Twigg v Twigg (No 5); Lambert v Twigg Investments; Pty Ltd (No 4)

[2020] NSWSC 1782

Supreme Court

New South Wales

Medium Neutral Citation:

Twigg v Twigg (No 5); Lambert v Twigg Investments; Pty Ltd (No 4) [2020] NSWSC 1782

Hearing dates:

20 November 2020; 7 December 2020 and on the papers

Decision date:

11 December 2020

Jurisdiction:

Equity - Commercial List

Before:

Ball J

Decision:

See paragraph [58]

Catchwords:

CIVIL PROCEDURE – Application to set aside or vary judgment – Application to reopen on the ground that the Court proceeded on misapprehension of fact – Where certain issues not addressed in final submissions – Where relevant evidence emerged during the course of the hearing or after trial – Where affidavit read in the course of interlocutory proceedings but not at trial

EQUITY – Tracing – Application of the rule in Re Hallett’s Estate, Knatchbull v Hallett (1880) 13 Ch D 696 – Where correct application of the rule requires analysis of payments in and out of a trust rather than analysis of individual assets held by the trust

Legislation Cited:

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300

Elliott v R (2007) 234 CLR 38

Re Hallett’s Estate, Knatchbull v Hallett (1880) 13 Ch D 696

Re Oatway [2003] 2 Ch 356

Smith v NSW Bar Association (1992) 176 CLR 256

Twigg v Twigg (No 4); Lambert v Twigg Investments Pty Ltd (No 3) [2020] NSWSC 1159

Category:

Consequential orders (other than Costs)

Parties:

In 2019/71329 (Main Proceeding):
Diane Twigg (First Plaintiff | First Cross Defendant)
Ipswich Landfill Pty Ltd atf Ipswich Landfill Trust
(Second Plaintiff | Second Cross Defendant)
Brooklyn Landfill & Waste Recycling Pty Ltd (Third
Plaintiff | Third Cross Defendant)
Twigg Plant Hire Pty Ltd (Fourth Plaintiff/ Fourth Cross
Defendant)
Maxwell James Twigg (First Defendant | Fifth Cross
Defendant)
Twigg Landfill Pty Ltd (Second Defendant | Sixth
Cross Defendant)
Byron Bay Beach Hotel Properties Pty Ltd (Third
Defendant | Seventh Cross Defendant)
Twigg Consulting Pty Ltd (Fourth Defendant | Eighth
Cross Defendant)
B Bay H Pty Ltd (Fifth Defendant | Ninth Cross
Defendant)
Twigg Investments Pty Ltd (Sixth Defendant | Tenth
Cross Defendant)
Maly Holdings Pty Ltd (Seventh Defendant | Eleventh
Cross Defendant)
Twigg Property Development Pty Ltd (Eighth
Defendant | Twelfth Cross Defendant)
Twigg Motor Sport Pty Ltd (Ninth Defendant |
Thirteenth Cross Defendant)
Vision Motor Sport Pty Ltd (Tenth Defendant |
Fourteenth Cross Defendant)
Twigg Motor Racing Pty Ltd (Eleventh Defendant |
Fifteenth Cross Defendant)
Surf Street Holdings Pty Ltd (Twelfth Defendant |
Sixteenth Cross Defendant)
W & E Twigg Pty Ltd (Thirteenth Defendant |
Seventeenth Cross Defendant)
Frances Lambert (Fourteenth Defendant | Cross-
Claimant)
Twigg Co Pty Limited (Fifteenth Defendant)
In 2018/212326 (UBE Proceedings):
Frances Lambert (First Plaintiff)
Elizabeth Flintoff (Second Plaintiff)
Diane Twigg (Third Plaintiff)
Twigg Investments Pty Limited atf Twigg Investments
Trust (First Defendant)
Maxwell Twigg (Second Defendant)

Representation:

Counsel:

M R Elliott SC with DK Smith (Plaintiffs | First to
Fourth Cross Defendants in 2019/71329; First to Third
Plaintiffs in 2018/212326)
J Evans QC with P Miller (First to Thirteenth and
Fifteenth Defendants | Fifth to Seventeenth Cross
Defendants in 2019/71329; First and Second
Defendants in 2018/212326)
AJ McInerney SC (Fourteenth Defendant | Cross
Claimant in 2019/71329)

Solicitors:

Roberts and Partners Lawyers (Plaintiffs | First to
Fourth Cross Defendants in 2019/71329; First to Third
Plaintiffs in 2018/212326)
Radcliffs (First to Thirteenth and Fifteenth | Fifth to
Seventeenth Cross Defendants in 2019/71329; First
and Second Defendants in 2018/212326)
Rankin Ellison Lawyers (Fourteenth Defendant |
Cross-Claimant in 2019/71329)

File Number(s):

2019/71329; 2018/212326

Judgment

Introduction

1. On 31 August 2020, I delivered reasons for judgment in this matter (Twigg v Twigg (No 4); Lambert v Twigg Investments Pty Ltd (No 3) [2020] NSWSC 1159) (the Principal Judgment). I found that the plaintiffs were entitled to succeed in their claim that the first defendant had breached his fiduciary duties to them by paying the proceeds of sale of the Twigg Group business to himself or entities he controlled and that to the extent that the plaintiffs could trace the proceeds of sale to assets still held by the first to thirteenth and fifteenth defendants, those assets were held on constructive trust for the plaintiffs. I went on to deal with the question into which assets the proceeds of sale could be traced and expressed my view on that question, leaving it to a later date, and if necessary after hearing further submissions, to make final orders reflecting the conclusions I had reached.

2. On 3 October 2020, the plaintiffs filed a notice of motion seeking a number of orders including an order that the Principal Judgment be corrected under Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 36.16 in a number of respects. I received written submissions from the parties on that issue (and a number of others) and heard oral argument on 20 November 2020. Following oral argument, I invited the parties to provide supplementary written submissions on some aspects of the plaintiffs’ application, leaving it open to the parties to make further oral submissions if I thought that was necessary or desirable. The parties also agreed at the hearing that a number of other ancillary issues, particularly costs, should be determined after I had delivered judgment on the plaintiffs’ application to amend my judgment. There are, however, a number of other issues raised by the orders sought by the plaintiffs which do not depend on the outcome of the plaintiffs’ motion that can be dealt with in this judgment.

