Kerr v Australian Executor Trustees (SA) Ltd; Australian Executor Trustees (SA) Ltd v Fuller and others trading as Sparke Helmore Lawyers

1. [1]

   The first defendant, Australian Executor Trustees (SA) Ltd (“AET”), is a professional trustee company.

2. [2]

   AET was the trustee of a trust established on 6 March 1964 by a document called “1964 Trust Deed” made between AET and S.E.A.S Sapfor Forests Pty Ltd (the “Forest Company”). By the Trust Deed, AET agreed to be trustee of a forestry scheme concerning pine forests growing on land owned by the Forest Company in an area in Victoria and South Australia known as the “Green Triangle”. I will call the land owned by the Forest Company on which the trees were planted the “Scheme Land”. I will call the trees planted on the Scheme Land the “Scheme Trees”. The beneficiaries of the trust were investors in the scheme, known as “Covenantholders”.

3. [3]

   On 7 April 2017, the plaintiff, Mr David Kerr, was appointed by this Court as additional trustee of the trust for the purpose of bringing these proceedings, for the benefit of the Covenantholders, against AET alleging a breach of its duties as trustee arising out of the sale in 2012 of the Scheme Land and the Scheme Trees.

4. [4]

   The scheme established by the Trust Deed predated managed investment schemes now governed by the provisions of Ch 5C of the Corporations Act 2001 (Cth). Schemes such as that in this case were regulated by state legislation requiring an approved deed which was to contain a number of statutory covenants. The Trust Deed was such an approved deed.

5. [5]

   Under the scheme established by the Trust Deed, Covenantholders acquired “Covenants” in return for capital investment in the scheme. The Covenants entitled Covenantholders to a payment from the Forest Company in the event that Scheme Trees were logged, milled and sold by an associated company, S.E.A.S Sapfor Harvesting Pty Ltd (the “Milling Company”), and the proceeds paid by the Milling Company to the Forest Company.

6. [6]

   Each Covenantholder was entitled to a rateable share of the net proceeds of the sale of timber referrable to the relevant planting year. Some Covenants also contained an additional entitlement to receive a rateable share of any appreciation in the value of land between the time of planting and the time at which timber was felled or the land ceased to be the subject of the Covenant.

7. [7]

   Also on 6 March 1964, AET, the Forest Company and the Milling Company entered into a “Tripartite Agreement” pursuant to which the Milling Company agreed to:

8. [8]

   The Tripartite Agreement specified how the proceeds of sale of the timber were to be dealt with. I describe that process below at [54] to [56]. In effect, the Milling Company was entitled to retain a commission of 20%, pay a commission of 5% to the Forest Company and retain the balance until well into the year following receipt. The parties referred to this as the “Proceeds Distribution Process”.

9. [9]

   Covenantholders’ interests were protected by a requirement in the Trust Deed that AET register “Encumbrances” on the title of the Scheme Land which, as I have said, was owned by the Forest Company. The Covenantholders had no security from the Milling Company.

10. [10]

    In 1964, the Forest Company and the Milling Company were subsidiaries of Auspine Ltd. In 2008, Gunns Ltd acquired Auspine. The Forest Company and the Milling Company thereby became subsidiaries of Gunns.

11. [11]

    On 8 February 2010, Gunns, the Forest Company and the Milling Company granted a fixed and floating charge to ANZ Capel Court Ltd (the “ANZ Charge”) over their assets as security for repayment of money lent by ANZ to the Gunns Group. The Forest Company thereby acted in breach of an express requirement of the Trust Deed that it not encumber the Scheme Land without AET’s consent.

12. [12]

    In early 2011, Gunns decided to sell the Scheme Land and, ultimately, the Scheme Trees (the “Proposal”).

13. [13]

    Sale of the Scheme Land required AET’s consent under the Trust Deed. AET gave such consent in the circumstances I describe below. AET retained Sparke Helmore to provide advice about the transaction. The nature of the advice sought and given and its consequences so far as concerns AET are matters of contention.

14. [14]

    Ultimately, on 15 March 2012, AET, the Forest Company and the Milling Company entered into contracts with a third party to sell the Scheme Land and the Scheme Trees. The relevant contract was called the “Tree Sale Agreement”. There were also various contracts in relation to the sale of the Scheme Land.

15. [15]

    The consideration to be paid by the purchaser referrable to the Covenantholders’ interest in the Scheme Trees was $33,999,999 (the “Tree Sale Proceeds”). The consideration to be paid by the purchaser referrable to the Covenantholders’ interest in the Scheme Land was $4,882,380.58 (the “Land Sale Proceeds”).

16. [16]

    AET was a party to the Tree Sale Agreement. The Tree Sale Agreement included provisions that:

    1. (1)

       on completion, AET discharge the Encumbrances it held over the Scheme Land; and

    2. (2)

       the proceeds of sale of the Scheme Land and the Scheme Trees, save for $1, be paid to the Milling Company.

17. [17]

    The transaction completed on that basis. AET discharged the Encumbrances and, apart from $1, received nothing on completion.

18. [18]

    The result was that the proceeds were to be dealt with by the Milling Company, and then the Forest Company, in accordance with the Proceeds Distributions Process; that is, held by the Milling Company until the following year, and only then paid to the Forest Company and thereafter to AET.

19. [19]

    In fact, evidently because the Milling Company did not hold a separate bank account, the Tree Sale Proceeds and the Land Sale Proceeds were paid into Gunns’ overdrawn account with ANZ Banking Corporation Ltd.

20. [20]

    At the time the sale was settled, there were amounts that the Forest Company was obliged to pay AET from the 2011 and 2012 harvest years. These amounts were payable around mid-2012, in the case of the 2011 harvest year, and around mid-2013, in the case of the 2012 harvest year. The parties referred these amounts as the “2011 Harvest Proceeds” and the “2012 Harvest Proceeds”.

21. [21]

    The 2011 Harvest Proceeds totalled $11,051,041.49, of which $4,952,579.60 was received by AET. My attention as not been directed to evidence as to when this money was received. Evidently it was before completion of the Tree Sale Agreement.

22. [22]

    The 2012 Harvest Proceeds totalled $5,148,552.31, none of which was received by AET.

23. [23]

    Gunns and its subsidiaries, including the Milling Company and Forest Company, were placed into external administration on 25 September 2011; long before the Milling Company was obliged, under the Proceeds Distribution Process to make any payment to the Forest Company. The Land Sale Proceeds and the Tree Sale Proceeds were thereby lost. Neither AET, nor the Covenantholders, received a cent.

24. [24]

    AET instituted proceedings against the receivers of the Forest Company and the Milling Company. AET alleged that the Forest Company and the Milling Company held the Tree Sale Proceeds and the Land Sale Proceeds on trust for the Covenantholders. That claim was upheld in the Supreme of Victoria and in the Victorian Court of Appeal, but ultimately dismissed by the High Court of Australia: Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; [2015] HCA 6.

The issues

1. [25]

   The following issues arise:

Mr Kerr’s case

1. [26]

   Mr Kerr contends that AET acted in breach of its duties as trustee under the Trust Deed by agreeing to the sale of the Covenantholders’ interest in the Scheme Trees and the Scheme Land on the basis that the Encumbrances were discharged without ensuring that:

   1. (1)

      the Tree Sale Proceeds and the Land Sale Proceeds be paid to it, rather than the Milling Company;

   2. (2)

      the 2011 Harvest Proceeds and 2012 Harvest Proceeds be paid to it;

   3. (3)

      alternatively, the Covenantholders’ interest be adequately secured.

2. [27]

   Mr Kerr also contends that AET acted in breach of its duties as trustee by:

   1. (1)

      failing to discover the existence of the ANZ Charge, or if it did discover it, failing to act with proper vigilance in light of that discovery; and

   2. (2)

      allowing the Tree Sale Proceeds and the Land Sale Proceeds to be paid into Gunns’ overdraft account.

3. [28]

   Mr Kerr contends that AET thereby acted in breach of its duty:

   1. (1)

      to protect and vindicate the rights attaching to trust property, namely the Encumbrances: CGU Insurance Ltd v One.Tel Ltd (in liq) (2010) 242 CLR 174; [2010] HCA 26 at [36]; Fischer v Nemeske Pty Ltd (2016) 257 CLR 615; [2016] HCA 11 at [111];

   2. (2)

      to “exercise all due diligence in carrying out its functions and duties and in watching the rights and interests of the Covenantholders”; a duty expressly imposed under cl 21 of the Trust Deed; and

   3. (3)

      in equity, to exercise the same care as an ordinary prudent business person would exercise in conducting the business as if it was his or her own: Oztech Pty Ltd v Public Trustee of Queensland (No 15) [2018] FCA 819 at [342], citing Breen v Williams (1996) 186 CLR 71 at 137; [1996] HCA 57; Australian Securities Commission v AS Nominees Ltd (1995) 62 FCR 504 at 516; [1995] FCA 1663 (Finn J).

4. [29]

   Mr Kerr seeks to recover the following amounts on behalf of the Covenantholders:

5. [30]

   With interest, the amount claimed by Mr Kerr was, at the conclusion of the hearing, in the order of $82.46 million.

6. [31]

   Mr Kerr, alternatively to his claim against AET, makes a claim against Sparke Helmore that in effect adopts AET’s claim (see [35] below).

AET’s position

1. [32]

   AET now accepts that, leaving aside the advice it sought and obtained from Sparke Helmore, by acting as I have set out, it acted in breach of its duty to exercise due care and diligence, and thus in breach of trust.

2. [33]

   Thus, in final submissions, Mr Lockhart SC, who appeared with Mr McMeniman for AET, accepted that AET’s conduct “fell below the standard required by the contractual arrangements which imposed obligations of care, vigilance, matters of that sort”.

3. [34]

   AET disputes that the Encumbrances were trust property and thus disputes it acted in breach of a duty to protect and vindicate such property.

4. [35]

   AET contends that by seeking, obtaining and relying on advice from Sparke Helmore about the Proposal and the transactions I have described it either:

   1. (1)

      did not breach its duty to Covenantholders at all; or

   2. (2)

      should be exonerated for such breach or relieved from liability for under s 85 of the Trustee Act 1925 (NSW) or s 56 of the Trustee Act 1936 (SA).

5. [36]

   Alternatively, AET seeks to have its liability apportioned between Sparke Helmore (and other parties) and, by its cross claim, seeks damages from Sparke Helmore.

Decision

1. [37]

   The Encumbrances were trust property. By agreeing to release the Encumbrances without receiving payment of the Tree Sale Proceeds, or security equivalent in value to the Encumbrances, AET acted in breach of its duty as trustee, including its duty to vindicate and protect that trust property.

2. [38]

   The fact that AET sought Sparke Helmore’s advice does not, without more, exonerate it from the consequences of that breach.

3. [39]

   The advice that Sparke Helmore gave AET was not adequate and was not advice that any reasonable trustee would have relied on.

4. [40]

   AET would have proceeded to complete the Tree Sale Agreement even if it had received adequate advice from Sparke Helmore. Accordingly, AET’s cross claim against Sparke Helmore fails.

5. [41]

   Mr Kerr’s claims are governed by the law of South Australia and are therefore, as Mr Lockhart accepted in final submissions, not apportionable.

6. [42]

   AET is not entitled to exoneration under s 56 of the Trustee Act 1936 (SA) or s 85 of the Trustee Act 1925 (NSW).

7. [43]

   Mr Kerr is entitled to recover equitable compensation from AET in the amounts sought by him, except for the Receiver Costs.

8. [44]

   As the Receiver Costs were paid out of the 2011 Harvest Proceeds and Mr Kerr is entitled to recover the 2011 Harvest Proceeds, Mr Kerr is not entitled also to recover the Receiver Costs.

The scheme

1. [45]

   The scheme was governed by:

2. [46]

   The Trust Deed recited that the Forest Company was “formed for the purpose of…acquiring lands and planting the same with pine trees and preserving the forests so planted until such time as [they] should become marketable”. It also stated that the Forest Company proposed to raise funds for that purpose by inviting the public to subscribe for covenants of a kind to be described in prospectuses.

3. [47]

   By the Trust Deed, the Forest Company appointed AET to act as trustee for the Covenantholders (cl 1). The Forest Company also promised AET that it would observe and perform the terms, conditions, agreements and obligations contained or implied in the Covenants (cl 2). In order “to secure due compliance by [it] with the terms and conditions hereof…that until the timber growing on the [Scheme Land] is…cut and milled and disposed of and the proper proceeds paid to [AET]”, the Forest Company and AET agreed that:

4. [48]

   Finally, by the Trust Deed, the Forest Company promised to pay AET monies it received from the Milling Company pursuant to the Tripartite Agreement, less a commission of 5%, within 30 days of receipt (cl 12(d)).

5. [49]

   By the Trust Deed, AET agreed that, on receipt of monies from the Forest Company, it would “hold same in the interests of the respective Covenantholders” (cl 12(e)).

