Re Australia's Residential Builder Pty Ltd (in liq)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS’ LIST

S CI 2014 03528

BETWEEN

AUSTRALIA’S RESIDENTIAL BUILDER PTY LTD (IN LIQ)	First Plaintiff
RICHARD TRYGVE ROHRT IN HIS CAPACITY AS JOINT AND SEVERAL LIQUIDATOR OF AUSTRALIA’S RESIDENTIAL BUILDER PTY LTD (IN LIQ)	Second Plaintiff
v
ROBERT WIEDERSTEIN	First Defendant
RAYMOND FRANCIS DE WEERD	Second Defendant
BRONWYN WIEDERSTEIN	Third Defendant

AND

WIEDERSTEIN CORPORATION PTY LTD (IN LIQ) AS THE FORMER TRUSTEE OF THE WIEDERSTEIN CORPORATION PTY LTD

Third Party

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	28 November 2018
DATE OF JUDGMENT:	26 March 2019
CASE MAY BE CITED AS:	Re Australia’s Residential Builder Pty Ltd (in liq)
MEDIUM NEUTRAL CITATION:	[2019] VSC 115

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CORPORATIONS – Appeals against decision of an Associate Justice – Whether liquidator of company A had equitable lien akin to Universal Distributing lien against assets of company B paid into Court – Liquidator of company A incurred expense in having moneys of company B paid into Court to allow company A to claim lien over the moneys – Atco Controls Pty Ltd (in liq) v Stewart (in his capacity as liquidator of Newtronics Pty Ltd [2013] VSCA 132 applied – Whether company A moneys taken by director in breach of duties and used to pay a debt due to company B could be traced to company B – Whether tracing available where funds acquired by a bona fide purchaser for value without notice – Whether deed of settlement of trustee with bank creditor deprived trustee of right to indemnify itself from trust assets – Appeals dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr I W Upjohn QC with Mr E Moon	Thomas Egan & Associates
For Wiederstein Corporation Pty Ltd (in liq)	Mr A J Purton	Mills Oakley

TABLE OF CONTENTS

Introduction.......................................................................................................................... 1
The Coomera Joint Venture............................................................................................... 1
The Payments to the Coomera Joint Venture.................................................................. 2
Procedural history............................................................................................................... 4
The relevant issues before the associate justice.............................................................. 4
Submissions of ARB on tracing......................................................................................... 6
Submissions of WC on tracing........................................................................................... 9
Resolution of tracing issue............................................................................................... 11
Bona fide purchaser for value without notice............................................................... 12
Equitable lien..................................................................................................................... 15
The principle in Universal Distributing......................................................................... 16
Liens beyond Universal Distributing............................................................................. 25
Conclusion.......................................................................................................................... 33
Does the existence of a deed of settlement affect the rights to the funds in court?. 34
Application for security for costs.................................................................................... 37

HIS HONOUR:

Introduction

This is an appeal from the decision of an associate justice.[1] The associate justice, Randall AsJ, had before him an application for payment out of funds paid into court.
[1]Australia’s Residential Builder Pty Ltd (In Liq) & Anor v Robert Wiederstein & Ors [2018] VSC 37 (‘ARB v Wiederstein’).

The first group of claimants to the fund comprised Australia’s Residential Builder Pty Ltd (in liq) (‘ARB’); ARB Developments Pty Ltd (in liq) (‘ARBD’); and Richard Rohrt as liquidator of ARB and ARBD. Unless it is necessary to distinguish between ARB and ARBD, I will refer to them as ARB. The second claimant to the fund was Wiederstein Corporation Pty Ltd (in liq) (‘WC’). The third claimants to the fund were Bronwyn Wiederstein and Wiederstein Corporation No 1 Pty Ltd as trustee of the Wiederstein Superannuation Fund.

Robert Wiederstein and Raymond De Weerd, the first and second defendants in these proceedings, were at relevant times directors of ARB. Robert Wiederstein was also a director of ARBD at relevant times. ARBD acted as the trustee of the ARB Developments Unit Trust. On 7 August 2013, the directors of ARB appointed Richard Rohrt and Leigh Dudman as joint and several administrators of ARB. On 11 September 2013, Mr Rohrt and Mr Dudman were appointed joint and several liquidators of ARB. ARBD was also wound up in insolvency and Mr Rohrt was appointed liquidator.

Robert Wiederstein and his wife Bronwyn, the third defendant in these proceedings, were directors of WC. WC was the trustee of various trusts, including the Wiederstein Investment Trust (‘WIT’), until WC was wound up on 31 July 2014.

The Coomera Joint Venture

These proceedings arise from a land development joint venture in Coomera, Queensland. Coomera Joint Venture Pty Ltd (‘CJV’) was incorporated on 10 March 2005 for the purpose of undertaking a development of land in Coomera. The Coomera Joint Venture was then constituted by a joint venture agreement entered into on 5 April 2015. The joint venture was to undertake the development of three pieces of land in Queensland. It was proposed to develop more than 1,000 dwellings, in addition to other commercial ventures.

Under the terms of the joint venture agreement, the land was purchased by the joint venturers contributing $5.2 million, with the remainder being borrowed by CJV from the National Australia Bank (‘NAB’) to complete the purchase. Further, pursuant to the joint venture agreement, the joint venturers were required to contribute to the joint venture from time to time. This was done by way of payment to the joint venture of such amounts as nominated by the CJV. If a joint venturer failed to pay any of the nominated amounts, the other joint venturers were entitled to require that joint venturer dispose of their entire interest by sale to other joint venturers, in proportion to their interests.

The Payments to the Coomera Joint Venture

WC, as trustee for WIT, was not an original joint venturer. In November 2005, in consideration of payment of $250,000, WC purchased two 1.5625 per cent interests in the joint venture, making a total of 3.125 per cent.

In December 2006, a joint venturer sold its interest in the joint venture and WC paid $21,237.12 for a further 0.1933 per cent interest, thereby increasing its total interest to 3.3183 per cent.

The joint venture was impacted by the Global Financial Crisis. In the period up to about mid-2009, interest on the debt owed by CJV to its lender, NAB, was capitalised. CJV advised the joint venture parties that from time to time it intended to service the debt and make quarterly calls of $170,000.

The first quarterly call was not made until January 2010. WC made payment of two quarterly calls on 18 June 2010.

During 2010, CJV and NAB were in negotiations. NAB proposed to move to a loan to valuation ratio (‘LVR’) of 75 per cent by December 2010 and 50 per cent by the end of April 2011.

By 31 December 2010, however, there was barely $600,000 of equity in the project. The land was valued at $9.5 million and CJV owed NAB $8,831,956.49.

On 19 January 2011, CJV issued a call for the payment of $2,903,800 by 15 February 2011. Under this call, WC was required to pay $96,406.16. On 8 February 2011, CJV advised that the call was reduced to $2,663,800 to be paid by 15 February 2011. WC’s share of this reduced call was $88,438.16.

At all relevant times, CJV operated accounts with NAB, including a current account BSB 083-004 number 5816 41577 (‘current account’) and a matured facility account BSB 083-004 number 17 687 3390 (‘matured facility account’). CJV requested WC make payment to its current account maintained with NAB.

On 28 February 2011 and 1 March 2011, Mr Wiederstein caused ARB and ARBD to pay a total of $88,438.16 to CJV’s current account with NAB pursuant to the call. On 1 March 2011, CJV transferred a sum of $1,838,004.56 from the current account to the matured facility account. The matured facility account was overdrawn and the payment reduced the debt owing to NAB by CJV from $8,963,004.56 to $7,125,000.00.[2]
[2]Exhibit RTR 40.

In the period between 28 February 2011 and 20 September 2012, pursuant to calls on WC, $113,598.16 was transferred from ARB’s bank account to the CJV current account and $102,643.40 was transferred from ARBD’s bank account to the CJV current account, totalling $216,241.56.

As mentioned above, under the joint venture agreement, if a joint venturer defaulted in payment of calls then the other joint venturers could require that defaulting joint venturer to dispose of its entire interest by sale to the other joint venturers in proportion to their interests. Subsequent calls were made on WC by CJV, which WC failed to meet. CJV issued a default and sale notice and WC’s interest in the joint venture was sold in 2015, in circumstances which are detailed further below.

Procedural history

In these proceedings, the plaintiffs are ARB and Richard Rohrt in his capacity as joint and several liquidator of ARB. The defendants are Robert Wiederstein, Raymond Francis de Weerd and Bronwyn Wiederstein.

On 17 July 2014, ARB obtained from Ginnane J a freezing order against Robert Wiederstein and Bronwyn Wiederstein.

On 22 September 2014, the freezing order was amended by McMillan J to prevent Bronwyn Wiederstein from dealing with assets up to a certain unencumbered amount. The amount of the freezing order against Bronwyn Wiederstein was increased from $434,500 to $1,227,920.65. The amount of the order made against Robert Wiederstein remained at $9,000,000.