3. I received further written submissions on 27 November 2020 from the plaintiffs and on 30 November 2020 from the first to thirteenth and fifteenth defendants on the plaintiffs’ motion. After receiving those submissions, the matter was listed for a further hearing on 7 December 2020. Prior to that hearing, the plaintiffs provided some supplementary written submissions.

4. Terms defined and abbreviations used in the Principal Judgment have the same meaning in this judgment.

The plaintiffs’ application

5. As finally formulated, the plaintiffs seek the following orders under UCPR r 36.16:

1   Paragraphs 226 to 229 and 272 of the reasons for decision dated 31 August 2020 be varied so as to find that Albatross Avenue was purchased with the traceable proceeds of the sale of the Twigg Group business.

2   Paragraphs 210 to 213, 218 to 219 and 272 of the reasons for decision dated 31 August 2020 be varied to find that the assets of the Twigg Investments No 2 Trust comprise traceable proceeds save for cash in the sum of $499,755.73 out of the balance of the funds held in the ANZ operating account for that trust.

3   Paragraphs 229 and 272 of the reasons for decision dated 31 August 2020 be varied to find that the following motor vehicles were purchased and modified with the traceable proceeds of the sale of the Twigg Group business:

a.   2019 Dodge Ram 1500 Vehicle Identification Number XXXXX ;

b.   2020 Mountain Rail RV Caravan FXV 6.6 (no VIN yet assigned);

c.   1960s Holden HT Monaro (no VIN yet assigned).

4    Paragraphs 221 to 222 and 272 of the reasons for decision dated 31 August 2020 be varied to find that the assets of Twigg Co comprise traceable proceeds save for the following:

a.   CBA PERLS VII acquired 4 September 2020

b.   CBA PERLS XI acquired 4 September 2020

c.   Westpac CapNotes VI acquired 4 September 2020

d.   NAB Wholesale Capital Notes II acquired 7 September 2020

e.   CVS Lane First Mortgage Fund acquired 20 November 2020

f.   cash in the sum of $142,384.22 out of the balance of the funds held in the ANZ operating account for the company.

6. UCPR r 36.16(1) provides:

The court may set aside or vary a judgment or order if notice of motion for the setting aside or variation is filed before entry of the judgment or order.

7. The principles applicable to the exercise of the power to reopen a judgment under that rule are not in doubt. They are set out in the following statement by Mason CJ in Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 303; which was unanimously approved by the High Court in Elliott v R (2007) 234 CLR 38 at [32]:

What must emerge, in order to enliven the exercise of the jurisdiction, is that the Court has apparently proceeded according to some misapprehension of the facts or the relevant law and that this misapprehension cannot be attributed solely to the neglect or default of the party seeking the rehearing. The purpose of the jurisdiction is not to provide a backdoor method by which unsuccessful litigants can seek to reargue their cases.

8. As the High Court pointed out in Smith v NSW Bar Association (1992) 176 CLR 256 at 265 (Brennan, Dawson, Toohey and Gaudron JJ), the power is discretionary.

9. The orders sought by the plaintiffs essentially seek to reopen the Principal Judgment in respect of four matters:

1. My conclusions on whether Albatross Avenue was purchased from the traceable proceeds of the Twigg Group business;

2. My conclusions concerning whether the assets of the Twigg Investments No 2 Trust comprised traceable proceeds of the Twigg Group business;

3. My conclusions concerning whether a number of motor vehicles acquired by the first defendant were acquired from the traceable proceeds of the Twigg Group business; and

4. My conclusions that the assets of Twigg Co did not comprise part of the traceable proceeds of the Twigg Group business.

It is necessary to consider these issues separately.

Albatross Avenue

10. In my judgment, I recorded the following facts relevant to this aspect of the case (at [226-8]):

1. Albatross Avenue was acquired by the first defendant in about September 2008 for $10.5 million (including stamp duty);

2. The objective evidence suggested that of that amount $8,033,445.68 came from a bank account in the name of Maly Holdings Pty Ltd (a company controlled by Max). Of that amount $54,586.12 was in the account prior to 26 August 2008, $5,475,858.78 was paid in on 3 and 4 September 2008 and the balance was provided by an overdraft. There were no bank records showing the source of the $5,475,858.78;

3. It was not clear from the bank records in evidence where the balance of the purchase price came from; and

4. In an affidavit Max filed in connection with Family Court proceedings, he gave evidence that $10.5 million of the proceeds of sale of the Twigg Group business was used to acquire the property at Albatross Avenue.

11. In his final written submissions, Max submitted that at about the time he acquired Albatross Avenue he sold shares in Cleanaway which he had acquired personally in connection with the sale of the Twigg Group business. Mr Potter, an expert retained by the plaintiffs, had stated in a report he had prepared for the purpose of the proceedings that Max had personally derived $9.3 million from the sale of those shares in around September 2008. Max submitted that the Court should infer from that evidence that a large proportion of the purchase price had been funded by the sale of the Cleanaway shares. On that basis, he submitted that Albatross Avenue did not form part of the traceable proceeds of the Twigg Group business. I accepted that submission. In doing so, I concluded that the admission made by Max in the affidavit filed in the Family Court proceedings was “speaking loosely” consistent with that submission, since Max obtained the Cleanaway shares in connection with the sale of the Twigg Group business.

12. The plaintiffs submit that the conclusion I reached proceeded on a wrong factual basis because I had overlooked the following material:

1. The admissions made by Max in his affidavit and in cross-examination;

2. The evidence that Max sold some of his Cleanaway shares before the purchase had settled (on 4 September 2008) and a further $2.824 million worth of shares on 12 September 2008; and

3. A reconciliation prepared by Pitcher Partners of the proceeds of sale of the Twigg Group business for the purpose of the Family Court proceedings which was annexed to Max’s affidavit. That reconciliation showed that the purchase price of Albatross Avenue plus the payment of stamp duty came from the proceeds of sale of the Twigg Group business.

13. I have concluded that it is not appropriate that I should re-open the Principal Judgment in relation to Albatross Avenue.