6. [50]

   AET promised to hold various assets on trust for the Covenantholders including:

7. [51]

   Clause 20A(c) repeated, as part of the description of the assets that AET held on trust for the Covenantholders, the provision in cl 2(d)(v) that AET would prepare, and that it and the Forest Company would execute, and that AET would then register, Encumbrances on the title of the land described in the certificates of title.

8. [52]

   AET also promised to “exercise all due diligence and vigilance in carrying out its functions and duties and in watching the rights and interests of the Covenantholders” (cl 21A(a)).

9. [53]

   For their part, by cl 14 of the Covenants, the Covenantholders agreed that they:

10. [54]

    By the Tripartite Agreement, the Forest Company appointed the Milling Company to “fell and remove from [its] plantations all trees then growing thereon as the Forest Company shall specify” (cl 3). The Forest Company also granted the Milling Company the “sole and exclusive right to sell…standing timber or timber felled and sold in log (peeled or unpeeled) or chip form from [the] plantations subject to covenant” (cl 14(a)).

11. [55]

    The Tripartite Agreement set out the Proceeds Distribution Process.

12. [56]

    It thus provided that the “monies received by the Milling Company from the sale of such logs or milled and manufactured timber shall be retained by the Milling Company” and would be applied in the following manner:

13. [57]

    The Encumbrances established Covenants between AET and the Forest Company that stipulated that the Forest Company, as “encumbrancer”, would “observe and perform all and singular the terms conditions and provisions contained and comprised in” the Trust Deed.

14. [58]

    The Encumbrances were statutory instruments under the Real Property Act 1886 (SA) and the Transfer of Land Act 1958 (Vic). Once registered, the Encumbrances were recorded on the certificate of title of the land in question. A transfer of that land was subject to the Encumbrances. Both the Real Property Act and the Transfer of Land Act provided that the secured party had a power of sale in the event of default.

15. [59]

    In E Sykes and S Walker, The Law of Securities, (5th ed, 1993, Law Book Co) it was stated:

16. [60]

    The Encumbrances were in the name of AET and provided security for the performance of the Forest Company’s obligations under the Trust Deed. The registration of the Encumbrances thus prevented the Forest Company from dealing with the Scheme Land without the consent of AET.

The events leading to the Tree Sale Agreement

1. [61]

   On 14 January 2011, Gunns issued an Information Memorandum concerning the possible sale by it of its “Auspine Land Estate and Plantations”. The Information Memorandum stated:

2. [62]

   Under the heading “Covenant Holders”, the Information Memorandum stated:

3. [63]

   On 8 February 2011, Gunns’ General Counsel, Mr Tri Nguyen wrote to Mr Stuart Howard at AET.

4. [64]

   Mr Howard was then the Senior Relationship Manager Corporate Trust at AET. He was the only lay witness AET called in the proceedings.

5. [65]

   Mr Nguyen said that Gunns was considering selling the Auspine Estate noting that, under the Trust Deed, AET’s consent was required. Mr Nguyen noted:

6. [66]

   On 4 March 2011, Mr Nguyen wrote to AET, formally seeking AET’s consent to the proposed sale. Mr Nguyen said:

7. [67]

   Thus, at this stage, Gunns’ proposal involved the possible sale of the Scheme Land, subject to the Encumbrances, but not the Scheme Trees. However, in his last paragraph, Mr Nguyen foreshadowed the possibility of a sale of “all covenant holder interests as well” and thus, in effect, the winding up of the scheme. This was the Proposal (see [12] above).

8. [68]

   AET, through Mr Howard, responded on 16 March 2011:

9. [69]

   At that time, cl 2(d)(i) of the Trust Deed prohibited the Forest Company from selling the Scheme Land. Thus, Mr Howard’s point was that if the Scheme Land were to be sold, the Trust Deed would need to be amended and that, by reason of cl 20E(b) of the Trust Deed, such amendment could not “materially prejudice or minimise the measures of protection” of the Covenantholders. This led to cl 2(d)(i) being amended by the Deed of Variation, made on 14 April 2011, to the effect set out at [47(b)] above. I set out the terms of the amendment below.

10. [70]

    Nonetheless, Mr Howard expressed AET’s agreement in principle to Gunns’ proposal, subject to the interests of Covenantholders not being materially prejudiced or diminished and to the possibility of AET obtaining independent advice. Such advice was not sought for several months.

11. [71]

    Later on 16 March 2011, Mr Nguyen sent Mr Howard a proposed Deed of Variation of the Trust “to enable to the proposed transaction to proceed”.

12. [72]

    Mr Howard responded on 17 March 2011 asking, amongst other things:

13. [73]

    In response to Mr Howard’s inquiry about the “nature of the encumbrances”, Mr Nguyen responded the same day:

14. [74]

    On 25 March 2011, Mr Howard wrote to Mr Nguyen stating:

15. [75]

    In response, Gunns arranged for letters to be written by lawyers in Victoria and South Australia and addressed to Mr Howard which stated, in the case of the Victorian lawyers, that:

16. [76]

    On 30 March 2011, the Forest Company wrote to Mr Howard at AET giving this assurance:

17. [77]

    These exchanges are relevant to Mr Howard’s understanding of the effect of the Encumbrances. I return to this below.

18. [78]

    On 14 April 2011, AET, the Forest Company and the Milling Company executed the Deed of Variation which had the effect of varying cl 2(d)(i) of the Trust Deed to read as I have set out at [47(b)] above. It thus read:

19. [79]

    On 1 June 2011, Gunns provided the ASX with a “Market Update”. In that update Gunns stated that it was “managing the exit from a number of businesses deemed non-core” and that its board had agreed to achieve “the sale of the Green Triangle softwood planation estate in SE Australia”.

20. [80]

    By 24 June 2011, Gunns had evidently reached an agreement in principle to sell its plantation estate. Thus on 24 June 2011 Gunns wrote to AET:

21. [81]

    This led Mr Howard to write to Mr Adam Fuller at Sparke Helmore on 27 June 2011:

22. [82]

    On 14 July 2011, Gunns wrote to AET stating that “only two offers were received for the Covenant Holder Standing Timber” and that the proposed purchaser:

23. [83]

    On 15 July 2011, Mr Howard sent an email to his superior, Mr Philip Joseph:

24. [84]

    The emphasised passage suggests that Mr Howard’s state of mind, at this stage, was that the advice being sought from Sparke Helmore was as to whether Gunns’ proposal was “allowed” under the Trust Deed and that AET’s consent to the Proposal was also contingent on it being “happy to proceed”. This becomes relevant to the question of the extent to which AET relied on the advice ultimately given by Sparke Helmore.

25. [85]

    On 20 July 2011, Mr Nguyen advised Mr Johnston by email (with a copy to Mr Howard) that:

26. [86]

    On 29 July 2011, Mr Andrew Johnston from Sparke Helmore sent Mr Joseph a “draft sign-off” from Sparke Helmore “for your review and comment”. The “draft sign-off” was substantially in the same terms as that ultimately provided on 17 August 2011 (see [94]-[100] below).

27. [87]

    On 2 August 2011, Mr Howard sent Mr Johnston an email that Mr Nguyen had received from the solicitors for the then proposed purchaser of the Scheme Land, who stated that one document the purchaser would require “from the Trustee on completion” was:

28. [88]

    Mr Howard must have understood from this that it was likely, as must have been obvious in any event, that any purchaser of the Scheme Land would want clear title on completion, and thus that the Encumbrances would then need to be released.

29. [89]

    On 3 August 2011, Mr Howard sent a further email to Mr Joseph referring to the advice sought from Sparke Helmore and stating:

30. [90]

    Mr Howard agreed in cross-examination that he intended to say “trust documents” rather than “transaction documents”.

31. [91]

    The words I have emphasised in this email suggest, once again, that Mr Howard’s state of mind at this stage was that Sparke Helmore’s advice was being sought as to whether Gunns’ proposal was permissible under the Trust Deed.

32. [92]

    Thus Mr Howard gave this evidence in answer to questions from Mr Donaldson SC who appeared with Mr Zahra for Sparke Helmore:

33. [93]

    On 12 August 2011, Mr Johnston caused an ASIC search to be undertaken of the Forest Company, the Milling Company, Auspine and Gunns. Those searches revealed the existence of the ANZ Charge.

34. [94]

    On 17 August 2011, Sparke Helmore sent AET a letter of “certification”. I will call this document “the 17 August 2011 Certification”.

35. [95]

    The letter stated:

36. [96]

    “Documents” was defined to mean those listed in Schedule 2 to the letter, and included the Trust Deed.

37. [97]

    Under the heading “Certification”, Sparke Helmore said:

38. [98]

    Included in the “assumptions” to which this certification was said to be subject were that:

39. [99]

    The “qualifications” included that:

40. [100]

    These assumptions and qualifications were repeated in a further advice given by Sparke Helmore to AET on 22 December 2011. As I discuss below, AET’s attention in final submissions ultimately focused on 22 December 2011 advice.

41. [101]

    On 4 November 2011, Mr Nguyen wrote to Mr Howard:

42. [102]

    On 22 November 2011, Mr Nguyen sent Mr Howard a draft of the Tree Sale Agreement.

43. [103]

    That prompted Mr Howard to send Mr Nguyen an email on 23 November 2011:

44. [104]

    On 28 November 2011, Mr Nguyen sent Mr Howard a draft of a proposed Put & Call Option which, he said, “allows for [the purchaser] to nominate an eventual purchasing entity”. Mr Nguyen said that the matter about which Mr Howard had enquired on 23 November 2011 was “a mechanical exercise” and that “you can simply refer [to] the Purchaser as the entity…under the Put & Call Option”.

45. [105]

    On 29 November 2011, Mr Howard wrote to Mr Johnston of Sparke Helmore:

46. [106]

    On 3 December 2011, Mr Nguyen sent Mr Howard the “final version of the Tree Sale Agreement for review”.

47. [107]

    Schedule 3 of that document contained an “Apportionment between Sellers” of the “Initial Purchase Price”. It showed AET as one of the “Tree Owners” but that its “Portion of Initial Purchase Price” was “$0”; whereas the Forest Company’s “Portion of Initial Purchase Price” for South Australia was $20,216,073 and for Victoria was $31,783,927.

48. [108]

    This matter did not escape Mr Howard’s attention. On 5 December 2011, Mr Howard wrote to Mr Nguyen:

49. [109]

    Mr Nguyen replied within minutes, stating that the consideration under the Tree Sale Agreement referable to Covenantholders’ interests was to be paid to the Forest Company; $20,216,073 in respect of the South Australian assets and $13,783,927 in respect of the Victorian assets.

50. [110]

    That prompted Mr Howard to write to Mr Nguyen on 7 December 2011. First, Mr Howard observed:

51. [111]

    Mr Nguyen replied by email later that day:

52. [112]

    In his email, Mr Howard posed the following question:

53. [113]

    Mr Nguyen replied:

54. [114]

    In effect, Mr Nguyen told Mr Howard that the money payable under the Tree Sale Agreement was to be dealt with as if the Proceeds Distribution Process was applicable. That is, the funds would be paid to the Milling Company, which would deal with funds in accordance with the regime specified in the Tripartite Agreement.

55. [115]

    None of this caused any concern to Mr Howard. In his affidavit he said:

56. [116]

    Although an affidavit of Mr Johnston was served and was included in the Court Book, Mr Donaldson did not call Mr Johnston. Nonetheless, a number of Mr Johnston’s file notes are in evidence.

57. [117]

    One is dated 7 December 2011, and records an attendance of 20 minutes from 4.20 pm to 4.40 pm between Mr Johnston, Mr Howard and “Annette”; evidently Ms Annette Strickland from AET, who was copied in to the email exchange between Mr Howard and Mr Nguyen earlier in the day.

58. [118]

    In setting out the terms of that file note, I have expanded some obviously abbreviated terms thus “[ ]” and have emphasised some entries with underlining.

59. [119]

    So expanded, the note reads:

60. [120]

    I think it likely that Mr Howard made the remarks that I have underlined. It is not clear who said something to the effect “[w]e’ll look into getting security from Gunns as well”. The note could read “AJ” (Mr Johnston of Sparke Helmore) or “AS” (Ms Strickland of AET).

61. [121]

    The note shows that:

    1. (1)

       Mr Howard understood that the effect of activation of the Put & Call Option Deed would be that proceeds of the sale of the Scheme Land and the Scheme Trees – that is “$34 M” – would be “transferred to” the Milling Company and then the Forest Company and be subject to deduction of their commissions of 20% and 5%; that is be dealt with in accordance with the Proceeds Distribution Process;

    2. (2)

       Mr Howard knew the Encumbrances were to be discharged on settlement; hence Mr Johnston or Ms Strickland spoke of “getting security from Gunns as well”;

    3. (3)

       Mr Howard was comfortable to give certain representations, warranties and undertakings (evidently those called for in the Tree Sale Agreement) and was not concerned with “the commercials”; that is, I would infer, the potential risk of selling Scheme Land and Scheme Trees and waiting for the Proceeds Distribution Process to be applied to the proceeds of those sales, rather than retaining the Scheme Land and Scheme Trees and continuing the current arrangements, which included Covenantholders having the security from the Forest Company of the Encumbrances;

    4. (4)

       Mr Howard saw there being no “constraint” on AET requiring it to ensure that the Land Sale Proceeds and Tree Sale Proceeds be paid to Covenantholders; and

    5. (5)

       it was satisfactory to Mr Howard that payment of those proceeds be “just subject to the Trust Docs”; that is, in accordance with Proceeds Distribution Process.

