Woodend Water Board & Anor v Hyan Enterprises Pty Ltd

[1991] HCATrans 66

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M43 of 1990

B e t w e e n -

WOODEND WATER BOARD and MADDOCK

LONIE & CHISHOLM

Applicants

and

HYAN ENTERPRISES PTY LTD

Respondent

Application for special leave

to appeal

BRENNAN J
DAWSON J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 8 MARCH 1991, AT 11.42 AM

Copyright in the High Court of Australia

Woodend 1 8/3/91

MR J.D. MERRALLS, QC:  May it please the Court, I appear

with my learned friend, MR A.R. MONTEITH, for the

applicants. (instructed by Maddock Lonie &

Chisholm)

MR R.A. FINKELSTEIN, QC:  May it please the Court, I appear

with my learned friend, MR S.P. WHELAN, for the

respondent. (instructed by Arthur Robinson &

Hedderwicks)

MR MERRALLS: 

If it please the Court, this is an application

for special leave to appeal from the Appeal
Division of the Full Court in a matter on appeal

from Mr Justice Cummins involving a finding and

holding on an originating motion that certain

moneys that were paid by an insurer to the Woodend

Water Board under a public risks indemnity policy

were held upon trust for certain persons who might
have claims against the Board arising out of a

bushfire.

It is contended that the judgment was wrong in finding and holding the particular trust although

it is not contended that it was wrong in finding

and holding that the moneys were held upon trust.

It is contended that what was established was a

simple trust with the proceeds of the indemnity

insurance policy pending payment to the claimants against the insured with a resulting trust to the insurer if there should be any balance, it being

unclear whether there would be a balance and the

procedure that was adopted, in our submission, was

to avoid the problem that occurred in the case of

Australasian Conference Association Ltd v Mainline

Constructions Pty Ltd, 141 CLR 335 which reached this Court in 1978, where there was an argument,

after certain moneys were paid, as to whether they

should be repayable to the insurer or to be paid to certain other - in fact, it was a guarantor, it was a bank - or should be paid to certain other

persons, the insured or, in that case, a builder

under a building contract. 

BRENNAN J: 

Who are the parties to these proceedings,

Mr Merralls?

MR MERRALLS:  The parties to the proceedings were the

Board - well, all the parties to the present

application.

BRENNAN J: Well, that is the Board, the Board's solicitors

and one company?

MR MERRALLS:	Yes, which was the applicant.
Woodend	8/3/91

McHUGH J: But he is bound by it. It is not as though it is

an administration suit. I mean, the only person

bound by this are these parties.

MR MERRALLS: Those parties, no. Well, in our submission,

other interested parties would be bound by

estoppel, it appearing from the evidence that they

were all notified of the proceedings and declined

to appear. I did not appear in either proceeding

below so I am reliant upon information from others.

I am informed that at first instance one other party did appear.

BRENNAN J: But how are we to be satisfied that they are

going to be bound by estoppel?

MR MERRALLS:  How is this Court to be satisfied? From the

information in the judgment of Mr Justice Fullagar.

BRENNAN J: Well, I see that it is said that this

application was brought with the support of 80 out

of a known 84 possible claimants.

MR MERRALLS: All the other claimants being notified.

BRENNAN J:	And being notified are bound?
MR MERRALLS:	About the proceedings.
BRENNAN J:	Why would that bind them?
MR MERRALLS:	By estoppel.
BRENNAN J:	Why would they be estopped?
MR MERRALLS:	Because they had an opportunity to appear and

declined to.

BRENNAN J:	How would they be given that opportunity?
MR MERRALLS:	By being notified of the proceedings.
McHUGH J: They are not parties.

BRENNAN J: They are not parties. If A chooses to sue B

saying that, "You're the trustee for me and

others", are all others to be bound by A's suit?

MR MERRALLS: Well, it depends on the circumstances. In

this case, they would have had an opportunity to

seek to be joined. It is pretty obvious, I would

submit, that in the circumstances they were content
for Hyan Enterprises to bear the brunt; also bear

the costs.

Woodend 3 8/3/91

BRENNAN J: It is a novelty that by a notice somebody can be

estopped from pursuing their rights because

somebody else is pursuing his rights.