On 18 June 2015, CJV made an application to vary the freezing order to permit CJV to sell WC’s interest in the Coomera Joint Venture. On 14 August 2015, the orders were varied by McMillan J by consent to permit CJV to sell WC’s interests in the Coomera Joint Venture and to require CJV to pay the sum of $200,000 into court. That sum was paid into court on 11 December 2015.

On 22 January 2016, Gardiner AsJ made orders that ‘on or before 19 February 2016, any party to these proceedings and any other person (including those served with a copy of the orders made on 14 August 2015) who or which claims an interest in the Moneys in Court shall file and serve points of claim setting out such claim, together with an affidavit in support’.[3]
[3]CB 475.

The relevant issues before the associate justice

Before Randall AsJ, ARB and ARBD claimed that the moneys used by WC to meet calls by CJV were wrongly taken from ARB and ARBD and thus were held on constructive trust by WC for ARB and ARBD. ARB and ARBD claimed that they were able to trace the moneys into the chose in action that WC held in the Coomera Joint Venture, which is now the moneys in court.

Randall AsJ held that Mr Wiederstein had breached his duty as a director in using moneys of ARB and ARBD to meet calls that were made on WC by CJV.

The associate justice found that the moneys used to meet the calls were not used to acquire the chose in action representing WC’s interest in the joint venture, as WC’s interest in the joint venture already existed at the time the calls were made. Rather, the payments made to the joint venture account were used primarily towards debt reduction. (In that period, the debt owed by CJV to NAB reduced from $8,963,004.50 to $4,759,000.[4])
[4]ARB outline of submissions at [33].

His Honour found that the moneys of ARB and ARBD that were paid into the joint venture first went into CJV’s current account that was in credit, before being transferred into the overdrawn matured facility account. As mentioned, the associate justice also held, for the purposes of tracing, that the relevant asset was not the chose in action representing WC’s interest in the joint venture, but rather the bank account into which the money was paid. The associate justice found that, in those circumstances, ARB and ARBD were not able to claim a proprietary interest in the assets of the joint venture, as the tracing claim was lost by reason of the money being used to discharge a debt or otherwise dissipated. His Honour supported his decision by reference to several authorities.[5] His Honour therefore rejected the tracing claim. ARB and ARBD appeal against this order.
[5]Re French Caledonia Travel Services Pty Ltd (2003) 59 NSWLR 361; James Roscoe (Bolton) Ltd v Winder [1915] 1 Ch 62; Re Goode (1974) 4 ALR 579; Rea v Russell [2012] NSCA 536; Russell Gould Pty Ltd v Ramangkura (2014) 87 NSWLR 552; Conlan v Registrar of Titles (2001) 24 WAR 299; Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135.

Mr Rohrt, the liquidator of both ARB and ARBD, claimed a lien over the proceeds of the sale of WC’s interest in the Coomera Joint Venture on equitable grounds, as he had expended time and expense on having the moneys preserved by being paid into court and also in augmenting the amount paid into court. Applying the principles in Re Universal Distributing Co Ltd (in liq) (‘Universal Distributing’),[6] Randall AsJ upheld this claim and found that Mr Rohrt had a lien over $25,000 of the funds in court. WC appeals against this finding.
[6](1933) 48 CLR 171 (‘Universal Distributing’).

ARB and ARBD also claim that under a deed of settlement entered into between WC, NAB and others, WC released all claims over the funds in court. The associate justice rejected this claim. ARB and ARBD appeal against this order.

I was provided with two appeal books and an appeal book supplement.[7] Also coming before me was an amended interlocutory process, seeking orders that ARB and ARBD give security for the costs of the appeal by way of bank guarantee in the amount of $12,697.
[7] I received ARB and ARBD’s submissions on appeal dated 15 October 2018; ARB and ARBD’s submissions in reply dated 26 November 2018; ARB and ARBD’s security for costs submissions dated 26 November 2018; WC’s outline of submissions dated 13 November 2018; and WC’s outline of submissions on security for costs dated 13 November 2018.

Although the appellants included Mr Rohrt, I was informed by Mr Purton of counsel for the plaintiffs that ARBD was, in substance, a plaintiff and appellant, and not Mr Rohrt.

I reserved my decision on the application for security for costs.[8]
[8]Transcript of Proceedings (28 November 2018) 28.12.

Submissions of ARB on tracing

Mr Upjohn, senior counsel for ARB and ARBD, submits that the associate justice fell into factual error in finding that the moneys were paid into the matured facility account. ARB submits that the moneys were paid into the current account and then transferred by CJV to the matured facility account. ARB further contends that the associate justice, contrary to the evidence before him, found that the CJV current account was a ‘loan account with a debt facility’.

I reject this submission. The associate justice held that ‘[the call] was paid directly to CJV, which was then applied to meet the loan. The funds were deposited in an account entitled “Coomera Joint Venture Pty Ltd”. This is a loan account with a debt facility’. By these statements, I understand that the associate justice found that the moneys were paid directly to CJV’s current account by ARB, and that the moneys were subsequently deposited or transferred, by CJV, into the matured facility account which was a loan account with a debt facility. This is consistent with the evidence.

ARB also submits that the associate justice failed to properly analyse the nature of WC’s interest in the joint venture, by failing to consider the effect of the repeated calls made by CJV on WC. ARB submits that, had a proper analysis been conducted, Randall AsJ would have found that WC’s continued interest in the joint venture was subject to payment of the calls made by CJV, and that, if the calls were not made, CJV could sell WC’s interest in the joint venture (as eventually happened). ARB contends that the effect of the joint venture agreement was that WC was obliged to remit moneys to CJV to maintain its interest in the joint venture. To put it another way, WC’s interest in the joint venture was conditional on it meeting the calls. As discussed above, ARB contends that Mr Wiederstein caused ARB to pay a total of $216,241.56 to maintain WC’s interest in the joint venture, but only $200,000 was paid by CJV into court.

ARB submits that, viewed in this way, the calls were akin to the insurance premiums paid in Foskett v McKeown.[9] In that case, moneys were applied in breach of express trusts to maintain a policy of life insurance. The insured committed suicide and the insurer paid a benefit of £1 million to his children. The beneficiaries of the trusts claimed a pro-rata share in the benefit of the policy on the basis that their funds were used to make two out of five premium payments. Accordingly, they sought to recover 40 per cent of the policy entitlements. The beneficiaries also claimed the return of the moneys on an account of the premiums paid by the insured in breach of trust. By a cross-appeal, the children of the insured sought a declaration that the beneficiaries had no rights in the policy moneys.
[9][2001] 1 AC 102 (‘Foskett v McKeown’).

ARB submits that its case only relies on that part of Foskett v McKeown which deals with the return of moneys paid to the insurer as premiums in breach of trust and not the treatment of the £1 million benefit.

In Foskett v McKeown, Steyn LJ stated that it was self-evident that there must be a right to recover the stolen moneys used for payment of the fourth and fifth premiums, and that equity’s method of achieving the necessary result was to impose a lien or charge over the stolen money.[10]
[10]Ibid 113 [F].

Millett LJ explained that tracing focuses not on following physical assets but the value inherent in those assets:

Tracing is neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property.[11]

[11]Ibid 128 [D].

Where there is a mixed substitution, that is, where a trustee buys property partly with his own money and partly with trust money, the beneficiary has the option of taking a proportionate part of the new property or a lien upon it, as may be most advantageous. Millett LJ stated the basic rule as follows:

Where a trustee wrongfully uses trust money to provide part of the cost of acquiring an asset, the beneficiary is entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money. It does not matter whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments (whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset.[12]

[12]Ibid 131 (emphasis in original).

In relation to the lien, Millett LJ continued:

[T]he beneficiary’s right to claim a lien is available only against a wrongdoer and those deriving title under him otherwise than for value … Common to both is the principle that the interests of the wrongdoer who was responsible for the mixing and those who derive title under him otherwise than for value are subordinated to those of innocent contributors. As against the wrongdoer and his successors, the beneficiary is entitled to locate his contribution in any part of the mixture and to subordinate their claims to share in the mixture until his own contribution has been satisfied. This has the effect of giving the beneficiary a lien for his contribution if the mixture is deficient.[13]

[13]Ibid 132 [A]–[B].

Hope LJ held that there was no difficulty to the reimbursement of the moneys taken by the insured, and dismissed the cross-appeal.[14]
[14]Ibid 119 (Browne-Wilkinson LJ agreeing at 108 and Millett LJ agreeing at 145. Hoffmann LJ agreeing with Millett LJ at 115).

ARB contends that the calls met by using the moneys of ARB were akin to the premiums paid in Foskett v McKeown. That is, the payments were made to preserve WC’s interests in the joint venture just as the payments of premiums preserved the insured’s interest in the insurance policy.[15]
[15]Prior to the publishing of these reasons, counsel for each of the parties also drew my attention to the decision of the Queensland Court of Appeal in Hanson v Goomboorian Transport Pty Ltd [2019] QCA 41, which was handed down on 12 March 2019 and which considers Foskett v McKeown in the context of life insurance policies.