62. [122]

    Consistently with those conclusions, at 4.47 pm, some three minutes later, Mr Howard forwarded to Mr Johnston his email exchange with Mr Nguyen and said:

63. [123]

    The only reference in this email to the discussion minutes before about the proposed flow of funds payable under the Tree Sale Agreement is the first sentence. Evidently, Mr Howard was content with what Mr Nguyen had told him, and with his discussion with Mr Johnston and Ms Strickland about that matter. He did not ask Mr Johnston anything further and was, in effect, sending Mr Johnston his email exchange with Mr Nguyen for information and because he had told Mr Johnston about it; hence the words “as discussed”.

64. [124]

    In the meantime, on 5 December 2011, Mr Howard had sent Mr Johnston a copy of the draft Tree Sale Agreement and asked:

65. [125]

    Mr Howard’s reference to the “attached format” was to a pro forma letter addressed to AET enquiring:

66. [126]

    On the following day, 6 December 2011, Mr Johnston wrote to Mr Howard:

67. [127]

    On 8 December 2011, Mr Johnston sent an email to Mr Nguyen:

68. [128]

    In his closing submissions, Mr Lockhart submitted that this email was a reply to Mr Nguyen’s email of 7 December 2011 to Mr Howard, which contained the responses I have set out above at [111] and [113]. I do not think this is correct.

69. [129]

    Mr Howard’s email to Mr Johnston of 7 December 2011, following the 20 minute conference that day, did not suggest that there was anything that Mr Howard wanted Mr Johnston to do about his exchange with Mr Nguyen.

70. [130]

    Mr Johnston’s 8 December 2011 email to Mr Nguyen was dealing with a different subject; namely whether AET should, in the Tree Sale Agreement, make representations and/or give undertakings. In the 7 December 2011 conference Mr Howard had expressed reasonable comfort with so doing.

71. [131]

    On 9 December 2011, Mr Nguyen replied to Mr Johnston’s 8 December 2011 email:

72. [132]

    Sparke Helmore replied the same day:

73. [133]

    Mr Johnston thereafter drafted undertakings which were ultimately given to AET by Gunns, Auspine, the Forest Company and the Milling Company on 15 December 2011. Sparke Helmore referred to these undertakings in its 22 December 2011 advice, with which I deal below.

74. [134]

    On 20 December 2011, Mr Johnston arranged for further ASIC searches of the Forest Company, the Milling Company, Auspine Ltd and Gunns Ltd to be undertaken. Those searches revealed the ANZ Charge.

75. [135]

    On 20 December 2011, Mr Nguyen wrote to Mr Johnston about a proposed “GST side letter”. He wrote:

76. [136]

    On 21 December 2011, Mr Howard sent an email to Mr Johnston:

77. [137]

    Later on 21 December 2011, Mr Johnston wrote to Mr Nguyen:

78. [138]

    This email exchange is relevant to the question of Gunns’ anxiety to ensure that the sale of the Scheme Trees and Scheme Land proceeded. I return to this below.

79. [139]

    On 22 December 2011, Sparke Helmore sent to AET (Mr Howard) two documents. The first was a certification in similar terms to the 17 August 2011 Certification. I will call this document the “22 December 2011 Certification”.

80. [140]

    In the 22 December 2011 Certification, Sparke Helmore’s recitation of the “Proposal” was the same as in its letter of 17 August 2011.

81. [141]

    Under the heading “Certification” Sparke Helmore repeated what was said in the 17 August 2011 Certification (set out at [97] above) and, in addition, certified that based on their review of the “Documents” and subject to the assumptions and qualifications set out in the letter (which were the same as in the 17 August 2011 letter) that:

82. [142]

    It is on the second document sent by Sparke Helmore to AET on 22 December 2011 that, in final submissions, Mr Lockhart placed most reliance.

83. [143]

    I will call this document the “22 December 2011 Document Confirmation Advice”.

84. [144]

    That document was headed “Tree sale documents to be entered into by [AET]” and recited that:

85. [145]

    The expression “Trust Documents” was defined by reference to the definition in the Tree Sale Agreement, and therefore included the Trust Deed, the Tripartite Agreement, the Settlement Deed and the Covenants.

86. [146]

    The letter recorded that:

87. [147]

    The letter continued:

88. [148]

    The letter then stated that it was subject to the assumptions and qualifications thereafter set out which included the assumptions and qualifications which relevantly reflect assumptions (jj), (mm) and qualification (k) in the 17 August 2011 Certification that I have set out above at [98] and [99].

89. [149]

    To repeat, those assumptions and that qualification were:

90. [150]

    Mr Lockhart’s case was that the 22 December 2011 Document Confirmation Advice incorrectly certified that the Tree Sale Agreement was “in order for execution” by AET, and that it should have drawn attention to, as “unusual or onerous provisions”, the provisions in the Tree Sale Agreement that:

The transaction

1. [151]

   Mr Nguyen was anxious that AET execute the Put & Call Option prior to Christmas. On 22 December 2011, he sent an email to Mr Howard and Mr Stewart:

2. [152]

   Mr Howard responded that the document should be executed “shortly”, to which Mr Nguyen replied:

3. [153]

   On 22 December 2011, the purchaser, Gunns, the Forest Company, the Milling Company, AET and various other Gunns’ subsidiaries executed the Put & Call Option which, as the name suggests, gave the purchaser the right to call for, and the Gunns interests a right to put to the purchaser the obligation to purchase the Scheme Land and Scheme Trees.

4. [154]

   On 22 December 2011, Gunns announced to the market:

5. [155]

   On 15 February 2012, the Forest Company wrote to AET, enclosing discharges of the Encumbrances and stating:

6. [156]

   On 8 March 2012, at Mr Nguyen’s request, AET forwarded the discharges of the Encumbrances to the purchaser’s solicitor.

7. [157]

   In the meantime, on 24 February 2012, Mr Nguyen wrote to Mr Howard and Mr Stewart:

8. [158]

   By agreeing temporarily to become a member of the Staple Fund that would own and operate the various assets after the purchase, Gunns was in effect providing vendor finance.

9. [159]

   Again, this is said by Mr Kerr to bespeak Gunns’ anxiety to ensure that the transaction completed.

10. [160]

    On 9 March 2012, Gunns wrote to ASX requesting a trading halt:

11. [161]

    On 13 March 2012, Mr Johnston and Mr Howard had a telephone call which Mr Johnston recorded in these terms, again expanding some obviously abbreviated terms thus “[ ]”:

12. [162]

    The note appears to set out comments made by Mr Howard. Mr Lockhart submitted that those comments should have alerted Mr Johnston, and thus Sparke Helmore, that Mr Howard did not know what alternatives were available to or that there was anything that AET could do.

13. [163]

    I do not agree. By now AET was committed to the transaction. The note does not suggest that Mr Howard was seeking any advice. Rather, Mr Howard was acknowledging the problematic position AET was then in. He knew Gunns was in trouble: it had just requested a trading halt. He knew the Tree Sale Proceeds were not to be paid to AET, but rather to the Milling Company. This had been discussed at some length with Mr Johnston on 7 December 2011. Mr Howard was simply acknowledging the commercial reality of the position AET was then in.

14. [164]

    These matters caused some amendments to the Tree Sale Agreement to be made.

15. [165]

    On 15 March 2012, Mr Howard wrote to Mr Johnston:

16. [166]

    Mr Howard was referring to the 22 December 2011 Document Confirmation Advice.

17. [167]

    On 14 March 2012, Sparke Helmore gave this “Confirmation”:

18. [168]

    Sparke Helmore added the following qualification, arising out of Gunns’ trading halt:

Completion

1. [169]

   The Tree Sale Agreement was executed on 15 March 2012. As I have mentioned, the consideration payable by the purchase for the Scheme Trees was $33,999,999. Of that, only $1 was payable to AET. The balance, $33,999,998 was payable to the Milling Company. In return, AET agreed that the Discharges of Encumbrances delivered to the purchaser’s solicitor on 8 March 2012, would no longer be held in escrow.

2. [170]

   In effect, AET agreed to discharge the Encumbrances on completion in exchange for the payment of $1.

3. [171]

   Completion of the Tree Sale Agreement occurred on 16 March 2012.

4. [172]

   The $39,999,998 due to be paid to the Milling Company was not paid to the Milling Company. It was paid into Gunns’ overdrawn account with the ANZ and partially repaid the amount owing by Gunns to ANZ.

5. [173]

   On 14 March 2012, AET provided its consent under cl 2(d)(i) of the Trust Deed to the sale of the Scheme Land. AET was not a party to the land sale contracts, which completed on 19 March 2012. As mentioned, the Land Sale Proceeds referable to the Covenantholders’ interest was $4,882,380.58.

6. [174]

   That amount was not paid to AET on completion of the sale of the Scheme Land. It has not been paid since.

Events after completion

1. [175]

   Almost two months after completion, Mr Nguyen wrote to Mr Howard stating that “we have been receiving a number of enquiries about the sale of the [Covenantholders’] standing timber as a result of our update in the annual report”.

2. [176]

   On 7 May 2012, Mr Nguyen sent out a “proposed update letter” to be sent to Covenantholders. The proposed letter set out “an estimated time table as to when [Covenantholders] can expect to receive their final distribution” under the Trust Deed. The draft concluded:

3. [177]

   That prompted Mr Howard to write to Mr Nguyen on 8 May 2012:

4. [178]

   Mr Howard’s first question (“why will it take until September 2013 to pay the distributions?”) appears to show that, notwithstanding the 20 minute discussion on 7 December 2011 with Mr Johnston (see [117] to [121] above), Mr Howard had forgotten Mr Nguyen’s 7 December 2011 explanation that the reason the Tree Sale Proceeds were to be paid to the Milling Company, rather than AET, was because “we are adopting a similar process to a harvesting and distribution event” (see [113] above); that is, adopting the Proceeds Distribution Process.

5. [179]

   Mr Howard’s second question (“who is currently holding the sale proceeds?”) shows that he, and thus it seems AET, did not know where the Tree Sale Proceeds and the Land Sale Proceeds were; let alone that the Tree Sale Proceeds had been paid into an overdraft account in the name of Gunns.

6. [180]

   On 23 May 2012, the Forest Company and the Milling Company sent to the Covenantholders a pro forma letter which stated:

7. [181]

   On 10 July 2012, AET’s auditors, KPMG, advised AET that the amounts due to Covenantholders should be booked in AET’s accounts as deferred consideration. KPMG said this was so because, at the date of entry into the Tree Sale Agreement:

8. [182]

   On 18 July 2012, Mr Howard wrote to Mr Nguyen:

9. [183]

   On 1 August 2012, Gunns wrote to ANZ seeking ANZ’s consent to the retention by Gunns of $15 million from “Tranche 2” of the proceeds of sale of its assets “to provide adequate funding in relation to its $15 million mandatory obligations to growers under the Great Southern Managed investment scheme”. Evidently this was a different scheme than that the subject of these proceedings. ANZ replied on 9 August 2012 (see [186] below).

10. [184]

    AET sent a further letter to Gunns on 2 August 2012, seeking a response to its letter of 18 July 2012.

11. [185]

    Ultimately, Mr Nguyen wrote to AET on 2 August 2012:

12. [186]

    On 9 August 2012, ANZ replied to Gunns’ letter of 1 August 2012 stating that:

13. [187]

    ANZ continued that, nonetheless, it would direct that the relevant funds be paid to Gunns for distribution to Covenantholders:

14. [188]

    On 16 August 2012, Mr Nguyen wrote to Mr Howard, in effect repeating what he had said in his email of 2 August 2012.

15. [189]

    On 17 August 2012, Mr Howard replied:

16. [190]

    Mr Howard’s expression of concern “[i]f security has been granted by Gunns entities”, particularly the Milling Company and the Forest Company, may suggest that Mr Howard did not know of, or had forgotten about, the existence of the ANZ Charge which, as I have set out above, was created on 8 February 2010. I will return to this.

17. [191]

    In the meantime, on 10 August 2012, Mr Howard wrote to Mr Johnston of Sparke Helmore seeking:

18. [192]

    On 24 August 2012, Mr Johnston wrote to Mr Nguyen asking Gunns to provide him with a series of documents including “each security granted by the Milling Company and/or the Forest Company in favour of ANZ Capel Court Ltd”.

19. [193]

    On 29 August 2012, Mr Howard wrote an internal email reporting that:

20. [194]

    On 29 August 2012, Sparke Helmore wrote to Mr Nguyen requesting that the Forest Company and the Milling Company execute an enclosed declaration of trust and stating:

21. [195]

    The declaration of trust was never signed and the proceeds were never paid.