14. In my opinion, it is appropriate to reopen the Principal Judgment in relation to the question of tracing where it can be shown that the judgment has proceeded on a clear error. The issue of tracing was a consequential issue going to the remedies to which the plaintiffs were entitled if they otherwise succeeded in the case. They raise complicated factual issues that received limited attention from the parties in final submissions. The plaintiffs are not entirely to blame for that. The case involved a large number of other issues. The discovery provided by Max was inadequate and a significant part of the material relevant to the question of tracing only emerged during the course of the hearing after protracted disputes concerning discovery. Some of the material was overlooked because it was not formally read or tendered in the Main Proceeding, but was relied on in connection with an application for a freezing order during the course of the hearing. Other material which ought to have been discovered only came to light after judgment was delivered. In addition, since the freezing order that was granted permitted Max to continue to deal with assets said to be impressed with the trust, the tracing exercise could only be finally completed in relation to some specific assets after judgment was delivered.

15. However, in the case of the Albatross Avenue property, I am not satisfied that the Principal Judgment proceeded on the basis of an error.

16. The objective evidence is that the purchase of Albatross Avenue settled on 4 September 2008. At that time, the evidence is that Maly Holdings paid the sum of $8,033,445.68 towards the purchase price. Of that amount, $54,586.12 had been in the Maly Holdings bank account since 26 August 2008, amounts totalling $5,475,858.78 were paid in on 3 and 4 September 2008 and the balance was made up by an overdraft of $2,503,791.28. Most of those facts are recorded in the Principal Judgment at [227]. As I recorded in that judgment, Mr Potter was unable to say where the amounts paid into the account or where the balance of the purchase price came from. However, it is apparent from an email dated 12 September 2008 from a broker to Max that sometime after 25 July 2008 Max started selling his shares in Cleanaway, the last of which were sold on 12 September 2008 for an amount of $2,824,347.44. The total amount Max received from his Cleanaway shares was $9,340,952.29.

17. The timing of the sale of the Cleanaway shares and the payment of amounts into the account of Maly Holdings suggest that the shares were sold to finance the acquisition of Albatross Avenue. That inference is reinforced by the fact that the account went into overdraft at the time of settlement, suggesting that the overdraft was permitted in the expectation that it would be repaid from the sale of the remaining Cleanaway shares shortly after settlement. It is true that the sale of the Cleanaway shares realised approximately $9.34 million, whereas the purchase price of the property was $10 million plus costs. But the sale of the Cleanaway shares still accounts for a large proportion of the purchase price.

18. Against these matters, of course, had to be weighed the admissions made by Max in his Family Court affidavit and in cross-examination and the schedule prepared by Pitcher Partners. But the schedule and affidavit were prepared at a high level of generality and were not entirely accurate. The admissions made in cross-examination were made by reference to the affidavit. As I pointed out in the Principal Judgment, the Cleanaway shares were provided to Max in connection with the sale of the Twigg Group business and in a broad sense it could have been regarded by Max as part of the proceeds of sale of the business. Moreover, if it was correct that the $10.5 million of the proceeds of sale were used to acquire Albatross Avenue, it is difficult to see why part of the purchase price was paid with a bank loan (in the form of an overdraft).

19. If I made an error, it was in balancing the objective evidence against the evidence contained in the Family Court affidavit (and Max’s admissions made by reference to that affidavit). That is not a sufficient ground to reopen my judgment. In effect, the plaintiffs are asking me to reconsider an analysis I undertook in the Principal Judgment.

Twigg Investments No 2 Trust

20. One difficulty in dealing with this aspect of the plaintiffs’ application is that the issue of tracing is now framed somewhat differently from the way it was framed at the hearing and in final written submissions, or at least the way in which I understood it was framed.

21. In final written submissions, the plaintiffs sought to trace the proceeds of sale of the Twigg Group business to certain identified assets, although in some cases those assets were somewhat loosely described. That is how the issue is dealt with in the Principal Judgment. However, on the current application, the plaintiffs characterise their claim as a claim to all the assets of the Twigg Investments No 2 Trust with one exception to which I will come. That claim was put on the basis of a case that the only external sources of funds held by the trust or to acquire assets held by the trust were the proceeds of sale of the Byron Bay Beach Hotel (which I found were the traceable proceeds of sale of the Twigg Group business) and the proceeds of sale of a property known as Harkaway (of which I found $5 million to be traceable proceeds of the Twigg Group business). All other purchases and sales by the Twigg Investments No 2 Trust were made with assets, or represented assets derived, from those two sources. In oral submissions on the current application, Mr Elliott SC, who appeared for the plaintiffs, said that at the final hearing he had proceeded on the basis that that was common ground and consequently the plaintiffs final submissions were made on that basis without specifically stating that to be the case.

22. In any event, Mr Elliott sought to demonstrate by reference to portfolio income and expenditure summaries for the Twigg Investments No 2 Trust prepared by Pitcher Partners that that was the case, with one or two possible exceptions that were so small they did not need to be considered. Some of the summaries relied on by Mr Elliott were before the Court at the time of the final hearing. Others were annexed to an affidavit sworn on 3 June 2020 by Mr Corey Radcliff, Max’s solicitor. That affidavit was read during the course of the hearing on an application for a freezing order, but it was not formally read in the Main Proceeding. The plaintiffs did tender in the Main Proceeding two other affidavits of Mr Radcliff sworn on 1 June 2020 and 2 June 2020 that were prepared for the purposes of the application of a freezing order but not read by Max in the interlocutory application. They did not seek to tender the affidavit of 3 June 2020, since it had been read by Max. The affidavit of 3 June 2020 was not referred to in final submissions. Even then, the summaries that were available were not up to date.

23. So far as the affidavit of 3 June 2020 is concerned, whether it was formally before the Court on the final hearing or not, I do not think it was unreasonable for the plaintiffs to proceed on the basis that it was. The decision not to tender it formally was at most an oversight which was explicable on the basis that it was read during the hearing and on the basis that the plaintiffs were proceeding on the assumption that the Twigg Investments No 2 Trust only had the two sources of funds which I have identified. I do not think that the position the plaintiffs took could be described as a forensic one made during the course of the trial by which they are bound. Rather, they understandably proceeded on the basis that the affidavit was before the Court and the facts it disclosed were the facts on which the judgment would be delivered.

