Warne v GDK Financial Solutions Pty Ltd; Billingham v Parbery [2006] NSWSC 259

Reported Decision : (2006) 24 ACLC 1000

New South Wales Supreme Court

CITATION : Warne v GDK Financial Solutions Pty Ltd; Billingham v Parbery [2006] NSWSC 259

HEARING DATE(S) : 27, 28, 29 September, 5 October 2005

JUDGMENT DATE : 7 April 2006

JURISDICTION : Equity Division

JUDGMENT OF : Young CJ in Eq

DECISION : Directions made as to winding up of unregistered Management Scheme.

CATCHWORDS : CORPORATIONS [1208]- Managed investment schemes- Winding up of unregistered schemes- How effected- Proposed transfer of assets and liabilities to new scheme- Problems- Priority of costs among (1) court appointed investigating accountants (2) liquidator of Trustee and (3) liquidator of Scheme- Trustee of Scheme prima facie in breach of trust- Whether entitled to indemnity against assets.

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 9, 443D, 443E, 443F, 556(1), 601ED(1)(a) and (b), 601EE(2), 601FR Statute of Uses 1535 (Imp)

ASIC v Atlantic 3 Financial (Aust) Pty Ltd (2003) 47 ACSR 52 (QSC) ASIC v Atlantic 3-Financial (Aust) Pty Ltd [2004] 1 Qd R 591 ASIC v Chase Capital Management Pty Ltd [2001] WASC 27 ASIC v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240 ASIC v Takaran Pty Ltd (2002) 43 ACSR 46 Body Corporate for Cairns Village Resort Community Titles Scheme 18161 v FN Management Pty Ltd (2004) 51 ACSR 598 (QSC) Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171 Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (1999) 30 ACSR 377 Corumo Holdings Pty Ltd v C Itoh Pty Ltd (1991) 24 NSWLR 370 Crocombe v Pine Forests of Australia Pty Ltd (2005) 219 ALR 692 General Credits Ltd v Tawilla Pty Ltd [1984] 1 Qd R 388 Godfrey v Scottish Pacific Business Finance Pty Ltd (2004) 51 ACSR 272 CASES CITED : Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 Islamic Republic of Iran Shipping Lines v Zannis Compania Naviera SA (The Tzelepi) [1991] 2 Ll Rep 265 Jennings v Mather [1902] 1 KB 1 Mier & Jonsson v FN Management Pty Ltd (2005) 23 ACLC 1,888 Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439 Re Aged Care Facility Partnership Scheme; ASIC v Primelife Corporation Ltd (2005) 54 ACSR 536 Re Central Commodities Services Pty Ltd [1984] 1 NSWLR 25 Re Korda; In the matter of Stockford Ltd (2004) 140 FCR 424 Re Stacks Managed Investments Ltd (2005) 54 ACSR 466 Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207 Re Suco Gold Pty Ltd (1983) 7 ACLR 873 Re Sutherland; French Caledonia Travel Service Pty Ltd (2003) 59 NSWLR 361 RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385 Shirlaw v Taylor (1991) 31 FCR 222

2226/04 Peter Warne (P) GDK Financial Solutions Pty Ltd (D1) Peridon Village Nominees Pty Ltd (D2) Peridon Management Pty Ltd (D3) PARTIES : Condor Asset Management Ltd (D4) 4462/05 Paul Andrew Billingham and Trevor Mark Pogroske (P) Stephen James Parbery (D1) David Winterbottom (D2) Peridon Management Pty Ltd (D3)

FILE NUMBER(S) : SC 2226/04; 4462/05

2226/04 P M Wood, Ms D Hogan-Doran and S R Derham (P) P R Hayes QC and A E Maroya (D1) D P Robinson SC (D2) COUNSEL : B Levet and Ms B Boss (D3) 4462/05 D P Robinson SC (P) P Dowdy (D1) S Golledge (D2) B Levet and Ms B Boss (D3)

2226/04 Arnold Bloch Leibler (P) Michael Brereton & Co (Melbourne) (D1) Gadens Lawyers (D2) SOLICITORS : Castrission & Co (D3) 4462/05 Gadens Lawyers (P) Henry Davis York (D1) Blake Dawson Waldron (D2) Castrission & Co (D3)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

YOUNG CJ in EQ

Friday 7 April 2006

2226/04 – WARNE v GDK FINANCIAL SOLUTIONS PTY LTD 4462/05 – BILLINGHAM v PARBERY JUDGMENT 1 HIS HONOUR: These two matters which were heard together (evidence in one being evidence in the other) involve the winding up of the Peridon Scheme, an unregistered managed investment scheme involving the Peridon Retirement Village on the central coast of NSW. 2 The summons in the principal proceedings, 2226/04 was filed on 31 March 2004 and subsequently the case proceeded by way of statement of claim. 3 In the principal proceedings, Mr Warne, the plaintiff, who is an investor in the Scheme, wishes to have it wound up. As I will note shortly, the court has already gone part of the way to achieving this. However, at least some of the parties say that it is now necessary to define more precisely what constitutes the Scheme, and how it should be wound up. 4 The parties to the principal proceedings, apart from Mr Warne, are as follows. The first defendant, GDK Financial Solutions Pty Ltd (GDK), was a promoter of the Peridon Scheme. The second defendant, Peridon Village Nominees Pty Ltd (Nominees), became the owner of Peridon Village after 9 March 2000. Before that date the Peridon Village was owned by Peridon Group Pty Ltd (Group). The third defendant, Peridon Management Pty Ltd (Management), from 9 March 2000 until 9 June 2005 managed the Peridon Village. The fourth defendant, Condor Asset Management Ltd has acted as trustee of the Peridon Retirement Villages Trust. 5 The focus of activities for the various defendants is the Peridon Retirement Village located at 34 Empire Bay Road, Daleys Point, NSW on the central coast. 6 The amended statement of claim pleads that in about 1999 and early 2000, GDK promoted to potential investors including the plaintiff, an investment scheme which the statement of claim nominates as "the Peridon Scheme Proposal". This proposal offered for sale as a going concern the existing aged care facility and land at the Peridon Village with a project for the supply of an expanded retirement village. The Scheme was promoted on the basis that there would be taxation benefits for participants. 7 In the second set of proceedings, commenced by Originating Process filed on 11 August 2005, the administrators and subsequently, the liquidators, of Nominees seek an order that their costs rank in absolute priority. 8 This claim is resisted by Mr Parbery, the investigator appointed by the court and Mr Winterbottom, the liquidator of the Peridon Scheme who, by motion, also seek orders that their fees are to be paid in priority to other liabilities. 9 The other parties, whilst acknowledging, in general, the justification in paying the various accountants, put forward substantial arguments as to why they should not be paid as a matter of priority. 10 The two sets of proceedings had two preliminary hearings, the first before Gzell J on 16 November 2004, the second before me on 5 and 6 July 2005. I will refer in detail to those preliminary hearings in due course. 11 Brereton J conducted a directions hearing prior to the matter coming back before me on 27 September 2005. His Honour directed that points of claim and minutes of the orders sought by the parties be filed and the parties duly complied with these directions. 12 There were multitudinous issues appearing on the papers at the directions hearing. Brereton J ordered that points of claim, points of defence and outline of submissions be prepared. That was done and at the hearing the various documents were coded with a Z prefix code for the purposes of identification. The two preliminary hearings and this process reduced and clarified the real issues between the parties. 13 The proceedings then resumed before me on 27, 28, 29 September 2005 and 5 October when I reserved judgment. 14 Mr P M Wood, Mrs D Hogan-Doran and Mr S R Derham appeared for the plaintiff, Mr P R Hayes QC and Mr A E Maroya for GDK, Mr D P Robinson SC appeared for Nominees and Mr F Kunc briefly appeared for ASIC but was given leave to retire. 15 Ms B Boss purported to appear for Management but quickly sought to be excused and that defendant was not represented until the third day of hearing when Mr B Levet appeared. 16 In the second matter Mr D P Robinson SC appeared for the plaintiff, Mr P Dowdy for the first defendant, Mr S Golledge for the second defendant and Mr B Levet/Ms B Boss for the third defendant, Management. Leave was granted to Mr Wood to appear for Mr Warne in those proceedings. 17 I do not need to make any comment on the oral evidence or cross examination as very little of it has any bearing on the present decision and there is really no matter of credibility to be determined. 18 I do need to point out, however, that I have experienced some difficulty in that 151 of the 152 investors are not parties to these proceedings and no representative order was sought. An equity court does not make final orders dealing with the rights of non-parties save in exceptional circumstances. 19 In the principal proceedings the plaintiff's proposed short minutes of order, a document which was coded Z1001A sought in summary the following orders. First, an order declaring and defining what constituted the Scheme. The suggestion was that the Scheme included the sub-partnership agreements, the partnership agreements, the "top" and "bottom" contracts, the marketing, management and profit share agreement between Nominees and Management, the various loan agreements and the vendor mortgage, the licence agreement between Group and Nominees, the property report titled "Peridon The Retirement Village at Daleys Point", the Sydney Cove Law Group disclosure letter to Nominees of 2 March 2000 and the memorandum of advice of Peter M Fraser of 29 February 2000. 20 Secondly, that plaintiff sought a declaration that the first three defendants had operated an unregistered managed investment scheme and then orders for the winding up and regularisation of the Scheme. These were in summary: (a) that there be a transfer of rights, obligations and liabilities in accordance with the letter from TEYS Property Funds Ltd to Mr Winterbottom of 1 August 2005;