Submissions of WC on tracing

In response to ARB’s submissions, WC submits as follows. WC submits that tracing is a process of substitution. In The Law of Tracing, the learned author states that:

Tracing identifies a new thing as the potential subject matter of a claim, on the basis that it is the substitute for an original thing which was in itself the subject matter of a claim. The new thing, as a substitute, stands in the place of the old thing, and therefore can be subject to the same claims.[16]

[16]Lionel D Smith, The Law of Tracing (Oxford University Press, 1997), 6.

In contrast, WC contends that ‘following’ is the process of following the same asset as it moves between people. WC refers to Foskett v McKeown, where Lord Millett held that:

Following is the process of following the same asset as it moves from hand to hand. Tracing is the process of identifying a new asset as the substitute for the old. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner. In practice his choice is often dictated by the circumstances.[17]

[17]Foskett v McKeown (n 9) 127. See Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75, [133] where the passage was applied by the New South Wales Court of Appeal.

WC submits that the process for tracing and for following requires the identification of the relevant asset. For following, this is a straightforward exercise because the asset remains the same. For tracing, it can be more difficult to identify the ‘new asset’ which is said to represent the value of the old asset.

WC says that in Foskett v McKeown, the relevant asset was money that had been provided to ‘M’ on trust for the purchasers of plots of land for a development in Portugal. The land was purchased but not developed and ‘M’ used the trust funds to pay instalments under a life insurance policy. In the circumstances of the case, the purchasers did not seek to ‘follow’ the money because it was unidentifiable once it reached the bank. Rather, the purchasers sought to trace the money into a substitute thing, being the policy of insurance.

WC agrees that the relevant test is that stated by Lord Millett in Foskett v McKeown extracted at [39] above.

WC submits that, according to Millett LJ, tracing focuses not on following physical assets but the value inherent in those assets. Accordingly, WC submits that tracing is neither a claim nor a remedy but a process by which a plaintiff demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them and justifies his claim that the proceeds can properly be regarded as representing his property.[18]
[18]Foskett v McKeown (n 9) 128.

Resolution of tracing issue

It was not submitted in this case that the relevant asset could be ‘followed’, that is, that the original asset remains and can be followed as it moves from hand to hand. Accordingly, the principle of tracing requires that a new asset be identified which is the substitute for the original asset, and which is subject to the same claim.

In this case, the original thing or asset was money that was deposited in CJV’s current account. This money was then transferred to CJV’s matured facility account that was overdrawn.

ARB submits, as a matter of law, that it was payment into CJV’s current account (which was in credit) which matters, not what CJV thereafter did with the monies. However, no authorities were provided in support of this contention. WC, in response, submits that this is a distinction without difference, as ultimately, the monies were paid into an overdrawn account and dissipated.

Clearly, when moneys are paid into an overdrawn account of a business the equity in the business rises as the level of debts it owes decreases. The relevant authorities hold, however, that when moneys are paid into an overdrawn account, there is no new asset created. In Russell GouldPty Ltd v Ramangkura,[19] Barrett JA held that:

Importantly, neither the common law nor equity allows money to be traced into a bank account which is overdrawn and remains so after the money is paid into it. The rationale was explained by the Court of Appeal of New Zealand (O’Regan P, French and Asher JJ) in Rea v Russell [2012] NZCA 536 at [43]:
[43] In the case of a payment into an overdrawn account, there is no new asset created, as there is no debt of the bank to the account holder that is created, and the account holder gains no chose in action against the bank. Instead, the account holder’s debt to the bank is in whole or in part repaid. The monies paid by the account holder can no longer be identified and there is no property or replacement asset that can be restored.

[19](2014) 87 NSWLR 552, [33].

ARB would have it that, although no new asset was created, the value of the original asset (that is, WC’s interest in the joint venture) was preserved, as the payment avoided the asset being sold. The authorities do not extend the concept of tracing to such a situation. The essential element is either following the asset itself or identifying a new asset that has been substituted for the old. In Foskett v McKeown, the stolen moneys were used to purchase the policy of insurance and the beneficial owners of the stolen money were thereby able to trace the money into the policy of insurance. ARB is unable to follow the original asset or identify a new asset.

Accordingly, I reject this ground of appeal.

As I have rejected the tracing argument, there is no need to review his Honour’s decision on whether the funds loaned by ARB to WC were held by WC subject to a constructive trust in favour of ARB.

Bona fide purchaser for value without notice

Before passing from this topic, I should mention that neither party sought to argue that tracing would not be available to ARB and ARBD as the moneys transferred from WC to CJV were received by a bona fide purchaser for value without notice, even though each party cited Millett LJ in Foskett v McKeown where he refers to tracing being available to ‘those who derive title under him otherwise than for value’ (my emphasis).

Where a trustee uses trust funds to purchase goods for his own use from someone without notice of the fraud, the beneficiaries’ right to follow the money would be gone.[20] There was no suggestion in this case that CJV knew, or ought to have known, or otherwise had notice, that the moneys it received in payment of the outstanding call had been misappropriated from ARB and ARBD, or that knowledge or notice of the breach of trust should be imputed to CJV.[21]
[20]See discussion in J D Heydon and M J Leeming, Jacobs’ Law of Trust in Australia (LexisNexis Butterworths, 8^th ed, 2016) 615.
[21]For a fuller discussion see J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis, Butterworths, 5^th ed, 2015) [8-240]–[8-300] .

CJV provided consideration in that the debt owed to CJV by WC was discharged by receipt of the payment. According to The Law of Tracing:[22]

The value which must be given by a bona fide purchaser in order to support the defence is usually construed widely. It is not limited to new value, but includes the discharge of an antecedent debt. Thus, the defence is clearly available to a bank which receives money in discharge of an overdraft or some other debt.

[22]Smith, The Law of Tracing (n 16) 389 (citations omitted).

Equity: Doctrines and Remedies likewise provides that ‘[t]he satisfaction of an existing debt is consideration for the purpose of this defence’ [i.e. in the context of priorities between a legal estate and an equity, a bona fide purchaser of legal estate for value without notice].[23] The Law of Tracing cites various authorities in support of the proposition that the discharge of debt constitutes valuable consideration for the purpose of the relevant principle, including Thomson v Clydesdale Bank Ltd (‘Thomson v Clydesdale’).[24] Thomson has been referred to subsequently on a number of occasions by Australian courts.[25]
[23]Heydon, Leeming and Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (n 21) 353 [8-250], citing Thorndike v Hunt (1859) 3 De G & J 563; 44 ER 1386; Taylor v Blakelock (1886) 32 Ch D 560, 568, 570. For example, ‘By common law of this country the payment of an existing debt is a payment for valuable consideration’: Taylor v Blakelock (1886) 32 Ch C 560, 570(Bowen LJ).
[24][1893] AC 282 (‘Thomson v Clydesdale’); Northern Counties of England Fire Insurance Co. v Whipp (1884) 26 Ch D 482, 495–6; Re Cohen and Mahlin [1927] 1 WWR 162, 167–8.
[25]Creak v James Moore & Sons Pty Ltd (1912) 15 CLR 426, 440 (Isaacs J); Linter Group Ltd v Goldberg (1992) 7 ACSR 580, 593–4 (Southwell J). See also Fistar v Riverwood Legion and Community Club Ltd (2016) 91 NSWLR 732, 749 [81] (Leeming JA, Bathurst CJ agreeing at 734 [1], Sackville AJA agreeing at 750 [88]).

It should be noted, however, that the line of authority above does not suggest that any receipt of misused funds for the discharging of a loan will break the chain of tracing. It remains essential that the recipient did not have the requisite notice of the breach. This was explained by Mason P as follows in Robins v Incentive Dynamics Pty Ltd (in liq):[26]

[Belmont Finance Corporation v Williams Furniture Ltd (No 2) [1980] 1 All ER 393] also demonstrates that the (remedial) constructive trust capable of being imposed by the court as the springboard for a personal or proprietary remedy is not precluded merely because the recipient took the money under a transaction having a particular form such as a gift, loan or purchase. If the gift/loan/purchase transaction was itself part of a breach of appropriate fiduciary or statutory duty on the part of the officers its mere form cannot stay the hand of equity.[27]

[26](2003) 175 FLR 286 (‘Robins’).

[27]Ibid 300 [65] (Mason P, Stein JA agreeing at 302 [80], Giles JA agreeing at 302 [81]).