22. [196]

    On 25 September 2012, voluntary administrators and receivers were appointed to Gunns and its subsidiaries, including the Forest Company and the Milling Company.

23. [197]

    Thereafter, as I have mentioned, AET commenced proceedings in the Supreme Court of Victoria claiming that the receivers held the relevant proceeds on trust for AET. The proceedings were ultimately dismissed by the High Court: Korda (see [24] above).

The Covenantholders’ loss

1. [198]

   The result is that the Covenantholders have received no payment for their investments since 2011.

2. [199]

   The Tree Sale Proceeds, the Land Sale Proceeds, part of the proceeds for the 2011 and all of the proceeds of the 2012 Harvest Years have been lost.

The context of the breach of trust

1. [200]

   AET did not seek Sparke Helmore’s advice as to whether it should consent to the Gunns’ proposal to sell the Scheme Land and the Scheme Trees. Thus Mr Howard agreed in cross-examination that “we weren’t asking them to opine on the windup of the scheme”.

2. [201]

   By the time AET committed itself to the transaction by executing the Put & Call Option Deed on 22 December 2011, AET knew two things about the consequences of it consenting to the Proposal.

3. [202]

   The first was that no money would be paid to Covenantholders on completion of the proposed transactions. Thus:

4. [203]

   The second was that the Encumbrances would be discharged on completion. Thus:

5. [204]

   Mr Howard said that he did not regard the release of the Encumbrances as being particularly significant as he understood that they were no more than water rights or rights of way. I will return to this below.

The breaches of trust alleged by Mr Kerr

1. [205]

   Mr Lockhart did not dispute that AET owed the Covenantholders duties to:

2. [206]

   Mr Sullivan submitted, on behalf of Mr Kerr, that AET acted in breach of its duty as trustee by discharging the Encumbrances without first either procuring payment of the amounts owing or substitute security.

3. [207]

   In effect, Mr Kerr’s case was that, unless AET could procure payment of the amount due to Covenantholders on completion, or substituted security, it should have refused to consent to the Proposal.

4. [208]

   In final submissions, Mr Lockhart accepted that AET’s decision to release the Encumbrances fell “below the standard of a prudent trustee” (see [32] to [31] above).

5. [209]

   Mr Lockhart said:

6. [210]

   Mr Lockhart and I had this exchange:

7. [211]

   Mr Lockhart submitted, however, that AET’s breach was confined to failing to exercise due care and vigilance and did not amount to a failure by AET to get in, protect and vindicate trust property. That was because, Mr Lockhart submitted, there was “no trust property to ‘get in’ or ‘protect’”. In making that submission, Mr Lockhart relied upon the decision of the High Court in Korda.

8. [212]

   In my opinion, Mr Lockhart’s reliance on Korda was misplaced. As Mr Sullivan submitted, the dispute in Korda was whether the Forest Company and the Milling Company were trustees of the fund comprising the Tree Sale Proceeds and the Land Sale Proceeds. Korda was not concerned with the relationship between AET as trustee and the Covenantholders as beneficiaries.

9. [213]

   The nature of the Encumbrances was not explored in argument before the High Court. Thus French CJ observed, at [35], that:

10. [214]

    As I have set out above at [50], under cl 20A of the Trust Deed, AET promised to hold the “Titles to Planted Land” in trust for the Covenantholders. By the same clause, AET agreed to prepare and register the Encumbrances on those titles. AET thereby agreed to hold the Encumbrances on trust for the Covenantholders.

11. [215]

    The Encumbrances were registered in AET’s name but AET could not deal with them as if they were its own. As Mr Lockhart accepted, the Encumbrances were “there for the benefit of AET and the Covenantholders”.

12. [216]

    I think it clear that the Encumbrances were trust property.

13. [217]

    Mr Lockhart did not dispute that, if that were so, any loss suffered by Covenantholders by reason of AET’s release of the Encumbrances constituted a failure on its part to “protect” that trust asset and to “vindicate” the rights attaching to that trust asset.

14. [218]

    Mr Kerr contends that:

15. [219]

    It seems likely that AET was aware of the ANZ Charge.

16. [220]

    On 7 November 1996, AET appointed Mr Robert Graham as its nominated director to the board of the Milling Company. Mr Graham was a director of the Milling Company at all material times, and particularly during 2010 when the ANZ Charge was taken over the assets of the Milling Company and the other entities in the Gunns Group. It seems highly unlikely that that occurred without board approval. I would infer that AET’s nominated director, specifically appointed in accordance with the Trust Deed for the purpose of monitoring the affairs of the Milling Company in the interests of Covenantholders, was aware of the existence of the ANZ Charge. His knowledge should be attributed to AET.

17. [221]

    Mr Howard accepted in cross-examination that it was very likely that he read Gunns’ financial statements for the year ended 30 June 2011, and that it was highly likely that he read the notes to those statements. Those notes disclosed that there was a fixed and floating charge over the assets of Gunns and its subsidiaries.

18. [222]

    But Mr Howard said, in his affidavit, that:

19. [223]

    Mr Sullivan asked Mr Howard questions about that evidence:

20. [224]

    Later Mr Howard gave this evidence in response to questions from me:

21. [225]

    A short time later I had this exchange with Mr Howard:

22. [226]

    My conclusion in these circumstances is that, although he may not able to recall this now, and had perhaps forgotten it by 17 August 2012 (see [190] above), Mr Howard did know of the ANZ Charge in 2011 and early 2012. I also conclude that, by reason of Mr Graham’s seat on the board of the Milling Company, AET as a whole knew of the ANZ Charge.

23. [227]

    This is significant as AET was aware that Gunns was in financial distress at the time of the transaction. AET has admitted on the pleadings that it knew Gunns was seeking to extend the repayment of its facilities and was undertaking asset sales to reduce its debt. Mr Howard also accepted in cross-examination that he was aware of Gunns’ financial difficulties and its need to refinance its facilities.

24. [228]

    In these circumstances, I accept Mr Kerr’s submission that AET acted in breach of its duties concerning the ANZ Charge. Where this takes Mr Kerr’s case is a matter that I shall return to below.

25. [229]

    Mr Kerr also contends that AET breached its duties by allowing the Tree Sale Proceeds to be paid into Gunns’ overdraft account.

26. [230]

    The Tree Sale Agreement required that the proceeds be paid to the Milling Company.

27. [231]

    The Milling Company did not receive the money. The proceeds were paid into the Gunns’ overdraft account, which operated to discharge the indebtedness of Gunns to ANZ.

28. [232]

    As was submitted on behalf of Mr Kerr, Gunns had no role in the scheme. It was the parent company of the Milling Company and the Forest Company. But it was not a party to the Trust Deed nor to the Tripartite Agreement, nor any other constituent trust document.

29. [233]

    Mr Howard’s email of 8 May 2012, set out at [177] above, reveals that AET did not know that Gunns had received payment until well after the transaction had settled.

30. [234]

    As was submitted on behalf of Mr Kerr:

31. [235]

    However, it was not submitted on behalf of Mr Kerr that Covenantholders suffered any loss by reason of the Tree Sale Proceeds being paid into Gunns’ overdraft account, beyond that they would have suffered had the Tree Sale Proceeds been paid to the Milling Company, as called for by the Tree Sale Agreement.

32. [236]

    There is no evidence they did.

What was Mr Howard’s understanding of the nature of the Encumbrances?

1. [237]

   There is an issue as to what Mr Howard understood to be the nature of the Encumbrances. As this is relevant to the consequences of Sparke Helmore’s involvement in the matter, I will deal with it here.

2. [238]

   As I have set out above at [72], on 17 March 2011, Mr Howard wrote to Mr Nguyen asking him to “characterise the nature of the encumbrances (easements, charges, profits a prendre etc.) and explain in more detail if the sale of the land will alter the ability of the Forest Company to fulfil its obligations under the Trust Deed”.

3. [239]

   On the same day, Mr Nguyen replied:

4. [240]

   Mr Howard said that at the time he received the email from Mr Nguyen:

5. [241]

   Mr Donaldson asked Mr Howard these questions about his 17 March 2011 email exchange with Mr Nguyen:

6. [242]

   It is hard to know what to make of this evidence.

7. [243]

   On the one hand, Mr Howard acknowledged understanding Mr Nguyen’s email to mean that the Encumbrances “provided security for the performance” of the obligation of the Forest Company to make payments under the Trust Deed. On the other hand, he denied knowing that the Encumbrances constituted a “charge over the real estate” and said that he thought that the Encumbrances constituted a document whereby the Forest Company “agrees to perform its obligations under the Trust Deed” as opposed to being “some sort of security to ensure the payment of money”.

8. [244]

   Mr Howard’s answers certainly suggest he was confused as to the precise nature of the Encumbrances. He may have been misled by Mr Nguyen’s statement that one effect of the Encumbrances was that an incoming purchaser would “have to allow access to the trees to be maintained and eventually harvested”. But his answers to Mr Donaldson’s cross-examination suggest that he did understand that the Encumbrances were more than merely “water rights or a right of way over the land”.

9. [245]

   On 30 March 2011, a few weeks after his 17 March 2011 email exchange with Mr Nguyen, Mr Howard received the letter from the Forest Company that I referred to at [76] above. In that letter, the Forest Company argued that any sale of the Scheme Land would not be materially prejudicial to the interests of Covenantholders because, amongst other things:

10. [246]

    If Mr Howard had read this letter with any care, he would have understood from it that the Encumbrances were not merely water rights or rights of way. The Forest Company was saying that Covenantholders’ interests, “currently protected” by the Trust Deed, were “further enhanced” by the Encumbrances and that (as the Proposal then was) the purchaser of the Scheme Land would take the land subject to the Encumbrances.

11. [247]

    Unfortunately, Mr Howard was not taken to this letter in cross-examination.

12. [248]

    Of course, Mr Howard should have understood the true nature of Encumbrances, as he acknowledged. Thus, in answer to questions from Mr Sullivan, Mr Howard gave evidence to this effect:

13. [249]

    Mr Sullivan submitted, correctly in my opinion, that Mr Howard’s misunderstanding reflected a lack of vigilance and diligence on AET’s part.

14. [250]

    Further, as Mr Sullivan pointed out, Mr Howard admitted that he failed to make any effort to seek to understand the protections afforded by the Encumbrances.

15. [251]

    He gave this evidence:

16. [252]

    If Mr Howard had the misapprehension he asserted, that was an astounding state of affairs. Mr Howard was the Senior Relationship Manager Corporate Trust at AET. He had the day to day management and oversight of this transaction and made the decisions on behalf of AET in relation to it.

17. [253]

    However, it does seem unlikely that he would falsely assert ignorance about such a fundamental matter. As Mr Lockhart submitted, Mr Howard gave the impression of being professionally embarrassed by what he said was his error.

18. [254]

    I think it more likely than not that Mr Howard did have a less than perfect understanding of the nature of the Encumbrances. Mr Howard’s misunderstanding of the nature of the Encumbrances appears to be the explanation for his evident lack of concern about their release on completion. Thus, the complete exchange between Mr Howard and me, an extract of which I have set out [203(c)] above, was:

19. [255]

    Matters to which I will return below are whether other officers at AET, in particular Mr Howard’s superior Mr Phillip Joseph, shared Mr Howard’s misapprehension; the consequences if they did not; and whether Sparke Helmore should have known of Mr Howard’s misapprehension and advised him as to the true nature of the Encumbrances.

AET’s retainer of Sparke Helmore

1. [256]

   The expert corporate trustees engaged by Mr Kerr and AET, Mr Clynton Hardy and Mr David Church, agreed that it was appropriate for AET to seek advice from firm of lawyers, such as Sparke Helmore, and that AET asked that firm the appropriate questions.

2. [257]

   Nonetheless, I do not accept that the mere fact that AET retained Sparke Helmore to give advice in respect of the “Proposal” is, itself, an answer to the breach of trust claim.

3. [258]

   The retainer by a trustee of lawyers to advise it in relation to a particular transaction might entitle a trustee to relief from liability under provisions such as s 56 of the Trustee Act 1836 (SA) or s 85 of the Trustee Act 1925 (NSW). A breach of the duties imposed on a lawyer retained by a trustee in those circumstances might also give a trustee an entitlement to damages against that lawyer.

4. [259]

   But the mere retainer by a trustee of a lawyer to advise it in relation to a transaction cannot, itself, exonerate the trustee. Mr Lockhart did not cite any authority to establish any such proposition.

5. [260]

   The question of whether retaining lawyers negates a breach of trust must, as Mr Lockhart accepted in final submissions, depend on all the circumstances including the nature of the advice given and whether it was relied on.

The retainers and advice

1. [261]

   AET first retained Sparke Helmore on 27 June 2011, when Mr Howard asked for a quote to provide advice as to whether the Proposal:

2. [262]

   In response to that retainer, Sparke Helmore gave the 17 August 2011 Certification. Such advice as was given in the 17 August 2011 Certification was given before the creation of any transaction documents in respect of the Proposal.