20. I had not understood that the plaintiffs’ submissions assumed that the only external sources of funds for the Twigg Investments No 2 Trust were the proceeds of sale of the Byron Bay Beach Hotel and Harkaway. There may be a question whether Max accepted during the course of the hearing that the case was to be decided on that basis. Certainly, however, Max does not suggest that that assumption is incorrect. It follows that the Principal Judgment proceeded on a misapprehension of the facts, and it follows from what I have already said that it should be corrected to the extent that the conclusions contained in it depend on that misapprehension.

21. The only question, then, in relation to the assets held in the Twigg Investments No 2 Trust is how to deal with the fact that on 25 February 2020 $3,542,740.73 (being part of the proceeds of sale of Harkaway) was paid to the Trust that did not form part of the traceable proceeds of sale of the Twigg Group business. The plaintiffs submit that applying the principles of Re Hallett’s Estate, Knatchbull v Hallett (1880) 13 Ch D 696 the Court should assume that money paid out of the trust after that date should be taken to have been paid out of the $3.54 million first, on the basis that a trustee is assumed to have been honest rather than dishonest and so is assumed to have paid his own money away first. Max does not take issue with that principle. He does, however, take issue with its application to the facts of this case.

22. The facts relating to the proceeds of sale of Harkaway are as follows:

1. On 25 February 2020, an amount of $8,542,740.73 representing the proceeds of sale were paid to an ANZ bank account in the name of Twigg Investments No 2 Trust;

2. On 4 March 2020, $8,500,000 of that amount was transferred into a CBA interest bearing account in the name of Twigg Investments No 2 Trust;

3. Between 7 April 2020 and 14 September 2020, total withdrawals of $5.4 million were made from the CBA at call account and redeposited into the ANZ account; and

4. Between 7 April 2020 to date, Max has withdrawn $3,042,985 from the ANZ account. Those withdrawals comprise the following:

1. Transfers to the BBH bank account totalling $1,483,000;

2. Payments to Max of $292,814;

3. Payment to Pitcher Partners of $17,171; and

4. Transfer to Twigg Co of $1,250,000 on 30 June 2020.

27. The plaintiffs submit that applying Re Hallett’s Estate, the Court should infer that the $8.5 million included the $3,542,740.73 belonging to Max (on the basis that the transfer of trust money amounted to a breach of trust and Max is assumed to have paid away his own money first). The balance of the $8.5 million – $4,957,259.27 – were traceable proceeds belonging to the plaintiffs. Between 7 April and 14 September 2020, the total withdrawals from the CBA account were $5.4 million. They were repaid to the ANZ account. Again, Max is assumed to have withdrawn his own money first. Consequently, of the $5.4 million, $3,542,740.73 belonged to Max and the balance of $1,857,259.27 was traceable proceeds belonging to the plaintiffs, as was the balance of $3.1 million remaining in the CBA account. Between 7 April and 27 November 2020, Max withdrew $3,042,985 from the ANZ account. Again, he is taken to have withdrawn his own money first. On the above analysis, of the amount in the ANZ account, $3,542,740.73 belonged to Max. After the withdrawals of $3,042,985, that leaves an amount of $499,755.73 which belongs to Max. The balance of that account forms part of the traceable proceeds belonging to the plaintiffs.

28. Max criticises the above analysis because it does not pay sufficient regard to the timing of the payments. It lumps all the payments from the CBA account and all the payments from the ANZ account together. Max suggests two alternative analyses to deal with this issue. One is a simplified version of the other. On the simplified version Max assumes that the payment to the CBA account of $8.5 million includes the whole of the traceable $5 million (rather than the $4,957,259.27) and a payment from the CBA account of $2 million on 14 September 2020 as comprising traceable proceeds in its entirety. The alternative analysis uses the actual figures. It is convenient to take the simplified analysis.

29. On that basis, $5 million of the $8.5 million paid into the CBA account was traceable. Between 4 March 2020 and 13 September 2020, $3.4 million was paid from the CBA account to the ANZ account, leaving a balance in the CBA account of $5.1 million. Applying Re Hallett’s Estate, the $3.4 million must be taken to be Max’s money and so is not traceable. Between 4 March 2020 and 1 September 2020, the amount in the CBA account earned interest of $29,620.77. On 14 September 2020, a further $2 million was withdrawn from the CBA account and paid into the ANZ account. It is reasonable to treat the whole of that amount as part of the traceable proceeds from the sale of Harkaway, with the result that of the sum of $3.1 million (plus interest) remaining in the CBA account, $3 million (plus some interest) was traceable and the balance is not. Between 15 September 2020 and 23 September 2020 a number of identifiable assets were bought such as shares and gold bullion which are still held by the Twigg Investments No 2 Trust. In addition, there is a balance in the account of $413,734.65. Those assets and the balance of the account are traceable. However, other payments from the ANZ account were not made in exchange for identifiable assets and so those amounts are not traceable.

30. Of the two approaches, in my opinion the approach taken by the plaintiffs better fits with the principle stated in Re Hallett’s Estate. Once it is accepted that all of the assets of the Twigg Investments No 2 Trust were traceable proceeds of the sale of the Twigg Group business until the proceeds of sale of Harkaway were paid into the ANZ account, it is wrong to analyse the application of Re Hallett’s Estate by reference to the individual assets held by the trust. Rather, it is necessary to look at payments in and out of the trust. On that basis, of the amount of $8,542,740.73 paid to the trust on 25 February 2020, $5 million formed part of the assets of the trust to which the plaintiffs were entitled and the balance belonged to Max. Any payments within the trust can be ignored but any payments out of the trust are to be treated as coming from Max’s share of the money paid to the trust first. Consequently, all of the amounts paid for Max’s benefit are to be treated as coming from his share. That is the effect of the approach taken by the plaintiffs.

