage of a law made solely for the benefit or protection of him as an individual in his private capacity, but this cannot be done if the waiver would infringe a public right or public policy”: Bowmaker, Limited v Tabor [1941] 2 KB 1 at 6. As s 35(2) is a provision which is available for the benefit of creditors as well as trustees. It is not, therefore, a provision which may be waived by a trustee. For these reasons, to the extent that the deed executed on 1 June 2004 purported to exclude the capacity of J & L Developments as trustee to be indemnified by the trust assets, it is unenforceable. J & L Developments is, therefore, entitled to be indemnified from trust funds for the discharge of liabilities incurred in the authorised conduct of the trust.
An allied proposition is that a creditor to whom a trustee has incurred a liability in the proper administration of the trust is entitled to be subrogated to the trustee’s right of indemnity and to enforce that liability directly against the trust property: re Johnson (1880) 15 Ch D 548; re Raybould [1900] 1 Ch 199 at 201-202; Marginson v Ian Potter & Co (1976) 136 CLR 161 at 175-176; Octavo Investments Pty Ltd v Knight (supra). In re Johnson, Sir George Jessel MR permitted creditors of a trading trust to recover liabilities due to them directly against the trust assets. In his view, it was a corollary to the principle by which persons are allowed to follow trust assets. He said (at 552):
The trust assets having been devoted to carrying on the trade, it would not be right that the cestui que trust should get the benefit of the trade without paying the liabilities; therefore the Court says to him, You shall not set up a trustee who may be a man of straw, and make him a bankrupt to avoid the responsibility of the assets for carrying on the trade: the Court puts the creditor, so to speak, as I understand it, in the place of the trustee.
The right of a creditor to be subrogated to the trustee’s right of indemnity in this way exists whether the trust is created by will or inter vivos: re Johnson at 552. As the creditor’s right to be paid out of the trust assets is derivative, it follows that the creditor has no higher right than the trustee to indemnity: ex parte Edmonds (1862) 4 De GF & J 488 at 498; 45 ER 1273 at 1277, and the creditor may claim against the trust assets only to the extent of the amount the trustee could claim out of those assets: re Johnson at 552; re Staff Benefits Pty Ltd [1979] 1 NSWLR 207.
I have already found that J & L Developments acted for the purpose of seeking development consent to construct a dwelling on the land at 33 Birch Road and, having obtained it, sought to defend the order granting that consent. Given that the intent of the trust was that a building should be constructed on the land at 33 Birch Road, it is clear that, at all times, J & L Developments was acting properly in the discharge of its duties as trustee. The order for costs was made in this action at a time when J & L Developments was registered proprietor of the land at 33 Birch Road. Given the fact that J & L Developments is unable to discharge the liability for costs, the appellants and the Council are entitled to recover their costs out of the trust asset, that is to say, the land at 33 Birch Road.
The fact that J & L Developments has transferred the land to Palm Hills does not affect the ability of the appellant and the Council to recover their costs against the trust asset. The transfer was not made for valuable consideration to a stranger without notice of the trust. Instead, the transfer was made because Palm Hills had been appointed trustee of the Stirling Property Trust in place of J & L Developments and it had been decided the transfer of the land from one trustee to the other. Palm Hills became the owner of the land with express notice of the trust. The appellants are, therefore, able to trace into the hands of Palm Hills. They are therefore entitled to cover their costs from the trust asset held by Palm Hills as trustee for the Stirling Property Trust. As that asset has been sold and the proceeds can be traced to an ascertained account, the appellants and the Council are entitled to recover their costs from the proceeds of the sale.
The fact that the trustee has changed and the land has been transferred does not cause the appellants and the Council to lose their right of subrogation because the liability for costs was incurred when J & L Developments was trustee. What occurred thereafter was the crystallisation of that liability by the taxation of the costs. The liability for costs arose when J & L Developments was trustee and the applicants are, therefore, entitled to enforce the liability against the trust assets notwithstanding that, on 15 April 2006, Palm Hills was appointed trustee and the land at 33 Birch Road was transferred to it.
For those reasons, I will make an order joining Palm Hills as a defendant and a further order that Palm Hills pay the costs due to the applicants out of the proceeds of sale of 33 Birch Road.
