Sheahan v Thompson (No 2)

[2015] NSWSC 871

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:	John Sheahan v Martin Thompson (No 2) [2015] NSWSC 871
Hearing dates:	4, 5, 6, 7 and 8 May 2015
Date of orders:	02 July 2015
Decision date:	02 July 2015
Jurisdiction:	Equity Division - Commercial List
Before:	Rein J
Decision:	See [186]
Catchwords:	EQUITY - trusts - where payment to a unitholder a pre-condition to payment to other potential objects upon vesting - breach of trust - where payment made by trustees to a third party out of trust assets to settle separate proceedings against the trustees personally for misapplication of trust assets - whether the unitholder consented to the payment out of trust assets - whether consent fully informed- knowing receipt - first limb of Barnes v Addy - whether the defendant who received trust property had knowledge of the breach of trust - whether the first defendant's knowledge is to be treated as the knowledge of the corporate defendants which received trust property - whether rescission necessary in a claim in personam for knowing receipt of trust property- release - whether a trustee who has agreed to pay out trust money to a third party in breach of trust for its own benefit can give an effective release to the third party recipient - whether successor trustees bound by deed of release granted by original trustees to a third party - where releases contained in two separate deeds - whether rescission of both deeds a precondition to relief - whether defences of laches, acquiescence and delay can be established
Legislation Cited:	Limitation Act 1969 (NSW)
Cases Cited:	Addstead Pty Ltd (in liq) v Liddan Pty Ltd [1997] SASC 6369 Alati v Kruger (1955) 94 CLR 216 Armitage v Nurse [1998] Ch 241 Barnes v Addy (1874) LR 9 Ch App 244; (1874) 43 LJ Ch 513 Beach Petroleum NL v Johnson (1993) 43 FCR 1 Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 Clay v Clay [2001] HCA 9; (2001) 202 CLR 410 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Cowan v Scargill [1985] Ch 270 Crossman v PILT Nominees Pty Ltd [2008] NSWSC 557 Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 Duke Group Ltd (in liq) v Pilmer (1999) 73 SASR 64 Entwells Pty Ltd v National & General Insurance Co Ltd (1991) 5 ACSR 424 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 Gartside v Inland Revenue Commissioners [1968] AC 553 Gerard Cassegrain & Co Pty Ltd (in liq) v Cassegrain [2013] NSWCA 455; (2013) 305 ALR 687 Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 Grimaldi v Chameleon Mining NL (No 2); Chameleon Mining NL v Murchison Metals Ltd [2012] FCAFC 6; (2012) 200 FCR 296 Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572 Hunting v Safford, 66 N.E 642 (Mass.1903) John v Dodwell & Company Ltd [1918] AC 563 at 569 John Sheahan v Martin Thompson [2015] NSWSC 535 Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 Londish v Sheahan [2009] NSWSC 1175 Maguire v Makaronis (1997) 188 CLR 449 McClaughry v McClaughry, 15 A. 613 (Pa. 1888) McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623 Metropolitan Gas Co v Federal Commissioner of Taxation (1932) 47 CLR 621 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 110 ALR 449 Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 Orr v Ford [1989] HCA 4; (1989) 167 CLR 316 Pannell v Hurley (1845) 2 Coll 241, 245; 63 ER 716 Petrossi Bros. Contracting Corp v Town of Greece, 29 N.Y.S.2d 305 (Sup. Ct. 1941) Plan B Trustees Ltd v Parker (No 2) [2013] WASC 216; (2013) 11 ASTLR 242 Ramage v Waclaw (1988) 12 NSWLR 84 Robins v Incentive Dynamics Pty Ltd (in liq) [2003] NSWCA 71; (2003) 175 FLR 286 Sheahan v Londish [2010] NSWCA 270; (2010) 244 FLR 64 Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405 Spellson v George [1992] NSWCA 254; (1992) 26 NSWLR 666 Strang v Owens (1925) 42 WN (NSW) 183 Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; (2011) 82 ACSR 1 Tara Shire Council v Garner [2003] 1 Qd R 556 Tesco Supermarkets Ltd v Nattrass [1972] AC 153 Timan v Leland, 6 Hill 237 (N.Y. 1843) Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; (1995) 184 CLR 102 Valofo Pty Ltd (Administrators Appointed) v PILT Nominees Pty Ltd [2011] NSWSC 134 Walker v Stones [2001] QB 902 Welch v Mandeville, 14 U.S. (1 Wheat.) 233 (1816), 18 U.S. (5 Wheat.) 277(1820) White v Overland [2001] FCA 1333 Wilson v Metro Goldwyn Mayer (1980) 18 NSWLR 730 Yeshiva Properties No 1 Pty Ltd v Marshall [2005] NSWCA 23; (2005) 219 ALR 112
Texts Cited:	JD Heydon and MJ Leeming (eds) Jacobs’ Law of Trusts in Australia (7th ed 2006, Lexis Nexis) JD Heydon, MJ Leeming and PG Turner (eds), Meagher, Gummow and Lehane’s Equity: Doctrines & Remedies (5th ed 2015, LexisNexis) Austin Wakeman Scott, William Franklin Fratcher, Mark L Ascher, Scott and Ascher on Trusts (5th ed, 2008, Aspen Publishers)
Category:	Principal judgment
Parties:	John Sheahan (First Plaintiff) Ian Lock (Second Plaintiff) Valofo Pty Ltd (in liquidation) ACN 003 366 934 (Third Plaintiff) Martin Thompson (First Defendant) Michael Silas Chan (Second Defendant) Phillip Crossman (Third Defendant) Seniors Provident Pty Limited (Fourth Defendant) Metro Finance Pty Limited (Fifth Defendant) Pilt Nominees Pty Limited (Sixth Defendant) Ross Seller (Seventh Defendant) Peter Londish (Eighth Defendant) Metro Finance NZ Pty Limited (Ninth Defendant)
Representation:	Counsel: J.E Marshall SC with D. Sulan (First, Second and Third Plaintiffs) A.S Bell SC with D.F.C Thomas (Third, Fourth, Fifth and Ninth Defendants) No appearance for the First, Second, Sixth, Seventh and Eight Defendants) Solicitors: Clayton Utz (First, Second and Third Plaintiffs) Corrs Chambers Westgarth (Third, Fourth, Fifth and Ninth Defendants)
File Number(s):	2013/127413
Publication restriction:	nil

JUDGMENT

1. These proceedings concern two trusts known as the PILT Trust and the Baltarna Trust. The current trustees of those trusts, Mr John Sheahan and Mr Ian Lock, were appointed on 25 February 2011 by an order of the Court made by me: see Valofo Pty Ltd (Administrators Appointed) v PILT Nominees Pty Ltd [2011] NSWSC 134 and see John Sheahan v Martin Thompson [2015] NSWSC 535 in which the matter is further canvassed in relation to these proceedings. I shall refer to Mr Sheahan and Mr Lock as the “New Trustees”. They replaced PILT Nominees Pty Ltd (“Nominees”) as the trustee of the PILT Trust and Baltarna Pty Ltd (“Baltarna”) as the trustee of the Baltarna Trust.

2. These proceedings are brought by the New Trustees against Mr Phillip Crossman (“Crossman”), and three corporations owned or controlled by him- Seniors Provident Pty Limited (“Seniors Provident”), Metro Finance Pty Limited (“Metro Finance”) and Metro Finance NZ Pty Limited (“Metro NZ”) (“the Crossman corporations”). Valofo Pty Ltd (“Valofo”) which is the third plaintiff was joined as such because of claims made against the first and second defendants. Those claims have been resolved. Although Valofo brings no claims against Crossman or the Crossman corporations, its involvement is still relevant to the claims that the New Trustees bring as I shall endeavour to explain.

3. The proceedings arise out of the settlement by Crossman of earlier proceedings commenced in 2008 by him against Nominees, Baltarna, Mr Ross Edward Seller (“Seller”) and Sanabu Pty Ltd (“Sanabu”) and to which I shall refer as “the Crossman proceedings”. Crossman was at all times represented by Allens Arthur Robinson (“Allens”). On 8 July 2009 Crossman entered into two settlement deeds, one of which is known as the Settlement Deed- Contempt Motion (which I shall refer to as the “Contempt Deed”) and the other which is known as the Settlement Deed- Main Proceedings (and which I shall refer to as “the Main Deed”). The parties to the Main Deed in addition to Crossman were Nominees, Baltarna, Sanabu, Seller, Davlon Management Pty Ltd (“Davlon”) and Mr Peter Gregory Londish (“Londish”). The company search of Nominees at CB 1263 shows Seller as the sole director (and secretary) of Nominees and a company controlled by Seller as its only shareholder. Londish became a director of Nominees on 30 May 2008 (see CB 53). Sanabu and Baltarna were both companies controlled by Seller. Davlon is a company with which Londish was involved although I will need to say more about that involvement later. The parties to the Contempt Deed were Crossman, Nominees, Seller and Londish.

4. The Contempt Deed and the Main Deed brought to an end the Crossman proceedings. By the Contempt Deed Nominees agreed to pay a sum of $600,000 to Crossman in July 2009 and another $1.6 million by a later date. By a later amendment the date for payment of the second instalment was extended until April 2009. Both payments totalling $2.2 million were in fact made to Crossman or the Crossman corporations and they are the subject of these proceedings. Pursuant to the Main Deed Crossman was to be paid $1 by Nominees.

5. In the Crossman proceedings Crossman had complained that trust monies had been wrongly taken by Nominees from the PILT Trust and applied to the benefit of Londish or his companies and that Baltarna, through Seller, had wrongly removed as a General Beneficiary of the Baltarna Trust the Baltarna Class Trust (“BCT”). Crossman was one of the objects of the BCT and the BCT had, by resolution of Baltarna on 31 July 1996, been declared as a General Beneficiary: see CB 343. Baltarna was also the trustee of the BCT: see CB 235 but in March 2008 at the same time that the BCT was removed as an object of the Baltarna Trust Baltarna was replaced as trustee by Sanabu.

6. In the course of the Crossman proceedings orders had been made by Hamilton J injuncting Nominees from entering into any borrowing otherwise than to finance the acquisition of specified property, or using any of trust property as security for borrowings otherwise then in connection with the purchase of specified property. Baltarna and Nominees were injuncted from taking any steps in relation to the structure and assets of Baltarna Trust and the PILT Trust (see CB 916).

7. In resisting the injunctive relief sought by Crossman, counsel for Nominees Mr D.K Raphael, had foreshadowed the possibility that Nominees would wish to explore another means of financing and for that reason the requirement that Crossman’s consent to such financing be sought prior to any application to amend the prohibitions had been included in the orders made by Hamilton J. The day after the injunction was ordered the ANZ Bank issued a facility letter to Nominees offering a variable commercial rate bill facility for $11.3 million, secured against the five service station properties of the PILT Trust which were at that point unencumbered. The solicitors for Nominees wrote to Crossman (through his solicitors) on 16 June 2008 seeking his consent to Nominees obtaining funds of $1.3 million by way of a bill discount facility to pay for “holding costs” which consent Crossman refused to give (see CB 477- 481). Notwithstanding the refusal and the injunction Nominees proceeded to take up the facility which was for $11.3 million secured over the service station properties being the PILT Trust assets. Funds of approximately $10.5 million were obtained by Nominees by virtue of the ANZ Bank facility.

8. On learning that Nominees had obtained funds from the ANZ Bank Crossman filed and served a Notice of Motion seeking the repayment of monies paid out of the PILT Trust, and orders that required Seller and Londish to file affidavits identifying the recipients and other details concerning the payments made out of the facility obtained from ANZ and said by Crossman to have been entered into in breach of the Court’s orders. On 23 April 2009, White J made freezing orders against Nominees, Seller and Baltarna and made orders requiring disclosure, and the motions were stood over for a period of time. His Honour White J noted that Nominees and Seller had acted “surreptitiously” by its solicitors not mentioning in the correspondence that Nominees had sought a facility of $11.3 million. On that occasion White J recorded that the defendants had proposed that new independent trustees be appointed on an interim basis until the completion of the Crossman proceedings which his Honour determined was an appropriate course (see [40] of the judgment CB 916). His Honour also drew attention to the fact that there was a serious question as to whether the ANZ facility was a breach of trust by Nominees even if not it was a not ‘borrowing’ within the meaning of the orders made by Hamilton J at [47], as Nominees contended.

