FEDERAL COURT OF AUSTRALIA Australian Securities and Investments Commission v Letten (No 22) [2014] FCA 681 Citation: Australian Securities and Investments Commission v Letten (No 22) [2014] FCA 681 Parties: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v MARK RONALD LETTEN File number: VID 95 of 2010 Judge: GORDON J Date of judgment: 26 June 2014 Date of hearing: 11 June 2014 Date of last submissions: 20 June 2014 Place: Melbourne Division: GENERAL DIVISION Category: No Catchwords Number of paragraphs: 77 Counsel for the Receivers: Mr R Strong Solicitors for the Receivers: King & Wood Mallesons Counsel for the First Defendant: Mr IG Waller QC and Mr S Hibble Solicitors for the First Defendant: Baker & McKenzie IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 95 of 2010 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: MARK RONALD LETTEN First Defendant (and others according to the attached schedule) JUDGE: GORDON J DATE OF ORDER: 26 June 2014 WHERE MADE: MELBOURNE THE COURT ORDERS AND DIRECTS THAT: 1. The Receivers (as defined in Annexure A) are justified in deploying funds from the Common Fund (as defined in the Orders made by the Honourable Justice Gordon on 11 November 2010) in the institution and prosecution of the Breach of Trust Litigation (as defined in Annexure A). 2. The Receivers are justified in entering into the Proposed Legal Costs Agreement with King & Wood Mallesons, Exhibit DJT 291 to the 47th Affidavit of Damien John Templeton sworn 5 June 2014. 3. The Receivers are justified in entering into the Proposed KPMG Fee Agreement, Exhibit DJT 292 to the 47th Affidavit of Damien John Templeton sworn 5 June 2014. 4. Notwithstanding paragraph 20 of the order made by Gordon J on 25 February 2010, the Receivers shall not be entitled to any remuneration for time spent by the Receivers, their partners and staff, in the performance of their duties in connection with the institution or conduct of the Breach of Trust Litigation save as provided in paragraph 5. 5. In the event that the Breach of Trust Litigation results in a Recovery (as defined in Annexure A), the Receivers shall be entitled to reasonable remuneration and reasonable costs and expenses properly incurred (not exceeding the amount of the Recovery) as may be fixed by the Court on the application of the Receivers, such sum to be calculated on the basis of the time reasonably spent by the Receivers, their partners and staff, in the conduct of the Breach of Trust Litigation at the rates previously ordered by the Court multiplied by 1.25 as per the Proposed KPMG Fee Agreement. 6. Costs reserved. Annexure A Breach of Trust Litigation means the proposed proceeding by Nicholson Street Pty Ltd (ACN 069 104 089) (Receivers and Managers Appointed) (In Liquidation), Twinview Nominees Pty Ltd (ACN 089 906 543) (Receivers and Managers Appointed) (In Liquidation) and the Glen Centre Hawthorn Pty Ltd (ACN 097 307 278) (Receivers and Managers Appointed) (In Liquidation) against Mark Ronald Letten and Paul James Lane as described in the 45th Affidavit of Damien John Templeton sworn on 27 March 2014. Receivers means Damien John Templeton and Phillip Hennessy, in their capacity as receivers and managers appointed by the Court on 25 February 2010, 4 March 2010 and 30 July 2010. Recovery means the aggregate of: (i) any amounts received by the Receivers in satisfaction (in whole or in part) of any judgment obtained in the Breach of Trust Litigation; and (ii) any amounts received by the Receivers pursuant to terms of a settlement of the Breach of Trust Litigation. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth). IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 95 of 2010 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff AND: MARK RONALD LETTEN First Defendant (and others according to the attached schedule) JUDGE: GORDON J DATE: 26 JUNE 2014 PLACE: MELBOURNE REASONS FOR JUDGMENT 1. INTRODUCTION 1 This is the 22nd judgment in a series about unregistered managed investment schemes in which Mr Mark Ronald Letten (Mr Letten), the first defendant, was involved. The history was summarised in Australian Securities and Investments Commission v Letten (No 7) (2010) 80 ACSR 401 (Letten No 7) at [7]-[12]. The same terms and abbreviations are adopted in these reasons for judgment. 