(b) that the investor partners in substitution for their respective interests in the Peridon Scheme be entitled to apply for units in the registered investment scheme known as Peridon Partners;

(c) that Nominees' rights, obligations and liabilities be transferred to TEYS; (d) that the defendants transfer to TEYS all books of the Scheme; (e) that Nominees transfer the land in the top and bottom contracts for nil consideration to TEYS; (f) that TEYS becomes the mortgagor under the vendor mortgage; (g) that Management be restrained from exercising any rights under, inter alia, the vendor mortgage, at least until after an inquiry by an Associate Justice;

(h) that there be an inquiry before an Associate Justice as to any unauthorised benefits that may have been received by the defendants out of the Scheme; and (i) various ancillary orders. 21 Plaintiff's counsel say that the general approach to the winding up orders sought are that there should be a transfer of the assets to the new responsible entity in an analogous way to that found in Division 3 of Part 5C.2 of the Corporations Act 2001 dealing with changes in responsible entities. However, the decision of RW White J in Re Stacks Managed Investments Ltd (2005) 54 ACSR 466 at 479 must make me a little wary of using my powers under s 601EE by analogy with other mechanisms prescribed by the Act. I will come back to this in due course. 22 I should note that theoretically no court can wind up a trust. What one may do is release the trustee or property from the fiduciary obligations that are currently binding or vest the interests of the beneficiaries or trustees in some other entity. 23 Although there has been some slight difference of opinion amongst the judges who have written on the subject as to what winding up under section 601EE of the Corporations Act entails, there is little disagreement as to the basics. These are that the assets are to be realised, the liabilities and costs of winding up paid and any balance distributed to the investors. However, it is left to the court to devise a method of handling the conflicts that may arise when this process is carried out in any particular case. 24 As I noted in Crocombe v Pine Forests of Australia Pty Ltd (2005) 219 ALR 692 at 703 [71] it may well be appropriate for the court to have the winding up conducted in stages by authorising the person appointed to carry out the winding up to proceed only so far. 25 The first defendant sought a declaration that the vendor mortgage was valid and that for the purposes of s 9 of the Corporations Act the parties to the vendor mortgage and associated transactions are members of the Peridon Scheme. The document is coded Z1002. 26 The various accountants who have assisted the court in this litigation seek orders that they are entitled to be paid their costs and expenses as a matter of priority. 27 I regret that it has taken so long to produce this judgment especially as when I finished it, I realised that although I had to pore through about 20 lever arch files of documents and numerous submissions, once one had mastered the documents and analysed the submissions the case really could not be called a difficult one at all. However, because of lack of parties, the actual orders stemming from the court in this litigation may not seem satisfactory to any of the stakeholders. 28 I need to commence by looking at the basic undisputed facts and trace a little of the history of the litigation after its commencement. 29 There are something like 152 investors in the Peridon Scheme. The way in which those investors are involved is that up to 20 are grouped in a sub-partnership, most sub-partnerships being given an identifying name and having a nominee who is to represent the interests of the sub-partnership in the head partnership. This structure meant that there was no partnership or sub-partnership which had more than 20 members. The head partnership was known as "The Peridon Village Partnership". 30 On about 9 March 2000, Nominees, purportedly as "bare nominee" for the Peridon Village Partnership, entered into two contracts. 31 The first of these is known as "the top contract" (a copy is found as annexure J to Mr Parbery's Disclosure Report of 7 January 2005). This was a contract for the sale and purchase of land, the vendor being Group and the purchaser being Nominees, the purchase price $22,891,250.00. The contract covered eight parcels of land in Empire Bay Drive, Daleys Point. 32 The top contract provided that what it calls the residue of the purchase money, about $18,000,000.00, was to be secured by a mortgage ranking in priority first behind what was defined as the remaining financiers mortgage. The land was transferred subject to existing residents' rights. 33 The second contract, known as the bottom contract, a copy of which is set out behind Tab K to Mr Parbery's Disclosure Report, was between Management as vendor and Nominees as purchaser, the purchase price being $20,998,750.00. The land, the subject of the contract, was six parcels in Daleys Point to Wamberal. 34 Mr Parbery comments that the bottom contract includes the land on which the Wamberal Retirement Village is located, but does not appear to transfer the business of the Wamberal Retirement Village. However, he comments that everyone involved appears to accept that the business of the Wamberal Village is an asset of the Peridon Scheme. Mr Parbery reported that on his valuation, the combined valuation of the land in the top and bottom contracts was 12.785 million dollars which is nowhere near the balance sheet value and the cost price under the top and bottom contracts of 45.5585 million dollars. 35 Mr Parbery in his report simplified the transactions into five steps:

1. The top and bottom contracts were entered into.

2. Deposits were paid by Nominees totalling $9,435,350.

3. Group and Management notionally advanced the balance of the purchase price under the top and bottom contracts to Nominees in the sum of $34,453,650.

4. Group, by deed of assignment, assigned its rights and obligations under the top contract to Management. As a result, Nominees owed $34,453,650 (described as "the Residue") to Management.