9. Affidavits were filed by Seller and Londish as required by the orders made by White J, which disclosed that Seller and Londish had caused Nominees to make payments from funds of the PILT Trust to Radio Nominees Pty Ltd (“Radio Nominees”) ($3.9 million) and Davlon ($5.5 million) being entities associated with Seller and Londish. Later the amount of payments made out of trust assets by Nominees said by Crossman to be for purposes unconnected with the trust exceeded the $9.4 million to Radio Nominees and Davlon. Radio Nominees was a company controlled by Seller and the shares in which were owned by Mr Alfred Seller.

10. Following receipt of the affidavits of Seller and Londish, Crossman’s solicitor wrote to the solicitors for Nominees and Seller asserting that Nominees and Seller had dissipated assets of the PILT Trust and breached the orders made by Hamilton J.

11. Crossman subsequently filed and served a Motion to have those defendants dealt with for contempt by reason of the alleged breach of orders made by Hamilton J.

12. A mediation in the Crossman proceedings was conducted in November 2008 but it did not lead to resolution. A subsequent mediation conducted by the Honourable Mr J Clarke QC as mediator was held between Crossman, Nominees, Baltarna, Londish and Seller on 15 May 2009 but the Crossman proceedings did not then resolve. After the mediation on 3 June 2009 Seller’s solicitors made a settlement proposal, which after discussion and variations ended up as terms of the settlement deeds. The position papers which were served by Crossman and the defendants at the mediation were tendered in evidence in the proceedings before me. Also present at the mediation (for at least part of the time) were Londish’s brother in law Mr David Bowman (“Bowman”) and Londish’s mother Mrs Linda Londish (“Linda”) as representative of Mr Sid Londish whose interest I shall describe below.

13. The case of the New Trustees can be summarised thus:

1. Nominees, Seller and Londish, having been accused by Crossman of wrongly dissipating trust assets and of breaching Court orders made by Hamilton J, resolved the Crossman main proceedings and the Crossman contempt proceedings against them by paying to Crossman monies taken from PILT Trust assets which could not legitimately have been used for that purpose

2. Crossman was fully aware that the funds for payment to him came out of the PILT Trust assets in breach of Nominees’ obligations as trustee and he received the funds from Nominees, in accordance with the Settlement Deed, impressed with that breach of trust

3. Crossman arranged for most of the funds paid by Nominees to him to be paid out to the Crossman companies. His knowledge is the knowledge of the Crossman companies which he controlled

4. it is part of the New Trustees’ contention that the payment of the two instalments was a breach of trust by Nominees because

1. the only beneficiary of the PILT Trust was the Baltarna Trust and the only unitholder of the Baltarna Trust was Valofo and Valofo did not consent to the use of PILT Trust assets to pay out Crossman

2. Crossman not only was not a beneficiary of the PILT Trust but was not a direct beneficiary of the Baltarna Trust. His interest was as a member of the class of the BCT beneficiaries, and he would only obtain payment if Baltarna, in the exercise of its unfettered discretion, chose to pay money to the BCT

3. that Baltarna could only receive funds from the PILT Trust if the PILT Trust had paid money to Baltarna upon the PILT Trust vesting

4. that the BCT could only receive funds from the Baltarna Trust if the Baltarna Trust received funds from the PILT Trust and the BCT and hence Crossman could only receive funds if Valofo received an amount of $7.5 million from the sale of 5 properties held by the PILT Trust

14. There were, however, posited by Crossman in opening and final written submissions a number of answers to that case:

1. that the New Trustees are bound by the acts of the previous trustees, and in particular the entry into the Main Deed and Contempt Deed by which monies were to be paid to Crossman and that these Deeds cannot be rescinded by the New Trustees

2. that the Main Deed and Contempt Deed in terms preclude claims by the New Trustees against Crossman and his companies and that since at least one of those deeds, the Main Deed, is not sought to be set aside by the New Trustees, the New Trustees are precluded from bringing the proceedings by reason of the releases given to Crossman

3. that Valofo knew of the terms of the settlement

4. that Crossman owed no fiduciary duty to Valofo or the other beneficiaries of the PILT Trust or Baltarna Trust and was entitled, in his own interest, to reach a resolution of all of his claims (that is, not just the claims in the Crossman proceedings, but his claim to an entitlement on vesting under the Baltarna Trust)

5. as part of (4) that he believed that there were sufficient assets in the PILT Trust as would enable Valofo to be paid $7.5 million even after receipt by him of his $2.2 million

6. that there has been laches, delay and acquiescence on the part of the New Trustees and of Valofo

15. To understand better these claims and Crossman’s response to them it is necessary to describe the background to the trust structure which was put in place, and the key clauses of the trust documentation and the Settlement Deeds to which the parties have referred.

16. The idea behind the trust scheme was apparently that if an investor was willing to provide substantial capital a trust could be established out of which properties suitable for use as petrol service stations operating under the Shell banner could be purchased, leased to Shell for a period of approximately twelve years and then sold to Shell pursuant to an option or on the open market with profit being returned to the investor. The scheme was supposed to have some significant tax benefit by the imposition of a company with significant tax losses to be offset against income. The idea for this scheme emanated from Crossman or the company by whom he was employed at the time as a senior executive, Australian Gilt Securities Ltd. Crossman’s evidence is that he helped put the whole scheme in place and in return he was to receive one third of the ultimately distributed net sales proceeds as a “free-carried promoter’s equity” (see Defendants’ Closing Submissions “DCS” 6). The second third was to go to the investor and the remaining third to go to Seller who apparently had a role in relation to the tax aspects of the project- being at the time a lawyer and partner of Gadens solicitors.

17. The investor who was found was Mr Sid Londish (“Sid”) who is Londish’s father.

18. Five properties were purchased and all were leased for a twelve year period to Shell. Those properties were of substantial value. One valuation, dated 2008, put a total value on the five properties at $16.2 million: see CB 503- 668. It is accepted by the parties that the valuation has been received not as expert evidence of the value of the properties but rather evidence of the fact that Nominees had obtained that valuation.

19. Nominees was later appointed trustee of the PILT Trust.

15. The PILT Trust had only one unitholder- Baltarna as trustee of the Baltarna Trust. The Baltarna Trust had as its sole unitholder Valofo. The only person or entity with an interest in the PILT Trust was Baltarna as trustee for the Baltarna Trust and the only persons or entities with an interest in the Baltarna Trust were therefore Valofo and the BCT if the BCT had not been validly removed as a General Beneficiary. There was a period in which Seller had an interest in the BCT but it is agreed he relinquished that interest in March 2008 (see CB 393). Baltarna as the trustee of the Baltarna Trust had power in its discretion to determine the amount to be paid to the BCT (see clause 4.2(f) of the Baltarna Trust Deed set out below). The Baltarna Trust Deed did not actually guarantee payment of any account to Crossman- notwithstanding the agreement that he says he had reached with Seller and Sid that he was to receive one-third of the net proceeds after Valofo had received its $7.5 million, and his understanding that there was no discretion (see T201.10) was incorrect.

The PILT Trust Deed: Important Provisions

21. Australian Gilt Securities Ltd was originally the manager of the Trust but was later replaced. Australian Securitisation Corporation Holdings Limited was the trustee but it was later replaced by Nominees. The following clauses of the PILT Trust Deed (found at CB 1102) were said by the parties to be important:

“13.1 General Power

Subject to the provisions of this Deed, the Trustee shall have all the rights, powers and discretions over and in respect of the Assets of the Trust which it could exercise if it were the absolute and beneficial owner of such Assets.

13.2   Specific Powers

Without in any way affecting the generality of the foregoing or the other provisions of this Deed, but subject to the Trustee's obligations under, and the provisions of, this Deed, the Trustee shall have the following powers (which shall be construed as separate and independent powers of the Trustee):…..

(n) (Execute Instruments): to execute all such proxies, powers of attorney and other instruments as may be necessary or desirable to enable the Trustee, or any officer, delegate or agent of the Trustee to exercise any power, discretion or right of the Trustee as the Trustee shall in its absolute discretion see fit;

(o) (Proceedings): to institute, prosecute, defend, settle and compromise legal or administrative proceedings of any nature whatsoever and generally to enforce and pursue its rights pursuant to and in respect of Assets;

…..

(v) (Incidental Powers): to do all such things incidental to any of the foregoing powers or necessary or convenient to be done for or in connection with the Trust or the Trustee's functions under this Deed.

….

23.9   Powers, Authorities and Discretions

Except insofar as herein otherwise expressly provided and in the absence of fraud, negligence or wilful default, the Trustee and the Manager shall not be in any way responsible for any loss (whether consequential or otherwise), costs, damages or inconvenience that may result from the exercise or non-exercise of any powers, authorities and discretions vested in it…..

23.13 No Liability except for Negligence etc.

In the absence of fraud, negligence or wilful default, the Trustee and the Manager shall not be liable personally in the event of failure to pay moneys on the due date for payment to any Bondholder, any Unitholder, the Manager (in the case of the Trustee), the Trustee (in the case of the Manager) or any other person or for any loss howsoever caused in respect of the Trust or to any Bondholder, any Unitholder, the Manager (in the case of the Trustee), the Trustee (in the case of the Manager) or other person.

23.14 Further Limitations on Trustee's Liability

Subject to clause 23.3, the Trustee shall not be liable:

(a) (For Loss on its Discretions): for any losses, costs, liabilities or expenses arising out of the exercise or non-exercise of its discretion or for any other act or omission on its part under this Deed, any other Transaction Document or any other document except where the exercise or non-exercise of any discretion, or any act or omission, by the Trustee, or any of its officers, employees, agents or delegates, constitutes fraud, negligence or wilful default……

23.19   Conflicts

Nothing in this Deed shall prevent the Trustee, the Manager or any Related Body   Corporate or Associate of either of them or the directors or other officers thereof or any other person (all being included unless the context otherwise requires in the expression the "Trustee and the Manager" where hereafter used in this clause) fromsubscribing for purchasing, holding, dealing in or disposing of any Units or Bonds or from otherwise at any time contracting or acting in any capacity as representative or agent or otherwise or entering into any financial, banking, development, insurance, agency, broking or other transaction with, or providing any advice or services for theTrust or from being interested in any such contract or transaction or otherwise and the Trustee and the Manager shall not be in any way liable to account to any Unitholder or Bondholder or any other person or any of them for any profits or benefits (including but without limiting the generality thereof any profit, bank charges, commission, exchange, brokerage and fees) made or derived thereby or in connection therewith and the Trustee and the Manager shall not by reason of any fiduciary relationship be in any way precluded from making any contracts or entering into any transactions with any such person in the ordinary course of the business or from undertaking any banking, financial, development, agency or other services and without prejudice to the generality of these provisions it is expressly declared that such contract and transactions may include any contract or Transaction in relation to the placing of or dealing with any investment and the acceptance of any office of profit or any contract of loan or deposits or other contract or transaction which any person or company not being a party to this Deed could or might have lawfully entered into if not a party to this Deed and the Trustee and the Manager shall not be accountable to Unitholders, Bondholders or any other person for any profits arising from any such contracts, transactions or offices.”

The Baltarna Trust Deed: Important Provisions

22. The Baltarna Trust Deed contained the following provisions to which the parties have referred (CB 203):

“1. DEFINITIONS AND INTERPRETATION…....