As such, where the recipient creditor has the requisite knowledge of the breach, tracing is not prohibited on the basis of the relevant principle.[28] In accordance with the terms of the joint venture agreement set out in the judgment of Randall AsJ,[29] a contractual debt was created when CJV called upon the joint venturers to contribute certain amounts to the joint venture. Upon that notification, WC owed the called upon amounts to CJV. The payments by ARB and ARBD to CJV were the repayment of a debt owing by WC to CJV. Following the authorities above, CJV did not receive those amounts as a volunteer. The discharge of the debt owing by WC was valuable consideration.[30] CJV was a ‘bona fide purchaser for value’ of the misused funds.
[28]For instance, see the summary by Mason P in Robins of Farrow Finance Co Ltd (In Liq) v Farrow Properties Pty Ltd (In Liq) [1999] 1 VR 584: Robins (n 26) 300 [66]–[67] (Mason P, Stein JA agreeing at 302 [80], Giles JA agreeing at 302 [81]).
[29]ARB v Wiederstein (n 1) [26] (Randall AsJ).
[30]Although the consideration did not flow to the parties paying the funds. However, that does not appear to be a barrier to the characterisation of CJV as an innocent recipient. For example, in the context of the restitution, it has been observed that ‘[g]enerally, the consideration perspective of the defence [of bona fide purchaser] is expressed in terms of value provided rather than value received, since the ‘consideration’ usually moves from the defendant to a person other than the plaintiff’: K Mason, J W Carter, G J Tolhurst, Restitution Law in Australia (LexisNexis Butterworths, 3^rd ed, 2016) 898 [2523].

From a reading of the judgment of Randall AsJ there does not appear to be any allegation that CJV had notice that the misused funds were transferred to it in breach of Mr Wiederstein’s fiduciary duties.

For these reasons, admittedly without the benefit of argument, it appears that this principle was as a further ground on which tracing, as alleged by ARB, ARDB and Mr Rohrt, was unavailable in the matter before Randall AsJ.

Equitable lien

Mr Rohrt’s application for an equitable lien was made by virtue of his applying for the freezing order and his role in the realisation of the joint venture interest.

Randall AsJ set out the extensive work that Mr Rohrt had done in examining the affairs of ARB and ARBD, including the payments made to CJV. Based on that material, Mr Rohrt had applied to this Court to refuse to release the proceeds of sale of the WC interest in the Coomera Joint Venture pending the completion of his investigation into ARB’s transactions and any proceedings in respect thereof.

Despite substantial affidavit material, however, Randall AsJ was unable to identify an explanation for how the sum of $200,000 was paid into court, rather than the sum of $110,655.00, which, I understand, CJV had calculated as the value of WC’s interest in the joint venture. Randall AsJ said that it was submitted on behalf of Mr Rohrt that it was only by Mr Rohrt’s efforts and negotiations that the sum of $200,000 was paid in. According to Randall AsJ, this proposition was accepted by WC. Accordingly, Randall AsJ was prepared to accept that the increase in the payment was as a result of Mr Rohrt’s efforts. His Honour said however, that he did not know what was actually involved in such negotiations or efforts.

As indicated above, Randall AsJ held that Mr Rohrt, as liquidator of ARB and ARBD, was entitled to an equitable lien over the property of WC paid into court for costs and expenses that he incurred in having the funds of WC paid into court and increasing the amount paid into Court.

In reaching this conclusion, Randall AsJ carefully went through authorities on the lien in Universal Distributing,[31] including the High Court’s recent restatement of the principle in Stewart v Atco Controls Pty Ltd (in liq) (‘Stewart v Atco’).[32]
[31]Coad v Wellness Pursuit Pty Ltd (in liq) (2009) 71 ACSR 250; Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96; Re S&D International Pty Ltd (in liq) (recs and mgrs apptd) [2009] VSC 225 (‘Re S&D International’).
[32]Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307, [22]–[23] (‘Stewart v Atco’).

The issue between the parties, as identified by the associate justice, was that whilst WC conceded the principle enunciated in Universal Distributing, it claimed it was confined to the situation whereby it is the liquidator of the company in liquidation seeking to get in its own assets. WC contended the principle did not extend to third parties. The associate justice, however, did not read such a limitation into Dixon J’s judgment in Universal Distributing and also held that the right to a lien in favour of the liquidator extended beyond the circumstances addressed by Dixon J.

The principle in Universal Distributing

WC submits that Randall AsJ erred in finding that Mr Rohrt, as liquidator of ARB and ARBD, was entitled to an equitable lien over the funds in court, in circumstances where ARB and ARBD had no proprietary claim to those funds. WC submits that the Universal Distributing principle does not extend to establish a lien beyond the assets of the company that the liquidator controls or is entitled to control. WC contends that Mr Rohrt is not entitled to an equitable lien for dealing in the property of a company of which he was not appointed as liquidator.

I believe that it is necessary to quote a significant portion of Dixon J’s judgment to ascertain precisely what he did decide. His Honour said:

It is said that the assets are insufficient to satisfy the liabilities secured by the debenture and that it is unlikely that any sum will be available for claims ranking after the debenture. The Court cannot overreach or postpone a security in exercising its statutory power “in the event of the assets being insufficient to satisfy the liabilities” to “make an order as to the payment out of the estate of the company being wound up of the costs, charges, and expenses incurred in winding up in such order or priority as the Court thinks just” (sec. 118). A security even over uncalled capital has prevailed over the claim of a petitioning creditor under an order for his costs (In re Anglo-Austrian Printing and Publishing Union; Brabourne v. Same). If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets (In re Marine Mansions Co.). The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it (In re Oriental Hotels Co.; Perry v. Oriental Hotels Co.). The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun a suit for its realization or had themselves realized it without suit (cf. In re Regent’s Canal Ironworks Co.; Ex parte Grissell; and see Batten v. Wedgwood Coal and Iron Co.).
In applying this principle, only those expenses appear to have been thrown against the fund belonging to the debenture-holders which have been reasonably incurred in the care, preservation and realization of the property. In the present case the liquidator has employed a material part of his time and energies in recovering moneys, both uncalled capital and debts, which enure for the debenture-holder, and in so far as these services increase the remuneration which he receives, I see no reason why the burden should not be thrown upon the proceeds. The question is not whether moneys available for unsecured creditors should be relieved at the expense of the security. In such a case it may be said that the service of collecting enough to discharge the debenture must in any event be performed in order that a surplus may then arise in which the unsecured creditors may participate. The question in the present case is whether the liquidator can charge against the fund passing through his hands as between himself and the person to whom it is payable, so much of the remuneration fixed for work done in the winding up as is referable to the calling in and conversion of the assets producing the fund. I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it. [33]

[33]Universal Distributing (n 6) 173-5 (citations omitted).

There are several aspects of the judgment that should be noted. First, in Universal Distributing, the funds of the company were all charged to the secured creditor. There was no surplus available to the company or its other creditors. Secondly, Dixon J posed the relevant question as being whether the liquidator could charge ‘the fund passing through his hands as between himself and the person to whom it was payable’. That is, having realised the fund and having possession of the fund, how much of it could the liquidator retain before passing the fund over to the secured creditor. Thirdly, it is implicit in the judgment that the liquidator was authorised to call in and convert the assets of the company that produced the fund.

The principle recognised by Dixon J in Universal Distributing has been extended by subsequent decisions. To start, it is not necessary that the party claiming the equitable lien under the Universal Distributing principle is a liquidator. The entitlement to the lien has been applied to other roles,[34] and does not depend on the capacity of the person claiming it or the source of his entitlement.[35] The categories of persons to whom the principle may apply are not closed.[36]
[34]For example, receiver or receiver and manager: Re Application of Central Commodities Services Pty Ltd [1984] 1 NSWLR 25; provisional liquidator: Shirlaw v Taylor (1991) 31 FCR 222; voluntary administrator: Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64.
[35]Arms v WSA Online Ltd (Subject to Deed of Company Arrangement) [2007] FCA 1712 (Ryan J), [6], citing Moodemere Pty Ltd (in liquidation) v Waters [1988] VR 215, 221 (Murphy J), 229 (Tadgell J); Thackray v Gunns Plantations Ltd (2011) 85 ACSR 144, 155 [41] (Davies J).
[36]Ibid.

The principle underlying Universal Distributing has been stated in broad terms on various occasions. For instance, in Shirlaw v Taylor,[37] the Full Federal Court explained that ‘where a party has by his efforts brought into court a fund in the administration of which various parties are interested, his costs and expenses should be a first claim upon the fund’.[38]
[37](1991) 31 FCR 222 (‘Shirlaw v Taylor’).
[38]Ibid 228 (Sheppard, Burchett and Gummow JJ). This was quoted in IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq) (2009) 243 ALR 240, 254 [63] (North, Emmett and Rares JJ).

Likewise, Davies J summarised in Thackray v Gunns Plantations Ltd[39] that ‘[t]he underlying principle in each case is that it would be inequitable for the person who has created or realised a valuable asset, in which others claim an interest, not to have his or her costs, expenses and fees incurred in producing the asset paid out of the fund or property created’.[40] These statements do not discriminate on the basis of the formal capacity of the party creating or realising the value, but rather look to the substance of the effect of his or her actions.
[39](2011) 85 ACSR 144.
[40]Ibid 155 [41] (Davies J), citing Shirlaw v Taylor (1991) 31 FCR 222, 228, 230 (Sheppard, Burchett and Gummow JJ).