MR MERRALLS:  It would depend entirely upon the

circumstances, Your Honour. I accept Your Honour's

proposition generally, of course.

BRENNAN J: But is that not the real difficulty with this

suit? It was not, as my brother says, an

administration suit. It was brought by one person

claiming that another holds property in which the

first claims to have a contingent interest.

MR MERRALLS:  Holds property upon trust for a class of which he was a member.

BRENNAN J: Yes.

MR MERRALLS:  Yes, it being held that it was so held.

BRENNAN J: Let it be assumed tomorrow another claimant

makes an application. What happens then?

MR MERRALLS:  It would depend upon the circumstances,

Your Honour. It would depend upon the

circumstances in which the other claimant stood by. I think there was evidence in the courts below that there are committees of solicitors co-ordinating

all the claims and information about this

proceeding and others is communicated to all those

solicitors and all their clients.

BRENNAN J: Suffice to say at this stage that that seems to

present some obstacle in the way of the grant of

special leave. ·

MR MERRALLS:  If Your Honour pleases, if it does so in

respect of special leave, it does so also in

respect of the order appealed from.

BRENNAN J: Indeed, especially the order as to costs, I

would have thought.

MR MERRALLS:  And in those circumstances, we would submit, a

fortiori, the Court ought to grant special leave.

BRENNAN J:  Why, to proceed in a matter that will not bind

other parties?

MR MERRALLS:  In order to put what was, if the Court

considers it to have been done wrongly, right,

because meanwhile - certainly, my clients are bound

by the order and so too is my learned friend,

Mr Finkelstein's client, the applicant at first

instant. It is highly unsatisfactory, in our

submission, that if the Court were to. take the view

Woodend 4 8/3/91

that the proceedings had been improperly constituted, such an order should stand.

BRENNAN J: But how would the appeal cure this problem?

MR MERRALLS: The Court is at large as to the order it could

make and if it considers that the order was wrongly
made in that the proceedings had been improperly

established, then it should set it aside, remit the

case to the supreme court. On the other hand, if the Court considered that the questions raised by the originating notion had been answered in a way

that effectively bound my client, then

notwithstanding that other parties, other

interested persons not formally bound by the order

might institute other proceedings, then, as between

my learned friend's client and my client, the order

should nevertheless be corrected.

BRENNAN J:  But one does not easily see how the radical

problem of the constitution of the action is
susceptible of improvement by the grant of special

leave.

MR MERRALLS: Well, it can be improved - in the second case,

there is no problem raised by the constitution of

the action because the order is good as between the

parties bound by it. With respect, there is

res judicata between them and we are effectively
precluded, as between ourselves and the respondent

here, from dealing with the fund in any other way

than the order allows. Now, that may expose us to

embarrassment with other persons who were not

parties and might not be estopped. That question

still would not be resolved by these proceedings

but one step towards the resolution of that problem

would have been achieved because we would be

relieved of the order that had been made against us

in relation to the fund.

BRENNAN J:  One could understand that, Mr Merralls, but

contemplate the position of a party who has reached

agreement with the Board as to the level of
compensation and seeks payment and is not a party

to these proceedings.

MR MERRALLS:  Yes, Your Honour. We would be in a position

of extreme embarrassment while the order stands if

we sought to meet any payment out of the fund because we would be bound by an order between

ourselves and one person within the class of

beneficiaries which precluded us from dealing with

the fund.

BRENNAN J: But if the order was confirmed by the High

Court, you would be in a position of embarrassment

that was ironclad.

Woodend	8/3/91
MR MERRALLS:	We are not seeking to have the order confirmed

by the High Court, Your Honour.	We are seeking to
have the order - - -

BRENNAN J:	I am not suggesting you are.
MR MERRALLS:	We are the applicant and the matter ought to

be considered, in our respectful submission, from

the point of view of the applicant. We are bound

at the moment and we submit that it is in the

interest of justice that we should have an

opportunity to be unbound by that order. That is

to say the matter, in our submission, ought to be

dealt with upon the footing that we are going to

succeed or that we have a reasonable prospect of

succeeding in the High Court.

DAWSON J:	What would you be asking this Court to do if you were successful in appeal?
MR MERRALLS:	To set aside the order.

DAWSON J: Yes, to set aside the order, and - - -?