“General Beneficiaries” means the persons who from time to time until the Vesting Day who are named in or come within those categories as defined in Items 2 and 4 respectively and “beneficiary” means any person absolutely or contingently entitled to any interest in the Trust Fund or the income of the Trust Fund (even though in the case of each expression those persons may not be alive or in existence or may not have come into the defined category at the date of this Deed)……

“Unit” means any unit of any class issued by the Trustee and includes Ordinary units…..

[“Vesting Day” was defined as the 79th anniversary date of the deed “or such earlier date as the Trustee may with the consent of the Appointer appoint”]

3.5 PAYMENTS

Order of Payment of Outgoings of the Trust

Subject to the other provisions of this Deed all receipts of income or capital of the Trust shall be applied in the following order:

(a) (Taxes): first, in payment of, or in allowance to the extent that the Trustee considers necessary for, all Taxes due or which may become due in respect of the Trust;

(b) (Trustee’s Fees and Expenses): secondly, in payment of, or in allowance to the extent that the Trustee considers necessary for, the Trustee’s Fee and any Expenses due or which may become due in respect of the Trust;

(c) (Borrowings): thirdly, in payment to Lenders of all amounts due or which may become due relating to their respective Borrowings;

(d) (Unitholders): fourthly in payment to the Ordinary Unitholders of the New Taxable Income of the Trust in each Financial Year in accordance with Clause 3.6; and

(e) (Others) sixthly, to other beneficiaries entitled pursuant to this deed.

3.6 Payments to Unitholders   

(a) (Payment of Income to Ordinary Unitholders): The entitlement of the Ordinary Units to the Net Taxable Income of the Trust for a Financial Year pursuant to this Deed shall be paid to the Ordinary Unitholders no later than the last Banking Day of the Financial Year provided that if the balance of the Available Distributable Amount in relation to the end of that Financial Year, is less than such entitlement of the Ordinary Unitholders:

(i) an amount equal to such balance shall be paid to the Ordinary Unitholders in accordance with their entitlements pursuant to this Deed; and

(ii) the Trustee shall apply the amount of the shortfall as payment in full in respect of bonus Ordinary Units issued by the Trustee to the Ordinary Unitholders so entitled at the rate of one bonus Ordinary Unit for each Dollar of the amount of shortfall. Such an issue of bonus Ordinary Units shall be binding upon the Ordinary Unitholders and shall be in satisfaction of so much of their absolute vested interest of the Net Taxable Income of the Trust for that Financial Year that cannot be satisfied from the balance of the Available Distributable Amount in relation to the end of that Financial Year paid or payable pursuant to this Deed.

……

4. APPLICATION OF TRUST FUND ON VESTING DAY

4.1 Subject to Clause 4.2 as from the Vesting Day the Trustee will stand possessed of that part of the capital of the Trust Fund including the amount of capital paid on Units by Registered Holders, in trust for the Registered Holders in proportion as between themselves to the number of Units held by them and in trust for those of the General Beneficiaries living or in existence at that date for those interests and in those proportions and for one to the exclusion of the other as the Trustee may in its absolute discretion appoint on or before the Vesting Day revocable at any time earlier than the Vesting Day unless expressed to be otherwise.

4.2 Distribution Upon Vesting

Notwithstanding any other provisions in this deed other then Clause 4.4 the application of the Trust Fund on the Vesting Day shall be in the following order;-

(a) Taxes

(b) Trustees Fees and Expenses

(c) Amounts that are due to lenders in relation to any Borrowings

(d) Undistributed income including unitholders income, pursuant to Clause 2.3 or 3

(e) A repayment of Unit Holders capital paid on the Ordinary Units to the greater of:

(i) $7,500,000; or

(ii) 55% of the total Capital paid up (whether as bonus Ordinary Units or otherwise) on all Ordinary Units ever issues, less any amounts already paid pursuant to Clause 8 as a Redemption of such Units. No premium is payable on these Units.

(f) An amount determined by the Trustee pursuant to his discretion and or power of appointment as contained in this deed, to be paid or payable pursuant to any General Beneficiary out of the Trust Fund, provided that such amount is not to exceed the sum of the amounts determined under 4.2(e) plus any amount paid or payable to the Ordinary Unitholders upon redemption pursuant to Clause 8.

(g) The balance of the capital on the Ordinary Units in existence at the vesting date without any premium payable

(h) Any remaining balance of the Trust Fund in trust for those of any remaining Unitholders, General Beneficiaries for those interests and in those proportions and for one to the exclusion of the other as the Trustee may in its absolute discretion appoint on or before the Vesting Day revocable at any time earlier than the Vesting Day unless expressed to be otherwise.

4.3 Remainder

In default of the Trust Fund or part of it vesting absolutely pursuant to clause 4.1 and 4.2 the Trustee will stand possessed of the Trust Fund or part thereof for the Unitholders and General Beneficiaries jointly living or in existence on the Vesting Day in equal shares absolutely and if there will be no such persons upon trust for those charitable purposes as the Trustee may determine, any resulting trust to the Settlor being expressly negatived.

4.4 Action on Vesting

Upon Vesting, the Trustee shall wind up the Trust and, subject to clause 4.5

(a) (Wind up the Trust): sell and realise the Assets of the Trust and such sale (so far as reasonably practicable and reasonably viable commercially) shall .be completed within 180 days after the commencement of the termination of the Trust; and

(b) (Distribute Proceeds): distribute all cash proceeds from the realisation of the Assets of the Trust in the order of priority set out in Clause 4.2……

20. TRUSTEE MAY NOMINATE ADDITIONAL OR EXCLUDE BENEFICIARIES

20.1 The Trustee may with the consent of the Appointer in writing at any time or times before the Vesting Day nominate one or more individuals, corporations, trusts or entities having separate legal identity (not being otherwise excluded from benefit hereunder) to be a member or members of the class of General Beneficiaries and no beneficiary may prevent the nomination of new beneficiaries. The nomination of additional beneficiaries may be by resolution (whether oral or in writing), deed, or deed poll……

20.4 The Trustee may with the consent of the Appointor at any time or times before the Vesting Day declare any individual or entity to be removed as a beneficiary or to be ineligible to become a beneficiary and such person or entity shall thereupon be excluded from any benefit under the trusts hereby created (but without prejudice to the beneficial entitlement to any amount set aside for any excluded beneficiary prior to the date of such declaration). Any such declaration shall be revocable unless expressed to be otherwise. The removal of beneficiaries may be by resolution, (whether oral or in writing) deed, or deed poll.”

23. Clauses 3.1(a) and 5(c) of the Baltarna Trust Deed gave wide discretion to the trustees as to the payment of income (prior to vesting date) to the beneficiaries.

24. The BCT Deed is in evidence at CB 235- 344.

25. Clause 4.2(e) of the Baltarna Trust Deed set out above has two alternatives but it was agreed that 4.2(e)(i) was the only relevant sub clause.

The Main Deed

26. The Main Deed contained the following provisions said by the parties to be of significance:

1.                           “1.2 Interpretation…..

(d) A reference to a party to this Deed or another agreement or document includes the party's successors, permitted substitutes and permitted assigns (and, where applicable, the party's legal personal representatives).

2. in consideration of the payment to Crossman of $1 by Nominees, Crossman agreed to discontinue the Contempt Motion, and have all orders vacated and undertakings discharged. Crossman also agreed to give written notice to the trustees of the BCT consenting to the vesting of the BCT

3. a release of Crossman in the following terms:

“3.2 Release by PILT Nominees, Baltarna, Sanabu, Mr Seller, Davlon and Mr Peter Londish

On and from the Second Payment Date, each of PILT Nominees, Baltarna, Sanabu, Mr Seller, Davlon and Mr Peter Londish releases Mr Crossman and each of Mr Crossman's Related Entities from:

(a) any Claim arising from or connected with:

(i) the Proceeding;

(ii) the circumstances or allegations giving rise to or referred to in the Proceeding; and

(b) any other Claim which is or could reasonably have been known to a party as at the date of this Deed, whether or not the Claim is or could be known to a party, and, whether or not the Claim arises from or is connected with the Proceeding.”

27. There was a confidentiality clause which prevented the parties from disclosing the existence and terms of the Main Deed to anyone except in specified circumstances. That clause was inserted at the request of the Nominees/Seller interests and replaced a requirement contained in the without prejudice proposal from Nominees’ solicitors requiring Valofo’s consent: see CB 1093, 1094 and 1112. An identical clause was inserted in the Contempt Deed: see below. There was a release given by Crossman as well which was to take effect only “on and from the Second Payment Date” ie the date of payment of the $1.6 million to which I have earlier referred, and which was payable under the Contempt Deed.

The Contempt Deed

28. By the Contempt Deed Nominees agreed to pay Crossman the two payments: one of $600,000 and one of $1.6 million.

29. By Clause 2.4 Nominees agreed to cause mortgages over the five properties to be granted to Crossman to secure the second payment.

30. Clause 2.6 was in the following terms:

“Consent and acknowledgment

(a) For the purpose of the undertakings given by PILT Nominees and Mr Seller noted in the orders made on 23 April 2009, Mr Crossman consents to PILT Nominees and Mr Seller dealing with, or diminishing the value of, any of the assets of PILT Nominees for the purposes of:

(i) making the First Payment; and

(ii) causing the registered mortgages referred to in clause 2.4(a) above to be granted.

(b) The parties acknowledge that the payments contemplated by this deed are not, and the granting of the registered mortgages to Mr Crossman in accordance with clause 2.4(a) is not, prevented by the orders made by Justice Hamilton on 27 May 2008.”

31. The releases were in the following terms:

“4.1 Release by Mr Crossman

On and from the Second Payment Date, Mr Crossman releases PILT Nominees, Mr Seller and Mr Peter Londish and each of their Related Entities from:

(a) any Claim arising from or connected with:

(i) the Contempt Motion;

(ii) the circumstances or allegations giving rise to or referred to in the Contempt Motion.

4.2 Release by PILT Nominees, Baltarna, Sanabu, Mr Seller, Davlon and Mr Peter Londish

On and from the Second Payment Date, each of PILT Nominees, Mr Seller, and Mr Peter Londish releases Mr Crossman and each of Mr Crossman’s Related Entities from:

(a) any Claim arising from or connected with:

(i) the Contempt Motion;

(ii) the circumstances or allegations giving rise to or referred to in the Contempt Motion.”

32. The confidentiality clause in the Contempt Deed was in the following terms:

“7.1 Confidentiality

Subject to clause 7.2, a party must not disclose the existence of and terms of this Deed.

7.2 Permitted disclosure

A party may disclose the existence of and terms of this Deed:

(a) under corresponding obligations of confidence as imposed by this clause, to any of its professional advisers, auditors, bankers, insurers or insurance brokers;

(b) in enforcing this Deed or in a proceeding arising out of or in connection with this Deed;

(c) if required under any law or any administrative guideline, directive, request or policy; or

(d) with the prior written consent of each other party.”

33. Clause 9 provided:

“9. Entire Agreement

This Deed contains the entire agreement between the parties with respect to its subject matter. It sets out the only conduct relied on by the parties and supersedes all earlier conduct and prior agreements and understandings between the parties in connection with its subject matter.”

and there was a similar clause (clause 8) in the Main Deed.

34. Neither the PILT Trust Deed or the Baltarna Trust Deed alone or taken together make any reference to Crossman being entitled to a one-third share of net profits or indeed to any particular amount.

The Claims in the Crossman proceedings

35. In the Crossman proceedings, Crossman’s standing to bring those proceedings was put in issue since he was not a beneficiary of the PILT Trust or even the Baltarna Trust. Hamilton J dealt with this point in an interlocutory judgment (see Crossman v PILT Nominees Pty Ltd [2008] NSWSC 557) saying that Crossman had an arguable case for standing and for the relief he was seeking particularly at [5]- [8] and referring to Spellson v George [1992] NSWCA 254, (1992) 26 NSWLR 666. Spellson itself cites Gartside v Inland Revenue Commissioners [1968] AC 553 at pp 617- 618; see also Ramage v Waclaw (1988) 12 NSWLR 84.