5. What is described as the vendor mortgage then was given in order to secure the Residue plus any amounts loaned by Management under another agreement. 36 I will need to come back and discuss the vendor mortgage in detail, but first, it is necessary to consider, in broad outline, how the investors in the scheme propose to make profits. 37 As set out earlier, the title to the land on which the Peridon Retirement Village and the Wamberal Village were erected was owned by Nominees although said to be a bare nominee. 38 Under the marketing agreement, Management would market the villages and enter into loan/licence agreements and service agreements with potential residents. Management would open two bank accounts, one, as required under the relevant legislation for the deposit of service fees (the Village Account) and the other, the Business Account for all other moneys received. 39 Management would, after discussion with nominees prepare a budget and adhere to it. Management would pay over the profits to Nominees less 1% fee and a share of the profits for its pains. 40 The partnership arrangement was that the investors in sub-partnerships would be in partnership, with GDK being the partnership manager, with the partnership to last for 15 years unless previously determined in accordance with the partnership agreement. Each partner would have a "partnership entitlement" which would be assignable. GDK would receive a fee for acting as partnership manager and would supervise Management. 41 I now return to consider the vendor mortgage. 42 Mr Hayes kept repeating that the vendor mortgage is pivotal to the parties' rights. 43 GDK seeks a declaration that the vendor mortgage is "valid, subsisting and enforceable in all its terms." Such a declaration, however, skims over many of the problems concerning the vendor mortgage such as against whom may it be enforced? 44 GDK also seeks declaration (b) viz: "A declaration that upon the true construction of the Vendor Mortgage, there is secured thereby an amount in excess of any free equity available in or in respect of the property the subject of that Vendor Mortgage." 45 The nebulous term "free equity" concerned me for a while, but I came to the view that this was an avenue I need not explore. 46 An issue raised in respect of the vendor mortgage and associated mortgages is the proper construction of clause 12 of the top contract and clause 10 of the bottom contract as to how far mortgages effected after March or June 2000 are binding on the members. 47 The vendor mortgage is an unregistered mortgage which seems to have been dated 9 March 2000 between Nominees as mortgagor and Management as mortgagee to secure the balance under the top and bottom contracts. It is Exhibit PX09 in these proceedings. It must be read together with the loan agreements over the top and bottom contracts (PX07 and PX08 respectively). No complete copy of the vendor mortgage has ever been produced. 48 By virtue of the deed of assignment, the whole of the Residue is owed to Management and it is the mortgagee under the vendor mortgage. 49 The vendor mortgage purports to secure the debts due under the two loan agreements. It purports to be a first mortgage, but clearly gives way to other registered mortgages. It apparently has not been stamped and there may be some argument that until it is stamped it is unenforceable, but that matter has not been argued before me. 50 Under the loan agreements, the debt to management (the Lender) is to be repaid out of "Sale Proceeds Due to the Lender". This is defined as meaning (NB. As with many modern documents, terms defined in the document are expressed with an initial capital letter): "any amount of any Loan/Licence Fee received from the Borrower from an incoming Resident under a Loan/Licence Agreement (including any entitlement of the Borrower to a the [sic] Percentage under the Marketing and Profit Share Agreement) less any legal costs or statutory charges incurred with the entry into that Loan/Licence Agreements … ". 51 The loan agreements provided that no interest would be charged and that any balance owing after 15 years would be forgiven. 52 Since 2000, the amount due under the vendor mortgage has been reduced and now stands, according to the defendants at, $19,930,515. 53 The plaintiff challenges the standing of the first defendant, GDK, to seek such declarations. GDK replies to this challenge by asserting that GDK holds all the shares in Management (although on behalf of the GDK Financial Solutions Trust, a trust of which the current trustee is Equitable Overseers Pty Ltd, a company whose sole director is Peter Shiels QC). 54 The challenge may well succeed if one were to deal with all matters on technical grounds as GDK's assertions would not seem to give it standing. However, the point is of little moment as these matters have to be investigated in any event. 55 Returning to the history of the litigation, Gzell J gave a short judgment on 16 November 2004. His Honour said in para 3 of his reasons: "There is no longer a contest that the arrangement amounted to a managed investment scheme as that concept was defined in the Corporations Act 2001 (Cth) s 9. Section 601ED(1)(a) and (b) provided that a managed investment scheme was to be registered if it had more than 20 members or if it was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes. There is no longer a contest that one or other or both of those provisions applied and the scheme was required to be registered pursuant to that provision. I will make a declaration to that effect." 56 His Honour then went on to say that the inevitable result is that the Scheme must be wound up, but he then said in para 5: "Under the Corporations Act 2001 (Cth) s 601EE(2), however, the court may make any orders it considers appropriate for the winding up of the scheme. The parties are in agreement that an arrangement should be made in the first instance to preserve the scheme in its current operation while necessary investigations are carried out by an independent accountant who I propose to appoint for that purpose. … ". 57 The formal declaration made by Gzell J, which was by consent, is as follows: "Declare that, upon the true construction of the documents described in Schedule A … those parties described as 'investor partners' or 'partners' in those documents are members of a 'managed investment scheme' (the 'Peridon Scheme') within the meaning of s 9 Corporations Act 2001 which was required to be registered pursuant to s 601ED Corporations Act 2001. 58 It is clear that Gzell J, in his order, designated the members of the Scheme as the investor members. Mr Hayes puts that Gzell J's declaration did not articulate what constituted the Peridon Scheme, though he conceded there was an assumption implicit in it. I believe the order goes further than this when one looks at the documents which are listed in Schedule A to the order. 59 Following the hearing before Gzell J, Mr Stephen Parbery was appointed and he gave his Disclosure Report from which I have already quoted on 7 January 2005. 60 Mr Parbery reported that the levies collected under the management structure were sufficient to keep the Scheme going. However, the Scheme was only able to be kept solvent so long as the vendor mortgage was not called up. If it were called up then there would doubtless be a dispute as to the sale price under the top and bottom contracts. 61 On 28 April 2005, Nominees was placed under administration, Messrs Pogroske and Billingham being appointed administrators. It is claimed that this was partly due to the failure of people to pay the recurrent levies. Nominees proceeded from administration to liquidation on 15 August 2005, Messrs Pogroske and Billingham being its liquidators. 62 After various sets of directions had been given, the matter came into my list on 5 July 2005. On 6 July 2005, I noted that the parties had sensibly agreed on a commercial solution as to the way forward. There was one matter I had to decide and I did so. 63 As a result of the parties' agreement and my ruling, orders were made that the Peridon Scheme be wound up and that David Winterbottom of Korda Mentha was to be appointed to perform the functions set out in the orders in which he was referred to as "the Appointee". The orders provided that within a certain time the appointee was to convene a meeting of the members of the Scheme identified in the Disclosure Report, provide those members with various details and to report to the court the result of the meeting. The defendants gave various undertakings to preserve the assets of the Scheme in the meantime. 64 The meeting was held on 6 September 2005. Mr Winterbottom put three proposals to the meeting, one a proposal by the TEYS organisation called "the TEYS Proposal", another from Equitable Overseers Pty Ltd, "the EO Proposal" and the third a proposal for liquidation of the Scheme. 65 The TEYS proposal essentially was that TEYS is the responsible entity of the Peridon Partners Scheme which is duly registered with ASIC. This is an unlisted unit trust. The Peridon Partners Scheme has been established to receive the assets from the existing scheme and to issue units to the investors in the present scheme on their application. 66 The plaintiff is a member of the holding company of the company that will operate the TEYS scheme. 67 The Peridon Partners Scheme envisages receiving the assets of the existing scheme and, with some important exceptions, becoming liable for its obligations. 68 It is anticipated that there will either be a refinancing of secured borrowings from financial institutions or the transfer of those borrowings and securities. 69 The EO proposal was put forward by a company, the sole director of which is Peter Shiels QC. That company is also the trustee of the trust for which GDK holds its assets, the beneficiaries being members of the McLeod family. 70 Mr Winterbottom recorded the votes as follows: TEYS Proposal – 60 in favour; none against; two abstentions. Total Investments in favour 7.9 million dollars.