A Non-Party to Pay Costs
The second route by which the same order can be made is founded on the court’s power to award costs against a non-party.
The power to order costs is vested in the Court by s 40(1) of the Supreme Court Act 1935 which provides:
Subject to the express provisions of this Act, and to the rules of court, and to the express provisions of any other Act whenever passed, the costs of and incidental to all proceedings in the court, including the administration of estates and trusts, shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and to what extent such costs are to be paid. (Emphasis added).
The emphasised words at the end of s 40(1) plainly invest the Court with a very wide discretion as to costs. As these proceedings had begun before the Supreme Court Rules 2006 had come into operation, s 40(1) is subject to Rule 101 of the Supreme Court Rules 1987. There is nothing in Rule 101 which qualifies the width of the discretion in any respect relevant to this application.

For all relevant purposes, s 40(1) is in the same terms as s 51(1) of the Supreme Court Act 1981 (UK) which was considered by the House of Lords in Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965. Lord Goff of Chieveley (with whom the other Law Lords agreed) emphasised (at 975) the width of the discretion invested in a court by s 51(1). Lord Goff went on to criticise a limitation which courts had introduced that they should only award costs against a person who was a party to the proceedings. After noticing decisions where costs had been awarded against a solicitor, he held that there was no such limitation on the width of the discretion. He said (at 980):
The existence of these cases adds weight to his submission that no implied limitation with reference to the word “party” can be read into the broad terms of the statute; though, had these cases stood alone, I would perhaps have been unwilling to rely on such special cases as the sole justification for rejecting the previous authorities in the Court of Appeal. I prefer to proceed upon the broader ground, that there is no basis for the proposed implied limitation upon the express words of the statute; and, on that basis, I am happy to rely upon these special cases in support of that broader approach.
He concluded (at 981):
I do not, for my part, foresee any injustice flowing from the abandonment of that implied limitation. Courts of first instance are, I believe, well capable of exercising their discretion under the statute in accordance with reason and justice. I cannot imagine any case arising in which some order for costs is made, in the exercise of the court’s discretion, against some person who has no connection with the proceedings in question. If any problem arises, the Court of Appeal can lay down principles for the guidance of judges of first instance; or the Supreme Court Rule Committee can propose amendments to the Rules of the Supreme Court for the purpose of controlling the exercise of the statutory power vested in judges subject to rules of court.
In Knight v F P Special Assets Ltd (1992) 174 CLR 178 a majority of the High Court agreed with Lord Goff. Mason CJ and Deane J (with whom Gaudron J agreed) added the rider that the wide discretion must be exercised judicially and in accordance with general legal principles pertaining to awards of costs.
Mason CJ and Deane J identified an instance where an order for costs should be made against a non-party:
For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made.
The present case does not fall precisely within that prescription. This is a case where a trustee held an asset as trustee and engaged in litigation on behalf of and for the benefit of the trust and the trust asset. The trustee has disposed of the trust asset in order to avoid any liability for costs. However, the discretion invested in the Court is sufficiently wide for the Court to go behind the dealings in the trust asset and order that the costs be paid out of the proceeds out of the sale of that asset. The fact that it is possible to trace the trust asset through to the proceeds of sale reinforces the propriety of doing so. The Court will not stand by and allow a corporate trustee deliberately to divest itself of the only asset of the trust in order to defeat the successful parties from recovering their costs. Each of the transactions, that is to say, the amendments to clause 20(b) of the trust deed, the appointment of a new trustee and the transfer of the land to Palm Hills, was each a step taken with the clear intent of avoiding any liability to costs. It is because every step in relation to the obtaining of planning consent and, once having obtained it, every step was taken to defend the grant of development consent was a step taken for and on behalf of the trust, that it is proper for the trust assets be available for the payment of the costs ordered against the trustee. In making such an order, the Court is recognising that the amendment to clause 20(b) is unenforceable and giving effect to the principles by which a creditor of a trust is entitled to be subrogated to the trustee in being indemnified out of the assets of the trust.
Conclusion
For these reasons, there will be an order joining Palm Hills as a respondent to these proceedings and a further orders that the costs of the appellants and the Council be paid out of the proceeds of sale which have been paid into Court.