35. In the Crossman proceedings Crossman claimed inter alia that (these are taken from the Amended Statement of Claim CB 1126B- AY dated 25 June 2009 which was verified by Crossman see CB 1126AV):

1. Nominees had paid out $9.5 million of trust assets from the PILT Trust, in breach of trust and with the intention of benefiting Seller and Londish or the companies they controlled

2. Baltarna had received $3.5 million of trust assets from the PILT Trust, in breach of trust and for purposes unconnected with the PILT Trust or the Baltarna Trust

3. Davlon had obtained the benefit of $5.2 million from trust assets and was liable to repay it to the trust

4. Radio Nominees had obtained $3.4 million of trust assets and was liable to repay it to the trust

Crossman sought:

1. the taking of accounts for the purpose of tracing payments made out of trust assets- amounts totalling $11.5 million

2. an equitable charge in favour of the trustees of the PILT Trust of those monies

3. and alternatively a charge in favour of the trustees of the PILT Trust or Baltarna Trust re $3.5 million held over such property into which the $3.5 million may be traced by Radio Nominees

Crossman

1. relied on the terms of the PILT Trust Deed and the Baltarna Trust Deed

2. asserted that ‘Trustee duties’ were imposed on Nominees and Baltarna including the duty (CB 1126S)

“to pay and transfer the property of the relevant trust only to the relevant beneficiaries or objects of the relevant trust”

3. claimed that Seller and Londish (CB 1126T)

“took steps causing PILT Nominees as trustee of the PILT [Trust] to borrow approximately $11.5 million secured over the Designated Properties, wholly or partly for the purpose of making a significant payment to an entity or entities controlled by Seller and/or Peter Londish”.

4. claimed that the entry into the borrowings and payment out to Davlon and Radio Nominees by Nominees for purposes “unconnected with the underlying intention of the PILT Trust” and for the predominant purpose of

“making significant payments or distributions to an entity or entities controlled by Seller and/or Peter Londish which was a purpose alien to the PILT”

and involved breach of trust by Nominees

5. claimed that the payments made by Baltarna were similarly a breach of the Baltarna Trust Deed

6. claimed that the breaches involved a dishonest and fraudulent design on the part of Nominees and Baltarna in which Seller and Londish were complicit

7. in the Amended Statement of Claim also attacked the removal of the BCT as a General Beneficiary of the Baltarna Trust and the appointment of Sanabu as trustee (CB 1126V- W [44])

37. I have made reference to Valofo. As at 2008- 2009 Valofo had two directors- Bowman and Londish. The shareholder of Valofo at the relevant time was Londish Nominees Queensland Pty Ltd (having as its address the same address as Londish- CB 17) although it appears, and the parties in these proceedings have accepted, that it too was a trustee under other trusts and that the beneficiaries of the relevant underlying trusts were Londish, Bowman and Sid. In December 2008 Bowman wrote to Seller indicating that he regarded Londish as having acted against the interests of Valofo and its beneficiaries and that matters relating to Valofo and Sellers’ role as trustee of the PILT and Baltarna Trusts should be directed to Bowman as well as Londish who did not have authority to represent Valofo: see CB 672, 676A, 712A, 714, 718, 975. Crossman was well aware of the dispute between Bowman and Sid on the one hand, and Londish on the other and sought to involve Valofo as plaintiff in the proceedings against Nominees: see for example T203.25 and T216.25.

38. In February 2009 Sid and Bowman purported to remove Londish as a director of Valofo and replace him with Sid and steps were taken by Sid on behalf of Valofo including instructing the firm of ClarkeKann in relation to the Crossman proceedings. Crossman was aware of Londish’s removal: see CB 858 and he took the view that Bowman was a director of Valofo and the suitable person with whom to deal on behalf of Valofo (see DCFS 55). Valofo was placed in administration by Bowman in July 2009 but this was set aside on the application of Londish: see Londish v Sheahan [2009] NSWSC 1175. That decision was overturned on appeal: see Sheahan v Londish [2010] NSWCA 270; (2010) 244 FLR 64 and administrators were again appointed on 26 November 2009. Valofo went into liquidation on 5 January 2010: see CB 14.

39. On 27 July 2009 shortly after Valofo was placed in administration the first time, solicitors acting on behalf of Valofo and its administrators wrote to Allens on behalf of Crossman advising that they wished to participate in the Crossman proceedings “to protect its beneficial interest in the Trust’s assets”. The letter proceeded (CB 1178):

“It has been reported to the administrators that your client may have recently negotiated with Mr Ross Seller to resolve his claims concerning the PILT Trust. The administrators have no information about the terms of any settlement or settlement discussion entered into, however they hold concerns that any agreement may involve improper application or charging of PILT’s trust property.

The assets of the PILT Trust were encumbered by the ANZ loan and approximately $11.5 million has been disbursed to either Mr Seller, or Mr Peter Londish or companies they control. Valofo has received no benefit from the proceeds of the ANZ Bank loan and until those funds have been properly accounted for and recovered by PILT Valofo's position is that the monies continue to be impressed with a trust in favour of PILT.

The purpose of this letter is to notify that administrators have been appointed to Valofo. The administrators would like a meeting with your client and respective advisors to determine the current state of the Proceedings and understand your client's position as claimant.

My clients believe the prior conduct of Mr Seller and Peter Londish have displayed self interest in the extreme and therefore the administrators are worried that any peace offering made to you will involve either payment to your client of the Trust's funds raised from the ANZ loan, or provision ofsecurity over the Trust’s properties.   

Could you please advise if a meeting can be arranged in the next 24 hours.”

40. Allens replied to an email sent two days later indicating their client is “unable to provide answers to the questions you have asked because of certain obligations of confidentiality owed by him” (see CB 1183).

41. On 15 December 2009 Chang, Pistilli & Simmons, the lawyers for Nominees, wrote to Mr Purcell at O’Neill Partners advising that Nominees intended to make various payments out of the PILT Trust including the second payment to Crossman: CB 1213. They wanted to know whether Valofo would be seeking Court orders to prevent those payments and in a further letter of 17 December 2009 warned O’Neill Partners that they would insist on an undertaking as to damages from Valofo should such relief be sought by Valofo: see CB 1217.

42. By letter of 17 December 2009 O’Neill Partners responded reiterating Valofo’s position and challenging the validity of the distribution to Crossman. The letter indicated that the administrators would not be proceeding with an application for interlocutory relief at that time but referred to their expectation that they would be notified of an intention to distribute funds from the sale of the fifth property “in accordance with orders entered in the Proceedings on 16 December 2009”: see CB 1220. They did note that

“your clients are on notice of our client’s concerns and our client reserves all rights in relation to any payments made from the assets of the PILT Trust and/or the Baltarna Trust”

43. No steps were taken by the administrators of Valofo to stop the second payment to Crossman.

44. In relation to Davlon, Londish was at all relevant times a director of Davlon according to the ASIC search: see CB 40. Bowman was a director from 1/12/1995 to 15/4/2002: see CB 41. The shareholders were at all relevant times Londish and Bowman according to the ASIC search. Davlon had a liquidator appointed on 11 May 2011: CB 42. The New Trustees contend that Bowman ceased to have any involvement with Davlon in 2002 and Crossman said that Bowman and Sid had told him that Valofo had not authorised any payment to Davlon: T225.20- 50. Bowman had resigned as a director of Davlon by letter of 15 April 2002 and see the transfer of shares at CB 984 and letter CB 975- 976.The Main Deed it should be noted was executed on behalf of Davlon by Londish as ‘sole director and sole secretary of Davlon’.

45. Although joined as defendants to these proceedings, neither of Londish or Seller, the controlling minds of Nominees and Baltarna (and it appears Davlon and Radio Nominees), appeared in the case. Londish contacted the Court registry on Friday 1 May 2015 stating that he would not be attending on Monday 4 May and he did not do so then or at all. There is evidence before the Court that each of these defendants were served and indeed Londish had on several occasions appeared in person at pre-trial directions.

46. Exh B contains a calculation of interest at 1 January 2015 a total of approximately $884,000 to be added to the $2.2 million received by Crossman if the New Trustees are entitled to recover the $2.2 million.

47. At the date of the hearing of these proceedings the only asset of the PILT Trust is $64,000 (see T103- 104) and Baltarna has no assets: T104.

The Issues

48. There was disagreement between the parties concerning the issues, and as to what was the appropriate starting point. I have had regard to the competing issues and leaving aside the question of whether any particular matter could, on the pleadings, be raised, the questions which need to be addressed are:

1. was the settlement with Crossman a breach of trust by Nominees and Baltarna? This involves the subsidiary question of whether the provisions of the Trust Deeds permitted what otherwise would not be permitted (Issue 1)

2. did the beneficiaries of the PILT Trust and the Baltarna Trust consent to the breach so as to preclude the New Trustees from relying on the breach of trust? This involves the further question of whether if there was consent whether that consent was fully informed (Issue 2)

3. if the Crossman settlement was a breach of trust by Nominees did Crossman receive payments by virtue of the breach of trust? (Issue 3)

4. if the answer to (3) is yes, did Crossman have knowledge of the breach of trust? (Issue 4)

5. if the answer to (4) is yes, did the Crossman corporations have knowledge of the breach of trust? (Issue 5)

6. was Crossman a volunteer? (Issue 6)

7. if Crossman and the Crossman corporations were otherwise liable to repay the money received by them from the PILT Trust assets do the release clauses of the Contempt Deed and the Main Deed preclude the New Trustees from being able to recover these monies from Crossman or the Crossman corporations? This issue has a number of sub-issues:

1. the nature of relief that can be granted

2. are the New Trustees bound by the terms of the Main Deed and the Contempt Deed?

3. is the answer to whether relief can be grated dependant on whether the New Trustees have set aside the Contempt Deed and the Main Deed? This is tied to the defendants’ assertions that since the New Trustees have not sought to rescind the Main Deed they cannot rescind only the Contempt Deed. The defendants also contend that the New Trustees cannot obtain an order for rescission of the Contempt Deed for various reasons, even assuming that the rescission of the Main Deed is not required

4. if the releases of either the Main Deed or the Contempt Deed are binding on the New Trustees are they in terms sufficiently wide to preclude the New Trustees’ claims:

1. against Crossman

2. against the Crossman corporations

(Issue 7)

8. can the defendants rely on acquiescence, delay or laches? (Issue 8)

9. can the defendants run what has been called “the Baltarna Consent is determinative” point and if so is it an answer to the plaintiffs’ claims? (Issue 9)

49. I should record that I received very detailed and helpful submissions from counsel in this matter.

50. Mr Crossman’s evidence in chief was found in two affidavits: 11 July 2014 (“the 2014 affidavit”) and 30 April 2015 (“the 2015 affidavit”). He was extensively cross examined. Although an affidavit of Bowman was filed and served it was not read. No affidavits of the New Trustees were read.