2 The Receivers sought a direction that they are justified in deploying funds from the Common Fund, as defined in the Orders made in this proceeding on 11 November 2010, in order to fund proceedings (the Proposed Proceeding) against Mr Letten and Mr Paul James Lane (Mr Lane). Mr Letten was a director and company secretary of Nicholson Street Pty Ltd (ACN 069 104 089), The Glen Centre Hawthorn Pty Ltd (ACN 089 906 543) and Twinview Nominees Pty Ltd (ACN 097 307 278) (the Companies) and a director and company secretary of LGH Administration Pty Ltd (ACN 077 165 069) (LGHA). Mr Lane was also a director of each Company. The Companies were three of the Corporate Defendants that were the subject of orders made on 25 February 2010, 4 March 2010 or 30 July 2010 (the Appointment Orders). The Receivers were subsequently appointed Liquidators of the Companies and of LGHA. 3 For the reasons that follow, the direction sought by the Receivers should be made. 2. FACTS 4 The receiverships and the various applications made by the Receivers in the course of those receiverships have been the subject of numerous judgments. For present purposes, it is sufficient to refer to the following facts and matters. 5 The Schemes were ordered to be wound up. In relation to the Companies and LGHA, the relevant Appointment Order provided: 3. Pursuant to s 1323(1)(h)(ii) of the [Corporations Act 2001 (Cth) (Act)], and subject to … any further or other order of the Court, Mr Damian Templeton and Mr Phillip Hennessy of KPMG (the Receivers), be appointed, without giving security, as joint and several receivers and managers of the Property (as defined in Annexure A to these Orders) of each of the second to sixteenth and eighteenth to forty-fifth defendants (the Corporate Defendants) … with all of the powers provided in ss 420(1) and (2) of the Act, except the power of sale, for the purposes of identifying and securing all of the assets of the Corporate Defendants. … 5. Pursuant to s 601EE(2) of the Act, alternatively ss 1323(1)(h) and (3) of the Act, and Order 26 of the Federal Court Rules, and subject to … any further or other order of the Court, the Receivers, be appointed, without giving security, as joint and several receivers and managers of the Property of the Schemes (as defined in Annexure A to this Order) to: (a) identify, collect, and secure the Property; (b) identify, and secure the Property in the possession, custody or control of each of the Corporate Defendants; (c) protect the Property in the interests of persons to whom the Corporate Defendants are liable, or may be or become liable, to pay money, whether in respect of a debt, by way of damages or compensation or otherwise, or to account for securities, or other Property; (d) ascertain the amount of the funds received, or paid out, by each of the Corporate Defendants in consequence of promoting, offering and/or operating the Schemes; (e) identify any dealings with, payments of, or distributions by or uses made of the funds referred to in (d) of this paragraph by each of the Corporate Defendants; (f) identify any Property purchased or acquired with the funds referred to in (d) of this paragraph; (g) recover funds referred to in (d) of this paragraph; (h) provide reports to the Court as referred to in paragraph 11 of these orders; (i) commence the orderly winding up of the Schemes ordered to be wound up pursuant to paragraph 4 of these orders. … 8. Subject to these Orders, … and any further or other order of the Court, the Receivers shall have: (a) all powers necessary to identify, and secure the Property of each of the Schemes; (b) all powers necessary to collect the funds referred to in paragraph 5(d) of these Orders; (c) without limiting sub-paragraph (a) and (b), the powers set out in ss 420(1) and (2) of the Act, provided that the Receivers may not exercise the power to dispose of any Property of the Schemes; (d) the power to apply to the Court for directions or further orders, including orders varying the terms of these Orders. (Emphasis added.) 6 Property was defined to mean "all real or personal property, assets or interests in property of any kind, within or outside Australia including, by virtue of s 1323(2A) of the [Corporations] Act, any property held otherwise then as a sole beneficial owner". 7 On 11 November 2010, the Receivers obtained pooling orders creating a Common Fund: Letten No 7. Since that date, the Receivers have distributed $6.1 million of the Common Fund to investors in the Schemes. As at 27 March 2014, $8.8 million remained in the Common Fund available for distribution, net of the Receivers' remuneration, costs and expenses. 8 As early as June 2010, the Receivers commenced investigating possible civil recovery actions against parties related to Mr Letten. 