MR MERRALLS:  To set aside the order. Well, originally, we

asked the Court to make an order in substitution
for it. Unfortunately, that order, as no doubt

those who look at these documents behind the scenes

would have noticed, does not make sense. It is

wrong. It is on page 112 of the transcript. A bit

of a paper-chase is required to find the questions.

In fact, they are set out only in the judgment of

Mr Justice Cummins at first instance on page 7.

Now, for some extraordinary reason, the answers

sought in paragraph 4 on page 112 are simply wrong

or, rather, three of them are wrong.	The first one
is right.	The second one is in relation to
question 2:

Is the Woodend Water Board or Messrs Maddock

Lonie and Chisholm the trustee of that trust?

The answer to that question, in our submission,

should be "Messrs Maddock Lonie and Chisholm", not,

"Yes." And question 3 is:

Is each person who has a claim for

compensation against the Woodend Water Board
as a consequence of the fire which occurred at

Mount Macedon on 1 February 1983 and has commenced an action against the Woodend Water

Board before 1 February 1989, a beneficiary of

the trust?

Well, consistently with our contentions, the answer

to that question should be, "No", not, "Yes. " It

is right that question 4 be not answered because it

Woodend 6 8/3/91

was not answered by the learned judge and question

5 should be answered and it should be answered,

"No."

But if the High Court simply considered that

the decision of the judge at first instance and
that of the Full Court was wrong and that it would

be inappropriate in the circumstances to make an

order on the originating motion because the order

would only be binding inter partes, the proper course would be to set aside the order made by

Mr Justice Cummins and as varied by the Full Court

and remit the matter to the supreme court. But, in

our submission, it is most unsatisfactory that a

judgment which we contend is wrong should be

allowed to stand in circumstances in which we are

bound in relation to the party who brought the

motion and yet may be in a position of

embarrassment in relation to other parties.

DAWSON J:  And what would you remit the matter to the

supreme court to do? What would the supreme court

then do?

MR MERRALLS: Well, the supreme court would then - the

proper course would be to have other parties

notified and to have presumably my learned friend's

client, if it were considered appropriate by the

representative committee, named as a representative

party - as a representative plaintiff, so that the

other - - -

BRENNAN J:  Mr Merralls, is there any provision under the

Trustee Act of Victoria which allows for the

variation of a trust?

MR MERRALLS: For the variation of a trust? Yes, there are:

sections 60 and 63 of the Trustee Act.

BRENNAN J:	Would they have any application to
MR MERRALLS: Section 63A, I am sorry.

BRENNAN J: - - - this case?

MR MERRALLS:  Would it?

BRENNAN J: Yes.

MR MERRALLS: Well, I am not sure. I think one would first

have to establish what the trust is before one

proceeded via those - - -

BRENNAN J:  A particular problem that you face, practically,

as I understand it is that rather than have to

distribute the fund only amongst those who have a

Woodend 7 8/3/91

judgment, it should be distributed amongst those

who have a claim, is that right?

MR MERRALLS:  No. We would say, Your Honour, that it is not

a trust in favour of the class of claimants at all. It is a trust in favour of the Woodend Water Board

subject to conditions, that money can only be
released from the trust in order to pay anyone

within the described group, that is, a plaintiff

who is sued to judgment or a claimant who brings

his claim before the stipulated date whose

proceeding is compromised, and costs.

DAWSON J: In other words, that if the Water Board satisfies

a liability arising out of the fire then it can

draw on the funds for that purpose.

MR MERRALLS:  Yes, that is what we say was intended and it

was not intended that the insurer should act as a

settlor for establishing a fund for the benefit of the whole class of claimants, subject to the rules
that quality is equity or that there should be a

proportional abatement if the whole of their claims

cannot be met from the fund.

DAWSON J:  And it is up to the Water Board how it dissipates

the fund in the satisfaction of its liabilities?

MR MERRALLS: Well, no, it is up to the Water Board but it

has to establish that it has dissipated the fund

properly to the insurer because the insurer is
entitled to any balance. So, provision is made in

the document for accounts to be provided to the

insurer and so on, and that was all that was

intended.

DAWSON J:  And if it wanted to use the fund to pay three out

of 84 claimants, so be it.