EO Proposal – one in favour; 60 against; no abstentions. Value of those in favour $60,000. Liquidation - no-one in favour; 60 against. 71 Counsel for the defendants have criticised the results of the meeting on the basis that the vendor mortgage was not considered to be part of the Scheme so that it could vote in accordance with its alleged debt of something like $29 million. The defendants say that if there had been votes in respect of that $29 million, the result of the meeting would be quite different. 72 I should now set out part of Mr Wood's opening address which deals with some concerns and also deal with some additional evidence. 73 Mr Wood said at T10: "One of the issues in proceedings before your Honour concerns whether or not there has been misuse of the Scheme assets or Scheme funds by management, by GDK or by Nominees. That was the topic of an investigation by Mr Parbery when he was appointed … . Mr Parbery and Mr Pogroske, he was appointed as administrator of Nominees, looked closely into the way in which the borrowings were secured by mortgages." 74 Mr Wood then said that neither accountant has found proper documentation nor had received proper answers by those involved. He continued: "There was a large amount of money unaccounted for and by a large amount I mean a very large amount running into hundreds of thousands, if not more than that." 75 The documents that were circulated for investors included a memorandum of advice by a Sydney barrister then of some four years' standing as to the taxation possibilities with respect to an analogous scheme. This appeared to attract investors. Indeed it was put to Mr Warne in cross-examination that he had a 5 million dollar tax debt and by investing in this Scheme he was able to obtain a 5 million dollar refund from the Tax Office. 76 Indeed, the submissions on behalf of the defendant GDK almost got to the stage of saying, "Forget about any possible questions of fraud, concentrate on the tax advantages and don't let investors lose what they expected to achieve in this area." 77 The defendants have indicated that they have spent a lot of money on the Peridon Village including development costs of 4.3 million dollars, construction and legal costs of 1.2 million dollars, management expenses of 2.3 million dollars and that there has been a considerable default on the part of investors in making their full payment and particularly in paying the recurrent levies. The plaintiff is said to have been particularly delinquent in this regard. 78 Although documents refer to Nominees as being a "bare trustee", this is hardly the case. Mr Pogroske has put in an account for some $590,000 for work he and his staff did as administrator and liquidator. He was cross-examined about how such a large amount could have been run up and why he did not employ professional agents to run the retirement village rather than using his own staff. I thought that a lot of that cross-examination brought out home truths. Nonetheless, Mr Pogroske's firm is entitled to remuneration and the question is its relevant priority to other claims. 79 With this background I will now turn to the issues. 80 It seems to me that the issues before me can most conveniently be dealt with under the following headings:

A. Define the "Peridon Scheme".

B. Consider whether to make a declaration that each defendant has contravened the Corporations Act.

C. Look at the methodology of the winding up.

D. Should the first three defendants be treated as members of the Scheme.

E. What is the position of the vendor mortgage?

F. Should there be an enquiry as to the dealings of Management and other associated entities as to their liability to compensate the scheme for defaults?

G. Other relevant matters.

H. Are Messrs Pogroske and Billingham, Mr Parbery and/or Mr Winterbottom entitled to priority for their costs and expenses of administering the Scheme?

I. What is the overall result of the litigation? J. What are the orders that should be made? 81 A. I have already set out what the plaintiff says is an apt description of the Peridon Scheme. This is repeated in paragraph 5 of the plaintiff's points of claim (Z1004) and admitted by GDK in its points of defence paragraph 6 (Z1006). 82 A lot of words were said on this part of the case, but I really cannot see any reason why, in principle, the order in the form sought by the plaintiff should not be made. 83 B. Mr Wood puts that each defendant has contravened the Corporations Act, and that whilst this is not accepted by the defendants, they have made no submissions to the contrary. 84 Plaintiff's counsel say that it is appropriate, particularly having regard to the orders sought as to the mode of winding up, that declarations of contravention be made. They say that the orders really depend on such a declaration being made. 85 With respect, I do not think that a declaration is a necessary precursor to such an order. It is clear, and indeed orders have already been made that the preconditions for a winding up under s 601EE of the Corporations Act have occurred. That being so, the court may make such orders as it considers appropriate for the winding up of the scheme. What is appropriate will be considered in Section C. 86 I cannot at present see any particular purpose in making such declarations, and indeed there is always reluctance in the court to make such a declaration, particularly one which marks the defendant out as a person who may have committed a crime or civil offence. Further, there may be unintended consequences flowing from such a declaration. If there has to be some inquiry before an Associate Judge, then again it is best not to make such a formal pronouncement until after that inquiry. 87 For completeness I should note that in Body Corporate for Cairns Village Resort Community Titles Scheme 18161 v FN Management Pty Ltd (2004) 51 ACSR 598 (QSC), Jones J did make such a declaration despite opposition on the ground of no utility. However, that was the first stage of litigation: the present litigation has proceeded much further. 88 C. I have already made some orders as to the winding up of the Scheme. I have also set out in some detail the way in which the plaintiff considers that the winding up should take place from henceforth. Mr Wood says that these orders seek to mirror the transfer provisions in the Corporations Act on change of responsible entity, vide ss 601FR and following. 89 There does not appear to be any real challenge as to the general procedure. However, there are four sticking points, viz: (a) How the accountants are to be paid; (b) Has the court power to direct a liquidation of the scheme in the way proposed?

(c) How to deal with the mortgages;