The application of these broader bases for the Universal Distributing principle is evident in the application of that principle to roles other than a liquidator. A number of cases are instructive for this purpose. The first, Shirlaw v Taylor, as quoted above, involved the application of the Universal Distributing principle to provisional liquidators appointed by the court. The Full Federal Court held that provisional liquidators were in a position analogous to receivers or receivers and managers appointed by the court, and were thereby entitled to an equitable lien for expenses and remuneration under the administration.[41] This rested on the principle that ‘those taking the benefit of administration should not escape bearing the burden of the proper cost of it’.[42]
[41]Shirlaw v Taylor (n 37) 228–31 (Sheppard, Burchett and Gummow JJ).
[42]Ibid 230, citing In the Matter of Tharp (1852) 2 Sm & Giff 578; 65 ER 533; Re Berkeley Applegate (Investment Consultants) Ltd (In liq); Harris v Conway [1989] Ch 32, 51.

The Universal Distributing principle likewise applies to positions not appointed by the court. For example, the Full Court of the Supreme Court of Victoria in Moodemere Pty Ltd (In liq) v Waters (‘Moodemere v Waters’)[43] applied the Universal Distributing principle to a privately appointed receiver and manager. Murphy J expressed, in summary:

Where a company charges its assets, and a default occurs so that the creditor becomes entitled in equity to the assets charged, a person, validly appointed to realise the assets so as to provide a fund to satisfy the debt, is entitled to look to the fund itself to reimburse his proper costs, charges and expenses of realisation and his just remuneration attendant on the realisation, before even the creditor is paid his secured debt out of the fund.[44]

[43][1998] VR 215 (‘Moodemere v Waters’).

[44]Ibid 221 (Murphy J, Kaye J agreeing at 216). See also 229–30 (Tadgell J, Kaye J agreeing at 216).

Commonwealth Bank of Australia v Butterell (‘CBA v Butterell’)[45] involved the application of the principle to voluntary administrators. Following Universal Distributing and Shirlaw v Taylor, amongst other authorities, Young J concluded that:

Where an administrator acts in good faith and sells property producing a fund and he is attacked for an innocent conversion in the course of bringing about the fund, then the reasonable costs and expenses of the administrator in resisting the claim and the cost of settling it or meeting it if need be is a matter in respect of which he is entitled to an equitable lien.[46]

[45](1994) 35 NSWLR 64 (‘CBA v Butterell’).

[46]Ibid 71 (Young J).

Cresvale Far East Ltd (in liq) v Cresvale Securities Ltd (No 2)[47] involved the application of the Universal Distributing principle to administrators under a deed of company arrangement. Reflecting on CBA v Butterell, Austin J did not see any:

relevant distinction, in the application of these principles, between the position of a voluntary administrator of a company under administration, who administers the business and affairs of the company as agent for the benefit of others, and the administrator of a company under a deed of company arrangement.[48]

[47](2001) 39 ACSR 622 (‘Cresvale v Cresvale’).

[48]Ibid 636 [70] (Austin J).

In Stewart v Atco,[49] the High Court confirmed the principle identified by Dixon J in Universal Distributing. The High Court examined each of the authorities of the equity courts that Dixon J referred to in his judgment. In doing so, the High Court referred to the judgment in Batten v Wedgwood Coal & Iron Co (‘Batten v Wedgewood’),[50] where it was said:

With regard to the costs of the realisation of the assets, I think Mr Cozens-Hardy [counsel for the plaintiff debenture holder] is right in contending that these costs stand in a different position from any of the other claims. The property must be realised by someone in order that it may be distributed, and whoever has realised it and brought the proceeds under the control of the Court, has really constituted the fund which has to be distributed for the benefit of the receiver and everyone else who is entitled. These costs must therefore be paid in priority to the receiver.^[51]

[49]Stewart v Atco (n 32) (Crennan, Kiefel, Bell, Gageler and Keane JJ).

[50](1884) 28 Ch D 317 (‘Batten v Wedgwood’).

[51]Stewart v Atco (n 32) 319 (Crennan, Kiefel, Bell, Gageler and Keane JJ) quoting Batten v Wedgwood (1884) 28 Ch D 317, 325.

Note that in this passage, the court held that the person entitled to the lien extended to ‘whoever has realised it and brought the proceeds under the control of the Court.’

In Stewart v Atco, the High Court, in stating the relevant principle, said:

The principle in Universal Distributing is stated at some length, no doubt because Dixon J was concerned to identify its sources. It may be more shortly stated as: a secured creditor may not have the benefit of a fund created by a liquidator’s efforts in the winding up without the liquidator’s costs and expenses, including remuneration, of creating that fund being first met. To that end, equity will create a charge over the fund in priority to that of the secured creditor.
The circumstances in which the principle will apply are where: there is an insolvent company in liquidation; the liquidator has incurred expenses and rendered services in the realisation of an asset; the resulting fund is insufficient to meet both the liquidator’s costs and expenses of realisation and the debt due to a secured creditor; and the creditor claims the fund. In these circumstances, it is just that the liquidator be recompensed. To use the language of Deane J in Hewett v Court, it might be said that a secured creditor would be acting unconscientiously in taking the benefit of the liquidator’s work without the liquidator’s expenses being met. However, such a conclusion is avoided by the application of the principle stated in Universal Distributing. [52]

[52]Ibid 320.

In Primary Securities Ltd v Willmott Forests Ltd (recs and mgrs apptd) (in liq) (‘Primary v Willmott’),[53] the Victorian Court of Appeal considered a claim by a liquidator to the costs and expenses he incurred in administering a managed investment forestry scheme. A new body was appointed as the responsible entity of the scheme and the assets of the scheme were removed from the liquidator of the former responsible entity. Efthim AsJ had held that the liquidator was entitled to a lien over the scheme assets for the costs and expenses of administrating the scheme and for the care and preservation of the assets of the scheme, despite the liquidator not having generated a fund from realising scheme assets. The Court of Appeal (Maxwell P, Whelan and Santamaria JJA) affirmed the decision of Efthim AsJ.
[53](2016) 50 VR 752 (‘Primary v Willmott’).

Whelan and Santamaria JJA observed that equity will recognise a lien over another’s property for expenses incurred in relation to that property in circumstances wider than those addressed by Dixon J in Universal Distributing. The majority referred, for example, to a solicitor’s lien over a client’s papers for fees owed and to the lien recognised in Hewett v Court,[54] where a purchaser who had paid money to a builder for a prefabricated house was held to have an equitable lien over the uncompleted house when the builder went into liquidation.
[54](1983) 149 CLR 639 (‘Hewett v Court’).

In Re S&D International Pty Ltd (No 5),[55] I considered, inter alia, an application by a liquidator for the costs and expenses he had incurred in undertaking proceedings to have funds paid into court. S&D International Pty Ltd (‘S&D International’) was the trustee of trading trust. It owned two properties. The mortgagee of one of the properties appointed a receiver and manager over the assets of S&D International under the mortgage and sold one of the properties as mortgagee. The proceeds realised by the sale were sufficient to pay out the secured debt. Nevertheless, the receiver and manager failed to calculate the precise amount owed under the secured loan and maintained possession of the moneys while interest purportedly accrued. There was also a subsequent claim on the funds by a solicitor under a security.
[55] [2011] VSC 30 (‘Re S&D International (No 5)’).

The liquidator was concerned that the receiver was incurring unnecessary expenses and that the property of S&D International was being wrongly diminished. Further, the receiver had also taken possession of the second property. The liquidator claimed in the proceedings that the second property should have been delivered up to the liquidator when the receiver had received sufficient moneys from the sale of the first property to meet the secured debt. I accepted this proposition. The liquidator claimed that the balance of the moneys from the first property should have been paid into court, so that any person claiming a subsequent security could seek payment and so that the balance was protected for S&D International.

In that judgment, I found that the liquidator of S&D International was justified in bringing the proceedings to protect the property of S&D International from being wrongly diminished and to obtain an order that the surplus moneys from the sale of the first property be paid into court.

The liquidator also sought a declaration that he was entitled to be indemnified out of the funds in court in respect of his costs, expenses and remuneration for and incidental to procuring payment into court, including:

(a) investigations and enquiries into the existence and quantum of such funds;

(b) any demands for, or work undertaken for the purposes of, procuring the payment of such funds into court; and

(c) his costs, charges and expenses of the proceeding.

Further, the liquidator sought a declaration that his right of indemnity was secured by an equitable charge or lien over the funds in court. The liquidator sought a declaration that such an equitable lien was a first charge on the funds in court and that the said costs, charges and expenses were liable to be paid in priority to any other claims on the fund. The liquidator sought a consequential order that the amount of such costs, charges and expenses be paid to him out of the funds in court.

The liquidator had contended that he had incurred costs and expenses of a Universal Distributing nature by reason of having taken steps to compel the payment of the surplus proceeds into court and thereby preventing any further erosion of them.

The liquidator was duty bound to protect the assets of S&D International even though the moneys may have all been subject to further charges in favour of other secured creditors. This was exactly the position in Universal Distributing, where there was a secured creditor entitled to all the assets of the company. Nevertheless, Dixon J held that the liquidator was entitled to the costs of realising, caring for and preserving the assets of the company, even though the balance of the moneys would be paid over to the secured creditor.