The motor vehicles

31. At the hearing, the plaintiffs claimed that the costs of acquiring and modifying five vehicles recently acquired by Max could be traced from the proceeds of sale of the Twigg Group business because those costs came from the Twigg Investments No 2 Trust. In the Principal Judgment, I found (at [224]) that one of those vehicles (a Porsche motor vehicle) could be traced from the proceeds of sale because the bank statements in evidence indicated that the purchase price of the vehicle was paid from the Twigg Investments No 2 Trust account to an account held in the name of BBH and from there to the vendor. In the case of the other vehicles, I observed (at [225]) that the bank statements showed regular and substantial transfers of money from the Twigg Investments No 2 Trust account to the BBH account. However, none of them matched the amounts paid for the vehicles. Moreover, as I said in the Principal Judgment, “[t]he plaintiffs have not produced any analysis of the account [that is, the Twigg Investments No 2 Trust account] which would permit the Court to conclude that the amounts transferred to the BBH account came from the proceeds of sale or that they were used to pay for the motor vehicles”. I therefore concluded that the amounts spent on the other four vehicles could not be traced to the proceeds of sale of the Twigg Group business.

32. The plaintiffs do not seek any orders in relation to one of the remaining four vehicles (a Hyundai Excel race car motor vehicle). But they seek to vary the Principal Judgment in relation to the other three.

33. As to those, for the reasons already given, the relevant part of the Principal Judgment proceeded on an incorrect basis – that is, that there were sources of funds held by the Twigg Investments No 2 Trust other than those I have identified in this judgment. It also did not take account of the information contained in Mr Radcliff’s affidavit of 3 June 2020. That affidavit annexed the bank statements for the BBH account and explained that the BBH account is funded by transfers from the Twigg Investments No 2 Trust. It follows from what I have already said that it is therefore appropriate to reopen the Principal Judgment in relation to this aspect of the plaintiffs’ case.

34. The facts relating to the remaining three vehicles are these:

1. Subject to one qualification, it is common ground that the vehicles were paid for from money held in the BBH account. The qualification is that it appears that part of the purchase price of a caravan came from a trade-in. Although it was within Max’s knowledge, he gave no evidence of the value of the trade-in;

2. The BBH account was funded by payments from the Twigg Investments No 2 Trust;

3. The amounts paid from the Twigg Investments No 2 Trust account can be traced to the proceeds of sale of the Twigg Group business.

35. It follows that, subject to the trade-in, the amounts spent on the vehicles can be traced to the proceeds of sale of the Twigg Group business. As to the trade-in, there is no information before the Court concerning the amount that Max received on the trade-in. That is something peculiarly within Max’s knowledge. In those circumstances, the amount of the trade-in should be ignored.

Twigg Co

36. As the Principal Judgment records (at [221]), Twigg Co is another company controlled by Max which is used to acquire certain high yield assets. Virtually no submissions were made to the Court on the assets of Twigg Co during the final hearing. The plaintiffs apparently assumed that the position was the same as for the Twigg Investments No 2 Trust and Max did not specifically deal with it at all. There was, however, evidence before the Court in the form of an email dated 31 May 2020 from Pitcher Partners to Mr Radcliff showing the payment of $5.6 million to Twigg Co from the proceeds of sale of the Byron Bay Hotel and there was other evidence before the Court relating to sums of money paid or assets bought in the name of Twigg Co. Substantial additional evidence and submissions have been provided to the Court on the assets of Twigg Co in connection with this application. It is plain that the Principal Judgment proceeded on an incorrect understanding of the facts. For the reasons already given, it is therefore appropriate to reopen the judgment in relation to this aspect of the case.

37. The facts relating to Twigg Co are these:

1. On 26 June 2019, the Twigg Investments No 2 Trust transferred seven bond series worth a total of $811,168 to Twigg Co. Those bonds were acquired by the trust before the sale of Harkaway. Accordingly, those bonds were acquired from the proceeds of the sale of the Twigg Group business. Five of those bond issues are still held by Twigg Co;

2. On 27 June 2019, an amount of $138,832 was transferred out of the Twigg Investments No 2 Trust ANZ account to an ANZ Transaction Account in the name of Twigg Co (the ANZ Twigg Co Account). On 28 August 2019, an amount of $2,455,000 was transferred out of the Twigg Investments No 2 Trust ANZ account to the ANZ Twigg Co Account. Both those amounts were traceable proceeds of the sale of the Twigg Group business;

3. On 15 August 2019, Twigg Co acquired an investment of $2,043,114.38 in City Link Developments Pty Ltd. That investment was funded from the sale of Freshwater Place. At [209] of the Principal Judgment, I held that Freshwater Place was acquired from traceable proceeds of the sale of the Twigg Group business. Accordingly, the investment in City Link Developments formed part of the traceable proceeds of the sale of the Twigg Group business;

4. On 8 September 2019, a payment of $12,677.50 was made to Pitcher Partners from the ANZ Twigg Co Account;

5. On 29 October 2019, a payment of $200,000 was made to MK Lawyers [Macpherson & Kelley Lawyers] from the ANZ Twigg Co Account. It appears that that money was paid in connection with an investment;

6. On 2 March 2020, an amount of $220,302.50 was paid into the ANZ Twigg Co Account from “Weldev Capital”. It appears that that was a return of the investment referred to in (e), since the source of the payment was the same firm of lawyers;

7. Between 27 June 2019 and 10 March 2020, various amounts of interest on the bonds referred to in (a) above were made into the ANZ Twigg Co Account, with the result that the balance of the account as at 10 March 2020 was $2,624,540.14;

8. On 12 March 2020 amounts of $15,500 and $50,000 were paid from the ANZ Twigg Co Account as application fees to buy Macquarie capital notes and NAB capital notes respectively. The amount of $15,500 was refunded on 24 March 2020 and the amount of $50,000 was refunded on 2 April 2020;

9. On 16 March 2020 an amount of $1,342 was transferred from the ANZ Twigg Co Account in payment of a Pitcher Partners invoice;

10. On 27 March 2020, there was a cash deposit of $100,000 into the ANZ Twigg Co Account from the sale of one of the bonds referred to in (a) above;

11. On 17 April 2020, an amount of $500,000 was paid from the ANZ Twigg Co Account to purchase a Members Equity term deposit. The amount was repaid to the ANZ Twigg Co Account on 14 October 2020;