3. [263]

   For that reason, in final submissions, Mr Lockhart eschewed any reliance on the 17 August 2011 Certification. Thus Mr Lockhart said in final submissions:

4. [264]

   Mr Lockhart continued:

5. [265]

   The second retainer was constituted by Mr Howard’s email to Mr Johnston of 5 December 2011 (referred to at [124] above) in which Mr Howard asked Sparke Helmore to provide a quote to review the Tree Sale Agreement and the Put & Call Option Deed to “provide a legal signoff…in the attached format”.

6. [266]

   The “attached format” required, among other things, identification of any “unusual or onerous provisions in the document(s)” and confirmation that the documents were “in order for execution” (see [125] above).

7. [267]

   Mr Donaldson, for Sparke Helmore, submitted that:

8. [268]

   I do not think this characterisation of Sparke Helmore’s role is correct. Leaving aside for the moment the retainer to identify “unusual or onerous” provisions, Sparke Helmore’s retainer to confirm that the documents were in “in order for execution” required more than confirmation that the Proposal was “permissible”.

9. [269]

   This retainer did not require Sparke Helmore to advise AET whether or not it should consent to the Proposal. As I have said, Mr Howard agreed that “we weren’t asking them to opine on the windup of the scheme” (see [200] above). By the time of the 5 December 2011 retainer, AET had, in effect, conveyed to Gunns its agreement in principle to the winding up of the scheme.

10. [270]

    As Mr Donaldson submitted, AET was faced with a difficult commercial decision. Under the terms of the trust documents, the Forest Company could not sell or encumber the Scheme Land without the consent of AET. By 5 December 2011, the Forest Company, through Gunns, had sought a consent which AET had, in principle, granted. Mr Howard and AET were aware of Gunns’ problematic financial position. Were AET to refuse to give the consent sought, Mr Howard and AET must have understood that Covenantholders would remain vulnerable to Gunns’, and thus the Milling Company’s and the Forest Company’s, financial future. Approval of the Proposal involved disposing of the land which secured the obligations of the Forest Company and, in so doing, exposing Covenantholders to such risks inherent in what would then be their status as unsecured creditors.

11. [271]

    I think Mr Donaldson was correct to submit that:

12. [272]

    In response to Mr Howard’s letter of 5 December 2011, Mr Johnston provided an estimate of fees in the range of $4,000 to $5,000 and stated that such estimate was on the basis that:

13. [273]

    As I have mentioned, in answer to the retainer of 5 December 2011, Sparke Helmore produced two letters. The first was the 22 December 2011 Certification. The second was the 22 December 2011 Document Confirmation Advice.

14. [274]

    In neither the 22 December 2011 Document Confirmation Advice nor the 22 December 2011 Certification did Sparke Helmore advise whether there were any provisions in the transaction documents which were onerous or unusual.

15. [275]

    Implicitly, Sparke Helmore’s advice was that there were no such provisions.

16. [276]

    Mr Lockhart submitted that Sparke Helmore should have expressed the opinion in the 22 December 2011 Document Confirmation Advice that the provisions in the Tree Sale Agreement providing for release of the Encumbrances without payment of any of the Tree Sale Proceeds or Land Sale Proceeds to the Covenantholders were onerous or unusual.

17. [277]

    I do not accept that submission.

18. [278]

    The expression “unusual or onerous terms” is usually used in the context of ticket cases or contracts for the sale of goods where the incorporation of terms are in issue. In such cases, it is well established that if there is an “unusual or onerous term” it is necessary to prove that an alleged party to that unsigned contract was aware, or ought to have been aware, of that term: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [54]-[55].

19. [279]

    The High Court has observed that “the criterion by which a court might declare a contractual provision to be unusual or onerous” is not always easy to identify: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd at [54]. A term may be unusual or onerous where:

    1. (1)

       it might not reasonably be expected to be part of the terms of the contract: Maxitherm Boilers Pty Ltd v Pacific Dunlop Insurances Pte Ltd [1998] 4 VR 559 at 561 (Ormiston JA);

    2. (2)

       it is one “which no one would anticipate in a contract of the type in question”: Maxitherm at 568 (Buchanan JA);

    3. (3)

       it “is more than ordinarily onerous”: Maxitherm at 569 (Buchanan JA).

20. [280]

    In Surfstone Pty Ltd v Morgan Consulting Engineers Pty Ltd [2017] 2 Qd R 66; [2016] QCA 213, Morrison JA, with whom McMurdo P and Atkinson J agreed, held that a term was not unusual or onerous because it was “part of a standard set of terms that have been promoted for use by structural and civil engineers for many years, and adopted by many such engineers over the years”: at [72].

21. [281]

    Thus, the question of whether a provision in a contract is unusual or onerous must depend upon all the circumstances known to the party to whom the advice is directed. A provision will only be onerous or unusual so far as concerns that party if it is a provision that that party would not reasonably expect to be included in the document in question.

22. [282]

    Accordingly, the reference in Sparke Helmore’s retainer to “unusual or onerous provisions” should be taken to be a reference to provisions in the documents that AET would not reasonably expect to exist and which were out of the ordinary or burdensome.

23. [283]

    Here, AET, through Mr Howard, was well aware and evidently accepted that the effect of the Tree Sale Agreement was that the Encumbrances would be released on completion and that the proceeds of the transaction would be paid to either the Forest Company or the Milling Company.

24. [284]

    AET should not be taken to have been asking Sparke Helmore to advise it in relation to provisions which it expected would exist in the transaction documents.

25. [285]

    Those provisions were exactly what Mr Howard was expecting. So far as Mr Howard, and thus AET, was concerned there was nothing unusual or onerous about them.

26. [286]

    Mr John Schembri, a solicitor, was called as an expert witness on behalf of AET.

27. [287]

    Mr Schembri expressed the opinion that, to ensure the transaction documents complied with the terms of the Trust Deed and to minimise risk to AET and the Covenantholders, Sparke Helmore should have proposed to AET “one of the following potential risk mitigants in relation to the payment to AET of the Covenantholder Proceeds”:

28. [288]

    Mr Schembri opined that if there were to be:

29. [289]

    In effect, Mr Schembri’s opinion was that Sparke Helmore should have advised AET to seek to negotiate a better deal than had been negotiated between Gunns and the purchaser.

30. [290]

    However, as Mr Schembri agreed in cross-examination, AET had not retained Sparke Helmore to negotiate the terms of the transaction. AET was not seeking Sparke Helmore’s advice about this. As I have said, Mr Howard agreed that “we weren’t asking them to opine on the windup of the scheme”. Sparke Helmore’s retainer was to review the documents and give the advice sought in AET’s 5 December 2011 retainer.

31. [291]

    Sparke Helmore stated in its email of 6 December 2011 that its cost estimate was to review the Tree Sale Agreement and the Put & Call Option Deed, and provide a sign off on them and that that “sign off is limited to the matters contained in the form provided” being the attachment to AET’s 5 December 2011 retainer.

32. [292]

    I see nothing in the circumstances to justify the conclusion that Sparke Helmore had a duty to give advice beyond its retainer.

33. [293]

    The question was considered by Macfarlan JA, with whom Allsop P and Sackville AJA agreed, in Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36 at [75]:

34. [294]

    More recently, Macfarlan JA, with whom Bathurst CJ and McCallum JA agreed, said in Rahme v Benjamin & Khoury Pty Ltd [2019] NSWCA 211 at [108]:

35. [295]

    Similarly, in AVWest Aircraft Pty Ltd as trustee for AVWest Aircraft Trust v Clayton UTZ (A firm) (No 2) [2019] WASC 306, Vaughan J said at [396]:

36. [296]

    AET is a professional trustee. It sought advice from Sparke Helmore about particular matters. I am not able to conclude that proper discharge of that retainer required that Sparke Helmore do more than respond to it; particularly in circumstances where Mr Howard was clear that AET was not asking Sparke Helmore to “opine on the winding up of the scheme”.

37. [297]

    Thus, Sparke Helmore’s duty here was limited to advising on the matters specified in the retainer and in particular to the five matters listed in the “attached format”, which I have outlined at [125] above.

38. [298]

    As I have mentioned, the 22 December 2011 Certification in effect repeated what Sparke Helmore had stated in the 17 August 2011 Certification, save that it also confirmed that AET, under the trust documents, had power to enter into the relevant transaction documents (see [141] above).

39. [299]

    That led to me having this exchange with Mr Lockhart:

40. [300]

    Mr Lockhart continued:

41. [301]

    I have set out terms of the 22 December 2011 Certification at [140] to [141].

42. [302]

    Under the heading “Certification” it stated that “based on our review of the Documents and subject to the assumptions and qualifications set out in this letter” Sparke Helmore were of the opinion that:

43. [303]

    In effect, the 22 December 2011 Certification repeated what Sparke Helmore had stated in the 17 August 2011 Certification, save that it also confirmed that AET, under the trust documents, had power to enter into the relevant transaction documents.

44. [304]

    I think Mr Donaldson was correct to submit that this document did no more than advise that the Proposal was permissible under the trust documents.

45. [305]

    Mr Lockhart did not suggest that this advice, so far as it went, was incorrect.

46. [306]

    Mr Lockhart’s final submissions focussed of the 22 December 2011 Document Confirmation Advice. It is a very peculiar document. I have set out its terms at [144] to [149] above.

47. [307]

    It is directed to the question of whether the “Documents” were “in order for execution” and thus to an aspect of the 5 December 2011 retainer.

48. [308]

    The term “Documents” was defined to mean the Tree Sale Agreement, the Put & Call Option Deed as well as a document called “Side Letter Agreement” (see [146] above). The latter document has no separate significance in the proceedings. I will not refer to it again.

49. [309]

    Sparke Helmore then confirmed that the Documents were “in order for execution” on the basis of four matters (see [147] above).

50. [310]

    The first of those matters (referred to at par 5(a) of the letter) was that:

51. [311]

    It seems that this is responsive to the second request in the 5 December 2011 retainer for “Confirmation that the document reflects the instructions from the Manager”, being Mr Howard (see [125] above).

52. [312]

    Thus the instructions referred to must have been those in Mr Howard’s email of 5 December 2011. It is not clear why Sparke Helmore said that they had not only “reviewed” the Documents but also “settled” the Documents. This may be a reference to negotiations that Sparke Helmore engaged in to cause changes to be made to the Documents prior to their execution. However that may be, Sparke Helmore confirmed that the documents had been “reviewed”.

53. [313]

    The second matter was set out in par 5(b) of the letter.

54. [314]

    Paragraph 5(b) recorded that AET proposed to enter into the Documents as part of the “‘Seller’ group”, that the Documents imposed obligations on AET and provided for AET to make representations and give warranties and undertakings. Paragraph 5(b) then recorded that AET had instructed Sparke Helmore that those matters were “acceptable” on the basis of representations, warranties, undertakings and indemnities given to it by the Forest Company, the Milling Company, Auspine and Gunns.

55. [315]

    This appears to reflect the statement that Mr Howard made at his 7 December 2011 meeting with Mr Johnston that he was “reasonably comfortable” with the representations, warranties and undertakings (see [119] above).

56. [316]

    Mr Lockhart did not suggest that the matter recited in par 5(b) was incorrect.

57. [317]

    The third matter, set out at par 5(c) of the letter, was that each Document included a limitation of liability clause for AET that AET had approved. This is responsive to the fourth request in the 5 December 2011 retainer for “Confirmation that the document includes the Trustee’s limitation of liability clause” (see [125] above).

58. [318]

    Again, Mr Lockhart did not suggest this was incorrect.

59. [319]

    The fourth matter, set out at par 5(d) of the letter, was that, in addition to the first, second and third matters, the basis on which Sparke Helmore confirmed that the Documents were “in order for execution” by AET was:

Was Sparke Helmore’s advice adequate?

1. [320]

   Sparke Helmore did not state why they understood that the Proposal was “acceptable” to AET. As Sparke Helmore must have known, having “reviewed” the Documents, the Proposal could only be “acceptable” to AET if it was one to which AET could consent.

2. [321]

   AET’s consent was required because the Forest Company could not sell the Scheme Land without it (see [47(a)] above).

3. [322]

   AET’s consent could not unreasonably be withheld. But that was subject to AET being reasonably satisfied that there was no material prejudice to the interests of the Covenantholders or “any reduction” in the protection afforded to them pursuant to the Trust Deed (see [47(b)] above). That is, AET could reasonably withhold its consent if the sale in question would materially prejudice the interests of Covenantholders, or cause “any” reduction in the protections afforded to them under the Trust Deed.

4. [323]

   It is hard to contemplate a circumstance where AET could, consistently with its duties as trustee, consent to a sale of the Scheme Land by the Forest Company if to do so would materially prejudice the interests of Covenantholders. It may be, however, that there could be a circumstance where AET could give such consent if there was some reduction in the protection afforded to Covenantholders; for example where some countervailing benefit was simultaneously to be conferred on Covenantholders – such as prompt payment.