MR MERRALLS:	Yes, that is right.
DAWSON J:

MR MERRALLS: Because, as one of the other cases that we

have mentioned establishes, you start from the

proposition that an indemnity insurer has no

interest in the disposition of the funds after they

are received by the insured. That is in Liverpool

Mortgage Insurance Company case, (1914) 2 Ch 617,

at page 639, if authority is required for such an

obvious proposition. And we say that applies here

and the judgment is simply wrong in construing, as

His Honour said, the instrument of settlement in

such a way as to spell out of it a trust in favour

of the whole class of beneficiaries. The judgment

is simply wrong in many respects. It is wrong in

its description of what the instrument does, and I

Woodend 8/3/91

can refer Your Honours to passages where errors are

made.

BRENNAN J: Perhaps you can tell us first what precisely you

say the nature of the trust was? It was a trust in

which the solicitors were constituted the trustee,

is that correct?

MR MERRALLS:	Yes, it is a trust - - -
BRENNAN J:	And the beneficiaries are?
MR MERRALLS:	The beneficiaries are the Board and the

insurer and it is a fund which is to be held upon

trust for the Board but upon condition that moneys

be released to the Board only if the Board has

satisfied judgments or claims or however it is

described, such as are referred to in the

instrument. So, there is a condition to its

entitlement to receive moneys from the fund. Now,

if that condition is not satisfied, the funds

revert to the insurer and that is all it is. That

it all it is intended to be and, in our submission,

on the plain meaning of the document, that is what

it provides.

It is only when the court decided that it was

a trust for the benefit of the class that it got

into all the contortions that appear from the later

part of the judgment about defining the terms of

the trust. All that is unnecessary, and it is only

brought about by the fact that there has been an

initial misconstruction of the trust so that if you

establish a wrong premise everything else that

follows from it is likely to be wrong and in this

case not only is it wrong but it causes

extraordinary inconvenience.

BRENNAN J: But your proposition that it is to be held in

the first instance in trust for the Board and to be

released to them by a way of indemnity if they

should satisfy a judgment or claim seems to fly in

the face of the language of clause 4(a) which

devotes the fund itself to the satisfaction of

judgments, actions or claims.

MR MERRALLS:  No. If I can find the document, Your Honour.

BRENNAN J: Page 631, I think.

MR MERRALLS:  Yes, if Your Honour pleases. No, the primary

trust is established by clause 1:

to be held by them on behalf of the Plaintiff

in accordance with the terms of this

agreement.

Woodend 9 8/3/91

And, in our submission, 4(a) simply states the conditions upon which funds to be released from what is called "the said sum", the sum held by the

solicitors.

BRENNAN J: Well, I understand how it would be desired that the words should read but clause 4, in fact, says, does it not, that it is to be paid out to satisfy

judgments?

MR MERRALLS:	Yes.
BRENNAN J:	One can scarcely satisfy a judgment of a

judgment creditor by paying money to the judgment

debtor.

MR MERRALLS:  No, one pays it on behalf of the judgment

debtor. It is simply a direction to pay at the -
well, not at the direction because, in this
instance, the actual direction of the Board is not

required, but it is to pay when that condition is

satisfied and it is obviously for the benefit of

the principal beneficiary that the money should

then be paid because - - -

McHUGH J:  Your point is that if your client wanted to

disperse the money to six plaintiffs who were suing

you, that is entirely a matter for the - - -?

MR MERRALLS:  Yes, precisely, Your Honour, and if it wished

to pay its legal costs of, say, an action which has

already been fought to judgment, that would be

perfectly proper. It has got to produce evidence,

first to the solicitors and then to the insurer, to

vouch for the payments but that is all.

So, what is being paid, if I may answer

Your Honour Mr Justice Brennan's question, is a

payment in satisfaction of a liability of the

beneficiary, that it is perfectly proper to have a

trust established in that way, Your Honour.	One
might have a trust, an orthodox trust for, say,

maintenance, which would be established in similar

language.

They are our arguments about the error in the

judgment. In our submission, it would be highly

prejudicial to the administration of justice if

this order were to remain. It virtually hamstrings

the administration of the fund and the details of the trust that were held, we say, were devised by
the court only because it had made an error in

relation to the initial holding or finding of the

form of the trust.