In Re S&D International (No 5),[56] I stated the following principles, distilled from relevant authorities:

(a)       At equity, an equitable lien arises in favour of a liquidator over the funds realised from the sale of company property for the costs he incurs for the care, preservation and realisation of the property in priority to those otherwise interested in the fund: In re Regent’s Canal Ironworks Co. Ex parte Grissell; Universal Distributing; Commonwealth Bank of Australia v Butterell and Dean-Willcocks v Nothintoohard Pty Ltd (in liq).
(b)       The costs include those that the liquidator fairly incurs in the discharge of his duty to care, preserve and realise the property: Commonwealth Bank of Australia v Butterell.
(c)       The lien may arise whether or not the ultimate sale is affected by the liquidator and entitles the liquidator to be paid in priority out of the fund whether or not he is in possession of the fund: Commonwealth Bank of Australia v Butterell and Dean-Willcocks v Nothintoohard Pty Ltd (in liq).
(d)      The costs and expenses secured by the lien must be incurred exclusively for the care, preservation or realisation of the property and not otherwise expended in the general administration of the mortgagor: Universal Distributing and Commonwealth Bank of Australia v Butterell.
(e)       The costs and expenses include the liquidator’s reasonable remuneration: Universal Distributing; Moodemere Pty Ltd (in liq) v Waters and Commonwealth Bank of Australia v Butterell.

[56]Re S&D International (No 5) (n 55) [250] quoting Re S&D International [2009] VSC 225 (citations omitted).

I found that the liquidator did not realise the fund. It was realised by the first mortgagee and the receiver. On the other hand, I found that, but for the fund being paid into court, it would probably have been dissipated and lost by the unauthorised actions of the first mortgagee and the receiver in accessing and applying the moneys to the claimed mortgage debt and expenses.

I held that the costs and expenses of the liquidator which were directed exclusively towards recovering the funds out of the hands of the first mortgagee and receiver (to which they were not entitled) and delivering them into the safety of the court created a lien over the funds, in priority to all other claimants to the fund. I did so as the expenditure was incurred in the realisation, care and preservation of the fund thereby created.

In Re S&D International (No 5), the moneys over which the liquidator had a lien were moneys paid into court. They were not in his possession. On the other hand, the moneys were the legal property of S&D International and the liquidator had a duty to get in the assets for the benefit of the liquidation, which he would hold for the benefit of any other secured creditor and the balance for S&D International.

The principles set out in [92] above were also referred to by Randall AsJ in the decision below, who then stated:

What these cases illustrate is that although the concept of ‘salvage’ usually arises in generally considered special relationships, such as liquidator and company or solicitor or client, the underlying rationale is founded upon equitable principles. Put simply, if costs or expenses are incurred in the ‘care, preservation and realisation of property’ it is inequitable not to recognise such expense. Moreover, it would be against equitable principles to allow someone to take the benefit of the liquidator’s work without sharing the burden of the expense obtaining it.[57]
[57]ARB v Wiederstein (n 1) [138].

Liens beyond Universal Distributing

As mentioned above, the High Court in Stewart v Atco referred to other instances where equity recognises an equitable interest in a fund or property created by a person who is not the owner. There are other instances where equity has recognised a similar principle. In Inwards v Baker,[58] a father permitted his son Jack to build a home on land owned by the father in which Jack subsequently lived. On his father’s death, the father’s executors sought to evict Jack as a mere licensee. The Court, in its equitable jurisdiction, recognised that the father’s conduct gave rise to a proprietary estoppel in favour of Jack, entitling him to live in the house.
[58][1965] 2 QB 29. See also Ramsden v Dyson (1866) LR 1 HL 129; Plimmer v Wellington City Corporation (1884) 9 App Cas 699; Dillwyn v Llewelyn (1862) 4 De GF & J 517; Crabb v Arun District Council[1976] Ch 179; Amalgamated Investment and Property Co. Ltd. (In liq.) v Texas Commerce International Bank Ltd.[1982] QB 84; [1981] 2 WLR 554; [1981] 1 All ER 923; Taylors Fashions Ltd. v Liverpool Victoria Trustees Co Ltd [1982] QB 133; [1981] 2 WLR 576; Timber Top Realty Pty. Ltd. v Mullens[1974] VR 312.

In Muschinski v Dodds,[59] Mrs Muschinski had paid the whole of the purchase price for a property that was registered in her name and her partner’s name as tenants in common, pursuant to an agreement with her partner Mr Dodds who would renovate a cottage on the land and pay for a pre-fabricated house to be erected. They separated before the cottage was renovated or the house acquired for the land.
[59](1985) 160 CLR 583.

It was held by the High Court that the parties held their respective legal interests as tenants in common on trust, after payment of any joint debts incurred in the improvement of the property, to repay their respective contributions and the balance to both in equal shares. Mrs Muschinski was accordingly entitled to recover from Mr Dodds one half of the purchase price paid by her. Gibbs CJ held that the parties were jointly and severally liable to pay the purchase price, and Mrs Muschinski, having paid the whole of it, was entitled to contribution for one half from Mr Dodds. Mason and Deane JJ held that it was unconscionable after the failure of their joint venture for Mr Dodds to assert his legal entitlement without recognizing Mrs Muschinski’s payment.

As recognised by the High Court, the Universal Distributing principle is not the only means by which Mr Rohrt may obtain an equitable lien. A ‘wider basis’[60] justifying the imposition of such a remedy exists under the law of restitution. Redlich JA summarised the basis of such a claim in Atco Controls Pty Ltd (in liq) v Stewart (in his capacity as liquidator of Newtronics Pty Ltd) (‘Atco v Stewart’):

Under the law of restitution as it has evolved, if a recipient takes a benefit that no reasonable person could say did not enrich that recipient (an incontrovertible benefit), and where on objective evaluation of the benefit and the circumstances in which it was created or maintained, it would be against good conscience for the recipient to take without accounting for the costs of creating or maintaining the benefit, the person who has enriched the recipient should be compensated for their costs of so doing and in addition to a personal claim will be entitled to an equitable lien.[61]

[60]Dean-Willcocks v Nothintoohard Pty Ltd (in liq) (2005) 53 ACSR 587, 593 [22] (Barrett J) (‘Dean-Willcocks v Nothintoohard’).

[61][2013] VSCA 132, [185] (Redlich JA) (citations omitted) (‘Atco v Stewart’).

In Primary v Willmott, Maxwell P said that the principle in Universal Distributing rested on a quite specific notion of justice. His Honour said:

[7] I begin with the High Court’s statement that, in the circumstances identified, ‘it is just that the liquidator be recompensed’.[62] Equity intervenes because justice requires it. This statement must, of course, be read with the statement later in the judgment that the flexibility of the rules of equity:
[62]Stewart v Atco (n 32) 320 [23] (emphasis added).
does not mean that courts should proceed on general notions of justice without regard to settled principles. A principle should be applied when the circumstances of a case fall within it.[63]
[63]Ibid 322 [31].

[8] The principle in Universal Distributing can be seen to rest on a quite specific notion of justice. It is that the creditors of the company in liquidation (including the secured creditor), who stand to benefit from the action taken by the liquidator with respect to the relevant asset(s), should not have the benefit without the costs of the liquidator’s work being met.
[9] This understanding of the principle appears most clearly from what the High Court said in Stewart v Atco about the analogy between the Universal Distributing lien and the solicitor’s ‘particular lien’, as follows:
More closely analogous to the present case is the solicitor’s particular lien (which may be distinguished from the general or retaining lien that entitles retention of documents until fees are paid), which arises over any property recovered or judgment obtained by a solicitor’s work. In Guy v Churchill, Lindley LJ said that ‘[i]t is right that they who get the benefit of the recovery of money should bear the expense of recovering it’. A similar notion underlies the principle expressed in Universal Distributing. A secured creditor cannot lay claim to the benefit of realised assets without the costs of their realisation being met.[64]
[64]Ibid 318 [16] (emphasis added) (citations omitted).

[10]     The ‘notion’ of justice here identified is clear. It is that the person who gets — or ‘lays claim to’ — the benefit of the recovery of money or the realisation of an asset should not have that benefit without the cost of that recovery or realisation being met. Once the underlying notion of justice is thus exposed, it becomes clear that there is no reason in principle to distinguish between:
(a)       a case where money is actually recovered (or an asset actually realised); and
(b)        a case, like the present, where expense is incurred by the liquidator for the purpose of the recovery of money or the realisation of an asset[65] but where the efforts of the liquidator cease (or are interrupted) before the money is recovered or the asset realised.

In each case, the liquidator’s efforts enure for the benefit of the creditors.
[11] The authorities relied on by Dixon J in Universal Distributing were all concerned with the costs of realisation of assets.[66] But his Honour’s formulation of the principle encompassed, in addition, the costs of the care and preservation of assets.[67] This was doubtless because the incurring of those costs was seen to have — or be capable of having — the same nexus with the benefit accruing to creditors.
[12] If that nexus exists — because of the purpose for which the costs are incurred — it does not cease to exist merely because the appointment of the liquidator comes to an end before a fund has been created. The equivalent proposition is clearly established in relation to the analogous solicitor’s lien.[68]

[65]Ibid 330 [64].