5. [324]

   It may be that what Sparke Helmore was seeking to convey, by qualifying their advice on “the Proposal being acceptable” to AET, was no more than that, as matter of generality, the winding up of the trust was, at that high level, “acceptable” to Sparke Helmore. This is consistent with Mr Howard’s statement during his conference with Mr Johnston on 7 December 2011 that he was “not too concerned with the commercials” (see [119] above).

6. [325]

   The letter continued that it was “subject to the assumptions and qualifications” set out in the Schedule. There were 44 such assumptions or qualifications.

7. [326]

   One was, as I have set out earlier, in sub-cl (mm):

8. [327]

   Another was in cl 1.2 which stated:

9. [328]

   Another, also set out earlier, was in qualification (k), which included that:

10. [329]

    Assumption (mm)(1) and qualification (k) were essentially directed to whether implementation of the Proposal by way of the Tree Sale Agreement would affect the Covenantholders’ prospects of recovering their investment. Sparke Helmore was stating that it assumed that Covenantholders would recover their investment, notwithstanding the winding up of the trust and, but only inferentially, the loss of the security comprised by the Encumbrances.

11. [330]

    Assumption (mm)(2) was however directed to, amongst other things, the question of security. This assumption reflected the wording in cl 2(d)(i) of the Trust Deed that AET could withhold its consent to a sale of the Scheme Land by the Forest Company if reasonably satisfied that there was “any” reduction in the protections afforded to the Covenantholders.

12. [331]

    The assumption was that there would be no reduction in such protections.

13. [332]

    But Sparke Helmore knew that implementation of the Proposal by the Tree Sale Agreement would reduce the Covenantholders’ protections. The Encumbrances were to be released on completion. And yet Covenantholders would be entitled to payment only in accordance with the Proceeds Distribution Process, and thus not until the following year. The protections afforded to Covenantholders would be reduced.

14. [333]

    Sparke Helmore must therefore have known that assumption (mm)(2) was contrary to the true position and that, accordingly, so was the assumption in cl 1.2.

15. [334]

    In effect, Sparke Helmore stated that assuming, contrary to the fact, that the transaction would not reduce any protections afforded to the Covenantholders, the documents were in order for execution.

16. [335]

    This amounted to saying: “If there is no problem, then there is no problem”.

17. [336]

    What Sparke Helmore did not say was whether the documents were “in order for execution” when their effect would be to reduce the protections afforded to the Covenantholders. Sparke Helmore knew that AET had, by now, consented in principle to the Proposal. Sparke Helmore knew that AET could reasonably withhold its consent if the effect of the Proposal was to materially prejudice the interests of Covenantholders or to cause there to be any reduction in their protection.

18. [337]

    The fact that Sparke Helmore’s advice was conditional upon assumption (mm) and qualification (k) suggests that Sparke Helmore may have been meaning to convey that it assumed that AET had satisfied itself that its consent could properly be given under cl 2(d)(i) of the Trust Deed. That would be to say no more than:

19. [338]

    However that may be, the assumptions and qualifications to which the 22 December 2011 Document Confirmation Advice was subject rendered it to be of little, if any, value.

20. [339]

    Mr Sullivan put to Mr Howard that the advice Sparke Helmore gave to AET in this letter was “useless”. Mr Howard responded that:

21. [340]

    However, a short time later Mr Howard agreed that in light of its assumptions and qualifications, this advice was “useless and worthless”. Mr Howard said:

22. [341]

    In these circumstances, my conclusion is that the “sign off” comprised by the 22 December 2011 Document Confirmation Advice was one no reasonable trustee could have relied on.

23. [342]

    In my opinion, in response to the retainer to which this letter was directed, that is whether the relevant documents were “in order for execution”, Sparke Helmore should have advised AET that:

24. [343]

    These conclusions are consistent with, although not completely congruent with this evidence of Mr Schembri:

25. [344]

    I have concluded that the advice that Sparke Helmore gave AET fell short of what was called for by the 5 December 2011 retainer.

What would AET have done if Sparke Helmore had advised it appropriately?

1. [345]

   By the retainer of 5 December 2011, AET sought from Sparke Helmore a “legal signoff” in respect of the Tree Sale Agreement and the Put & Call Option Deed.

2. [346]

   In cross-examination, Mr Howard gave this evidence, which includes the passage referred to at [200] above:

3. [347]

   In his affidavit, Mr Howard said that he “decided, on behalf of AET, to consent” to the Proposal based on the 17 August 2011 Certification. However that evidence must be seen in light of Mr Howard’s email to Mr Joseph of 15 July 2011, set out at [83] above, where, to repeat, Mr Howard said:

4. [348]

   In effect, as Mr Lockhart accepted in final submissions, the 17 August 2011 Certification conveyed no more than that it was permissible for AET to enter into the Proposal involving, as it did, the winding up of the trust. In effect, to adopt Mr Howard’s words in his 15 July 2011 email, the effect of the 17 August 2011 Certification was that “the proposal is allowed under the documents”.

5. [349]

   As Mr Howard’s 15 July 2011 email stated, AET’s consent to the Proposal was also contingent upon it being “happy to proceed”. AET was happy to proceed, as indicated by Mr Howard’s 7 December 2011 statement that he was “not too concerned with the commercials” (see [119] above).

6. [350]

   Mr Howard made the same point in his email to Mr Joseph on 3 August 2011, that I have set out at [89] in which, to repeat, he said:

7. [351]

   The 17 August 2011 Certification was to the effect that the Proposal was “in accordance with the trust documents”.

8. [352]

   Some insight into Mr Howard’s thought process is contained in this passage of his affidavit:

9. [353]

   Further, as I have set out at [161] to [162] above, on 13 March 2012, Mr Howard’s position was to acknowledge the “risk we’re taking”, to doubt that there was “anything else we can do” and that “all we can do” was to sit and wait and hope it is fine.

10. [354]

    It is true that these remarks were made after AET was committed to the transaction. But there is no other insight into Mr Howard’s thought process, beyond what I have set out.

11. [355]

    Neither Mr Howard, nor anyone else from AET, has said why AET decided to proceed. Mr Howard’s evidence as to what motivated him to proceed was confined to the evidence he gave about the 17 August 2011 Certification; a document no longer relied on by AET. Mr Howard did not say what decision he would have made, had Sparke Helmore drawn his attention, in terms, to what he already knew, namely that the Encumbrances were to be released on completion, and that this involved Covenantholders moving from a secured position to an unsecured position. Nor did Mr Howard say what he would have done had Sparke Helmore spelled out what he should also have known, namely the true nature of the Encumbrances.

12. [356]

    Nor does the evidence reveal what would have happened had Mr Howard shared such advice with others at AET, particularly his superior Mr Joseph. I see force in Mr Donaldson’s submission that “[i]t is unthinkable that Mr Joseph was labouring under the same astonishing alleged misunderstanding of Mr Howard”. We will never know. Mr Joseph was not called. No explanation is given for the failure to call Mr Joseph.

13. [357]

    Sparke Helmore did not refer to the ANZ Charge in its advices. Sparke Helmore must be taken to have known of the ANZ Charge as Mr Johnston had ordered ASIC searches on 12 August 2011 and 20 December 2011 (see [93] and [134] above).

14. [358]

    But, as I have found, AET must also be taken to have known of the ANZ Charge (see [219] to [226] above).

15. [359]

    As I have set out, AET was faced with a difficult decision. In effect, as Mr Donaldson submitted, it was faced with the prospect of replacing one contingency, leaving Covenantholders with the status quo, with another, winding up the trust. And this against the background of Gunns’ evidently deteriorating financial position.

16. [360]

    In these circumstances, I am not able to come to any conclusion as to what AET would have done had Sparke Helmore given it the advice I have concluded was called for by the retainer.

17. [361]

    My conclusion is that AET has failed to establish that Sparke Helmore’s inadequate advice caused AET’s breach of trust.

Did AET’s breach of trust cause the Covenantholders’ loss?

1. [362]

   I have found that AET acted in breach of its duty as trustee. I have found that that breach included a failure to protect and vindicate the trust property, the Encumbrances.

2. [363]

   The question now arises as to the loss the Covenantholders have suffered by reason of AET’s breach. Of course, Mr Kerr must show that the Covenantholders’ loss was caused by AET’s breach of duty.

3. [364]

   In O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Spigelman CJ, with whom Priestley and Meagher JJA agreed, held that in a claim for equitable compensation concerning the improper application of trust money by the trustee of a traditional trust, the causal test will be satisfied “irrespective of the identification of a separate and concurrent cause, when the loss would not have occurred if there had been no breach of duty” (at 276-277).

4. [365]

   In the same case, Spigelman CJ said at 272:

5. [366]

   Most recently, the position was summarised by Gageler J in Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43 at [88]; (2018) 360 ALR 1 as follows:

6. [367]

   The relevant principles were recently and very helpfully discussed by Elliott J in Ahrkalimpa Pty Ltd v Schmidt (No 3) [2019] VSC 197:

7. [368]

   Mr Lockhart cited the following passage from the decision of the High Court of Australia in Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15, evidently in support of the proposition that common law considerations of causation, foreseeability and remoteness are presently applicable:

8. [369]

   However, the immediately succeeding paragraph in Youyang shows that the cases cited by their Honours should not be seen as law in Australia. Thus their Honours said:

9. [370]

   As the learned authors of Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed, 2015, LexisNexis Butterworths) observed at [23-370]:

10. [371]

    I accept the submission advanced on behalf of Mr Kerr that the applicable test is whether “but for” the breach of trust, the Covenantholders’ loss would not have occurred. Once the “but for” test is satisfied, the onus shifts to AET. To repeat, as it was put by Elliott J in Ahrkalimpa at [33]:

11. [372]

    I should add that I do not see that anything that fell from Bathurst CJ in The Australian Special Opportunity Fund LP v Equity Trustees Wealth Services Ltd [2015] NSWCA 225 at [160] is inconsistent with what I have set out. Indeed, the Chief Justice did not question the principles earlier stated by the High Court in Youyang or by the Court of Appeal in O’Halloran.

12. [373]

    Mr Sullivan put the “but for” point this way:

13. [374]

    Mr Kerr’s submission is that AET breached its duties as trustee by agreeing to discharge the Encumbrances without first ensuring that it received payment, or alternative security, and that “but for” that breach the Covenantholders would have suffered no loss.

14. [375]

    But that case assumes that AET could have procured such a result; or, to adopt Mr Sullivan’s language in oral submissions, that AET would successfully have “insisted” that this occur. The question is whether it is more probable than not that this would have occurred.

15. [376]

    If the Encumbrances had remained in place following completion, they would have secured the obligations of the Forest Company to pass on to AET money it received from the Milling Company between completion in March 2012 and Gunns’ collapse in September 2012. But there is no evidence enabling me to come any conclusion about what that amount might be.

16. [377]

    In any event, that is the position that the Covenantholders would have been in had there been “no transaction”.

17. [378]

    As Mr Donaldson said in his closing submissions:

18. [379]

    The critical question is what would have happened had AET insisted that the Encumbrances not be released without either: payment to the Covenantholders of the amount to which that they would ultimately be entitled; or the provision of alternative security. For Mr Kerr to show that the Covenantholders have suffered loss as a result of AET’s breach, he must establish that the Covenantholders would probably have either been paid or given alternative security.

19. [380]

    In this regard, Mr Sullivan directed his submissions to the proposition that it is likely, had AET so insisted, that the Covenantholders would have been paid out at settlement. I will call this the “Payout Counterfactual”.

20. [381]

    Mr Sullivan pointed to the following circumstances in support of the Payout Counterfactual.

21. [382]

    First, the Proposal involved the sale of all Gunns’ interests in the Green Triangle. The Scheme Trees comprised only some 10% of that interest.

22. [383]

    Gunns’ original proposal, set out in its letter to AET of 4 March 2011 (see [66] above), was to sell the Scheme Land and the Scheme Trees subject to the Encumbrances. That suggested, Mr Sullivan submitted, that Gunns was not then contemplating using the Covenantholders’ assets in reduction of its debts.

23. [384]

    As I have described, the transaction then evolved into one which would effectively result in the winding up of the trust.

24. [385]

    There are a number of documents which suggest that in 2011 and early 2012 Gunns’ lender, ANZ, was in what Mr Sullivan described as “work out mode”, as opposed to “enforcement mode”; that is, ANZ was “urgently progressing a work out solution” to Gunns’ financial difficulties, including an asset sale program.

25. [386]

    In September 2011, ANZ prepared a presentation which recorded that Gunns’ proposed sale included its freehold land in the Green Triangle and its interest in timber planted on that land including “Covenant holder trees on 3,200 ha”.

26. [387]

    The presentation recorded that Gunns had executed a “Heads of Agreement” with the proposed purchaser, “GMO”, and that Gunns was also negotiating with an entity called “New Forests”.