McHUGH J:  Am I right in thinking that notwithstanding the

terms of clause 1 of the terms of settlement, the

Woodend 10 8/3/91

Full Court held that your client was not a

beneficiary of the trust at all?

MR MERRALLS: That is right, yes, ignored it entirely.

Indeed, the relevant passage is, with the greatest

respect to His Honour, quite astonishing. It

appears on page 37:

The proper conclusion, therefore, is that the

insurer intended to confer, immediately and

irrevocably, some benefit upon third parties

to wit those whom I have loosely called
"claimants". In these circumstances, provided
that the terms in which the solicitors are to

hold the fund are clear, and the third party

beneficiaries are pointed out with sufficient

certainty, there is a valid subsisting trust

ab initio in favour of the third party

beneficiaries.

Which, in our respectful submission, misconstrues

clause 1 or avoids clause 1. And then curiously

enough there is another misconstruction - - -

McHUGH J:  I notice on page 36 His Honour says at line 25,

that:

by paying over $3 million to the Board's

solicitors upon the terms of settlement, to

confer no beneficial interest in the money

upon the Board, except for expenses.

MR MERRALLS:  Yes. His Honour apparently believing that the

alternative to that conclusion was that the money

should be available, to use his language, "to build

ditches and canals." That is, he does not seem to

have considered that it might be a trust upon

condition.	Yet, curiously enough, on page 49, he
reintroduced the Board.	The structure of this

judgment is, with the greatest of respect, very

odd. It is rather like one of those Bruckner

symphonies where you think you have got to the end

and suddenly the thing starts again and you have

got another process of reasoning at the end of the

judgment after conclusions have been expressed.

But on page 49, His Honour says:

The proper analysis is seen to be the

giving of money of the insurer to a person A
(the Board), to receive it on behalf of the

giver to some extent to be placed by A

specifically into a "separate account" by

investing it, in trustee investments -

well, it is not the Board who is in that position

at all, it is the solicitors.	And then at the foot
of the page, he says:

Woodend 11 8/3/91

In the present case far more appears than

that the money of the insurer is to be held by
the Board in a separate account for the
insurer - the Board's primary duties are to be

pay out the fund to designated third persons,

in satisfaction of obligations of the Board.

It can I think be said that there is virtually

no way that the law can ensure that these

obligations be carried out except by the

interposition of a trust.

So, His Honour seems to think that the only way that you can compose a trust is by making it a

trust for the benefit of the whole class and then

he has all these problems about defining the class.

Now, it may be that he was diverted by what I

would call the Quistclose series of cases where
there was not a provision equivalent to the
provision for repayment to the insurer of a
·surplus. In those cases, money was handed over,
was put in a separate account, held pending an
event yet to occur; a declaration of a dividend or
the meeting of claims by an advertising agency, in
the Carreras Rothmans case, but there was no

provision for repaying the money.

McHUGH J: Clause 7 of the terms places the obligation on

your client to repay the money.

MR MERRALLS:  Yes, it is a curious provision, Your Honour.

That is the only inkling that one would get that

the obligation is another way. But that is the

reciprocal of clause 4(c). If Your Honours would

look at clause 4(c) you will see:

to pay the balance remaining (if any) after

payment of all amounts payable under

sub-paragraphs (a) and (b) hereof to the

Plaintiff which shall thereupon comply with

the provisions of paragraph 7 hereof.

So, there is, in our submission, a trust engrafted

upon that fund when it is paid to the plaintiff.

BRENNAN J: Well, it may be a trust; it might only be a

contractual obligation.

MR MERRALLS:  Yes, it might, Your Honour, and that point,

with the greatest respect, had occurred to us but,

in our submission - I mean, the whole document is a

contract. It is a contract which creates a trust

and, in our submission, it should be read as

creating a trust in paragraphs (a), (b) and (c).

BRENNAN J: That may be so but it may be - and this, I would

not have thought was against your argument, is that

Woodend 12 8/3/91

the residue goes beneficially to the Board

and - - -

MR MERRALLS:  Yes, certainly, it is not against our

argument. We are generous people, Your Honour, and

we are prepared to adopt an argument which is

slightly against interest, to put it the other way,

but we concede that it does not matter.

I think an alternative argument was presented

at one level below that those provisions indicated

that the whole matter was contractual. I am sorry,

I am not really familiar with the arguments that

were presented below. I am told that it was not.