9 In 2012, Westpac commenced proceedings in the Supreme Court of Victoria against Mr Letten to recover monies under personal guarantees provided by Mr Letten to Westpac and St George Bank (the Westpac Proceedings). The Westpac Proceedings were listed for trial on 27 May 2013 but the trial did not proceed. On 28 June 2013, the Westpac Proceedings were discontinued. The Receivers became aware of the discontinuance in October 2013. 10 On 28 January 2014, Mr Letten pleaded guilty in the County Court of Victoria to 27 charges under the Corporations Act 2001 (Cth) (the Corporations Act). All of the charges related to the entities and activities over which the Receivers / Liquidators were appointed. Mr Letten's plea hearing took place in May 2014. He is currently on bail awaiting sentencing. Mr Letten became aware of the current application during cross examination of Mr Templeton, one of the Receivers, in the course of a hearing in the County Court on 29 May 2014. 11 In April 2013, the Receivers' solicitors initially outlined to Mr Letten's solicitors the various causes of action they considered they had against Mr Letten. It will be necessary to return to consider those causes of action below. A similar letter was sent to Mr Lane's solicitors in July 2013. Mr Letten's solicitors challenged the formulation of the causes of action or claims and further stated that the merit of the claims was moot as there was no potential for recovery from Mr Letten. Mr Letten's solicitors went so far as to assert that there was no further investigation or recovery action against Mr Letten "that would not have the net effect of materially reducing the pool of funds available to investors and creditors" (emphasis added). Mr Letten offered to provide, on a confidential without prejudice basis, sworn evidence of his financial position. That "evidence" was not provided to the Court. 12 A dispute between the solicitors for the Receivers and the solicitors for Mr Letten ensued as to whether Mr Letten should be served with the current application and be entitled to appear at the hearing. Mr Letten opposed the application. Mr Letten was given leave to make submissions at the hearing on 11 June 2014, and also to rely on written submissions that had been filed on his behalf before the hearing. Mr Letten was represented by Senior and Junior Counsel. With the consent of the parties, the application was referred to mediation to see if the claims the subject of the Proposed Proceeding could be resolved without the need for the Proposed Proceeding. That mediation was unsuccessful. 13 After the hearing, two relevant events occurred. Mr Letten filed further written submissions to respond to oral submissions made by the Receivers in the absence of Mr Letten's legal advisers. I have considered those submissions. Next, the Receivers' solicitors wrote to Mr Letten's solicitors stating that although Mr Letten maintains he has no means to satisfy an adverse judgment, he has failed to put any evidence before the Court to that effect. The Receivers proposed that: 1. Mr Letten consent to an order that the Court appoint an independent forensic accountant to investigate Mr Letten's personal financial affairs and provide a report to the Court (the Independent Referee); 2. Mr Letten agree to cooperate fully with the Independent Referee and make any documentation that the Independent Referee require available for the purpose of preparing the report; 3. Upon receipt of the report, the Receivers and Mr Letten participate in a further mediation to see if the claims against him can be resolved with the benefit of this information. Mr Letten did not consent to the proposal. There was no evidence that a similar proposal was put to Mr Lane. 14 As noted above, Mr Letten asserts he is a man of straw and no judgment against him will be satisfied. Counsel for Mr Letten submits that there was no sworn evidence to refute that contention, just supposition and belief. In an affidavit filed in support of the current application, Mr Templeton identified two factors which he submitted led him to believe that Mr Letten may have access to sufficient funds to make a material contribution to the Common Fund. First, for the past four years Mr Letten appears to have had recourse to sufficient funds to enable him to pay the legal fees of solicitors and Counsel in these proceedings in the Federal Court, in the Westpac Proceedings and in criminal proceedings culminating in the sentencing hearing in the County Court of Victoria. Second, because the Westpac Proceedings appeared to have settled, Mr