12. On 22 April 2020, an amount of $2 million was paid from the ANZ Twigg Co Account to purchase a CBA term deposit, where it remains;

13. On 30 April 2020, there were two withdrawals totalling $100,365.12 from the ANZ Twigg Co Account to purchase Macquarie and Bendigo and Adelaide Bank bonds;

14. On 22 May 2020, there was a withdrawal of $50,000 to purchase Macquarie Bank capital notes;

15. On 26 May 2020, there was a cash deposit of $100,000 into the ANZ Twigg Co Account from the sale of another of the bonds referred to in (a) above;

16. Between 11 March 2020 and 27 May 2020, various amounts of interest on the bonds referred to in (a) above were made into the ANZ Twigg Co Account, with the result that the closing balance of the account on 27 May 2020 was $186,957.67;

17. On 30 June 2020 an amount of $1,250,000 was paid out of the ANZ Twigg Investments No 2 Trust account to the ANZ Twigg Co Account. It is common ground that this is part of the proceeds of sale of Harkaway and belongs to Max;

18. On 27 August 2020, an amount of $1,243 was paid from the ANZ Twigg Co Account to Pitcher Partners;

19. On 8 and 9 September 2020, amounts totalling $606,372.78 were paid from the ANZ Twigg Co Account to purchase the following securities which are still held by Twigg Co (the Twigg Co Investments):

1. CBA PERLS VII acquired 4 September 2020

2. CBA PERLS XI acquired 4 September 2020

3. Westpac CapNotes VI acquired 4 September 2020

4. NAB Wholesale Capital Notes II acquired 7 September 2020;

20. On 16 October 2020, an amount of $500,000 was transferred from the ANZ Twigg Co Account to a CBA at call account (the CBA Twigg Co Account) in the name of Twigg Co, where it remains;

21. On 20 November 2020, an amount of $500,000 was paid out of the ANZ Twigg Co Account to purchase an interest in the “CVS Lane – First Mortgage Fund”, leaving a balance of $346,850.94.

38. It is apparent from this statement of the facts that all the amounts paid into the ANZ Twigg Co Account are the traceable proceeds of the sale of the Twigg Group business apart from the amount of $1,250,000 which was paid in on 30 June 2020. Max suggests that some other amounts are not traceable. So, for example, he says that the amounts of $15,500 and $50,000 paid out on 12 March 2020 are not traceable and that the amount of $220,302.50 received on 2 March 2020 is not traceable. But why that should be so is not clear. It is clear that the amounts of $15,500 and $50,000 were paid out from traceable assets (the money then in the ANZ Twigg Co Account) and then returned. Plainly, then, those amounts are traceable. The position perhaps is not as clear in the case of the $220,302.50. But, as I have said, the likelihood is that that was a return (with profit) of the investment made on 29 October 2019. The investment was made from traceable assets (the money then in the ANZ Twigg Co Account). It follows that the return of that investment is traceable.

39. The question, then, is how to deal with the $1,250,000 which was paid in on 30 June 2020. Max takes a similar approach to the approach in relation to the Twigg Investments No 2 Trust, which involves treating each payment from the account in the order in which they were made and each payment as a payment from an amount that was not traceable first. On that basis, he submits that the following assets are not traceable:

1. The Twigg Co Investments;

2. $500,000 in the CBA Twigg Co Account;

3. 73.56% of the interest of Twigg Co in the CVS Lane – First Mortgage Fund.

40. It appears to be common ground that it is desirable to identify which assets can be regarded as the traceable proceeds of the $1,250,000 and therefore which assets belong to Max. Items (a) and (c) are not in dispute. Indeed, the plaintiffs accept that Max is entitled to 100% of the interest in the CVS Lane – First Mortgage Fund. The dispute relates to (b).

41. It is not necessary to set out the complicated tracing exercise engaged in by the defendants to explain their conclusion. Part of it depends on the incorrect view that the receipt of the $220,302.50 was not a traceable receipt. Principally, however, it depends on the view that at the time the $500,000 was transferred from the ANZ Twigg Co Account to the CBA Twigg Co Account there were more than $500,000 in the ANZ Twigg Co Account referable to the $1,250,000 belonging to Max and therefore the payment should be treated as coming from those funds.

42. The plaintiffs are critical of that approach. They submit that certain amounts themselves can be traced from traceable proceeds and consequently ought to be treated as assets belonging to the plaintiffs. So, for example, in relation to the $500,000 paid on 17 April 2020 from the ANZ Twigg Co Account to purchase a Members Equity term deposit and repaid on 14 October 2020, they say it was that amount that was then transferred on 16 October 2020 to the CBA Twigg Co Account. Consequently, it forms part of the traceable proceeds of the sale of the Twigg Group business.

43. In my opinion, and with one qualification, the simplest way to deal with the $1,250,000 is to treat all payments out of the ANZ Twigg Co Account following receipt of that amount as coming from that amount until it is exhausted. However, I accept the plaintiffs’ submission that the $500,000 paid to the CBA Twigg Co Account on 16 October 2020 should be treated as an exception to this principle. That is so for two reasons. First, I accept the plaintiffs’ submission that it can be inferred from the timing of the payments that that amount is referrable to the Members Equity term deposit which was repaid on 14 October 2020 and which plainly came from traceable proceeds of the sale of the Twigg Group business. Second, an advantage of that approach is that the plaintiffs and Max are not treated as having an interest in the same investment. The only investment affected by this approach is the CVS Lane – First Mortgage Fund. On the plaintiffs’ approach, Max has a 100% interest in that fund. On Max’s approach he has a percentage interest. There is no suggestion that the investment has diminished in value. Consequently, there is little practical difference between the two approaches; and the plaintiffs’ approach simplifies the implementation of any orders. Moreover, if the asset has diminished in value, that would raise the question whether the Court should, applying the approach taken in Re Oatway [1903] 2 Ch 356, treat that investment as being made from Max’s share of the sale proceeds of Harkaway. Neither party specifically addressed that issue. Accordingly, I have concluded that the following payments are referrable to the $1,250,000:

1. The $1,243 paid to Pitcher Partners on 27 August 2020;

2. The amounts paid in respect of the Twigg Co Investments totalling $606,372.78;

3. The interest in the CVS Lane – First Mortgage Fund; and

4. A sum of $142,384.22 held in the ANZ Twigg Co Account.

Other issues

44. As I have said, the plaintiffs raise a number of other issues regarding the final orders to be made by the Court. The resolution of those issues does not depend on the precise findings made on the application to reopen the Principal Judgment. Accordingly, it is appropriate to deal with them now.