51. I summarise the key points of Crossman’s evidence contained in his two affidavits:

1. he sets out the commercial background to the trusts to which I have earlier referred and which he describes as “the Funding Structure”

2. he describes Valofo as Sid’s private company: 2014 affidavit para 15

3. the Class A Beneficiaries of the BCT were Seller and interests with which he was connected and the Class B Beneficiaries were Crossman and his interests: 2014 affidavit para 18

4. at the end of the 12 year term when all borrowings had been or were about to be repaid he started communicating with Seller about Shell’s option to purchase the service stations and became aware that Seller did not wish to see the properties sold and a distribution made, although this was presented by Seller as the Londish family’s wishes: para 22 2014 affidavit and see CB 369, 372. Further to this Crossman learnt in May 2008 (see 2015 affidavit para 7) that on 6 March 2008 Baltarna passed a resolution removing BCT as a General Beneficiary of the Baltarna Trust, and that a company controlled by Seller (Sanabu) had been appointed as trustee to replace Baltarna (see CB 383)

5. that he learnt that Seller had raised $11.5 million of borrowings using properties forming part of PILT Trust assets as security: 2014 affidavit para 24

6. having commenced the Crossman proceedings and following the failed mediation in late November 2008 he spoke to Sid who told him that

“we are having a family dispute with my son, Peter Londish, who with Ross Seller is running the PILT Trust. We acknowledge your legitimate interest in the PILT Trust structure and may be able to help you with your Court case” (para 32)

and there is an email from Sid to Bowman (CB 491) in which Sid said:

“I too agree it was always understood that it would be sold and we were to receive a minimum of $7,500,000 or 55% and that was to be distributed between the three of us with Crossman and sellers receiving the balance”

7. in paras 34- 37, 43- 58, 64- 68 Crossman details his discussions with Bowman, Londish and Linda, and the presence of Bowman and Linda at the mediation conducted by Mr Clarke. A number of matters come out of that evidence if accepted:

1. that Crossman told Bowman that White J had given judicial advice that Nominees and Baltarna could defend the Main Proceedings and could use PILT Trust assets to pay for Nominees’ defence

2. that Crossman informed Bowman of the offers received including the offer of $2.2 million

3. that Bowman and Linda were made aware of Nominees’ intention to pay the proposed settlement monies ($1.8 million at that time) out of PILT Trust assets: see 2014 affidavit paras 46- 49

4. Crossman states:

“It was, therefore, my understanding and belief that all of the persons who stood to benefit from PILT knew of and consented to a payment to me from PILT’s assets.” (para 49)

5. That although Valofo, Sid and Bowman were aware that all of Crossman’s claims

“arising from [his] entitlement under the PILT and Baltarna Trust and the litigation were to be settled by way of payment to me from the funds of PILT” (para 73)

they never indicated to Crossman that they were opposed to him receiving the money

6. that Sid had told him in Bowman’s presence that Londish would probably start the negotiations to settle at $1 million: see 2014 affidavit at [36]

8. when he executed the Contempt Deed and the Main Deed he was aware that:

1. the PILT Trust Deed conferred a power on the trustee of the PILT Trust to settle and compromise legal proceedings and administrative proceedings of any nature- cl 13.2(o)

2. contained a clause permitting the trustees of the PILT Trust to deal with the property of the PILT Trust even in circumstances of conflict- 23.19

3. he read several times the position paper of Nominees and Baltarna (and Seller/Londish) at the mediation: para 9 of the 2015 affidavit

52. Para 36 of Crossman’s 2014 affidavit is in the following terms:

“On or around 12 March 2009, I met with Mr Sidney Londish, Mrs Londish and Mr Bowman. The initial purpose of this meeting was to discuss the charge over PILTs assets held by PILT Nominees. My recollection is that Mr Bowman suggested this meeting. During the course of this meeting, I recall the following conversation taking place, in words to the following effect:

Me: "What do you think Peter's strategy is in dealing with me?"

Mr Londish: "Peter usually plays hard-ball and was not afraid to use litigation to get his way. He needs to settle with you first, so that you remove the injunction and then he will negotiate and settle with us. He will probably start at about $1,000,000 with you. Personally, I do not care what he does with the PILT Trust as long as we get our money."

Mrs Londish: "Peter always plays it tough like this."

Mr Bowman: "Yes, I think what Sid said about Peter is right. I do not have an interest in running the PILT Trust. I just want my entitlement."

Me:   "Well, if you are serious in helping me, why don't you join in the court proceedings that I have started?"

Mr Londish: "I am hesitant because it will cost a lot in legal fees. Can Allens run it as well and you can help us with the legal fees?"

Mr Bowman: I am also hesitant but I agree with the approach that Sid suggested."

Mr Londish: "OK, I will think about this and investigate this with Allens and get back to both of you."”

53. Of these matters [51](1),(3),(4),(5) and (7)(f) are not disputed by the New Trustees. The assertion that Valofo was “Sid’s company” is not consistent with other evidence including Crossman’s own evidence that Valofo was ultimately owned by Londish and Bowman as well as Sid.

54. It appears to be accepted that no money was ever paid to Baltarna as trustee for the Baltarna Trust (other than for supposed fees) and that no money was ever paid by Nominees or Baltarna to Valofo, and in any event there was no evidence tendered before me of any monies having been paid to Valofo, before, or after, the Contempt Deed and the Main Deed were entered into. Bowman told Crossman, and Crossman implicitly accepted in his Amended Statement of Claim and position paper (see CB 1016- 1036) that the payment to Davlon by Nominees was not made with the authority of Valofo. That it was not made with the authority of Valofo was also implicit in Crossman’s offer to Sid and Bowman found at CB 839 (which offer was not accepted). Valofo was not and had never been a shareholder of Davlon.

Mr Crossman’s credit

55. It was put to Crossman in cross examination that having identified very real misconduct on the part of Nominees, Seller and Londish in the Crossman proceedings he was now seeking to downplay the significance of that misconduct and his views about it since by the Contempt Deed he obtained the benefit of a transaction that bore no relationship to what was provided for in the PILT, Baltarana and BCT Trust Deeds. Crossman sought to explain his position by pointing out that:

1. what he wanted was a settlement of his claims in the trust structure

2. that what he was asserting in the Crossman proceedings and the position paper at the mediation was a means to obtain the settlement (T222.30- 35) and he had no confidence that he would be successful against Nominees, Seller and Londish (T224.10- 38)

3. that Nominees had obtained approval from the Court to resist the Crossman proceedings and to fund the defence out of trust assets

4. that there was an ongoing family dispute within the Londish family to which he was not privy and wished to avoid

5. that since Bowman as well as Londish were fully aware of what was occurring in relation to his settlement he had no belief that there was anything untoward in his obtaining payment of his interest in the BCT out of PILT Trust assets

1. that because there was a valuation of the five properties for $16.2 million he could be confident that there would be sufficient funds left to pay Valofo $7.5 million even if he received the $2.2 million and even if the payment to Radio Nominees was not recoverable so that in effect a settlement which saw him receive $2.2 million ahead of Valofo would not involve Nominees/ Baltarna in a breach of trust (see T245- 246)

2. that the payment to Davlon of $5.5 million out of the $11.5 million fund borrowed from ANZ could have been a partial payment by Baltarna to Valofo of Valofo’s interest in the Baltarna Trust

56. A number of points are made in the Plaintiffs’ Points Arising from the Crossman Cross Examination concerning Crossman’s credit, namely:

1. that although he states in his first affidavit para 57 that the “order of the waterfall” on vesting required Valofo to receive $7.5 million before he could receive anything he was initially evasive at T198.43- T199.20 about this but admitted that his only economic interest on vesting of the PILT Trust was to the extent that he had an interest in the BCT and to the extent that BCT had an interest in the Baltarna Trust. However at T234.25- 30 he asserted that he did have a beneficial interest in the PILT Trust, which, say the plaintiffs, was untrue

2. he first agreed that he and Bowman had a common interest in the Baltarna Trust vesting and that he thought it was a good idea for them to cooperate (see T196.25 and T 202.6.30), again agreed at T220.45- 50 but later asserted to the contrary (see T222.25- 35)

3. that notwithstanding that Bowman’s file note of 11 May 2009 CB 987A states that Crossman had said he “wanted it vested and distribution” Crossman asserted he did not tell Bowman that he wanted the trust vested and a distribution: T222.25 and she also Crossman’s position paper at paras 62- 68

4. that Crossman’s evidence in an affidavit one week before the hearing was that he had read Nominees’ position paper several times between mediation and 8 July but when cross examined he said he could not recall whether he read it more than once. It was submitted that his evidence was “bizarre”

5. although in paragraph 25 of his position paper at the mediation (CB 1020) Crossman pointed out that there were no powers in the PILT Trust Deed which authorised the payment made of which complaint was made in the Crossman proceedings- Crossman sought to move away from that (see T224-26.15) but was forced to concede that the payments out of the PILT Trust assets to companies controlled by Seller and Londish were made for the private purposes of Seller and or Londish

6. he tried to assert that there was a difference between what the Deed provided on vesting and a settlement of the proceedings and that there was a tactical element involved in the Crossman proceedings to bring about a settlement: see T 230.29

7. on the question of whether Bowman and Linda where present at the final session of the mediation at which, on his evidence, there was discussion of payment out of trust assets, his diary note of the conversation after the mediation with Bowman indicated that Bowman (and Linda) had not been present at that final session

8. Crossman asserted that what happened at the mediation was consistent with para 68 of his position paper (see T242.40) but the plaintiffs submitted it could not be

9. Crossman denied that he understood that it was highly unlikely that Valofo would have consented to what was in the Contempt Deed if it had known of its contents. Not only is that inconsistent with Sid and Bowman’s earlier refusal to accept a proposal to change the priorities (see CB 839 and T209.35- 41 and T210.11) but he asserted that there were sufficient funds to pay Valofo: T245.40. He asserted that the $5.5 million which went to Davlon, went to Valofo or went to Londish: T245.45, whereas in his mediation position paper CB 1019- 1020 he did not assert that any monies had been paid in effect to Valofo and see T226.30; T227.49. His pleadings were verified see CB 1126AV and he had not pleaded that the money which went to Davlon was a payment to Valofo- his position paper asserted that the payments made to Davlon were payments “made for the private purposes and enjoyment of Mr Seller and Mr Peter Londish” paras 24 and 25 CB 1019 (and see also CB 975-984). Crossman knew that Bowman did not accept that Valofo had authorised payments by Nominees to Davlon: see T225.10- 30 but he tried to say he was not sure about this at T224.20

10. the Bowman file note is of a conversation with Bowman in which Crossman told him it was possible that all of the PILT Trust assets had ‘gone’ and were not traceable: CB 829A. Crossman did not admit that he had said this to Bowman saying he very much doubted he would have said it and very much doubted that Allens would have told him that

11. Crossman told Bowman that he had not as yet received an acceptable offer at a time when he had accepted Nominees’ offer

12. his assertion at T277.20- 27 that the letter from Purcells CB 1183 (and see also CB 1178) was only dealing with whether Allens would furnish information so that was not an opportunity for him to have Allens assert that Valofo had consented to the settlement

13. his assertion in cross examination that he did not comply with the confidentiality aspect of the Deeds (at T270.4- T271.2) should not be accepted. It was incorporated into the Deeds at clauses 7.1 and 6.1 respectively and when information was sought by Purcells the answer given by his solicitor was that Crossman was unable to answer the questions because of “certain obligations of confidentiality owed by him”

14. Crossman denies that the contempt motion gave him a lever against Seller and Londish- but it is put that it is clear it did and that he appreciated that

15. Crossman denied that he was aware that Seller and Londish were in a position of conflict and the conflict is a matter so patent that his denial affects his credibility

16. examples were given of what was said to demonstrate that Crossman was evasive: see T193.98; T194.7; T196.43; T199.30; T199.38; T202; see T200.33 in comparison to para 57(f) of his affidavit (T253.16- 31; T254.26- 45)

17. his assertion that he believed that Davlon payments were likely to be recovered as a debt when there was no evidence supporting that alleged belief

57. The defendants’ submissions responded to the attack on Crossman with a number of points:

1. the answer he gave concerning his conversation with Bowman on 15 May 2009 and his diary note ought be accepted and even if not accepted should not lead to his credit being impugned and the mediation was conducted by a retired Supreme Court Judge

2. that there were very little factual matters in dispute

3. that he explained why he believed he did have an interest in the PILT Trust and he is not a lawyer

4. that he was at all times represented by a reputable firm of lawyers who prepared the document which is impugned

5. that he was a careful, clear witness (T316.4) and one “of honesty and integrity”: see T316.40- 42

6. that he was “absolutely legitimately trying to protect his economic interest”: see T316.45

Breach of Trust (Issue 1)

58. Under the PILT Trust Deed the only beneficiary was Baltarna (as trustee for the Baltarna Trust). Leaving aside any exculpatory terms of the PILT Trust Deed, Nominees could not use assets of the trust to pay monies to a prospective beneficiary of the Baltarna Trust. Nor do I think that Nominees could, without court approval, settle a claim against it for breach of trust by using assets of the PILT Trust.