Letten or someone on his behalf is thought to have paid a material sum to secure releases of the claims against him. 15 At Mr Lane's request, certain information about Mr Lane's financial position was provided to the Court including a letter from his solicitors and two reports. Counsel for the Receivers referred to two aspects of that information. First, that Mr Lane's wife is the registered proprietor of a house. Second, Counsel referred to the following passage from one of the reports: Timsam Pty Ltd is the Trustee for the Timsam Family Trust. We note that Mr Lane is the sole director of the company and a joint beneficiary in accordance with the Discretionary Trust Deed. … the Trustee has complete discretion in determining how income will be distributed to beneficiaries. A review of the unaudited financial statements for the year end 30 June 2013 discloses that the company has net assets of $100. (Emphasis added.) The Receivers submitted that the report was less than frank in disclosing the assets of the trust. The Receivers further submitted that although Mr Lane has not been seen to settle any proceedings, if there are funds in a family trust that he has control over, that would be a relevant matter. 3. THE APPLICATION 16 The interlocutory application was made under ss 1323 and 601EE(2) of the Corporations Act, s 23 of the Federal Court of Australia Act 1976 (Cth), O 26 r 7 of the Federal Court Rules and further or alternatively, s 63 of the Trustee Act 1958 (Vic). 17 The Receivers sought orders in the following terms: 1. The Receivers are justified in deploying funds from the Common Fund as defined in the Orders made by the Honourable Justice Gordon on 11 November 2010 in the institution and prosecution of proceedings by and in the names of Nicholson St Pty Ltd, Twinview Nominees Pty Ltd and the Glen Centre Hawthorn Pty Ltd against [Mr Letten] and [Mr Lane] for recovery of losses sustained by the Nicholson Street Joint Venture, the Twinview Joint Venture and the Glen Centre Joint Venture respectively as described in the 45th Affidavit of Damien John Templeton sworn on 27 March 2014. 2. The Receivers are justified in entering into the Proposed Legal Costs Agreement with King & Wood Mallesons which is Exhibit DJT 291 to the 47th Affidavit of Damien John Templeton sworn 5 June 2014. 3. The Receivers are justified in entering into the Proposed KPMG Fee Agreement which is Exhibit DJT 292 to the 47th Affidavit of Damien John Templeton sworn 5 June 2014. 4. Notwithstanding paragraph 20 of the order made by Gordon J on 25 February 2010, the Receivers shall not be entitled to any remuneration for time spent by the Receivers, their partners and staff, in the performance of their duties in connection with the institution or conduct of the [Proposed Proceeding] save as provided in paragraph 5. 5. In the event that the [Proposed Proceeding] results in a Recovery, the Receivers shall be entitled to remuneration (not exceeding the amount of the Recovery) for the time spent by the Receivers, their partners and staff, in the performance of their duties in connection with the conduct of the [Proposed Proceeding] at the rates previously ordered by the Court multiplied by 1.25 as per the Proposed KPMG Fee Agreement. 18 In the proposed order, Recovery is defined to mean: (i) The aggregate of: (A) any amounts received by the Receivers in satisfaction (in whole or in part) of any judgment obtained in the [Proposed Proceeding]; and (B) any amounts received by the Receivers pursuant to the terms of a settlement of the [Proposed Proceeding]. (ii) Less the costs and expenses properly incurred by the Receivers in and about the institution and conduct of the [Proposed Proceeding] or the getting in of any amount referred to in sub-paragraph (i). 19 King & Wood Mallesons prepared, and had settled by Counsel, a proposed statement of claim which pleads claims against Mr Letten and Mr Lane on behalf of the Companies and LGHA for knowing assistance in breaches of trust (Draft SoC). As Mr Letten accepted, much of the factual matrix within which the causes of action against Mr Letten and Mr Lane arise has been canvased in a number of applications to this Court by the Receivers for directions, in particular the pooling application (Letten No 7) and the trustee indemnity application: Australian Securities and Investments Commission v Letten (No 17) (2011) 87 ACSR 155. 