(d) How to deal with dissenters. 90 The first of these matters will be discussed in section H. However, it is clear that some clear provision must be made in the orders to ensure that the court's officers are paid and that the investors do not take the assets without the liabilities of the present Scheme. 91 It may be that any order for transfer of rights might be made subject to the payment of the court's officers or that surplus income be quarantined to pay such costs. 92 I should note that Mr Wood put to the court that the making of the orders in the principal proceedings may very well depend on the orders that were made in respect of the accountants' fees and expenses. 93 As to (b), s 601EE of the Corporations Act empowers the court to make such orders as it considers appropriate for the winding up of the scheme. 94 In ASIC v Commercial Nominees of Australia Ltd (2002) 42 ACSR 240, 243, Barrett J noted that the court's powers under s 601EE(2) were very broad. 95 In Mier & Jonsson v FN Management Pty Ltd (2005) 23 ACLC 1,888 at 1,900, the Queensland Court of Appeal generally approved the approach taken by Barrett J and held that "appropriate" in the section meant "appropriate" to the facilitation of the realisation and application of the assets of the scheme. It did not empower the court to make orders with respect to property which was not an asset of the scheme. 96 It has been noted by other judges in previous cases that one of the ways in which a winding up of a scheme might be implemented under s 601EE (2) of the Corporations Act is to take the existing unregistered scheme and make the necessary adjustments to convert it into a duly registered scheme if that is possible: see ASIC v Atlantic 3 Financial (Aust) Pty Ltd (2003) 47 ACSR 52 (QSC). However, Mullins J in that case noted at p 60 that that proposition was subject to the proviso that if an existing investor did not agree to invest in the new scheme, he or she would need to be repaid the existing investment. 97 I followed the first Atlantic 3 case in Crocombe v Pine Forests of Australia Pty Ltd (2005) 219 ALR 692 at 702-3. Mr Wood says that I should follow what I there said. He said that another judge would in comity follow it and that I, "by a mirror principle of comity", should do so. (Unfortunately the transcript at p 152 has recorded this submission as referring to a mirror principle of comedy!). I did not mention the proviso in that case: however, I must say that it accords with principle and I should adopt it. 98 In Re Stacks Managed Investments Ltd (2005) 54 ACSR 466 at 479 [53], RW White J noted that: "Where the court makes orders under s 601EE for the winding up of an unregistered scheme, it must fashion orders to establish a winding-up regime, in the context of parties having carried on an enterprise unlawfully." 99 I agree with the submission of those counsel who put that one has to consider with some reserve the decisions of single judges in the early days of the operation of s 601EE of the Corporations Act. 100 I have grave doubts as to whether all of the directions sought are within power. Turning to the matters referred to in [20] above, as to direction (b) there would need to be some provision for dissenters. As to (f) it is difficult to see how there can be a transfer of the mortgagor's interest under the mortgage without the mortgagee's consent. Item (g) will be discussed under sections E and F. 101 I will thus leave this matter and come back to it after dealing with the problems in the succeeding sections and when considering the appropriate orders in sections I and J. 102 As to (c), the first defendant's main concern was that the vendor mortgage should be classed as part of the Scheme. The plaintiff agrees that it should be. There was a lot of advocate's submissions from Mr Hayes as to a volte-face on behalf of the plaintiff, but there is no need for me to respond to that. 103 When one gets to the real issues, as pointed out in submissions, one must read "Scheme" in the definition of managed investment scheme in the Corporations Act widely; see eg ASIC v Takaran Pty Ltd (2002) 43 ACSR 46 and Re Aged Care Facility Partnership Scheme; ASIC v Primelife Corporation Ltd (2005) 54 ACSR 536 at 544 and following. 104 However, just because the Scheme includes the vendor mortgage does not necessarily mean that the mortgagees under that mortgage are members of the Scheme. I deal with this under heading D. 105 As to (d), it is clear from what I have said above that dissenters must have the option of being repaid (or of terminating their liability with the appropriate contribution). 106 The defendants' objections fall into three categories: (i) that the interests of the members might be given undue preference over the rights of creditors of the scheme; (ii) that the winding up takes insufficient account of the vendor mortgage; and (iii) that the meeting held by Mr Winterbottom is not a good guide as to whether it is appropriate that the TEYS organisation take over as responsible entity. 107 As to the first, it is quite correct that the court must watch the interests of creditors of the Scheme as well as those of members. The creditors, of course, are not so much creditors of the Scheme as the Scheme has no legal personality, they are creditors of Nominees which in turn has a right of indemnity against the Scheme assets. 108 Because the creditors' rights are against Nominees, any transfer of property out of Nominees must preserve Nominee's right of indemnity against the assets and any order must make this clear. 109 As to the second, as I have said in other places in these reasons, there is no longer (if there ever was), any argument but that the vendor mortgage is an obligation which, at least to some extent, binds the Scheme. As to the third, I deal with the problem under heading D. 110 D. The bald proposition is put that as the vendor mortgage is admittedly part of the Peridon Scheme and as Management is the mortgagee under that mortgage and its claim is for at least $14,000,000, it ought to have been accepted by Mr Winterbottom as a person entitled to vote for that sum or greater. 111 I have already considered this point and held that Management was not a member of the scheme, thus it had no right to vote. 112 It follows that Mr Winterbottom properly declined to accept Management's vote and he was correct in putting forward the proposition that the members endorsed the TEYS scheme. 113 E. Mr Wood says that the plaintiff does not seek to extinguish the vendor mortgage, rather, to have the mortgagor's interest transferred to TEYS. However, he seeks an order precluding the third defendant from enforcing its rights to date or for calling up the mortgage because of default, and also precluding the exercise of any rights under the mortgage until there is an inquiry by an Associate Judge as to the misapplication of Scheme property. As detailed in section F, Mr Wood puts that there is abundant evidence to show that there is a prima facie case of such misapplication. 114 As I have already noted, GDK seeks declaratory relief with respect to the vendor mortgage. The declarations it seeks are that: (a) the vendor mortgage is valid, subsisting and enforceable in all its terms; (b) there is secured under such mortgage an amount in excess of any free equity available in or in respect of the property subject to that mortgage; (c) that the vendor mortgage forms part of the interest of the Peridon Scheme; and (d) that the parties to the vendor mortgage and associated transactions are members of the Peridon Scheme. 115 As to (a), even apart from questions of GDK's lack of standing, the declaration, if available to be made, would be of no utility. The term "valid' is ambiguous and "enforceable" is of little meaning unless it is stated, enforceable by whom and against whom and in what circumstances. 116 There does not seem to be any party who is taking the position at this stage that the vendor mortgage does not confer some rights on Management. 117 Accordingly a declaration in terms of request (a) should not be made. 118 As to (b), I do not consider that even with the bulky material that was tendered I could make a determination as to what was secured under the vendor mortgage let alone whether that amount was in excess of the "free equity" available in respect of the charged property whatever that expression might mean. I cannot see anything in GDK's submissions (Z1010) which could assist me in this regard. 119 There does not seem to be any contest about (c), thus no declaration is called for. 120 (d) raises the question as to whether the parties to the vendor mortgage and associated transactions are members of the Peridon Scheme. 121 The submissions in favour of this point are not substantial. In paras 23 and following of Z1010, counsel for the first defendant put that "because the Peridon Scheme must include the vendor mortgage and associated transactional documents, and, a fortiori, because the parties to those documents must be members of the Scheme, their views are relevant to be ascertained as well as the views of the investor members." Further, "the fact that the vendor mortgage must constitute part of the Scheme means that the parties to that mortgage and the associated transactional documents are members of the Scheme … ". No reasons were proffered for these submissions, and with respect, they cannot be right. 122 First, Gzell J, in his order, designated the members of the Scheme as the investor members. Mr Hayes puts that Gzell J's declaration did not articulate what constituted the Peridon Scheme, though he conceded there was an assumption implicit in it. As I have already indicated, his Honour's declaration has more significance. 123 Secondly, this seems to me clearly to be what the Act contemplates. Section 9 of the Corporations Act defines "member" in relation to a managed investment scheme as a person who holds an interest in the scheme. 124 The definition of "managed investment scheme" in the same section speaks of people who contribute money or money's worth as consideration to acquire rights to benefits produced by the scheme. These people are said to be members in paragraph (a)(iii) of the definition. 125 In Part 5C of the Act, s 601ED speaks of a scheme with more than 20 members. This must denote more than 20 investors, not mortgagees or the like. 126 Thus, I decline to make suggested declaration (d) on the merits. 127 The remaining matter concerning the vendor mortgage is whether under the TEYS proposal, there may be an assignment as proposed by the plaintiff whereby Nominees' rights, obligations and liabilities are transferred to TEYS, Nominees transfer the land in the top and bottom contracts for nil consideration to TEYS with TEYS becoming the mortgagor under the vendor mortgage, and Management be restrained from exercising any rights under, inter alia, the vendor mortgage, at least until after an inquiry by an Associate Justice. 128 Mr Hayes says that all this is quite unfair to both GDK and Management. He says that the orders proposed by the plaintiff would mean that the investors would benefit in TEYS restructuring the investment. And they would maintain their tax deductions. However, Management would lose the present value of the vendor mortgage. 129 Mr Hayes says that transferring the interest of the mortgagor from nominees to TEYS or an associated entity would effectively prevent the enforcement of the mortgage. 130 Interestingly, Mr Hayes makes few submissions on whether an order transferring the mortgagor's interest is within power. The submission of Nominees did offer submissions on this issue and I will need to deal with the point in due course. 131 Mr Hayes makes it quite clear that GDK and Management wish to enforce the mortgage as soon as possible. 132 The riposte is that the vendor mortgage does not have any present value. 133 Under the loan agreements as already noted, the vendor mortgage is for the residue plus certain authorised accretions. There was a general restriction on recourse of the lender such that Management was confined to the Village and the property. 134 Plaintiff's counsel submit in para 89 of Z1001A: "The structure therefore, of the two loan agreements … the two contracts for sale of land … and the Vendor Mortgage was to provide a significant limitation upon the entitlement of … Management to repayment of the Debt by limiting the source from which repayment had to be made, together with a 15 year sunset period, in addition to the general limitation on recourse. The source limitation, operating by reference to fees received from incoming residents under loan/licence agreements and profit share on existing and new developments, was critical to the structure of the arrangements …". 135 I would generally agree with those thoughts. 