If the Court pleases, unless there are other matters in which I can help the Court, I have no

further submissions.

BRENNAN J: If special leave were granted, Mr Merralls, I

take it that you would seek to have all the orders

set aside that have come from the Full Court and

from Justice Cummins?

MR MERRALLS:	Yes.
BRENNAN J:	So that if there were an unfavourable decision

at the end of the day, you would not seek to retain

the benefit of any order as to costs?

MR MERRALLS:  I am sorry, Your Honour, if there were an

unfavourable decision to us - - -?

BRENNAN J:  - - - at the end of the day, you would not seek

to retain, without argument, the benefit of any

orders thus far made as to costs?

MR MERRALLS:  I do not think we have the benefit of any

order. I will have to get instructions upon that

matter, Your Honour. There will be no objection,

Your Honour. If it please the Court.

BRENNAN J: Yes, Mr Finkelstein.
MR FINKELSTEIN:	If it please the Court. Can I deal with

one introductory matter first, that is, the parties

to the proceeding. This will not appear anywhere

from the papers presently before the Court nor does

it appear anywhere in any of the material that was

before the Full Court or even the trial judge but
our instructions are that the overwhelming majority

of claimants contributed towards the costs of this

proceedings. Now, that is not to say that all of

them did. There is probably a few who did not. My

learned friend's suggestion that there would be an

estoppel against them is bound to be right, on our

Woodend 13 8/3/91

instructions, but, as I say, there is probably a

handful who have stood out of that arrangement.

Also, to take up one point that Your Honour

the learned presiding Judge raised on whether the

Victorian Supreme Court would have power to vary

the trusts, if trusts be established by the terms

of settlement, we did look at that this morning.

The statutory provision does not appear to be wide

enough. It may therefore depend upon the Court's

inherent power to vary trusts. If the House of

Lords in Chapman was followed, the Court probably

would not. I think the New South Wales Court of

Appeal may have expressed different views but the

position would be unclear, so far as Victoria is

concerned, whether the supreme court could, if it

wanted to, vary the terms of this particular trust

having regard to the nature of beneficiaries

established, at least, by the decision of the

Full Court. It is also an argument against

interest, generously put.

Our principal contentions are first, the case involves the construction of a particular document:

the terms of settlement.	The document is not in
common form nor a frequent occurrence.	The case

raises no point of law of either general importance

nor a point of law of any difficulty that requires

resolution by the High Court. The Full Court or

the Appeal Division of the Supreme Court determined

two issues: first, whether there was a valid and

subsisting trust in favour of those the court

referred to as "the claimants. As to that issue,

it determined it to" a substantial extent by

ascertaining the intention of the parties which

principally was the insurer to be gathered from the

construction of the terms of settlement itself,

just that document.

McHUGH J:  On that basis, how can you find a trust for 84

people, none of whom are named in the document,

when the document itself says that the money is to

be held on behalf of the Water Board?

MR FINKELSTEIN:  By the combined reading of paragraphs 1 and

4, properly construed, we say, that the language on

behalf of the plaintiff used in clause 1 means no

more than bearing in mind that Maddock Lonie &

Chisholm were the solicitors for the plaintiff, as the clause itself says - clause 1 says that in the

second line - that it is to be held as agent for

the plaintiff, not creating a trust in favour of

the plaintiff, the Woodend Water Board. The

obligations of those holding the money are found in
clause 4. It is unambiguously clear, in our

submission, that clause 4 requires the payment out

of the fund to be made to those persops described

Woodend 14 8/3/91

as "claimants", they are class. The class closes

on 1 February 1989 because no person who has not

issued a proceeding after 1 February 1989 is

entitled to be benefitted by any payment.

So that it is true, Your Honours, as

Your Honour says, that the claimants are not named.

Leaving aside the quantum that each claimant might

be entitled to out of the fund, which is difficult

in any event no matter which way the trust goes,

that is something that would have to be
ascertained, but the class is clear enough. It

closes - and 1 February 1989 is probably, not by coincidence, the time that the limitation period would run out for actions because the fire occurred

precisely six years before that date. So that the

fund can be applied to those persons who brought

action by no later than 1 February. That is

sufficient to define the class of beneficiary

because out of the money put into a separate

account, payment can only be made to those persons

called "claimants". It becomes a question of

ascertaining the intention, particularly of the

insurer who settled the fund, in our submission,

whether or not it intended to benefit those

claimants or it intended to benefit the Board.