20 The amount claimed in the Proposed Proceeding is approximately $12 million. The Receivers have taken the advice of King & Wood Mallesons and believe that there are good prospects of success in establishing the breaches of trust alleged in the Draft SoC. The Receivers have also obtained advice from Counsel on the merits of the Proposed Proceeding. A copy of that advice was handed to the Court at the hearing on 11 June 2014 and marked as a confidential exhibit. Any recoveries as a result of the Proposed Proceeding would be for the benefit of the Common Fund. 21 Mr Templeton provided sworn evidence of the estimated costs and expenses of commencing and prosecuting the Proposed Proceeding. The estimated costs and disbursements were of the Receivers and King & Wood Mallesons and included: Description (including GST) Estimate 1 Disbursements $108,529 2 Costs: King & Wood Mallesons (incl 25% uplift) $165,000 - $206,250 3 Fees: KPMG (incl 25% uplift) $66,000 - $110,000 22 The Receivers and their solicitors proposed that the Receivers and the Receivers' solicitors would act on a "no-win, no fee" basis with a fee uplift of 25% in the event of sufficient recovery. The money from the Common Fund would be used to pay for any disbursements incurred in the Proposed Proceeding, including court filing fees, counsel fees and any adverse costs orders made in the proceedings (Disbursements). The remaining funds in the Common Fund would be held in trust to satisfy any adverse costs order that may be made in favour of Mr Letten and Mr Lane in the Proposed Proceeding. Approximately $8.8 million is in the Common Fund. 23 In the event that there are recoveries in the Proposed Proceeding, those recoveries would first be applied to Disbursements before they are applied to the fees of King & Wood Mallesons. In the event that the Proposed Proceeding was not successful, the Common Fund would bear the Disbursements and any adverse costs orders. 24 Before turning to the applicable principles, it is appropriate to say something further about the Draft SoC. It describes causes of action against Mr Letten and Mr Lane for "knowing assistance" in relation to alleged breaches of trust by the Companies and LGHA under the second limb of Barnes v Addy (1874) LR 9 Ch App 244 as explained in Farah Constructions Pty Limited v Say Dee Pty Limited (2007) 230 CLR 89 at [171]-[184]. The elements of the cause of action in relation to each Company and LGHA are as follows: 1. The Company was the trustee of a managed investment scheme promoted by Mr Letten in which capacity the Company acquired and held a parcel of land; 2. The Company, in breach of trust: 2.1 Failed to get in and secure part of the trust fund, being monies collected from investors by LGHA; 2.2 Failed to apply those funds for the purposes of the trust; 2.3 Unnecessarily borrowed on the security of the trust property and failed to retain control over and further or alternatively, failed to account for those monies or any part of them; 2.4 Failed to properly account for the income of the trust; 2.5 Failed to properly account for distributions to investor beneficiaries of the trust; 2.6 From time to time improperly permitted trust monies to be received by LGHA and retained in a mixed fund together with funds from other trusts and LGHA's own monies. 25 The Draft SoC then alleges that those breaches of trust were dishonest and fraudulent and that each of Mr Letten and Mr Lane assisted the Company in those breaches knowing that the breaches were dishonest and fraudulent. The Draft SoC alleges knowledge at three levels – (1) actual knowledge, (2) knowledge of circumstances that would indicate the necessary facts to an honest and reasonable person and (3) wilful and reckless failure to make the inquiries that an honest and reasonable person would have made in the circumstances. Finally, so far as is presently relevant, the Draft SoC alleges that as a result of those breaches of trust the Company is obliged to restore a substantial sum to the trust estate, being the difference between the amount of securities encumbering the trust real estate at the date of the Appointment Orders and the amount that would have been owing but for the breaches of trust. 26 Then it is necessary to address the "assistance" alleged to have been provided by Mr Letten and Mr Lane. The Draft SoC treats their assistance differently. For Mr Letten it asserts that the assistance arose because he was the controlling mind and will of each Company with responsibility for the management of their affairs. In other words, he procured the breaches of trust. Mr Lane's assistance is said to arise from his management of the LGHA bank account and his preparation of the financial accounts for the trusts, both actions facilitating each Company's breach of trust. The requisite knowledge on the part of Mr Letten and Mr Lane is alleged by reference to three categories of knowledge (1) actual knowledge, (2) wilfully shutting one's eyes to the obvious and (3) wilful and reckless failure to make the inquiries that an honest and reasonable person would have made in the circumstances. 