59. Under the Baltarna Trust Deed there were only two beneficiaries or potential beneficiaries:

1. Valofo

2. the BCT of whom the only potential beneficiary was Crossman

Baltarna was required by the Trust Deed to pay $7.5 million to Valofo before any other payment could be made. The only person to whom payment could be made other than Valofo (assuming that the resolution removing BCT as a nominee was rescinded or invalid) was a person determined at the discretion of the Trustee with the consent of the Appointer (whose identity was to be determined by the Trustee) to be a member. Baltarna or, if its appointment was valid Sanabu, had the power to exercise the discretion both being controlled by Seller. There is no evidence that the discretion was in fact exercised. Even if the discretion was exercised it could not be exercised to advance Crossman over Valofo.

60. Baltarna is not a party to the Contempt Deed but the fact of payment to Crossman of $2.2 million is recognised in the Main Deed to which Baltarna is a party and Seller, a director of Baltarna (and Sanabu), was clearly aware of the fact that payments were to be made by Nominees out of assets of the PILT Trust or by monies secured over property forming part of the trust assets (ie the specified properties being service station properties).

61. Standing back from the matter for a moment the broad picture appears to be this:

1. Baltarna, which was to receive the assets of the PILT Trust on vesting has not been shown to have received any amount from the PILT Trust as trustee of the Baltarna Trust

2. Valofo, which was to receive a minimum of $7.5 million as a unitholder in the Baltarna Trust, has not been shown to have received any amount from the Baltarna Trust

3. Crossman who, by the terms of the Baltarna Trust Deed and BCT, was entitled, at best, to an amount after payment of the $7.5 million to Valofo received $2.2 million of which at least $1.6 million, it is agreed, came out of PILT Trust assets and both of which payments were secured by trust assets

4. Crossman received the amount of $2.2 million in settlement of the Contempt Proceedings. In neither of the Crossman proceedings or the Contempt Proceeding, if he had been successful, would Crossman have been entitled to any payment whatsoever since if entitled to relief the only relief sought and which could have been ordered required Seller, Londish, Nominees, Sanabu and or Davlon to pay monies back to the PILT Trust and a declaration that the BCT had been wrongly removed as a general beneficiary of the Baltarna Trust or to be punished for contempt by fine or otherwise

5. Crossman who, by the Crossman Proceedings, sought to prevent erosion of PILT Trust assets settled those proceedings not by Nominees and Seller, Londish and the companies they controlled agreeing to make payment of money back to the trust but by payment of $2.2 million of trust monies to him

62. On the face of matters there could be no warrant for Nominees and Baltarna (and Sanabu as trustee of the BCT) agreeing to pay out any money to Crossman until Valofo was paid the $7.5 million due to it or at the very least consented to the payment of the $2.2 million in priority to it.

63. Crossman submitted that Nominees and Baltarna are entitled to the protection of clause 23.9 in the PILT Trust Deed which provides that the Trustee will not be:

“in any way responsible for any loss (whether consequential or otherwise), costs, damages or inconvenience that may result from the exercise or non-exercise of any powers, authorities and discretions vested in it…..”

64. This protection is subject to exceptions within cl 23.9 ie:

1. “except insofar as herein otherwise expressly provided”

2. “and in the absence of fraud, negligence or wilful default” of the Trustee

65. In my view clause 23.19 of the PILT Trust Deed has no application to the facts of this matter and for two reasons. The first being as a matter of construction that clause permits the Trustee to purchase and hold and deal in units or bonds, and provide advice and services for the trust, or entering into contracts or transactions of that kind. The words

“any other contract or transaction which any person or company not being a party to this Deed could or might have lawfully entered into if not a party to this Deed”

are, taken alone, extremely wide but those words follow the words “such contract” and therefore must be of the kind referred to as ‘such’ contract ie “contracts” or “transactions” with any “such person in the ordinary course of the business or from undertaking any banking, financial, development, agency or services”. The Main Deed and the Contempt Deed do not fall into that category. Clauses permitting conflict are to be strictly construed and read down if they purport to avoid the core obligations of a trustee: see McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623 at 641 and [1619] of JD Heydon and MJ Leeming (eds) Jacobs’ Law of Trusts in Australia (7th ed 2006, Lexis Nexis), and Armitage v Nurse [1998] Ch 241, Walker v Stones[2001] QB 902 at p 943 and see Plan B Trustees Ltd v Parker (No 2) [2013] WASC 216; (2013) 11 ASTLR 242 Edelman J at [232]- [233]. It is true that the scope of fiduciary duties can be narrowed by express terms and that they are moulded to the character of the particular relationship: see Clay v Clay [2001] HCA 9; (2001) 202 CLR 410 at [46] and Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; (2011) 82 ACSR 1 at [70] but not so as to avoid the core obligations of a trustee.

66. The core obligations of a trustee are as set out at [162] of the FACLS:

“a. adhere to the terms of the PILT Trust as set out in the PILT Trust deed;

b. to pay and transfer trust property to the persons entitled thereto;

c. not to deal with the trust property for personal benefit, or otherwise to profit by the trust;

d. to exercise its powers under the PILT Trust deed for a proper purpose;

e. to exercise reasonable care and skill in carrying out the management and business of the PILT Trust;

f. in addition to the duties as trustee as set out in paragraphs (a) to (e) expressly under the PILT Trust deed to:

i. act honestly and in good faith in the performance of its duties and in the exercise of its discretions; and

ii. exercise such diligence and prudence as a prudent man of business would exercise in performing its express functions and in exercising its discretions, having regard to the interests of the Unitholders.”

and see [1704]- [1706], [1711], [1718], [1720], [1735] and [1620] of Jacobs.

67. To the extent that Nominees used PILT Trust assets to pay money to Crossman the payments were in breach of trust because the payments were not made to the beneficiaries of the PILT Trust and not made for a purpose of the PILT Trust but made solely for the benefit of Crossman, Nominees, Seller and Londish. Dr Bell contended that although there was a trust structure it was still a commercial matter (T316.50). I do not view that as offering any assistance to Crossman. If those engaged in commerce utilise trusts structures within which to carry out their dealings then the obligations imposed on trustees and those dealing with them are carried with that structure.

68. Whilst it is true that there was a power given to Nominees to settle and compromise legal proceedings and execute documents in respect thereto (see clauses 13.2(n), (o) and (v)) that power and the protection of clause 23.19 was subject to the trustee’s obligations and the provisions of the Deed, and was not to be used for an ulterior purpose: Cowan v Scargill [1985] Ch 270 at 288 and see Jacobs op cit [1606]- [1607]; Metropolitan Gas Co v Federal Commissioner of Taxation (1932) 47 CLR 621 at p 633; and Wilson v Metro Goldwyn Mayer (1980) 18 NSWLR 730 at 736E-G. The same applies to the payment of trustee’s fees and expenses in clause 20(e). The expenses must be expenses properly incurred by the trustee in the carrying out of its trust duties. I might add that the borrowing of funds and the securing of any borrowing over trust assets in favour of Crossman was itself, and to the extent those orders were not varied, also a breach of the orders made by Hamilton J notwithstanding the agreement of the parties to the Contempt Deed that it was not.

69. Further in connection with the reliance on exoneration clauses by the defendants were it necessary to express a view on the exceptions, which in my view it is not, the agreement to pay monies to Crossman by Nominees out of trust assets was a clear case of negligence since there was no benefit to the trust in it so doing. Contrary to the contentions of the defendants I do not think that the Court needs expert evidence to conclude that the payment of trust monies to a person who was not entitled to the payment of trust monies was negligent.

70. Much of the DCS and Mr Thomas’s oral submissions were predicated on clauses 29.1 and 13 being available to Nominees which I do not accept for the reasons given.

71. The defendants’ submissions at various points sought to place reliance on the fact that the mediator was a retired Supreme Court Judge and that reputable lawyers were acting for Mr Crossman. I shall refer later to the ‘Allens’ point but in relation to Mr Clarke’s involvement it should be said that even assuming Mr Clarke was made aware that “PILT will pay $1.8 million” was a reference to the trust (which I am not inclined to accept for reasons explained below) the argument assumes that Mr Clarke was informed that Valofo’s consent would not be sought. As at the date of mediation the parties did not appear to have that in contemplation because Valofo’s consent was referred to in the settlement proposal forwarded by Seller’s solicitors (see CB 1093) and only later removed (see CB 1112).

72. The failure by the trustees to seek judicial advice in respect of the settlement with Crossman is itself significant since Nominees did seek judicial advice about defending the Crossman proceedings, as Crossman well knew.

73. Where the entry into a deed is itself a breach of trust I do not think that the Trustee can rely on any terms of the deed to sanitise the breach of trust. I accept of course that a party to a deed who is not a trustee may not appreciate that the trustee’s entry into an agreement was a breach of trust and that payment made to him apparently legitimately may not be received with knowledge of breach of trust, and I shall deal with that point below.

74. There was some controversy between the parties as to whether in respect of questions of breach of trust the Contempt Deed should be viewed in isolation from the Main Deed. Crossman and Nominees determined to structure their agreement by the use of the two deeds. The combined effect of the deeds was to bring an end to all aspects of the Crossman proceedings and the design was to produce a mechanism by which monies could be paid out of trust assets without adherence to and compliance with the necessary requirements for vesting and distribution for both the PILT Trust and the Baltarna Trust. Although there was in a sense an artificiality in separating out the key elements of the transaction that is what Nominees (and Seller and Londish) wanted and Crossman chose to accept and I do not think it is open to him to insist that the Main Deed be rescinded as a condition to the plaintiffs’ relief of rescission of the Contempt Deed, particularly since both deeds contain a whole agreement clause and what was agreed in the Contempt Deed was that Crossman was to be paid $2.2 million for abandoning the Contempt Motion. That agreement was different to what had, on Crossman’s evidence, been proposed at the final session of the mediation.

75. Crossman in his position paper at the mediation in May 2009 described the conduct of Nominees as “gross misconduct” and “a thorough, systematic and cynical stripping of assets”. Whilst I think there is available a powerful argument that Nominees (and Baltarna) were involved in a serious breach of trust by entering into the facility with ANZ and by payment out of monies by Nominees to Davlon and Radio Nominees it is not necessary to determine that question. It is enough that Crossman was alleging that that was so by the Crossman proceedings and the Court had injuncted Nominees in response to his claims. Rather, the question is was the payment to Crossman a breach of trust and I accept that the onus of establishing that it was is on the New Trustees. It could not, in my view, be a legitimate purpose of the Trust for the Trustee accused of wrongfully removing trust assets and accused of breaching a freezing order made by the Court to pay $2.2 million to the person asserting those breaches in order for those claims to be terminated, which is how the Contempt Deed is framed. This is even more obvious since Crossman had made no claim in the proceedings that Nominees was obliged, either in law or equity, to make any payment to him. Even looking beyond the Contempt Deed does not assist Crossman since he was not even a beneficiary of the PILT Trust but a potential beneficiary of another trust ranking behind the unitholder in that second trust (namely Valofo).

(2) willfully shutting one's eyes to those things; or

(3) abstaining in a calculated way from making such inquiries, as an honest and reasonable person would make, about the trust and the application of the trust property; or

(4) knowledge of facts which to an honest and reasonable person would indicate the existence of the trust and the fact of misapplication.

[91] The authorities which have accepted that the above categories of knowledge are sufficient include: Kalls Enterprises Pty Ltd (in liq) v Balaglow [2007] NSWCA 191; 63 ACSR 557 at [176] (Giles JA; Ipp and Basten JJA agreeing); Hancock Family Memorial Foundation Ltd v Porteous at 142; Grimaldi v Chameleon Mining NL (No 2) at [268]-[270]. See also Westpac Banking Corporation v Bell Group Ltd (In Liq) (No 3) [2012] WASCA 157; 44 WAR 1 at [2130], when approving the view to which Owen J came at first instance in Bell Group Ltd (No 9) at [4748].