The form of declarations

45. The plaintiffs seek the following declarations from the Court, which are said to arise out of the Principal Judgment:

5   Declaration that the establishment of the second defendant and the acquisition of the Heatherton landfill properties constituted breaches of the first defendant’s fiduciary duties to the second, third and fourth plaintiffs.

6   Declaration that the $50,225,300 payable to the second plaintiff from the sale of the Twigg Group business on 2 April 2007 was distributed:

a.   in breach of trust; and

b.   without a valid resolution of the second plaintiff.

7   Declaration that the $41,978,347 payable to the third plaintiff from the sale of the Twigg Group business on 2 April 2007 was distributed:

a.   in breach of trust; and

b.   without a valid resolution of the third plaintiff.

8    Declaration that the $5,674,033 payable to the fourth plaintiff from the sale of the Twigg Group business on 2 April 2007 was distributed:

a.   in breach of trust; and

b.   without a valid resolution of the fourth plaintiff.

9   Declaration that the first defendant breached his fiduciary duties to each of the second, third and fourth plaintiffs by causing them to commit the breaches of trust identified in paragraphs 6, 7 and 8 above respectively.

10   Declaration that the proceeds of the sale of the Twigg Group business on 2 April 2007 that were paid to the first to thirteenth and fifteenth defendants were held on trust for the first and fourth plaintiffs.

46. Max does not object to the Court making declarations consistently with the Principal Judgment. However, he submits that the declaration numbered 5 is unnecessary. In addition, he submits that the declarations sought by the plaintiffs do not accurately reflect the conclusions of the Principal Judgment. In particular, he submits that what I found was that certain payments were made in breach of trust, not that certain distributions were made in breach of trust. In addition, Max submits that the payments that were made were not made as set out in the proposed declarations. As the Principal Judgment records, the payments that were actually made did not correspond to the resolutions purportedly passed by Max setting out how the proceeds of sale of the Twigg Group business were to be distributed.

47. I can see no reason why the declarations sought by the plaintiffs ought not to be made. In my opinion, they fairly reflect the substance of the conclusions reached in the Principal Judgment. Each of the matters the subject of the declarations was contested at the hearing. I accept the plaintiffs’ submissions that the declarations are a means by which the plaintiffs’ rights are vindicated.

In whose favour should declarations concerning tracing be made?

48. It was the plaintiffs’ contention at the hearing that the proper plaintiff was Mrs Twigg. That is because most of the sale proceeds of the Twigg Group business were received by the Ipswich Trust and the Brooklyn Trust and under the relevant trust deeds, in the absence of a resolution from the relevant trustee before the end of a particular year, the income of each trust in that year was distributed to Mrs Twigg. In the Principal Judgment (at [129]), I pointed out that one difficulty with that submission was that prior to 30 June 2007 (the end of the year in which most of the proceeds of sale were received) a total amount of $58,750,000 was paid out of the Twigg Plant Hire cheque account (in breach of trust). Given that, I concluded that the proper plaintiffs so far as those payments were concerned appeared to be the Corporate Plaintiffs.

49. In submissions filed in connection with the hearing on 20 November 2020, the plaintiffs took issue with the conclusion expressed in the Principal Judgment. They submitted that there was still no valid resolution for the distribution of assets prior to 30 June 2007. Consequently, all of the income of the trusts was distributed by the trust deeds to Mrs Twigg. That submission, however, begs the question of what was to count as income of the trusts as at 30 June 2007. The total amount paid in respect of the sale of the Twigg Group business was $113,804,668. As at 30 June 2007, the trusts continued to hold $55,054,668. But they no longer held $58,750,000. That sum had been paid away in breach of trust. As a consequence, in place of that sum, the trusts (more accurately, the trustees) became entitled to certain causes of action to recover the amounts paid away. If the trustees were successful, then the amount they recovered might well be regarded as income of the trusts in the year in which the recoveries were made. However, I do not accept that the right to bring those claims could itself be described as income that was distributed to Mrs Twigg on or immediately before 30 June 2007 in accordance with the trust deeds.

50. The question remains how to deal with this complication. The overwhelming majority of the sale proceeds of the Twigg Group business was paid to Ipswich Trust and Brooklyn Trust. In those circumstances, it is reasonable to assume that the traceable proceeds of the sale of the Twigg Group business relate to amounts paid to them as trustees of their respective trusts. On that basis, it is appropriate to apportion the traceable proceeds between the Ipswich Trust, the Brooklyn Trust and Mrs Twigg in proportion to the amounts to which each was entitled as at 30 June 2007. Of the total amount of $113,804,668, Mrs Twigg was entitled to $55,054,668 (the amount that had not been paid away by that date). On that basis, Mrs Twigg is entitled to a 55,054,668/113,804,668 share – that is, a 48% share of the traceable proceeds. Ipswich Trust and Brooklyn Trust are entitled to the balance in proportion to their shares of the sales proceeds. On the conclusions I reached (Principal Judgment at [128]), Ipswich Trust received $50,225,300 of the proceeds of sale and Brooklyn Trust received $41,978,347. On that basis, Ipswich Trust is entitled to 52% of a 50,225,300/92,203,647 share of the traceable proceeds – that is, a 28% share. Brooklyn Trust is entitled to the balance (a 24% share).

Timing

51. It is necessary in the orders to be made by the Court to fix times by which certain things should be done – such as handing over keys and documents of title and the delivery up of possession. In my opinion, it is appropriate that Max have five business days in which to do those things.