[66]Universal Distributing (n 6) 173–4.

[67]Ibid 174.

[68]Trkulja v Efron [2014] VSCA 76, citing Firth v Centrelink (2002) 55 NSWLR 451, 463–4.

As discussed by Maxwell P, it is the assets of the creditors who benefit from the actions of the liquidator that are subject to the lien. In this case, if Mr Rohrt had been successful in recovering assets from the funds in court, his costs and expenses incurred in getting the funds paid into court may have been recoverable from the assets recovered under the Universal Distributing lien.

Both the Universal Distributing principle and this wider restitutionary basis for an equitable lien are based upon ‘the principle of salvage’.[69] However, the two approaches differ in application. For one, under Universal Distributing, there is no requirement to inquire into the conscientiousness of the creditor’s actions.[70] But where those rationales for the Universal Distributing principle are inapplicable, the restitutionary basis may have room to operate.
[69]See generally Dean-Willcocks v Nothintoohard (n 60) 126 [101] (Beazley JA); Coad v Wellness Pursuit Pty Ltd (in liq) (2009) 40 WAR 53, 71 [59] (Buss JA, Wheeler JA agreeing at 55 [1], Pullin JA agreeing at 55 [2]); Atco v Stewart, [176], [187] (Redlich JA).
[70]Stewart v Atco (n 32) 320 [23] (Crennan, Kiefel, Bell, Gageler and Keane JJ).

As explained by Nicholas Tiverios in his journal article after the High Court’s decision in Stewart v Atco, the restitutionary basis will operate in circumstances beyond that contemplated by Universal Distributing:

Notwithstanding the outcome in Stewart v Atco, there may still be more limited circumstances where unjust enrichment may prove useful in the context of insolvency practitioner claims. For example, unjust enrichment may be relevant where the primary rationalisation enunciated for a liquidator’s charge breaks down (ie where a liquidator cannot claim costs and expenses by virtue of her position as a fiduciary).[71]

[71]Nicholas A Tiverios, ‘Raiders of the secured asset: The doctrinal rationalization for the liquidator’s lien or charge over a secured asset post-Stewart v Atco’ (2015) 23 Insolvency Law Journal 101, 113.

A series of cases exemplify the utility of the wider restitutionary basis within an insolvency context. In Monks v Poynice Pty Ltd (‘Monks v Poynice’),[72] Young J held that a receiver of a company who had been invalidly appointed was entitled to recover from the liquidator, to the extent to which there was incontrovertible benefit to the company, reasonable remuneration for acting as manager and his costs, charges and expenses in so acting. The receiver, having not been appointed in accordance with law, was effectively acting in a de facto capacity. It was not clear whether Young J would have entertained the imposition of an equitable lien on the extension of Universal Distributing principle to such circumstances. However, there was no reference to that principle and the result was based on restitutionary principles.
[72](1987) 8 NSWLR 662 (‘Monks v Poynice’).

In Young v ACN 081 162 612 Pty Ltd (‘Young v ACN’),[73] Gzell J applied the restitutionary basis in an insolvency context, but to a party other than the insolvency practitioner. On the facts of Young v ACN an administrator had been appointed to a company that designed uniforms. The administrator placed an order with a manufacturer, but the manufacturer refused to meet the order unless an earlier invoice was paid. A part owner of shares in the company decided to pay the invoice herself. The manufacturer performed the work and the company later received further sales as a result.
[73](2005) 218 ALR 449 (‘Young v ACN‘).

Relying on Monks v Poynice and the later decision of Young J in Cadorange Pty Ltd (in liq) v Tanga Holdings Pty Ltd,[74] Gzell J held that the part owner was entitled to an equitable lien on the basis that she had conferred an incontrovertible benefit on the company in liquidation. Although Gzell J also cited Universal Distributing and Shirlawv Taylor in the course of reaching this conclusion, the better view is that his Honour was not intending to cite those cases as an application of the Universal Distributing principle, but rather as cases demonstrating the imposition of equitable liens.
[74](1990) 20 NSWLR 26, 33.

Young v ACN thus provides a clear example of the imposition of an equitable lien in circumstances that did not satisfy the narrower bases for the Universal Distributing principle explored above. The part owner did not operate from a court appointed position nor in a fiduciary capacity in respect of the company or the company’s creditors. However, her payment of the company’s debt was a necessary step for the company to later realise other benefits.

The principles in Monks v Poynice and Young v ACN were reiterated in obiter by Barrett J in Dean-Willcocks v Nothintoohard.[75] His Honour stated that it may be necessary for a court to impose an equitable lien to ensure that a party, in relying upon its rights at law to sell a property as a means of obtaining satisfaction of moneys owing to it in priority to moneys owing to others, does not unconscientiously reap the reward of outlays by another productive of ‘incontrovertible benefit’ to the property.[76] Monks v Poynice and Young v ACN were referred to as being such examples of ‘the intervention of equity to prevent unconscientious reliance on common law rights and would operate as a qualification upon such rights’.[77] It was unnecessary, however, to apply these principles on the facts of Dean-Willcocks v Nothintoohard as Barrett J was satisfied that none of the plaintiffs’ outlays in that case could be said ‘to have protected or preserved the property or enhanced its value in a way that produced any relevant incontrovertible benefit’.[78]
[75]Dean-Willocks v Nothintoohard (n 60), affd Dean-Willcocks v Nothintoohard Pty Ltd (In liq) (2007) 25 ACLC 109.
[76]Ibid 593 [22] (Barrett J).
[77]Ibid. This language was also adopted in Atco v Stewart (n 61) [198] (Redlich JA).
[78]Dean-Willcocks v Nothintoohard (n 60) 593 [23] (Barrett J).

The interrelationship between the Universal Distributing principle and the wider restitutionary basis was explored by the Victorian Court of Appeal in Atco v Stewart.

Warren CJ held that the Universal Distributing principle did not apply on the basis that the secured creditor of the company in liquidation did not come in to the winding up in the way described by Dixon J in Universal Distributing.[79] However, her Honour acknowledged that Universal Distributing was not the only means of a charge being created in favour of a liquidator to rank above the priority of a secured creditor.[80] The principles arising from Monks v Poynice, Young v ACN and Dean-Willcocks v Nothintoohard were said to support an alternative basis for an equitable lien.[81]
[79]Atco v Stewart (n 61) [45]-[46] (Warren CJ).
[80]Ibid [61].
[81]See ibid [85], [89].

Redlich JA likewise observed that it was ‘not critical to the establishment of a lien that the liquidator bring himself within circumstances analogous to those in the Universal Distributing exception’.[82] The rule in Universal Distributing rather exemplified a wider concept of salvage.[83] It was in this context that Redlich JA held that an equitable lien may arise in circumstances beyond that contemplated by Universal Distributing in accordance with the test laid out by Redlich J and cited above at [99].
[82]Ibid [173] (Redlich JA).
[83]Ibid [176].

Although Atco v Stewart provides acknowledgment of the varying scope of the Universal Distributing principle and the wider restitutionary basis, each of the judges in the Court of Appeal held an equitable lien to be unavailable on the facts of Atco v Stewart.[84] However, this conclusion was overturned by the High Court, which held that an equitable lien was available under the Universal Distributing principle.[85]
[84]Ibid [94] (Warren CJ), [199] (Redlich JA), [269] (Cavanough AJA).
[85]Stewart v Atco (n 32).

The High Court’s decision in Stewart v Atco does not deny that there are wider bases for the imposition of an equitable lien in an insolvency context beyond that contemplated by the Universal Distributing principle, but rather that Universal Distributing was applicable on those facts. As the High Court stated, ‘[a] principle should be applied when the circumstances of the case fall within it’.[86]
[86]Ibid 322 [31] (Crennan, Kiefel, Bell, Gageler and Keane JJ).

Because the Universal Distributing principle was held applicable, the High Court only briefly referred to the Court of Appeal’s exploration of the wider restitutionary basis for an equitable lien. It did so by reference to the Court of Appeal’s consideration of the application of Falcke v Scottish Imperial Insurance Co (‘Falcke v Scottish’).[87]
[87](1886) 34 Ch D 234 (‘Falcke v Scottish’).

In Falcke v Scottish, Bowen LJ said:

The general principle is, beyond all question, that work and labour done, or money expended by one man to preserve or benefit the property of another do not according to English law create any lien upon the property saved or benefited, nor, even if standing alone, create any obligation to repay the expenditure. Liabilities are not to be forced upon people behind their backs any more than you can confer a benefit upon a man against his will.
There is an exception to this proposition in the maritime law. I mention it because the word “salvage” has been used from time to time throughout the argument, and some analogy is sought to be established between salvage and the right claimed by the respondents. With regard to salvage, general average, and contribution, the maritime law differs from the common law. That has been so from the time of the Roman law downwards. The maritime law, for the purposes of public policy and for the advantage of trade, imposes in these cases a liability upon the thing saved, a liability which is a special consequence arising out of the character of mercantile enterprises, the nature of sea perils, and fact that the thing saved was saved under great stress and exceptional circumstances. No similar doctrine applies to things lost upon the land, nor to anything except ships or goods in peril at sea.[88]

[88]Ibid 248–9.