[92] On the other hand, those authorities also establish that mere knowledge of circumstances which would put an honest and reasonable person on inquiry is not sufficient to establish liability for knowing receipt.”

141. A third party who has notice (by means of any of the routes described in [90] in Simmons) is liable to disgorge trust property received by him but is also exposed to in personam liabilities: see [253] and [254] of Grimaldi:

“[253] This exposes what has long been recognised as the essential characteristic of the Barnes v Addy liabilities: they expose the persons to whom they apply to personal, to in personam, liabilities: see eg Lewin, Law of Trusts, 1026-1029 (9th ed, 1891); Ashburner, Principles of Equity, 187-200 (1901) where the difference between the proprietary and the personal remedy is emphasised; Snell, Principles of Equity, 141-142 (15th ed, 1908); for contemporary views, see eg Ford and Lee, Principles of the Law of Trusts, [22.10440) ff; Jacobs’ Law of Trusts in Australia, [1333]-[1334] (7th ed, 2006); and see generally Dietrich and Ridge “‘The Receipt of What?’: Questions Concerning Third Party Recipient Liability in Equity and Unjust Enrichment”, (2007) 31 Melb UL Rev 47 at 51-55; Harpum, “The Stranger as Constructive Trustee” (1986) 102 LQR 114 at 118 ff. In knowing receipt cases, the recipient can be required to pay compensation for loss arising from the misapplication of the trust property, or to account for gains made from it. These liabilities do not depend upon the third party retaining any part of the property received (or its traceable proceeds) in his or her hands although, if such property is retained, it must be accounted for specifically: see Mitchell and Watterson, “Remedies for Knowing Receipt” in Mitchell (ed), Constructive and Resulting Trusts, 132 ff (2010); see also Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (1999) 96 FCR 217 at [75]-[76]. But in the usual case, as Lewison J observed in Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch) (“Ultraframe (UK)”), the personal remedy “is needed precisely where the recipient has not retained the property.”

[254] Distinctly while the proprietary liability referred to depends upon the existence of trust property in the strict sense, “trust property” for Barnes v Addy purposes extends beyond it to property held or controlled subject to a fiduciary obligation. Most importantly for present purposes, it extends to corporate property, ie property subject to the control and the fiduciary responsibilities of a company’s directors. If the directors dispose of corporate property in a dealing which is beyond their authority, whether actual, ostensible or usual, the dealing ordinarily is void and no interest passes to the third party donee, purchaser, etc. However, if the dealing occurs in a transaction which is within the directors’ authority but which is not in the company’s interests (ie is an abuse of power) or is otherwise in breach of fiduciary duty, the transaction will only be voidable: Richard Brady Franks Ltd v Price (1937) 58 CLR 112 at 142. As Australian law now stands, even if the third party recipient falls within the knowing receipt limb of Barnes v Addy, the company will not ordinarily be able to bring a proprietary claim against the recipient as distinct from a personal one, unless and until the transaction itself has been avoided: see Daly v Sydney Stock Exchange (1986) 160 CLR 371 (“Daly”); Hancock Family Memorial Foundation Ltd v Porteus (2000) 22 WAR 193 (“Hancock Family Memorial Foundation”) at [173]-[206]. Though we later question the correctness of this particular requirement, what needs to be emphasised is that it still allows that a knowing recipient can be held accountable in rem for such of that property (or its traceable proceeds) as remains extant in that person’s hands.”

142. A question which has arisen in this case is whether, to obtain a return of trust money that has been paid to a third party by the trustee (or other fiduciary) under contract or to claim equitable compensation the party asserting breach of trust must seek to rescind the contract as a precondition to relief. That is a matter which is considered in Grimaldi: see [254]-[255]. The Full Court questioned the correctness of the requirement that a third party recipient will not ordinarily be able to bring a proprietary claim against the recipient as distinct from a personal one “unless and until the transaction itself has been avoided” citing Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 and see [275]- [281] of Grimaldi, but proceeded on the basis that that position was currently the law. The Full Court then referred to the fact, however, that there is authority for the proposition that rescission is not essential for the relief of equitable compensation: see Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 cited with approval in Grimaldi (at [277]) and see JD Heydon, MJ Leeming and PG Turner (eds), Meagher, Gummow and Lehane’s Equity: Doctrines & Remedies (5th ed 2015, LexisNexis) at 23- 555 and Grimaldi’s liability to pay equitable compensation as found on an alternate basis by the trial judge (see [588]) was confirmed although it appears that on appeal the form of relief was not of itself challenged: see [599]. That approach is reflected in the recent decision of Gerard Cassegrain & Co Pty Ltd (in liq) v Cassegrain [2013] NSWCA 455; (2013) 305 ALR 687 at [177] per Emmett JA, with whom Meagher and Ward JJA agreed:

“[177] Notwithstanding the claims made in the Statement of Claim, the plaintiffs did not press for the avoidance of the Transfers. The appropriate relief, if the Transfers are not to be avoided, would be an enquiry for the purposes of determining the equitable or statutory compensation that should be awarded to the Company in respect of the loss it suffered by reason of the Transfers. The primary judge made no error in directing an enquiry as to the compensation that should be paid as a consequence of the breaches of fiduciary and statutory duty. It is undesirable to constrain, by practical rulings, the conduct of that enquiry.”

143. The passages from Grimaldi and Gerard Cassegrain which I have set out above establish that a claim for equitable compensation can be made against a third party who has received trust property, although that is of course subject to the claimant establishing knowledge of the breach in one of the four categories identified in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373. It is not necessary for a plaintiff to establish that the knowing recipient acted dishonestly: see Robins v Incentive Dynamics Pty Ltd (in liq) [2003] NSWCA 71; (2003) 175 FLR 286 at [60]- [63] per Mason P with whom Stein JA and Giles JA agreed and see also Tara Shire Council v Garner [2003] 1 Qd R 556 at [63].

144. The New Trustees put their claims as claims in personam and do not seek proprietary relief: see PCS [21]- [22] and they contend that since they do not seek the imposition of a constructive trust they do not need to seek rescission of the Contempt Deed or the Main Deed.

145. I accept the New Trustees’ contention in this regard supported as it is by Grimaldi and more recently Gerard Cassegrain.

146. Were it necessary to set aside the Contempt Deed in order to permit the New Trustees to obtain equitable compensation from Crossman I think it would be appropriate to do so because for reasons I have explained the Contempt Deed involved Nominees in a clear breach of trust.

147. An argument advanced by the defendants is that even for equitable relief the benefits obtained by the trust through the Main Deed would need to be taken into account. By the Main Deed, say the defendants, Crossman gave up a valuable right, namely a chose in action to have the PILT and Baltarna Trusts properly administered with, as an outcome, a benefit to be available to him as an object of the BCT.

148. The reality is that there is no practical value in Crossman being restored to the position he would have been in in 2009 since today no monies can be paid out of the PILT (or Baltarna) Trust to Crossman, even if he validly remains a discretionary beneficiary of the BCT through the Baltarna Trust. If Nominees has no money the Baltarna Trust can receive no money and Crossman has no prospect of recovering any money. According to Greater Pacific Investments it is appropriate to examine the position as at the time of the hearing with the benefit of knowledge of what has transpired for the purposes of determining equitable compensation and it is clear that the chose in action which Crossman had is of no value.

149. Looking at the position now it is clear that the chose in action is worthless- even were the Main Deed to be rescinded Crossman could not obtain any money from the Baltarna Trust because neither it nor the PILT Trust have any assets. If he were to pay back $2.2 million plus interest to the New Trustees that would not produce a surplus over the $7.5 million required to pay to Valofo. Were it relevant to examine the position as at February 2011 when the New Trustees were appointed or even as at the date that Crossman received the two payments there is no evidence which would permit the conclusion that he would have, or been likely to have, received any amount from the Baltarna Trust because it has not been established that Nominees could have paid Baltarna and hence Baltarna paid Valofo $7.5 million at any of these times.

150. It is also suggested that Crossman incurred considerable legal fees in pursuing Nominees and Baltarna. I accept that he did incur substantial fees ($395,000) and gave up the possibility of recovery of these fees and any costs order he had or might yet obtain as against Nominees and the other defendants to the Crossman proceedings. Had he obtained the orders that he sought in the Crossman proceedings he would have had very strong grounds to have his costs paid out of the trust assets because what he would have achieved would have benefited all beneficiaries of both Trusts and the BCT and not just himself. What he achieved by the Deed, however, was a very different outcome from the point of view of the PILT Trust- an outcome entirely detrimental to that trust’s assets. His loss of the right to claim reimbursement for bringing the proceedings which proceedings he did not pursue produced no benefit to the PILT Trust, and therefore does not require any adjustment to the amount that he is required to repay.

Rescission

151. The topic of rescission is most helpfully dealt with in Meagher, Gummow and Lehane (op cit) chapter 25. What follows summarises the relevant parts of that exposition of the law including as drawn from the two High Court cases of Alati v Kruger (1955) 94 CLR 216 and Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; (1995) 184 CLR 102:

1. at common law a contract can be rescinded in the sense of terminated ab initio by an act of the innocent party for fraudulent misrepresentation and duress

2. in equity there can be termination ab initio but it is the Court’s order which actually rescinds the contract not the act of the party and the circumstances in which rescission will be ordered by a Court in its equitable jurisdiction are more extensive than at common law. At [25-025] the learned authors state:

“Rescission in equity describes the setting aside of dispositions and transactions (it is not limited to contracts) which equity regards as being improperly procured by innocent but material misrepresentation, equitable fraud, undue influence, breach of fiduciary duty or other unconscionable conduct even though the disposition or transaction is neither void nor voidable at law.”

3. when the Court exercises its equitable jurisdiction it is required to consider what, if any, restitution is required, and to give relief “whenever, by the exercise of its powers, it can do what is practically just, though it cannot restore the parties to precisely the state they were in before the contract” and to “do what is practically just between the parties, and by so doing restore them substantially to the status quo”: see Alati v Kruger at pp 223- 224 and Vadasz at pp 113- 114

152. It follows that I accept the defendants’ contention that the letter of rescission sent by the New Trustees in 2012 is not effective to constitute rescission of the Contempt Deed. Since the New Trustees do not allege fraud or duress or misrepresentation by Crossman in obtaining the consent of Nominees or Seller and Londish to the Contempt Deed the matter is one wholly for the equitable jurisdiction of this Court not the confirmation of a common law rescission.

153. I accept that if Nominees (or Baltarna) would have had a defence to a claim by Valofo for breach of trust then Crossman ought not be held liable either. Nominees and Baltarna however could not, in the light of their request that Crossman not tell Valofo about the settlement, possibly have asserted that they acted with the encouragement and knowledge of the beneficiary.

154. DCS 61 made reference to Yeshiva Properties No 1 Pty Ltd v Marshall [2005] NSWCA 23; (2005) 219 ALR 112 at [80] in which Bryson JA (with whom Mason P and Beazley JA concurred) made reference to the fact that the beneficiaries who were suing a third party said to have assisted in the breach of trust by a trustee had given a release to the trustees and others involved in breach of trust and observed that it is doubtful if an equitable remedy against an alleged ‘accessory’ should be granted. One can well understand why that is so but the New Trustees (in right of the trust) have given no release to the third party (Crossman) it was given by the defaulting trustee itself. The only significance of the observation might be that there was an argument advanced by the New Trustees that even if no claim was available against the trustee because of an exoneration clause in the Trust Deed that does not assist the third party. I think it would be a somewhat odd result if a trustee could be exonerated from suit by virtue of the trust deed and yet a third party could be held liable for knowledge of breach by the trustee but given my view that the trustee was not exonerated by the Trust Deed the point does not arise.