Account

52. The parties agree that it is necessary for there to be an account in relation to the properties that the defendants hold on trust for the plaintiffs. They propose somewhat different orders to give effect to that agreement. The orders proposed by the plaintiffs are extensive. They are in the following terms:

23   Declaration that the first plaintiff is entitled to:

a.   all rents and profits derived in respect of Albatross Avenue from 4 September 2008 to date, including the profits of any business operated from that property by the defendants;

b.   all rents and profits derived in respect of Gold Coast Highway from 7 November 2018, including the profits of any business operated from that property by the defendants;

c.   all rents and profits derived in respect of Surf Street from 4 March 2019, including the profits of any business operated from that property by the defendants; and

d.   all rents and profits derived in respect of Murlong Crescent from 2 May 2018, including the profits of any business operated from that property by the defendants.

24   Order that the first to thirteenth and fifteenth defendants account to the first plaintiff for the rents and profits derived from the properties referred to in paragraph 23 above (the Account).

25 Order that the Account be taken pursuant to Part 46 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) for the purpose of establishing the quantum of the sum to be accounted for pursuant to paragraph 24 above.

26 Pursuant to Part 20 rule 14 of the UCPR, the Court refers the question in the Schedule hereto to the Hon. Robert McDougall QC for enquiry and report.

27   Order that the process for the taking and the giving of the Account is to commence with the first to thirteenth and fifteenth defendants filing and serving a document they say constitutes an account in the form described in rule 46.5(1), together with an affidavit verifying that account in accordance with rule 46.5(2), by 4.00pm on 1 February 2021.

28   Order that the plaintiffs file and serve any notices to produce and subpoenas by 15 February 2021.

29   Direct that the first defendant be liable to the referee for the fees payable to him.

30 Direct that the parties deliver to the referee forthwith a copy of this order together with a copy of Division 3 of Part 20 of the UCPR.

31   Direct that:

a.   Subject to subparagraphs (b) to (e) below, the provisions of rule 20.20 shall apply to the conduct of the reference;

b.   The reference shall commence on 8 March 2021 unless otherwise ordered by the referee;

c.   The referee shall consider and implement such manner of conducting proceedings under the reference as will, without undue formality or delay, enable a just determination to be made;

d.   In conducting the proceedings under the reference the referee shall be bound by the rules of evidence;

e.   The evidence in chief in respect to the reference shall comprise the affidavit(s) with the exhibits to that affidavit(s) served pursuant to paragraph 27 above;

32 Direct that the referee submit the report to the Court in accordance with Part 20 Rule 23 addressed to the Equity Division Registrar on or before 5 April 2021.

33   Amendments to the Schedule, whether by agreement or on a contested basis, are to be the subject of an order made by the Court.

34   If for any reason the referee is unable to comply with the order for delivery of the report to the Court by the date in this order, the referee is to provide to the List Judge an interim report, setting out the reasons for such inability and an application to extend the time for delivery of the report.

35   Grant liberty to the referee or any party to seek directions with respect to any matter arising in proceedings under the reference upon application made on 24 hours’ notice.

36 Note the parties’ agreement that the report submitted to the Court in accordance with UCPR Part 20 Rule 23 will be adopted under Part 20 Rule 24 without contest.

53. Many of these orders are agreed by the defendants. There is a dispute concerning who should be a party to the account. However, I can see no reason why all the defendants (other than the fourteenth) should not be parties. There does not appear to be any real difference of substance between the parties. Accordingly, I can see no reason why orders should not be made in terms of those sought by the plaintiffs. However, given the time that has elapsed and the intervening Christmas period, the dates set out in the orders should be extended by six weeks.

Release from Harman undertaking

54. The plaintiffs have indicated that they intend to bring proceedings against Pitcher Partners and for that purpose seek to be released from their implied undertaking and the obligations imposed by UCPR r 21.7 in relation to documents produced in the Main Proceeding and the UBE Proceeding. I can see no reason why the plaintiffs should not be released from those obligations. Pitcher Partners were intimately involved in the events giving rise to this litigation. For the reasons given in the Principal Judgment, there are questions concerning their conduct in those events. There is no reason why documents relevant to that conduct should not be available in a claim against them.

Cross-claim and the UBE Proceeding

55. It is common ground that the Cross-claim and the UBE Proceeding be dismissed. The only question concerning the UBE Proceeding is whether costs should be paid on an indemnity basis and if so, from when. That answer depends on the position of costs in the Main Proceeding. I will deal with that issue then.

Costs

56. There are a number of issues in relation to costs. Consistently with the position reached at the last hearing, the parties should be given an opportunity to make further submissions on the question of costs before final orders are made.

Extension of Injunction

57. The plaintiffs seek a continuation of an injunction granted on 2 June 2020 as varied on 3, 18 and 30 June 2020. I propose to give the parties an opportunity to make further submissions on whether the injunction should be continued and, if so, in what form.

Orders

58. The orders of the Court are:

1. Paragraphs 210 to 213, 218 to 219 and 272 of the reasons for decision dated 31 August 2020 be varied to find that the assets of the Twigg Investments No 2 Trust comprise traceable proceeds save for cash in the sum of $499,755.73 out of the balance of the funds held in the ANZ operating account for that trust.

2. Paragraphs 229 and 272 of the reasons for decision dated 31 August 2020 be varied to find that the following motor vehicles were purchased and modified with the traceable proceeds of the sale of the Twigg Group business:

1. 2019 Dodge Ram 1500 Vehicle Identification Number XXXXX ;

2. 2020 Mountain Rail RV Caravan FXV 6.6 (no VIN yet assigned);

3. 1960s Holden HT Monaro (no VIN yet assigned).

3. Paragraphs 221 to 222 and 272 of the reasons for decision dated 31 August 2020 be varied to find that the assets of Twigg Co comprise traceable proceeds save for the following:

1. CBA PERLS VII acquired 4 September 2020;

2. CBA PERLS XI acquired 4 September 2020;

3. Westpac CapNotes VI acquired 4 September 2020;

4. NAB Wholesale Capital Notes II acquired 7 September 2020;

5. CVS Lane First Mortgage Fund acquired 20 November 2020;

6. cash in the sum of $142,384.22 out of the balance of the funds held in the ANZ operating account for the company.

4. By 4.00 pm on Wednesday 16 December 2020, the parties are to provide to my Associate the form of the orders they seek to give effect to this judgment with written submissions not exceeding 10 pages dealing with any outstanding issues.

5. Any outstanding issues will be dealt with on the papers.

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Decision last updated: 11 December 2020