27. [388]

    The ANZ presentation included a “Headline Offer Comparison” in the following form (footnotes omitted):

28. [389]

    The table records ANZ’s estimate of the “Adjusted Total” net proceeds on the sale of Gunns’ assets to GMO and New Forest. In both cases, ANZ has deducted from the likely “Adjusted Total” $45.7 million being “consideration for Covenant holder interest (including land interest)”. That suggests, as Mr Sullivan submitted, that ANZ did not anticipate receiving on completion of the proposed sale the $45.7 million it understood was due to Covenantholders.

29. [390]

    In an internal ANZ communication dated 12 October 2011, ANZ’s Director of Mergers and Acquisitions, Mr Greg Dunstan, recorded that “New Forests have now entered a Heads of Agreement to acquire Gunns’ land in the [G]reen Triangle” and that “[t]he total offer for the Gunns land and trees and GMO trees is A$370 million”.

30. [391]

    Mr Dunstan then set out the following “summary of the indicative flows from total consideration”:

31. [392]

    Again, this document bespeaks a contemplation by ANZ that the Covenantholders will be paid $44 million before any “Gunns Proceeds” was available to reduce Gunns’ indebtedness to ANZ.

32. [393]

    On 21 February 2012, the Director of ANZ Lending Services, Mr Russell Smith wrote to Gunns’ Company Secretary, Mr Wayne Chapman, stating that he was “still struggling with the numbers” and continuing:

33. [394]

    Mr Chapman replied later that day:

34. [395]

    Mr Chapman thus confirmed, evidently to Mr Smith’s satisfaction, that there would be a “payout” to Covenantholders in settlement of $34 million.

35. [396]

    As Mr Sullivan submitted, these documents suggest that, prior to the transaction, and after entry into the transaction but before completion, neither Gunns nor its lenders had any anticipation of Covenantholders’ entitlements being applied in reduction of Gunns’ indebtedness. My attention has not been drawn to any evidence to the contrary.

36. [397]

    Mr Lockhart submitted that the documents do no more than identify the amount that ANZ understood to be contractually due by Gunns to the Covenantholders. I do not accept that submission. The documents appear to me to be setting out what ANZ understood would be available to it on completion of the transaction and to bespeak an understanding by ANZ that Covenantholders would be paid first.

37. [398]

    In oral submissions, Mr Lockhart drew attention to the more robust attitude shown by ANZ in August 2012.

38. [399]

    As I have set out at [183] above, on 1 August 2012, Gunns wrote to ANZ suggesting that it retain $15 million from the proceeds of the sale “to provide adequate funding in relation to its $15 million mandatory obligations to growers under the Great Southern Managed investment scheme”. In response, on 9 August 2012, ANZ stated that it remained “to be convinced that the Covenant Holders have any direct entitlement (in trust or otherwise) to the net proceeds of unit redemptions that ranks ahead of the lenders” (see [186] above).

39. [400]

    The first point is that this exchange of correspondence appears to relate to a different investment scheme than the one the subject of these proceedings. Even if this exchange relates to the subject scheme, I do not see that it casts any light on ANZ’s likely attitude prior to completion. By August 2012 the transaction had been completed. The Encumbrances had been released. ANZ was then clearly in “enforcement mode”.

40. [401]

    In late June 2011, there were media reports that Gunns was “under pressure to relieve debt” and that the sale of its “Green Triangle pine plantations for about $107 million” was “less than half the listed value”.

41. [402]

    Consistently with those reports, on 30 June 2011, Gunns explained to a member of its lending syndicate that it was obliged to offer a prospective purchaser a “significant discount” to reflect “the encumbrance of the land by the existing equity interests”, including the Covenantholders.

42. [403]

    The media reports were also confirmed in Gunns’ Consolidated Financial Statements for FY2011 which recorded an “Impairment of Auspine Assets” as follows:

43. [404]

    The financial statements recorded that:

44. [405]

    In the “Chairman’s Review”, Gunns’ Chairman, Mr Chris Newman, recorded that:

45. [406]

    Mr Newman’s references to the “pulp mill project” was a reference to the Bell Bay pulp mill which Gunns was then constructing.

46. [407]

    On 19 September 2011, Gunns delivered a “Market Update” to the Australian Securities Exchange in which it stated:

47. [408]

    On 22 December 2011, Gunns published to the ASX a further Market Update:

48. [409]

    On 30 January 2012, Gunns published a further statement to the ASX entitled “Extension of Financing Facilities” which confirmed that its debt facilities had been extended to 31 December 2012 and that:

49. [410]

    These matters suggest that Gunns was under financial stress and highly motivated to sell its assets in the Green Triangle.

50. [411]

    There is also evidence to suggest that Gunns was powerfully motivated, Mr Sullivan submitted “desperate”, to ensure that the sale of its Green Triangle assets proceeded and to avoid a “no transaction” scenario.

51. [412]

    Mr Nguyen was keen to see the Proposal go through, hence his email to Mr Howard immediately before execution of the Put & Call Option agreement that anything to get him away from “the cliff face” would be gratefully accepted (see [152] above).

52. [413]

    I have referred to the exchange between Mr Nguyen and Mr Johnston on 20 and 21 December 2011 about the proposed “GST side letter” (see [135] to [138] above).

53. [414]

    This exchange was born of the realisation around 20 December 2011 that the Tree Sale Agreement may attract a GST liability. Gunns proposed that one of its subsidiaries loan the purchaser, interest free, an amount equal to any GST liability. AET refused to participate in this transaction. When Sparke Helmore informed Gunns that the proposed side letter was not acceptable, Mr Nguyen’s reply stating he had “intentionally CC’d our Managing Director” and asked AET to “urgently reconsider” stating that the transaction “is in real jeopardy otherwise”. AET maintained its refusal to participate in the side letter.

54. [415]

    As Mr Sullivan submitted that “this suggests Gunns, when pushed, would accommodate AET’s position”. It also shows how desperate Gunns was to get the transaction over the line.

55. [416]

    A further indication of Gunns’ anxiety to finalise the transaction is revealed in Mr Nguyen’s email to Mr Howard on 24 February 2012, to which I have referred at [157] above.

56. [417]

    As I have set out at [158], Gunns was in effect agreeing to provide vendor finance to “ensure the sale will proceed”.

57. [418]

    In these circumstances Mr Sullivan submitted:

58. [419]

    Finally, as I have already set out, Gunns was proceeding with the Green Triangle sale at what it and the media regarded as a substantial undervalue.

59. [420]

    In final oral submissions, Mr Lockhart accepted that, had AET indicated a refusal to release the Encumbrances, there would have been a negotiation between AET, Gunns and Gunns’ lenders. Thus, as Mr Sullivan submitted in reply, AET effectively admitted that causation was established.

60. [421]

    Mr Lockhart said:

61. [422]

    Mr Lockhart’s statement was made in the context of a submission that the most that ANZ was likely to permit be paid to Covenantholders was the value of the Scheme Land which, Mr Lockhart submitted was $16 million. I will turn to that submission shortly.

62. [423]

    Subject to what follows, the matters I have set out from [381] to [422] point strongly to the conclusion that, had AET insisted that it would not discharge the Encumbrances without payment to it of the Covenantholders’ entitlements, in effect the Tree Sale Proceeds, ANZ and Gunns would have acceded to AET’s demands.

63. [424]

    What follows is consideration of a number of arguments put by Mr Lockhart to the contrary effect.

64. [425]

    As set out at [421], Mr Lockhart submitted that, in any negotiation with ANZ, ANZ would only have agreed to release to AET, and thus to the Covenantholders, an amount equal to the value of the Scheme Land.

65. [426]

    Mr Lockhart submitted that the evidence showed that the Scheme Land “had been independently value as being $16 million”. Mr Lockhart submitted:

66. [427]

    The valuation upon which Mr Lockhart relied was the “Abridged Land Valuation Results”, which is an appendix to a valuation prepared by VDFC Forestry Consultants in July 2011. That valuation shows that the $16 million figure is one prepared by Colliers a year earlier, in June 2010.

67. [428]

    Mr Sullivan submitted that a more reliable guide to the value of the Scheme Land at the relevant time was the amount that the purchaser had agreed to pay for the land under the land sale contracts.

68. [429]

    Initially, Mr Sullivan submitted that the value attributed to Covenantholder lots in the land sale contracts was $24,934,000. Mr Lockhart submitted in reply that this calculation overlooked an earlier sale of Covenantholder land and that the true price of Covenantholder land in the land sale contracts was $18,320,000. I understand that this is now accepted by Mr Kerr.

69. [430]

    However, the nature of the Encumbrances is that they do not secure only the value of the land. They secured “all and singular” the obligations of the Forest Company under the Trust Deed. Were the Covenantholders to exercise their power of sale under the Scheme Land they would, no doubt, only recover an amount equal to its value. But they were entitled to maintain the Encumbrances on the title of the Scheme Land until all monies due to them from the Forest Company were paid.

70. [431]

    In those circumstances, I am not prepared to speculate that ANZ would only have agreed to release to AET the value of the Scheme Land.

71. [432]

    Mr Lockhart submitted, again in response to the Payout Counterfactual, that if payment to it of $16 million was not acceptable to AET:

72. [433]

    Mr Lockhart did not point to any evidence which could justify that submission. It involves a high degree of speculation.

73. [434]

    As Mr Sullivan submitted, it involves “precisely the kind of speculation, against a plaintiff and in favour of a defaulting trustee, which equity forbids in a claim for equitable compensation against a defaulting trustee”. Mr Sullivan pointed to Elliott J’s observations in Ahrkalimpa, at [34], which I set out earlier:

74. [435]

    In any event, it appears to me unlikely that Gunns would have proceeded this way. As early as 14 January 2011 Gunns had stated in its Information Memorandum that it wished to “sell the entire estate” (see [61] above).

75. [436]

    And, as I have set out at [405], Gunns’ Chairman’s report for FY2011 emphasised how “pivotal” the asset sale program was for Gunns’ future financing requirements.

76. [437]

    On 8 December 2011, an officer of ANZ wrote to Gunns’ Company Secretary, Mr Chapman, enquiring:

77. [438]

    Mr Chapman replied:

78. [439]

    Thus Gunns emphasised to its lender that the sale of its entire interest in the Green Triangle had been effected to “realise a better price”. In those circumstances, it seems unlikely that Gunns would have excised the Scheme Land.

79. [440]

    Further, and as a practical matter, there is no evidence that the Scheme Land could be excised. Gunns’ property interests were located on a large number of disparate sites to the east of South Australia and the west of Victoria. There was no evidence that the Scheme Land titles were contiguous or that non-Covenantholder titles could be sold independently of Covenantholders’ titles. It may be that Covenantholders’ interests were surrounded by non-Covenantholder interests in certain parts of the estate. There is no evidence either way.

80. [441]

    I am not prepared to speculate that, had Gunns been faced with a refusal by AET to release the Encumbrances, Gunns would have sought to excise the Scheme Land from the sale.

81. [442]

    As at 30 June 2012, the Forest Company and Auspine were Covenantholders. Mr Lockhart produced a complicated series of calculations designed to show that the value of the Covenants owned by the Forest Company and Auspine was in the order of $5.17 million. In those circumstances, Mr Lockhart submitted, again in response to the Payout Counterfactual:

82. [443]

    In my opinion, this submission overlooks the point that, whatever Gunns might have proposed, AET as trustee had a duty to act impartially, and not to favour one beneficiary over others: Howe v Earl of Dartmouth (1802) 32 ER 56.

83. [444]

    The counterfactual posed by Mr Lockhart assumes that AET would have acceded to a proposal by Gunns to prefer the interests of its subsidiary Covenantholders, who on this hypothesis would have been paid immediately, to the interests of all the other Covenantholders who would, on this hypothesis, have to await a distribution in due course.

84. [445]

    Not only is it a matter of speculation as to whether Gunns would have adopted this position, AET could not have agreed to it without acting in breach of trust.

85. [446]

    Included in the amounts that, under the Proceeds Distribution Process, would ultimately be paid to Covenantholders were the 2011 Harvest Proceeds and the 2012 Harvest Proceeds.

86. [447]

    As I mentioned at [29]:

    1. (1)

       the 2011 Harvest Proceeds totalled $11,051,041.49 of which $4,952,579.60 was actually been received by AET; and

    2. (2)

       the 2012 Harvest Proceeds totalled $5,148,552.31.

87. [448]

    In the ordinary course, the 2011 and 2012 Harvest Proceeds were payable in accordance with the Proceeds Distribution Process; that is, between April and August 2012 for the 2011 Harvest Proceeds, and between April and August 2013 for the 2012 Harvest Proceeds.

88. [449]

    In those circumstances, Mr Lockhart submitted, again in response to the Payout Counterfactual:

89. [450]

    This submission can only have application to that part of the 2011 Harvest Proceeds as was not paid to AET, and to the 2012 Harvest Proceeds. No question of what Gunns “would have allowed” can arise in relation to that part of the 2011 Harvest Proceeds as were actually paid to AET.