If, on a proper construction of clause 4, in

combination with clause 1, it can be properly

concluded the intention was to benefit the
claimants, bearing in mind also that the payment of

the -

McHUGH J:  The claimants had no rights of action against the

insurer, did they?

MR FINKELSTEIN: That is certainly so.

McHUGH J: This was a matter between the Board and its

insurer. So, the insurer handed over $3 million to

the Board's solicitors to be held on behalf of the

Board to be dealt with in a certain way.

MR FINKELSTEIN:  The fact that the claimants had no claim

against the insurer does not answer the question

whether or not, when the insurer sets aside a fund

of money to be dealt with in a particular way, a
trust can thereby be created. The Quistclose line of cases, I think, in each, concerned a case where the person, who ultimately became the settler, so

held by the court, had no contractual or other

relationship with the class of person who was found

to be the beneficiary. In each of those cases the

settler became a creditor of a person with whom he

had contractual relationships, providing a sum of

money for that person who became the trustee to

hold on behalf of others - creditors ..

Woodend 15 8/3/91

McHUGH J:  One would think that the whole purpose of

paragraph 4 is to ensure that the Board did not use

the $3 million to pay its debts in the ordinary

course of its activities.

MR FINKELSTEIN: That is precisely the point. What we say

were the principal features which establish a trust

in favour of the claimants was - there are three.

First, it was irrevocable; secondly, that the

Board was not to get any benefit for itself for the

funds; third, the claimants were. Taking those

three things in combination, each of those things to be gathered from the terms of settlement - - -

BRENNAN J:  The second proposition cannot be gathered from

the terms of settlement, can it?

MR FINKELSTEIN: There is the question of costs. I am

sorry, Your Honour, that is certainly so. The

Board does get a benefit because it is entitled

under clause 4(b) to the payment of legal costs.

BRENNAN J:  And it would be a curious phenomenon, would it

not, to have the Board's solicitor to be the

trustee for the purpose of disbursing money for the

payment of the Board's costs if the Board was not

intended to be the beneficiary of the fund?

MR FINKELSTEIN: Well, if the solicitors are the agent for

the Board for this purpose and if the solicitors
are undertaking a distribution of money for a class

of beneficiaries, then there would be nothing

unusual in having the legal costs occasioned by

that conduct properly paid and paid to the Board's

solicitors.

BRENNAN J: But it is:

the legal costs ..... in relation to the said

judgments, actions and claims.

MR FINKELSTEIN: Because it was not established and has not

yet been established, at least by court process,

that there is a person who has a just claim in the

sense that the Board has never conceded liability

in respect of the events that led to the fire and a

court has not ruled that the Board is liable.

McHUGH J: But on your theory of the terms of settlement,

the solicitors should not only be trustees, they

would also be beneficiaries in relation to the 4(b)

costs?

MR FINKELSTEIN:  No, Your Honour. The solicitors are in no

different position to any trustee established by

any trust instrument where the trustee is entitled

to reimbursement for properly incurred costs and

Woodend 16 8/3/91

expenses. An executor under a will who happens to

be a solicitor - and that is not uncommon - and the

will, the instrument creating the trust, allows the
trustee his costs and expenses, does not turn the
trustee into a beneficiary. It merely empowers the
trustee to take out of the fund sufficient to
discharge costs and expenses properly incurred in

administering the fund. In some cases, that might

be an implied right. Generally speaking, legal

costs, costs of that nature, would not fall within
the implied power of a trustee to be reimbursed out
of trust funds for properly incurred expenses but
it would not convert the trustee or the solicitors

in this case to a beneficiary at all.

The principal purpose for establishing the

fund is to confer, in our submission, a benefit on

the claimants and not on anybody else. That is to
say, provided the claimants have just claims

against the Board for the events that led to the

fire, then the funds are to go to them - must.

That is to say, the word "shall" in clause 4, "the

said sum shall be paid out as follows" is mandatory

and it shall be paid to those claimants, and it
contemplates a direct payment out of the fund held

by the solicitors to the persons who have just

claims.