4. APPLICABLE PRINCIPLES AND PARTIES' SUBMISSIONS 27 The application was made on a number of bases: see [16] above. The Receivers submitted that the applicable principles were those set out in Re Atkinson [1971] VR 612 at 615-616 where Gillard J observed that: On an originating summons seeking such direction, however, a court is not bound to investigate the evidence in order to make a finding that on the material before it the proposed proceedings will or will not be successful. It has merely to determine whether or not the proceedings should be taken. … On the other hand the matter should be sufficiently investigated to determine whether or not the proceedings would be fruitless. 28 That line of authorities was recently considered by Croft J in Re Perrot Mill Pty Ltd (No 2) [2013] VSC 428. His Honour referred (at [3]) to the advice of Lord Oliver in Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198 at 201: ... It follows that, if the discretion which the court is now called upon to exercise in place of the trustee is one which involves for its proper execution the obtaining of expert advice or valuation, it is the trustee's duty to obtain that advice and place it fully and fairly before the court, for it cannot be right to ask the judge in effect to assume the burdens of a trustee without the information which the trustee himself either has or ought to have to enable him to carry out his duties personally. The court ought not to be asked to act upon incomplete information and, if it is so asked, the proper course is either to dismiss the application or to adjourn it until full and proper information is provided. ... it should be borne in mind that in exercising its jurisdiction to give directions on a trustee's application the court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties. That is not always easy, particularly where, as in this case, the application has been conducted as if it were hostile litigation; but it is essential that the primary purpose of the application – indeed, its only legitimate purpose – be not lost sight of in academic discussion regarding the discharge of burdens of proof. Where beneficiaries oppose a proposal of a trustee with a host of objections of more or less weight, the court is, of course, inevitably concerned to see whether these objections are or are not well founded, but that must not be permitted to obscure the real questions at issue, which are what directions ought to be given in the interests of the beneficiaries and whether the court has before it all the material appropriate to enable it to give those directions. (Emphasis added.) 29 As Counsel for the Receivers submitted, in determining whether to allow the application, the question is not whether the Court is positively satisfied that the proceedings would be fruitful. Instead, the Court must be satisfied that the proceedings would not be fruitless. The Receivers submitted that they sought to give effect to their commercial judgment by the careful way in which the Proposed Proceeding has been confined to the Companies and LGHA (rather than all of the Corporate Defendants) and the willingness of both the Receivers and their solicitors to forgo fees in the event that nothing comes of it. Counsel for the Receivers submitted that from a legal and factual viewpoint, the Proposed Proceeding could not be regarded as fruitless. 30 Counsel for Mr Letten did not submit that the Court was required to examine or assess the merits of the Proposed Proceeding. Rather, Counsel for Mr Letten submitted that (1) the Court does not have the power to make the directions sought and (2) even if the Court did have the power to make the orders sought, it should not do so in this case because: 1. The Proposed Proceeding was being brought for an improper purpose and further or alternatively, is an abuse of process; 2. The effect of the directions sought would be to improperly appoint the Receivers as agents of each individual investor/beneficiary; 3. There was a lack of clarity about the capacity in which the Receivers proposed to act; 4. As the Receivers decided to bring proceedings in relation to only three of the 21 Schemes, the benefits and burdens of the Proposed Proceeding would not be shared equally among the investors/beneficiaries; and 5. The Proposed Proceeding was otherwise fruitless. 