90. [451]

    Under cl 2(d)(i) of the Trust Deed, AET could reasonably withhold its consent to the sale of the Scheme Land by the Forest Company in circumstances where there might be material prejudice to the interests of Covenantholders or a reduction in the protection afforded them.

91. [452]

    As the Encumbrances secured “all and singular the terms, conditions, covenants and provisions” contained in the Trust Deed, they secured to the Covenantholders payment of the 2011 Harvest Proceeds and the 2012 Harvest Proceeds. While the Encumbrances only secured performance by the Forest Company of its obligations, AET was not obliged to release the Encumbrances until such time as all of its obligations, including passing on to AET the 2011 and 2012 Harvest Proceeds, had been completed.

92. [453]

    Mr Howard gave no thought to the matter. Thus he gave this evidence:

93. [454]

    Mr Sullivan drew attention to the observations of Handley JA in Kingsgrove RSL v Spasevski [2002] NSWCA 342 at [42]:

94. [455]

    I find his Honour’s observations to be apposite here.

95. [456]

    In those circumstances, I accept Mr Sullivan’s submission that, as the party in breach, AET bears the onus to establish that the unpaid 2011 Harvest Proceeds and the 2012 Harvest Proceeds would not have been paid, had a demand been made. I am not prepared to speculate against Mr Kerr in favour of AET, the defaulting trustee, as Mr Lockhart has invited me to do; particularly as it is clear that AET, through Mr Howard, gave no thought to the matter at the time.

96. [457]

    It is common ground that AET received $4,952,579.60 of the 2011 Harvest Proceeds. My attention has not been directed to evidence indicating when AET received these funds. However the parties’ submissions proceeded upon the basis that this sum was received prior to completion of the Tree Sale Agreement.

97. [458]

    This amount was not distributed to Covenantholders in the ordinary course. Mr Lockhart submitted that the funds had been “appropriately held” and “are the only assets of the trust available for the trustees (including Mr Kerr) to have resort to in respect of any costs incurred in administrating the trust that they may be indemnified for.

98. [459]

    Evidently, these funds were used to fund the Korda litigation and are thus included in the Receiver Costs that Mr Kerr seeks to recover. In those circumstances a question of double recovery arises, which I deal with below at [492]-[494].

99. [460]

    As Mr Sullivan submitted, had AET not breached its duties, this amount would have been distributed to Covenantholders in the ordinary course. AET does not suggest to the contrary. As Mr Sullivan put it:

100. [461]

     Accordingly, subject to the question of double recovery, Mr Kerr is entitled to succeed on this issue.

101. [462]

     None of the matters advanced by Mr Lockhart persuades me to depart from the preliminary conclusion I expressed above at [423]. Mr Kerr has established that, had AET insisted on receiving payment in exchange for discharging the Encumbrances, it is probable that it would have received the Tree Sale Proceeds.

102. [463]

     It is, however, necessary to consider some further arguments developed by Mr Lockhart as to whether Gunns would have succeeded in negotiating certain deductions from the amount payable to AET from the Tree Sale Proceeds.

103. [464]

     Mr Kerr and AET dealt with these questions under the heading “Quantum”.

Quantum

1. [465]

   I have set out at [29] above the amounts claimed by Mr Kerr. To repeat, Mr Kerr claims:

2. [466]

   The Tree Sale Agreement called for adjustments to be made, after settlement, to account for the difference between the harvesting areas referred to in the Tree Sale Agreement and the harvesting areas in fact transferred to the purchaser on completion; such difference being accounted for by ongoing harvesting of timber in the meantime.

3. [467]

   Mr Lockhart calculated that the adjustment required in favour of the purchaser was $3,281,481.80.

4. [468]

   Mr Sullivan criticised the basis upon which the figure of $3,281,481.80 was calculated but submitted that the larger point was that there was no evidence that any such adjustment had been made. Mr Sullivan repeated that submission orally in final address.

5. [469]

   I gave Mr Lockhart leave to put in short submissions in reply. Mr Lockhart did not mention this matter in those submissions.

6. [470]

   That, it seems to me, is the end of the matter.

7. [471]

   However, for completeness, I should record that, in final submissions, Mr Sullivan accepted that if, as I have found, Mr Kerr was to recover the unpaid 2012 Harvest Proceedings, it would be reasonable to deduct the amount of $3,281,481.80.

8. [472]

   Thus Mr Sullivan said:

9. [473]

   Mr Lockhart submitted that:

10. [474]

    Mr Lockhart’s submissions continued:

11. [475]

    The “[d]ocuments that have recently been produced by ANZ” included a document dated 30 January 2012 called “Project Saturn Update”.

12. [476]

    Mr Lockhart did not refer to this document in oral address but it records ANZ’s understanding that the amount to be distributed to Covenantholders following settlement was to be $26 million “over May-September 2012”. I assume that the inference I am invited to draw is that the difference between that figure and the Tree Sale Proceeds of $33,999,998 was on account of commissions to be paid to the Milling Company and the Forest Company, which would have been in the order of $8 million.

13. [477]

    This may be how ANZ saw things. But if the consideration that Gunns had negotiated be paid to it for the Scheme Trees, and thus the amount to be passed on to Covenantholders, took account of the commissions payable to the Milling Company and the Forest Company, there would be no basis for Gunns to argue that the amount payable to Covenantholders would be subject to deduction of those commissions.

14. [478]

    On 19 August 2011, Gunns obtained a valuation of the Scheme Trees from VDFC Forestry Consultants. In that valuation, Mr Cross, of VDFC Forestry Consultants, opined that the net value of the Scheme Trees was $34,756,612. The schedules annexed to that valuation make clear that that figure is net of deductions for the 20% commission to which the Milling Company was entitled and the 5% commission to which the Forest Company was entitled.

15. [479]

    On 23 November 2011, Mr Howard wrote to Mr Nguyen requesting a “letter from the valuer” confirming that AET could rely on the valuation as well as:

16. [480]

    On 23 November 2011, Mr Nguyen replied saying that he would “liaise with the Valuer ASAP” and, a few minutes later, emailed Mr Howard:

17. [481]

    On 24 November 2011, VDFC Forestry Consultants produced a further valuation of the Scheme Trees of $33,105,149.

18. [482]

    In his covering letter of 24 November 2011 addressed to AET, Mr Cross said:

19. [483]

    The second valuation is also dated July 2011 on its front cover but the disclaimer is dated 24 November 2011 and the valuation is expressed to be “based on inventory at 24 November 2011”. Mr Cross opined:

20. [484]

    As did the first valuation, the second valuation refers in terms to “expenses” which include the commissions payable to the Milling Company and the Forest Company. At par 7.2.3 of the valuation Mr Cross said that in calculating cash flows the “annual expenses per hectare” were calculated and that:

21. [485]

    Although I do not find the valuation to be pellucid on this point, it appears unlikely that this was intended by Mr Cross to be an exhaustive list of the “expenses” he included when determining the discounted value of $33,105,149.

22. [486]

    It does appear, although he did not spell this out in this valuation, that the commissions payable to the Milling Company and the Forest Company were included in the expenses that Mr Cross took into account. The indication that this must be so is that Mr Cross’s second valuation is only $1,650,851 less than his first valuation. It is likely that the difference is attributable to the “further harvesting” of timber, which Mr Nguyen referred in his 23 November 2011 email between June and November 2011. The first valuation was net of the Milling Company and Forest Company commissions. Those commissions amount to some $8 million and could not account for the relatively modest difference between Mr Cross’s two valuations.

23. [487]

    Overall, it appears probable that both of Mr Cross’s valuations are net of commission.

24. [488]

    Mr Lockhart submitted that it was unlikely that the Tree Sale Proceeds were net of commission because “the purchaser is an unrelated entity” and that “it wouldn’t make sense for the figure of the actual sale to have taken from it what is to be paid to Milling and Forest”. But that is not the point. The point is that if, as I have said at [477] above and as the valuations suggest, the negotiated price took account of the commissions otherwise payable to the Milling Company and the Forest Company, there would be no basis for Gunns to contend that those commissions be later paid out of the funds due to the Covenantholders.

25. [489]

    Further, as was said on behalf of Mr Kerr in submissions in reply:

    1. (1)

       the sale of the Scheme Land remaining on the wind up of the trust was not a matter covered by the Trust Deed and Tripartite Agreement, which contemplated a long term scheme where the timber would be felled, milled and sold progressively rather than with the Scheme Land in a single transaction;

    2. (2)

       whether the Milling Company and the Forest Company would, in those circumstances, have been entitled to the commissions specified in the Trust Deed and Tripartite Agreement is by no means clear; and

    3. (3)

       in those circumstances, it may be that Gunns did not think the commissions were payable.

26. [490]

    There is no direct evidence of what Gunns intended in relation to the commissions. The valuations suggest the purchase price for the Scheme Trees was negotiated taking into account commissions otherwise payable to the Milling Company and the Forest Company.

27. [491]

    In those circumstances I am not prepared to infer, in AET’s favour, that Gunns would in any negotiation, have insisted on a deduction on account of such commissions.

28. [492]

    These are the costs incurred by AET in pursuing the Korda litigation. It is true, as Mr Kerr submits, that litigation would never have been necessary if AET had received payment or substitute security.

29. [493]

    However, as I have mentioned, AET used part of the paid 2011 Harvest Proceeds to fund the Korda litigation.

30. [494]

    In those circumstances, I think Mr Lockhart was correct to submit that if, as I found, Mr Kerr is entitled, as compensation, to payment of the full amount of the Paid 2011 Harvest Proceeds, it would be double counting to also receive the Receiver Costs in circumstances where those costs were paid from those proceeds.

31. [495]

    These are the costs incurred to secure Mr Kerr’s appointment as independent trustee to bring these proceedings.

32. [496]

    AET denied, and in these proceedings continued to deny, the claims of Mr Kerr and had previously refused to investigate them. AET, through Sparke Helmore, denied liability and went so far as to assert that these proceedings had no prospects of success.

33. [497]

    In his closing submissions, Mr Kerr summarised AET’s conduct following the High Court’s decision in Korda as follows:

34. [498]

    In final submissions, AET did not dispute any of these matters. In those circumstances, Mr Kerr is entitled to recover the Appointment Costs.

35. [499]

    These are the costs incurred by Mr Kerr in obtaining advice from this Court pursuant to s 63 of the Trustee Act 1925 (NSW) that he would be justified in bringing these proceedings.

36. [500]

    AET did not dispute that if Mr Kerr was otherwise entitled to equitable compensation he should recover these costs.

Apportionment issue

1. [501]

   At the outset of the hearing, AET asserted that Mr Kerr’s claim was apportionable under either ss 3 and 4 of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) or s 34 of the Civil Liability Act 2002 (NSW).

2. [502]

   AET named Sparke Helmore and the Forest Company as concurrent wrongdoers.

3. [503]

   The question arises as to whether the law of South Australia or New South Wales applies to this question.

4. [504]

   Mr Lockhart accepted that if South Australian law applies, there can be no apportionment.

5. [505]

   AET drew attention to the opinion expressed by the learned authors in Nygh’s Conflict of Laws in Australia (9th ed, 2013, LexisNexis Butterworths) at [20.23] that:

6. [506]

   The learned authors of that text also make this observation at [16.32]:

7. [507]

   In John Pfeiffer Pty Ltd v Rogerson (2000) 203 CLR 503; [2000] HCA 36 at [99], the High Court observed that a guiding principle in determining whether an issue is substantive or procedural is that:

8. [508]

   The High Court also observed that “all questions about the kinds of damage, or amount of damages that may be recovered, would likewise be treated as substantive issues governed by the lex loci delicti”: John Pfeiffer at [100].

9. [509]

   In my opinion, apportionment legislation is concerned with matters of substance, and not merely matters of procedure. It directly affects the extent of the parties’ rights or duties, as well as any amount of damages that may be recovered.

10. [510]

    As Mr Kerr submitted, that although the Trust Deed does not have a choice of law clause, the Trust has its most real and substantial connection with South Australia, and not New South Wales, as:

11. [511]

    The lex loci delicti here is the law of South Australia. It thus follows from Mr Lockhart’s concession that no question of apportionment arises.

Exoneration under the Trustee Act

1. [512]

   Finally, AET sought to be exonerated under either s 56 of the Trustee Act 1936 (SA) or s 85 of the Trustee Act 1925 (NSW) on the basis that it “acted honestly and reasonably, and ought fairly to be excused” for the breach of trust that I have found.

2. [513]

   There is no basis to conclude that AET acted otherwise than honestly.

3. [514]

   AET submitted that it had acted reasonably in that:

4. [515]

   In my opinion, AET is not entitled to the benefit of either of the sections relied on. It did not act reasonably. It relied upon advice from Sparke Helmore that no reasonable trustee would have relied on.

5. [516]

   In Elder’s Trustee & Executor Co Ltd v Higgins (1963) 113 CLR 426; [1963] HCA 48, the High Court said, at [452]:

6. [517]

   No such “strong case” has been made out here.

Conclusion

1. [518]

   I invite the parties to confer and agree on the orders necessary to give effect to these reasons.