155. The question then is whether if the Contempt Deed was to be set aside with the consequent requirement for return of the $2.2 million paid what step would be required to put Crossman in the position he was in before the Contempt Deed was entered. I think that would involve him being freed from any restriction imposed by the orders made in the Crossman proceedings from not proceeding against Nominees, Seller and Londish in respect of their dissipation of trust assets. Orders setting aside orders made in the earlier proceedings could be considered but realistically they would be of no practical value to Crossman. This point links also to the question of the Main Deed.

156. I accept that the two Deeds were intended to be put into operation together but they are expressed to be separate agreements and as I have earlier explained I am not persuaded that the New Trustees cannot seek to have only the Contempt Deed, by which Crossman received $2.2 million, set aside without seeking to have the Main Deed set aside as well.

157. I am of the view therefore that setting aside the Contempt Deed is not conditional upon setting aside the Main Deed.

158. The defendants claim that Crossman lost the opportunity to have receivers and replacement trustees appointed to stop the dissipation of assets. Replacement trustees were in fact appointed and they have now taken action to recover the monies paid out under the Contempt Deed. There is considerable irony in that submission, since Crossman himself benefited by to the wrongful dissipation of assets. I do not think that the lost opportunity is of any assistance to Crossman in resisting the relief sought by the New Trustees.

159. There were detailed submissions concerning the ambit of the releases in the Deeds. I do not think that the present claims are claims “arising from or connected” with the Crossman proceedings which were concerned with the dissipation of the other assets, not the $2.2 million paid to Crossman or the contempt proceedings but I am of the view that the claim that the payments to Crossman involved a breach of trust was known to Nominees and Baltarna at the time of the deeds. The question would then be whether that knowledge is to be imputed to the trusts in the sense of binding any future trustees. For the reasons already given I do not think that the New Trustees, as successors to Nominees as trustees of the PILT Trust, are bound by the deeds when those deeds have been entered into by Nominees in breach of trust.

160. I accept the New Trustees’ contention that even if the release applied as a matter of construction to Crossman (contrary to their contentions), it does not apply to the Crossman corporations because the parties to whom the release was expressed to extend were “related entities” defined by a chance of definitional references to mean holding companies and subsidiaries of the relevant party ie Crossman.

Other reasons to deny the New Trustees relief (Issue 8)

Laches, Acquiescence and Delay

161. The defendants assert that the New Trustees should not be permitted to maintain claims in respect of deeds entered into in July 2008 and payments made in July 2009 and April 2010. The ‘delay’ relates particularly to the claim for rescission, but the laches defence applies to the entire claim.

162. It needs to be borne in mind that although the events occurred in 2009 and 2010, Nominees and Baltarna remained in control of the PILT Trust and Baltarna Trust until February 2011.

163. These proceedings were commenced by the New Trustees in May 2013, well within the limitation period specified in the Limitation Act 1969 (NSW).

164. Prior to the commencement of the proceedings a letter was sent on 27 July 2012 by solicitors acting on behalf of the New Trustees advising that they were rescinding the Contempt Deed: CB 1245.

165. Further, in July 2009 solicitors acting for Valofo advised Crossman that Valofo contended that the payments to Crossman constituted a breach of trust (see CB 1178).

166. Laches is described in Meagher, Gummow and Lehane 38-005 as

“an equitable defence to an equitable claim… In its primary sense, laches requires a defendant to establish that a plaintiff has so delayed the institution or prosecution of an equitable claim that the defendant has altered his position in reasonable reliance upon the plaintiff’s acceptance of the status quo, or otherwise permitted a situation to arise which it would be unjust to disturb. Mere delay, of itself, is not sufficient to establish the defence.”

see also Orr v Ford [1989] HCA 4; (1989) 167 CLR 316 at 341 per Deane J in which his Honour refers to the creation of a situation in which it would be “inequitable and unreasonable” to place the trustee in if the remedy were afterwards to be asserted.

167. The defendants also contend as a separate point that rescission is not available because cases of rescission call for ‘special promptitude’ (Meagher, Gummow and Lehane (4th ed 2002) [36-030] p 1038 adopted in Streeter at [640]).

167. The delay of the New Trustees in bringing these proceedings (ie from February 2011 till May 2013) is a long one and it has not been explained. In February 2011 when they applied to be appointed as trustee of the PILT Trust and the Baltarna Trust the plaintiffs were, as liquidator of Valofo, well aware of the facts that have led to this litigation. The defendants contend that by their inaction (DCS [107])

“the Trustees have permitted Mr Crossman and Metro Finance NZ to suffer prejudice including by organising their affairs on the basis that the Settlement Deeds were valid and binding, including by discontinuing the Crossman Proceedings and consenting to the vesting of the BC Trust.”

Each of these matters although known to Nominees were not known to the New Trustees qua trustees of the PILT Trust and the Baltarna Trust until they were appointed and these steps upon which Crossman relies had all been taken long before that appointment. Further Crossman was on notice of Valofo’s assertion as early as July 2009 that the payments were a breach of trust. I am not persuaded that any prejudice has been established by reason of the delay since February 2011 till May 2013.

169. Similar considerations apply to the New Trustees in seeking rescission of the Contempt Deed.

170. I am not persuaded that the circumstances of this case support the notion that there would be any inequity or unreasonableness in permitting the New Trustees to propound the claims which they do propound.

171. Failure by a beneficiary to take steps to stop a transaction entered into by a trustee does not of itself establish approval or acquiescence to the breach. The failure of Sheahan and Lock as Valofo’s administrators to take Court action to prevent the second payment to Crossman is not explained but it cannot be said, in my view, that the failure to take action to prevent the second payment can be equated to acquiescence particularly given the Purcell letter and Valofo’s reservation of rights in relation to the payments to Crossman.

172. In Orr v Ford Deane J (in a minority judgment in which Mason CJ concurred) at p 337- 338 described the different uses of acquiescence to be

1. “[s]trictly used… the contemporaneous and informed (“knowing”) acceptance or standing by which is treated by equity as “assent” (ie consent) to what would otherwise be an infringement of rights”

2. “a representation by silence of a type which may found an estoppel by conduct”

3. “acceptance of a past wrongful act in circumstances which give rise to an active waiver of rights or a release of liability”

4. “mere delay or delay with knowledge, to refer to conduct by a person, with knowledge of the acts of another person, which encourages that other person reasonably to believe that his acts are accepted (if past) or not opposed (if contemporaneous)”

His Honour regarded a further usage (inaction in the face of the assertion of adverse rights) as really a species of laches.

173. There was no acceptance of the past acts, no representation that might have led Nominees to believe that its past action in entering into the Deeds or its present intention to pay Crossman the Second Payment was accepted and no scope for inferral of consent. Crossman gave no evidence of having done something or abstained from doing something because of the failure of the New Trustees to take against him earlier.

174. At paras 109 to 111 of the DCS a number of submissions are made to support the contention that relief should not be granted to the plaintiffs on other grounds:

1. the conduct of Valofo in encouraging a mediated settlement between Crossman, Nominees etc

2. that Crossman “is entirely innocent and no contrary position has been alleged by the [New] Trustees”

3. that

“He reached a settlement of which Valofo was aware and which represented a very significant compromising of what he was likely to have received in view of what he understood to be the Trust’s asset position. What he received was in substance less than the headline figure of $2.2 million in any event because of the very considerable costs incurred by him in bringing the proceedings. The wealth of correspondence and interaction with Mr Bowman showed he never sought to hide anything from Valofo and indeed was proactive in assisting them in the protection of its rights.”

4. That the New Trustees have been unwilling to do equity, that is not willing to rescind the Main Deed:

“to grant the relief sought by the [New] Trustees would result in the Crossman defendants returning $2.2 million in consideration for absolutely nothing. That circumstance would constitute a manifest windfall gain to the Trustees and, on the evidence, Valofo.”

175. As I have indicated Valofo may have been content for Crossman to reach a settlement but the settlement which followed the mediation was based on Crossman receiving $2.2 million out of trust assets in return for abandonment of the Contempt Motion to which Valofo has not been shown to have consented or to have known of, in circumstances where no consideration was given to what amount would be available for Valofo let alone the $7.5 million required by the Baltarna Trust to be paid to Valofo as unitholder.

176. The New Trustees have made clear their contention that Nominees in breach of trust dishonestly utilised trust assets to pay out the $2.2 million, and that Crossman had knowledge of all matters relevant to that breach of trust including the source of the $2.2 million. Whilst I accept that he owed no fiduciary duty to the other beneficiaries or in respect of the trust I am unable to accept that Crossman was ‘entirely innocent’ as the DCS assert for the reasons already given.

177. It is of course true that before the payment of the second payment no steps were taken by the Trustees of the PILT or Baltarna Trust but at all times up until February 2011 the trustees were Nominees and Baltarna who had, in breach of trust, entered into the transactions. Their continued control of the Trusts precluded any proper protection of the PILT Trust’s (and Baltarna Trust’s) assets by them as trustees until then.

The Baltarna consent is determinative point (Issue 9)

178. In oral submissions in reply Mr Thomas asserted that the plaintiffs had not addressed the fact that the only person with a beneficial interest in the PILT Trust was Baltarna, and it (through its sole director Seller) consented to the payment out of Nominees: see T399.1- 25. Since it had consented and it was the only beneficiary of the PILT Trust that was determinative and Valofo’s consent was irrelevant. He submitted that the New Trustees had completely ignored

“the fact that a consent was given by the only person with a beneficial interest in the PILT Trust to the payments out from that Trust” (T399.20)

179. Mr Marshall objected to this point being made in reply by the defendants- nothing having been said at any time during the course of the hearing in opening submissions of the defendants, in the DCFS and DCS or in the oral closing submissions of Dr Bell and Mr Thomas. Mr Marshall contended that it ought not be permitted to be raised in reply.

180. The Courts have in recent times been critical of trial by ambush: see for example Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 at page 128 approving White v Overland [2001] FCA 1333 at [4].

181. The Baltarna consent is determinative point was, I am satisfied, raised as such for the first time in the reply by Mr Thomas. All of the defendants’ prior submissions, written and oral, dealing with consent focused on Valofo’s position and not Baltarna’s position.

182. I accept Mr Marshall’s submission however that in any event para 83(c)(ii) and (iii) do not make it obvious that the defendants would be relying on this point.

183. I think the Court should discourage such conduct by refusing to permit new contentions to be raised in reply in this fashion whether pleaded or not.

184. Against the possibility that to exclude argument on this point is not permissible I shall however deal with the substantive point. The submissions seemed to focus on the question of whether the knowledge of Seller concerning the Contempt Deed and Main Deed was to be attributed to Baltarna a question of a type considered in detail in Beach Petroleum NL v Johnson (1993) 43 FCR 1 and Duke Group Ltd (in liq) v Pilmer (1999) 73 SASR 64 [607]- [649].

185. I am inclined to the view that because Seller was not seeking to defraud or take advantage of Baltarna: see Duke [629] and [630], his knowledge is to be attributed to Baltarna. However if the knowledge of Seller can be attributed to Baltarna, as Mr Thomas contended, Baltarna was, as trustee, in breach of its fiduciary duty owed to the beneficiaries of the Baltarna Trust by permitting assets to be dissipated from the PILT Trust and without ensuring that the assets were available for distribution to the Baltarna Trust unitholder (namely Valofo). That was a clear breach of trust by both Nominees and Baltarna. In the case of Nominees, Seller and Londish were the human agents of the trustee and in the case of Baltarna (and if it be relevant as it might of Sanabu as well) Seller was the human agent. The conduct of Baltarna and Nominees through Seller (and Londish) was conduct which constituted a breach of trust and establishing that Baltarna knew that Nominees was acting in breach of trust is not a defence available to Crossman and the Crossman corporations as against the New Trustees.

Conclusion

186. It follows in my view that Crossman and the Crossman corporations are required to pay the New Trustees as trustees of the PILT Trust the amount of $2.2 million plus interest. Interest to be calculated to the date of the orders to be made.

Orders and Costs

187. I will hear the parties on the form of orders to be made and on the question of costs.

Decision last updated: 03 July 2015