5. SHOULD THE ORDERS AND DIRECTIONS BE MADE? 31 The question for the Court is simply stated but not necessarily straightforward – is what is proposed to be done in the best interests of the trust estate, or in this case, in the best interests of the investors. 32 The facts and matters which may be seen to bear on the answer to that question will be addressed under the following headings: 1. Proposed Proceeding beyond power? 2. Proposed Proceeding an abuse of power or for an improper purpose? 3. Receivers improperly appointed as agents of investors? 4. Benefits and burdens of Proposed Proceeding not equally shared among investors or beneficiaries? 5. Draft SoC defective or incomplete? 5.1 Proposed Proceeding beyond power? 33 Is the Proposed Proceeding beyond power? The relevant Appointment Order is extracted at [5] above. 34 Counsel for Mr Letten submitted that because the Draft SoC pleads a claim against Mr Letten under the second limb of Barnes v Addy in respect of dishonest and fraudulent conduct of each Company, because the claim is to be brought by each Company and because the claim seeks equitable compensation, the directions sought by the Receivers do not fall within any of the powers of the Appointment Orders. Counsel for Mr Letten further submitted if Mr Letten has assets (about which he provided no evidence to the Court), then those assets do not fall within the Receivers' powers of identifying and securing the assets of the Corporate Defendants under paragraph 3 of the Appointment Orders, or any of the particular purposes for which the Receivers were appointed under paragraph 8 of the Appointment Orders. Indeed, Counsel for Mr Letten went so far as to assert that the application made by the Receivers seeks relief that would be a misuse of the Court's powers. I disagree. 35 On appointment, the Receivers were given the powers in ss 420(1) and (2) of the Corporations Act, except that the Receivers were not granted the power to dispose of any Property of the Schemes: see paragraph 3 of the Appointment Orders. Under s 420(1) of the Corporations Act, the Receivers were given the power "to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed". Under s 420(2), the Receivers, amongst other things, were given the power to bring any proceedings in the name of or on behalf of the corporation. 36 The Receivers' objectives were reflected in the powers given to them under, for example: 1. sub-paragraphs (a), (c), (d), (e), (g) and (i) of paragraph 5 of the Appointment Orders (see [5] above); and / or 2. sub-paragraphs (a), (b) and (c) of paragraph 8 of the Appointment Orders: see [5] above. The reasons for those powers being granted to the Receivers were explained in Australian Securities and Investments Commission v Letten [2010] FCA 140, especially at [15]-[17] and in subsequent judgments. The commencement of the Proposed Proceeding is within those powers and consistent with the objectives of the appointment of the Receivers, namely recovering the trust fund for the benefit of the investors: see the definition of "Property" in the Appointment Orders at [6] above. 37 Next, even if the Appointment Orders were seen to be deficient (not a view I have formed), then the Receivers were given the power to apply to vary the Appointment Orders: see [5] above. No reason was proffered (and I cannot identify any reason) as to why such an application would not be granted in the present circumstances. 38 That leaves the third matter raised by Mr Letten as to why the Receivers lacked the power to commence the Proposed Proceeding – that if Mr Letten has assets (about which he provided no evidence to the Court), those assets would not be within the Receivers' task of identifying and securing the assets of the Corporate Defendants under paragraph 3 of the Appointment Orders, or the particular purposes for which they were appointed under paragraph 8 of the Appointment Orders. That contention conflates two issues – the Receivers' power (and duty) to recover Property (as that term is defined in the Appointment Orders) and the possibility of recovery in the event that judgment is obtained against Mr Letten. The second limb, execution of any judgment against the assets of Mr Letten, does not of itself require identification of Property (as that term is defined in the Appointment Orders). The matter may be tested this way. If judgment was obtained against Mr Letten but was not satisfied and Mr Letten was bankrupted, then his trustee in bankruptcy would have recourse to all of Mr Letten's assets, not just those in some way connected with the Companies and LGHA and, if necessary, s 120 of the Bankruptcy Act 1966 (Cth). Mr Letten's contention is rejected. 