136 Plaintiff's counsel say that if these thoughts are correct, Management is not entitled to anything like the nineteen million dollars it claims under the vendor mortgage. Although there is no reliable evidence as to the possible amount due, it would seem to be closer to $461,999. 137 There is then the further problem that Nominees is said to be a "bare trustee". I will deal with that problem in detail in section G. 138 The intent of the promoters was that the members of the partnerships or sub-partnerships were to be the mortgagors. It is hard to see how the documents operate to bring this about or even if it were possible to bring this about. 139 The definition of "Mortgagor" in the vendor mortgage is Nominees and "the persons named in the schedule to each document constituting the Loan Agreement". This brings in as mortgagors each of the persons in sub-partnerships listed in the loan agreements re the top contract and the bottom contract. 140 These persons never signed the mortgage. They are not parties to this litigation. This litigation should neither decide their rights nor make any order which might prejudice their rights. 141 Thus, it would seem to me to be prudent for the reasons set out in section F as well as preservation of rights pending determination in the proper way, to grant an injunction to prevent the mortgagee from enforcing any rights it may have under the vendor mortgage, but, otherwise, not at this stage making any order for transfer of the land or Nominee's interest in the land or the mortgage. 142 F. Plaintiff's counsel say that the orders of preclusions by way of injunctions are against exercise of the rights of the defendants founded upon their promotion of an unlawful scheme, their breaches of obligations under various constituent documents and the best interests of various of members of the scheme; see eg ASIC v Chase Capital Management Pty Ltd [2001] WASC 27 at [75]. 143 Counsel put that the reports of each of the investigating accountants, Messrs Parbery, Pogroske, Billingham and Winterbottom has identified apparent misuse of Scheme assets which were mortgaged by Nominees to secure borrowings by Management that were not utilised for the purpose of or benefit to the Peridon Scheme. 144 If one were to look at the position as at 9 March 2000, there were a number of mortgages over the subject land though precise details are not known. What is known, however, is that these debts were debts of management or Group. They were not debts of Nominees which was a special purpose company called into existence for the purposes of the scheme. Clause 12 of the top contract and clause 10 of the bottom contract each permitted registration of a new security on the property the subject of the sale on a refinancing of debts. It is claimed by the plaintiff that in their terms, they only permitted the granting of mortgages for one refinancing of debts which existed at 9 March 2000. 145 On or about 6 July 2000 Management obtained $3,000,000 from Champion Mortgage Services repayable on 5 July 2002 which was secured by a mortgage granted by Nominees over the land in the top contract. On the same day, Nominees provided the St George Bank with two mortgages over the land in the bottom contract. These were stamped to secure $1,540,000 and appear to have been used to secure then existing borrowings of Management. 146 Plaintiff's counsel say that, whilst the above mortgages may have been within the terms of clause 12 of the top contract and clause 10 of the bottom contract, there was no way in which those contracts could be said to have authorised the mortgage given by Nominees to Challenger in 2004 for $1,124,000 nor for the $6,827,000 mortgage given by Nominees to the Bank of Western Australia nor for the $360,000 mortgage to the National Australia Bank in 2001. 147 It is put that these three mortgages were a breach of trust. It is noted that not only were only part of the proceeds used to further refinance previous borrowings. Further, the expenses that were paid out of the refinancing should not be at the cost of the investors and that there were other serious breaches of trust or fiduciary duty. 148 The material before me shows that there is a serious question as to breaches by Management and its associates. There are gaps in the evidence which make it impossible to rule finally on the matter, but certainly an enquiry is justified. 149 However, one important matter which was not canvassed before me was how provision should be made for the costs of such an enquiry. 150 It is strange how many people who feel they have been defrauded expect the court to conduct some sort of enquiry and vindicate their right without cost. Unfortunately, government funding does not provide for that to happen. If there is to be an enquiry, someone has to pay for it. The State will provide a judge and courtroom, but much of the cost of investigation, the cost of preparation for the enquiry, advocate's costs and the like will, at least in the first instance, have to be borne by the persons requesting those services. 151 This matter, when added to the real dispute as to whether there is 19 million dollars due under the vendor mortgage or merely $462,000, makes me think that it would be wise to preserve the status quo by making an order in the winding up as per paragraph (g). 152 G. I now need to consider various matters which impinge on the result of both the principal litigation and the second piece of litigation. 153 The first of these is the status of Nominees as a "bare trustee". 154 The expression "bare trustee" derives from the cases on the Statute of Uses 1535 (Imp) under which the statute executed a bare use, but did not execute an active use that is one where the feoffee to uses, now called the trustee had duties to perform in and about the relevant property as well as holding it on behalf of another person. 155 If in fact and in law the mortgagor was a bare trustee, then it may be that there is not the same objection to a substitute mortgagor being appointed as there is no personal obligation on the mortgagor and the substitution will have no more significance than the appointment of a new trustee. 156 I have already referred to the reports of the accountants as to the activities of Nominees in and about this scheme. They do not seem to be the activities of a "bare trustee". However, the plaintiff says that it is significant that the accountants never identify the precise way in which they allege that Nominees so involved itself. 157 Secondly, it is clear on basic principles of the construction of deeds, that a tag given to a party has some significance, but is not of overwhelming significance. As Lewison says in the 3rd edition of The Interpretation of Contracts (Thomson, London, 2004) para 9.07: "The nature of the relationship between the parties is to be determined by the substance of the obligations into which they have entered; and if their contract is described by a label inconsistent with that substance, or if the parties incorrectly state what they believe to be the effect in law of their contract, the label or the statement will be rejected." 158 Mr Wood argues that the tag "bare trustee" correctly describes Nominee's role. He notes that the structure of the various interlocking agreements constituted Management as the manager of the village and constituted GDK and not Nominees as the person responsible for supervising Management as the manager. 159 Mr Robinson for Messrs Billingham and Pogroske, the liquidators of Nominees, says that whilst the expression "bare" in cl 12.2 of the head partnership agreement ("Any partnership property held by the Bare Nominee is held by it as bare trustee for the partnership and Investor Partners") is not precise, neither is the meaning obscure. 160 Mr Robinson referred me to the decision of Gummow J when a member of the Federal Court in Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271, especially at 281 et seq where his Honour discusses the concept of a bare trustee. See also Corumo Holdings Pty Ltd v C Itoh Pty Ltd (1991) 24 NSWLR 370 at 398 per Meagher JA. 161 In Herdegen, Gummow J accepted the view of Professor Waters in a passage that now occurs on p 33 of the 3rd edition of Waters Law of Trusts in Canada (Thomson, Canada, 2005) that a bare trustee has no active duties prescribed by the settlor over the trust property, even though, the trustee may have duties to exercise reasonable care of the trust property. 162 Mr Robinson put that actually the classification of bare or active trustee might not take one very far as both types enjoyed the right of indemnity out of the trust assets. 163 However, he asserted that, when one looked at the way in which the scheme was documented and implemented, Nominees was deploying assets with a view to earning income and was doing far more than approving a budget, which seemed to be the limit of the plaintiff's assertion of its role. Nominees was fulfilling its object in conducting the enterprise to provide a return for the benefit of the investors and the promoters. Although there was a manager, the management of the enterprise was not committed exclusively to the manager and Nominees itself carried out management functions. 164 I am reluctant to make a finding on this point as I am not at all sure that I have all the material that all persons interested in the point might have wished to place before a decision maker. 165 If I was asked to make a decision on the present material alone, it would be that Nominees was a bare trustee, however, it took on itself, at the request of GDK or Management tasks over and above that of bare trustee. 166 The other matter to which I must advert is Mr Hayes frequent request for me not to do anything which would affect the tax deductions that investors had received because of their investments in the scheme. 167 I do not think I need pursue this matter for three principal reasons. First, Mr Hayes in reply told me that since there was no attack on the vendor mortgage, I did not have to consider the point further. Secondly, the plaintiff is an investor and has raised none of the same fears. Thirdly, whilst the obtaining of tax deductions may be a motive for a person investing in this sort of scheme, the investors' tax position is to my mind almost irrelevant when considering how an unregistered managed investment scheme should be wound up. 168 H. I now turn to the claims made in the second piece of litigation. 169 The plaintiffs, Messrs Billingham and Pogroske (called in this section "these plaintiffs") are the administrators and now liquidators of Nominees. 170 These plaintiffs' fees were approved by creditors on 15 August 2005 in the amount of $233,233. In addition they claim costs as administrators of $240,000 approximately and costs accruing after 15 August 2005. However, Mr Warne notes, as I will consider in due course, that there was not put before the creditors the detailed break up of fees that the court requires before making an order for payment of or security for a liquidator's costs. 171 These plaintiffs say that on 15 August 2005, they entered into a deed with GDK whereby GDK acknowledged that these plaintiffs would be paid in priority to GDK. 172 These plaintiffs seek priority by virtue of ss 443D, 443E, 443F and 556(1) of the Corporations Act, 2001 (Cth) or under the general law. They rely on Nominees' rights of indemnity against trust assets. They also say that in the case of a company which only conducts a trust business, the liquidators' costs, expenses and remuneration are to be paid out of the trust assets: they rely on Re Suco Gold Pty Ltd (1983) 7 ACLR 873. 173 The defendants to the proceedings are Mr Parbery, Mr Winterbottom and Management. Mr Warne was added as a party to the proceedings on the first day of hearing. The first two are defendants because they also claim priority for their fees and disbursements. 174 Mr Parbery was appointed Investigator in the principal proceedings on 16 October 2004. Order 10B of the set of orders made that day appointing him was as follows: "Order that the Independent Accountant's reasonable costs and expenses be payable in the first instance and subject to further order by the First, Second and Third Defendants and further that within 10 days of the making of this Order, the First, Second and Third Defendants pay into Court the sum of $50,000.00 on account of the fees of the Independent Accountant." 175 The $50,000 was paid in advance as ordered, but Mr Parbery has never seen the balance. 176 Mr Parbery says that he is entitled to an order that he is entitled to be paid in priority to any claim of GDK, Management, Messrs Billingham and Pogroske, Mr Winterbottom and all other unsecured creditors. 177 No-one disputes that Mr Parbery is entitled to be paid. No-one now disputes the quantum of the fees charged by Mr Parbery ($177,711.04) or by his solicitors $128,483.08. 