In Stewart v Atco, the High Court qualified the application of this principle. The High Court said:

In connection with the potential benefit accruing to Atco by reason of the fund created by the liquidator, the Court of Appeal upheld Atco’s submission that the decision in Falcke v Scottish Imperial Insurance Co applies to the facts of this case, with the result that the liquidator is unable to claim the costs and expenses of realisation. A possible exception to the rule established in Falcke, drawn from theories of unjust enrichment and involving the question whether Atco may have nevertheless received an “incontrovertible benefit”, was considered not to arise.
The decision in Falcke has no bearing on a case involving work undertaken by a liquidator in a winding up. The decision stands for the proposition that a stranger who carries out work or services, or otherwise confers a benefit on another, without a request, actual or implied, to do so, is not entitled to payment or compensation. In similar terms, in Lumbers v W Cook Builders Pty Ltd (In liq) by reference to Falcke, it was said that “the bare fact of conferral of [a] benefit or provision of [a] service does not suffice to establish an entitlement to recovery”.
The propositions in Falcke and Lumbers are uncontroversial. In the context of claims for work or labour, they are concerned with whether indebtedness on the part of a person receiving the benefit of the work can arise, absent a request on their part for the work. They have no application to work undertaken in the realisation of assets as part of a liquidator’s statutory duties.[89]

[89]Stewart v Atco (n 32) 326–7 [46]–[48] (citations omitted).

The dismissal of the principles in Falcke v Scottish and Lumbers v W Cook Builders Pty Ltd (in liq)[90] as applying to liquidators should not be read as also rejecting the application of the wider restitutionary basis for imposing an equitable lien in an insolvency context. What these passages reject is that the principle in Falcke v Scottish is the relevant starting point in an insolvency context. It is not to conclude, however, that the broader restitutionary basis cannot stand on its own, as opposed to an exception to the Falcke v Scottish principle.
[90](2008) 232 CLR 635.

Conclusion

A distinguishing feature of this case, in contrast to the cases involving liquidators discussed above, is that Mr Rohrt, as liquidator of ARB and ARBD, was not entitled to possession of the assets of WC. That was the entitlement of the liquidator of WC, and his duty to get in, preserve and protect those assets.

I consider, however, that Mr Rohrt was nevertheless carrying out his duties as a liquidator in seeking to increase the proceeds from the sale of WC’s interest in the joint venture and protecting same by way of payment into court. These actions may have been to the advantage of the liquidation of ARB and ARBD had Mr Rohrt been successful in his attempt to trace assets held on trust for those companies into the moneys paid into court.

It is my opinion that the wider restitutionary basis for imposing an equitable lien in an insolvency context, as summarised by Redlich JA in Atco v Stewart, continues to operate notwithstanding its inapplicability on the particular facts of that case.

Applying the restitutionary basis to the current facts, it may be concluded that, first, if WC received a benefit that no reasonable person could say did not enrich WC, and second, if on an objective evaluation of the benefit and the circumstances in which it was created or maintained, it would be against good conscience for WC to take it without accounting for the costs of creating or maintaining the benefit, then in those circumstances, the person who has enriched WC, Mr Rohrt, should be compensated for his costs of so doing and, in addition to a personal claim against WC, will be entitled to an equitable lien.

That test is satisfied on the current facts. It was accepted by WC that it was only by the efforts of Mr Rohrt that the sum of $200,000 was paid into court rather than the much smaller sum. WC was thereby enriched with an incontrovertible benefit. And, in the circumstances of this case, it would be against good conscience to permit WC to take that benefit without accounting for Mr Rohrt’s costs of creating that benefit. Mr Rohrt is therefore entitled to an equitable lien for that purpose and to that extent.

I find that Randall AsJ was not in error in making the order that he did to compensate Mr Rohrt. There was no appeal against the quantum fixed by Randall AsJ. I dismiss the appeal against the order in favour of Mr Rohrt.

Does the existence of a deed of settlement affect the rights to the funds in court?

WC was party to the joint venture. It claims to be entitled to the money in court as it represented the sale of the asset held by WC in its capacity as trustee of WIT (being approximately 3.18 per cent of the shares in the joint venture vehicle). ARB submits that WC, as trustee, has no right to claim against the trust assets paid into court, by reason of a release in a deed of settlement.

On or around 4 September 2015, a deed of settlement was entered into between NAB, Bronwyn Wiederstein, WC (then in liquidation) in its own capacity and as trustee for WIT, the Wiederstein Family Trust and the Wiederstein Land Development and Home Lending Trust (‘deed of settlement’). Bronwyn Wiederstein deposed that she negotiated an all-in settlement with NAB and the liquidators of WC in terms where she was to pay $1,976,670.44 upon payment of which, inter alia, NAB would have no further claim against WC in its own capacity and as trustee (as referred to above).

The ‘Background’ to the deed of settlement provided as follows:

ANAB has entered into the Facilities and Securities with the Borrowers and Security Providers.
BThe Borrowers and Security Providers are in default of the Facilities and the Securities, including the Mortgages.
CThe Parties have requested a discharge of the Mortgages.
DNAB is prepared to discharge the Mortgages on the terms set out in this Deed.

Clause 5 of the deed of settlement provided:

Upon execution of this Deed, the Wiederstein Parties release and forever discharge NAB, Wiederstein Corporation Pty Ltd (in liquidation), the Land Development Trust, the Investment Trust and the Family Trust from all Claims and Liabilities of every description and whenever occurring that they have now or but for the execution of this Deed, may have against any of them arising out of or in connection with the Facilities and the Securities.

‘Claims’ was defined:

Claims includes all actions, suits, causes of action, arbitrations, debts, liabilities, dues, costs claims, demands, directions, orders, verdicts and judgments either at law or in equity or arising under a statute that relate to the Facilities and the Securities.

‘Facilities’ was defined to mean the facilities in Schedule 1 of the deed.

‘Securities’ was defined to mean ‘all securities provided to NAB by the Wiederstein Parties to secure the Facilities, including the securities in Schedule 2.’ The Securities referred to in Schedule 2 related to securities given to NAB.

The Wiederstein Parties was defined to include WC and WIT.

ARB submits that, by entering into the deed of settlement, WC released WIT from all ‘claims and liabilities’ that it now has, arising out of, or in connection with, the Facilities and Securities of the deed of settlement. ARB submits that, accordingly, WC has released its right to be indemnified from the trust assets under the Wiederstein Investment Trust Deed. Thus, WC as trustee, has no right to claim against the trust assets paid into court.

WC submitted that the deed of settlement was irrelevant to the question of whether ARB, ARBD, or WC has the better claim to the funds in court. It was evidence before Randall AsJ because Bronwyn Wiederstein and Patpel Pty Ltd (the replacement trustee of WIT) made a claim to the funds in court.

Randall AsJ held that the reasoning of ARB was flawed, as a trust is not a legal person. His Honour said that even if the right of indemnity could be excluded, whatever was intended by the wording of clause 5 of the deed of settlement, if on construction of that clause, NAB required WC not to exercise its right of indemnity against the WIT property, it would have needed to have specifically required WC to forgo its rights pursuant to the right of indemnity or to refrain from exercising them. His Honour held that this had not occurred.

Randall AsJ held that WC’s right of indemnity in respect of liabilities incurred on behalf of the trust had not been extinguished by the deed of settlement.

The right of WC, as trustee of WIT, to use trust assets to indemnify itself for liabilities incurred on behalf of the trust, does not fall within the definition of ‘all Claims and Liabilities of every description and whenever occurring that they have now or but for the execution of the Deed, may have against any of them arising out of or in connection with the Facilities and the Securities’. Further, the matters falling within the definition of ‘claims’ did not encompass a trustee’s right of indemnity. The claims and liabilities were limited to those that related to the Facilities and Securities. The right of the trustee of WIT in relation to trust assets does not arise out of or in connection with the Facilities and the Securities. The recital makes it clear that the subject matter of the deed of settlement was the release of the claims of NAB against the Wiederstein parties. The deed of settlement did not deal with any right of indemnity that a trustee had against the trust assets.

Accordingly, I reject this ground of appeal.

Application for security for costs

ARB and ARBD applied for an order that WC provide security for costs. The application was not listed to be heard until the day the appeal commenced. By that stage, for all practical purposes, the expenses of the appeal had all been incurred, and to put the hearing off while security was organised would have incurred further unnecessary expense. Accordingly, I make no order on the application.

I direct that the parties bring in draft minutes of orders that reflect my findings. I will hear the parties on costs. I draw the parties’ attention to the Court of Appeal decision in McDermott and Potts in their capacities as joint and several liquidators of Lonnex Pty Ltd (in liq) [No 2] [2019] VSCA 62.

[2019] VSC 115

26 March 2019