McHUGH J:  You have got to read the word "just" in. You

have got to read a lot of things into it.

MR FINKELSTEIN: Well, no. It is a question of how you

construe the word "payable" appearing in 4(a). I

just mean - when I say "just claims" I mean money

payable to them.

McHUGH J:  Why should you not, on your theory, read it as being held for those simply who have claims?

MR FINKELSTEIN: Because the clause says "to satisfy"

various things:

judgments actions or claims for damages .....

payable by the Plaintiff to -

those -

persons.

So that the instrument requires a determination

whether a sum of money is payable in respect of

loss arising out of the fire. So, we say that it

goes in by implication. That is necessary in order

to identify the class of persons who are to benefit

from the payments. Now, that is so whether or not

the Board is the beneficiary or the claimants are

the beneficiary. The money can only go out to

Woodend 17 8/3/91

those to whom the Board is obliged to pay money so

that is only there to define the class, and when I said "just claims", I meant where money is payable to them.

BRENNAN J: Mr Finkelstein, if Mr Merralls be right then, of

course, clause 4 is simply identifying the limited

benefits which the beneficiary, namely the Board,

is to acquire out of this fund, is to acquire the

discharge of its liabilities to third parties, to

acquire the benefit of discharge of its legal costs

and expenses and it acquires the balance paid to

itself. Your proceedings were calculated to ensure

not only that the Board did not acquire any

beneficial interest but that the Board, as trustee,

should be required before it could have any access

to this fund, to litigate all claims made against

it. Is that right?

MR FINKELSTEIN:  No, Your Honour. Our submission, which was

not accepted by the appeal division, was that it

was open for the trustee in the proper exercise of
the trustee's duty or discharge of that duty, to
ascertain for itself, if possible in the first
instance, whether or not there was money payable by

the Board in the defined circumstances. Secondly,

if a trustee could not, in the discharge of its

duties come to a decision about that, then the

trustee could go to court and have the question

answered. We did not contend for a construction,

which the appeal division adopted, that payable

meant payable by judgment. That was not our

contention at any stage of the proceeding. Our

contention was not accepted though, as is apparent

from the reasons.

We said, first, it was part of the trustee's

duty to determine the class and if that was too

difficult for the trustee, then the trustee would

do what any trustee is entitled to do, go to the

court and seek the court's assistance in the
determination of that issue.	We submitted that the

trust would not fail, could not fail, by reason of

the fact that there may be some difficulty in

identifying the class of beneficiaries either on

the part of the trustee itself or on the part of

the court.

One thing that the Court might also be

assisted in knowing - and this deals really

directly with the question of the ascertainment of

the class of beneficiary and whether or not one

would need, in a case like this, 85 actions. Each

claimant has commenced an action and he would not
be a beneficiary of the trust for which we contend,

if he has not by now instituted a proceeding. What

has happened is that the supreme court has set down

Woodend 18 8/3/91

on a case by one of the claimants against the Board

seeking a determination of the question of the
Board's liability for the fires which is going to

come on for hearing - I think it has been set down for mid-April - 22 April. It was just set down by the court the other day and the parties have agreed

- at least the Board has agreed - to be bound by

the result of that case for all other claimants,

only on the question of liability, not on other

issues because some people claim personal injuries,

loss, some people claim property loss. There is a

variety of claims and there is no concession that
the case that will be litigated in a month will

bind the Board to those issues, but on the question

of liability, that will be determined by one

proceeding which, at least, has been listed as a

special fixture next month.

That being the case, the multiplicity of

litigation and what might otherwise be seen to be

very harsh results flowing from the court's

determination how the class of beneficiaries need
to establish liability in their favour, that is to
say, that amounts are. properly payable to them for

the purposes of clause 4(a), for practical purposes

will not exist because if liability is established

then there may well be very difficult questions of

quantum but those questions would be there in any

event no matter which way the construction goes.

If the Court pleases.

BRENNAN J:  Thank you, Mr Finkelstein. We need not trouble

you even if you have a reply, Mr Merralls.

This is a case in which the Court proposes to

grant special leave to appeal. Special leave will

be granted accordingly.

AT 12.38 PM THE MATTER WAS ADJOURNED SINE DIE

Woodend 19 8/3/91