178 Mr Parbery says that the court ordered his report, that he has duly reported after an expensive investigation, his report has been made available to Mr Winterbottom as liquidator of the Peridon Scheme and the liquidator was ordered to make the report available to all members of the Scheme. He says the court should see to it that he is paid for his work. 179 Mr Parbery relies on the decision of Mullins J in the second ASIC V Atlantic 3-Financial (Aust) Pty Ltd [2004] 1 Qd R 591. 180 Mr Winterbottom was appointed liquidator of the Peridon Scheme and says that his claim for costs and disbursements as the court's officer winding up the scheme has absolute priority. 181 He relies on statements like those made by Needham J in Re Central Commodities Services Pty Ltd [1984] 1 NSWLR 25 at 27 that when a receiver is appointed by the court, he or she has an indemnity over the assets and a lien over them. In Clark Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552, Powell J noted that, whilst it was not the invariable practice, it was the general practice of the court to give the claim for such indemnity. See also Shirlaw v Taylor (1991) 31 FCR 222 at 230. 182 Mr Wood says that there are a number of answers to the claims of these plaintiffs. 183 First, it needs to be realised that there is no automatic right for administrators/liquidators to get their costs out of trust assets regardless of individual circumstances: Re Sutherland; French Caledonia Travel Service Pty Ltd (2003) 59 NSWLR 361 at 429. 184 Secondly, he submits that the court would not make an order for such costs until they have been properly particularised, which has not yet happened; see Re Sutherland at 429 and the exposition of Finklestein J in 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (1999) 30 ACSR 377 at 385 which his Honour reformulated in Re Korda; In the matter of Stockford Ltd (2004) 140 FCR 424 at 442 [48]. 185 Thirdly, it is put that the second point is particularly relevant in the instant cases because the evidence shows that Mr Pogroske and his advisers misunderstood their limited role. They knew that Nominees was purportedly a bare trustee or was at least some sort of trustee, yet, he and his partner spent considerable time and effort in and about the business of the trust and endeavouring to find purchasers for it, all of which was beyond their proper activities. 186 In my view this criticism should be upheld. 187 Fourthly, he says that insofar as the claims of the various accountants depend on a right of indemnity that Nominees may have over the assets of the scheme, it faces a major obstacle. Nominees had participated in a serious breach of trust and would not be entitled to any indemnity until the loss occasioned by the breach had been made good; see eg General Credits Ltd v Tawilla Pty Ltd [1984] 1 Qd R 388. 188 Needham J in Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207 at 214, and Brooking J in RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385 at 396 et seq proposed a more lenient rule for trustees; see also the decision of Giles J in Murphy v Zamonex Pty Ltd (1993) 31 NSWLR 439. 189 Mr Wood, adopting the argument in S R Derham The Law of Set-Off 3rd ed (Oxford University Press, 2003) p 849, submits that those cases if not distinguishable are wrong, because they are inconsistent with the basic principle underlying Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171. He further submits that, even if correct, these authorities do not give any comfort to Nominees in the present context. 190 In case this matter should go further, I should note that the case continually noted in the transcript at p 135 as "Terry v Backby" is actually a reference to Cherry v Boultbee. 191 Mr Wood says that, even if this approach were correct, a great problem with it is that in the present case no proper balance may be struck on the accounts until after the mortgages have been discharged or the loss to the trust estate made good (by somebody) and that this may take some time. 192 McPherson SPJ writing extracurially in Finn, Essays in Equity (Law Book Co, London, 1985) at p 149 rightly pointed out that (omitting reference to authority): "It is sometimes said that a trustee may lose his right of indemnity if he is in default or until his default is made good. It is submitted that these statements are to be understood as meaning that there is no right of indemnity in respect of liabilities arising from trading that is not authorised by the trust instrument; or that there is, by reason of misapplication of trust assets, no balance in favour of the trustee that is capable of attracting the right of indemnity. The trustee's rights to resort to the trust funds in order to discharge liabilities may be suspended while his accounts are investigated; but, subject to this, default of a trustee will not produce forfeiture of his right of indemnity unless the degree of misconduct involved is very serious." 193 McPherson SPJ relies as his authority for the point about suspension on the decision of the English Court of Appeal in Jennings v Mather [1902] 1 KB 1 at 9. However, the point was only mentioned in obiter dicta. 194 Those dicta and the passage quoted make me consider that it is good practice to assume that the trustee (whether bare or active) has a prima facie right of indemnity, but to order accounts if there is doubt about the entitlement of the trustee because of a default, and suspend the right of the claimant whilst those accounts are taken. 195 Fifthly, it is put that the plaintiffs in the second proceedings gain no further advantage if they rely on agency law principles to provide a right of indemnity. An agent does not get an indemnity for payments made or acts done outside its instructions; see eg Islamic Republic of Iran Shipping Lines v Zannis Compania Naviera SA (The Tzelepi) [1991] 2 Ll Rep 265. 196 Sixthly, insofar as Messrs Billingham and Pogroske rely on ss 443D, 443E, 443F and 556(1) of the Corporations Act, 2001 (Cth) any priority or lien would only cover the administration period and would only apply to Nominee's assets, which seem to be non-existent unless there is a right of indemnity against the trust assets: see Godfrey v Scottish Pacific Business Finance Pty Ltd (2004) 51 ACSR 272. 197 Seventhly,Mr Wood puts that to make the sort of order that these plaintiffs seek would be to conflict with the order that should be made in the principal proceedings that Nominees be restrained from implementing any action to discharge any right of indemnity. 198 The accountants receive no further comfort from decisions such as Re Suco Gold Pty Ltd because they also rely on the right to indemnity. 199 GDK submits that the accountants' fees are to be paid from the assets of Nominees including the assets over which it has a right of indemnity and that some of them may have a charge over those assets. That charge is to be satisfied in priority to any claim by the plaintiff or the other defendants. However, it submits that whilst such charge has priority over the vendor mortgage, it does not prevail over any registered mortgage. 200 The accountants rely on the milder version of the indemnity principle as in the RWG case. Additionally, the accountants say that any loss to the trust estate will be made good by other parties before Nominees will be called upon to make good any loss. 201 It seems to me that there is sufficient doubt as to the availability to these plaintiffs of a right of indemnity from the trust assets in favour of Nominees, that it would be inappropriate to make any order for payment to these plaintiffs at this stage. 202 Alternatively, an order could be made that, subject to it being established to the court's satisfaction that such a right of indemnity existed, these plaintiffs should be paid. However, this is of limited utility as it will only be after a proper enquiry or full litigation that it will be established one way or the other whether Nominees has been involved in such breaches as would remove its right of indemnity against the trust assets. 203 Accordingly, whilst I feel comfortable in making a declaration that the accountants generally have a lien or charge over Nominee's assets, this really begs the question as to whether the declaration is meaningless in practical terms if Nominees is without assets or right of indemnity. However, the declaration should be made so that, if the enquiry finds that there is a right of indemnity, the lien or charge will take effect. 204 In particular, Mr Winterbottom is the court's appointee to superintend the winding up and the court must see to it that he is paid for his proper fees and expenses. 205 In Mr Parbery's case, he was appointed by the court to do a specific task. Just as in a receivership when the court appoints a person to assist it, the court ensures that he or she is paid, the same must happen with an appointee such as Mr Parbery. 206 Mr Wood says that the plaintiff accepts that Mr Parbery must be paid, but says that before any other orders are made the orders of Gzell J that such costs be payable in the first instance and subject to further order by GDK, Nominees and Management, should be enforced. Apart from the position of Nominees, there is no reason shown why the costs have not been paid by GDK and Management. 207 Order 10B as set out earlier is clearly a joint and several order. If it be relevant, this conclusion is reinforced by the fact that "in equal shares" or like expression is crossed out twice. 208 I consider that there is great force in Mr Wood's argument. The making of any further order with respect to Mr Parbery's costs should stand over pending the issue and satisfaction of statutory demands against GDK and Management or such other method of enforcement of Gzell J's order as may be considered appropriate. 209 If Mr Parbery's costs cannot be otherwise paid it may well be appropriate to order them paid out of the assets of the Peridon Scheme. 210 I. The result of the litigation is that the plaintiff in the principal proceedings basically succeeds. However, the TEYS scheme cannot be implemented unless some way of funding the interim administration is found including putting Mr Winterbottom in a position where his proper fees and expenses are assured. There will also need to be some provision for the satisfaction of investors who do not wish to participate in the TEYS scheme. 211 Because the investors generally are not parties to the present proceedings, I cannot adjudicate as to whether or not they personally, or their partnerships or sub-partnerships are liable under any of the mortgages. 212 I do not consider that I can make any order transferring the mortgagor's interest under the mortgages or transferring the land subject to the mortgages at least until there has been a proper opportunity for the investors to be heard. 213 I agree that there should be an enquiry and the taking of appropriate accounts. However, this is an expensive exercise and I would not order it without some plan as to who in the first instance is going to pay the cost. 214 I also consider that the residents should be informed by Mr Winterbottom what is happening in general terms. That the residents are concerned is confirmed by the fact that, whilst judgment was reserved, I received two letters on behalf of residents (which I merely filed). 215 It may well be that the difficulties I have just noted are such that there is no viable alternative to realising the assets and providing some plan of distribution. 216 As to the second suit, Mr Parbery must be paid in accordance with Gzell J's order of October 2004. Mr Winterbottom is entitled to an indemnity out of the assets of the Peridon Scheme if other proper orders for costs are not productive of cash funds. 217 I consider that there is sufficient doubt about the right of indemnity against the trust assets not to make any order for payment of Messrs Billingham and Pogroske's fees at this time. That decision should await the result of taking the accounts. 218 J. The orders that must be made must be along the lines of those set out in the following paragraph. Because of their complexity and because some orders may have an impact other than those I currently perceive, it would be best if counsel for the plaintiff were to bring in short minutes. 219 I should add that it may be that, inadvertently, I have omitted to deal with a submission which really needs to be the subject of decision. If such be the case, this should be drawn to my attention when short minutes are brought in. 220 In the outline following, I will, for brevity merely refer to the order sought in the short minutes filed by the plaintiff in the principal proceedings which was coded Z1001A. 221 The short minutes should provide for orders such as the following:

1. Declaration as per para 1 in Z1001A.

2. Direction 3 in Z1001A preceded by the words, "Subject to these orders …".

3 Order 6 in Z1001A.

4. Orders 11, 12 and 15 in Z1001A deleting the word "permanently" and substituting "until further order".

5. Direct that GDK and Management comply with order 10B made by Gzell J on 16 October 2004 by paying the sum of $256,194.12 on or before 1 May 2006.

6. Order that any party is at liberty to file a notice of motion for an account and enquiry into any aspect of these sets of proceedings on or before 1 May 2006. Any such notice of motion is to be accompanied by an affidavit indicating how it is proposed that such enquiry or taking of accounts should be conducted and how the costs thereof shall be borne both in the first instance and finally.

7. Order that Mr Winterbottom despatch to each investor a circular setting out his, her or its rights and entitlements in the events which have occurred in a form which is sanctioned in general terms by the court and which is annexed to the orders.

8. Liberty to any party or to any of the other investors to file a motion seeking further orders arising from the matters traversed in these reasons so long as the motion is filed by 1 May 2006 or such other time as a Judge may allow.

9. Note that order 2 above is subject to the provision of a procedure for dealing with an investor of the Peridon Scheme who does not wish to apply to be a participant in the registered scheme.

10. Declare that Mr Winterbottom is entitled to be indemnified out of the assets of the Peridon Scheme for his proper remuneration and expenses should he not be paid in accordance with any other order of the court.

11. Stand over for further consideration after 1 May 2006 or after the taking of accounts or conclusion of the enquiries referred to in order 6.

12. Note that should it not be practicable to proceed with order 2, the court is presently of a mind to order sale of the assets and business of the Peridon Scheme and make a direction that Mr Winterbottom bring in a scheme of distribution of any proceeds.

13. Further consideration reserved: liberty to any party to apply on 7 days' notice.

14. Provision for the custody of the exhibits. 222 I do not intend that the orders suggested in the preceding paragraph be exhaustive. 223 The plaintiff in the principal proceedings should prepare the first draft and send it to all other parties. Those other parties should not delay in formulating and transmitting their comments so that a concluded document (or series of competing documents) can be presented to the court on the next occasion. 224 Counsel should note that I will be away from the court after 12 May 2006 until 31 July 2006. 225 All I need do at this stage is to stand both sets of proceedings over for mention before me on 20 April 2006 at 9:30 am. However, if counsel contact my Associate the previous week and she is informed that that date is unsuitable or that the short minutes will take more than 20 minutes to resolve, some alternative date might be able to be chosen.

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