39 The Proposed Proceeding is not beyond power. 5.2 Proposed Proceeding an abuse of power or for an improper purpose? 40 This fact or matter arises because Mr Letten has maintained, and continues to maintain, that he has no assets with which to satisfy any judgment that might be entered against him. For that reason, he submits that the Court should query the purpose of the Proposed Proceeding and, in particular, whether the application is an abuse of process or for an improper purpose. In particular, Counsel for Mr Letten submitted that if the Proposed Proceeding was being brought to bluntly shake down some third party who might assist Mr Letten (or who has assisted Mr Letten in the past), that is not a proper purpose. 41 Counsel for Mr Letten referred to the following submissions made on the Receivers' behalf as providing support for the contention that the Proposed Proceeding was an abuse of process. Counsel for Mr Letten drew the Court's attention to paragraph 18 of Mr Templeton's 45th affidavit (sworn 27 March 2014) where he stated: … Many investors have called the receivership investor hotline and have enquired about the legal avenues being pursued against Mr Letten. A view has been expressed by some [i]nvestors that they wish for action to be taken against Mr Letten to ensure he provides some recompense to [i]nvestors for the suffering caused to many investors. Counsel for Mr Letten submitted that the language of that paragraph was suggestive of some retributive element, punishment or penalty motivating the Proposed Proceeding, possibly with a view to ensuring Mr Letten becomes bankrupt, rather than with a view to recovering assets held by Mr Letten. Counsel for Mr Letten submitted that this paragraph should give the Court reason to doubt whether the purpose for which the proceeding is being brought is one of the proper purposes set out in the Appointment Order. 42 Next, Counsel for Mr Letten referred to oral submissions made by the Receivers' Counsel at the hearing where it was stated: What we suspect is that there are assets that have been made available to [Mr Letten] for various purposes, if he indeed truly has none himself, and they include fairly expensive representation right through the course of these proceedings, and they include the inference that we drew, which is a commercial inference, from the discontinuance of the [Westpac Proceeding] that we learned of late in the middle of last year. So what the receivers needed – approach to this is to say, "Well, we think there is something there. We think there is someone who has been willing to provide funds to keep Mr Letten out of bankruptcy and satisfy certain obligations. It could be that that would be forthcoming here. Let us make a balanced and economical attempt to see if that's so". 43 Mr Letten accepted that the power to stay or dismiss a proceeding for an abuse of process is "a power which ought to be very sparingly exercised and only in exceptional cases": Sea Culture International Pty Ltd v Scoles (1991) 32 FCR 275 at 279. He also accepted that "the possible varieties of abuse of process are only limited by human ingenuity and the categories are not closed": Sea Culture. In relation to the present case, he submitted that a proceeding is an abuse of process because it is brought as a means of obtaining some advantage for which the proceedings are not designed or some collateral advantage beyond what the law offers: Second Life DÉcor Pty Limited v Comptroller-General of Customs (1994) 53 FCR 78. However, he accepted that for the proceeding to be an abuse, it is necessary that the offensive purpose be the predominant purpose: Re Excel; Worthley v England (1994) 52 FCR 69 at 89. 44 What then is the position here? Mr Letten submitted that the Proposed Proceeding is a "clear abuse of process" because the predominant purpose for which the Proposed Proceeding is being brought is to exert pressure on people who would not be parties to the Proposed Proceeding (the financial backers of Mr Letten and Mr Lane), so as to force them to make a financial contribution to the Common Fund to "keep Mr Letten out of bankruptcy". In support of that contention, Mr Letten referred to the following additional matters: 1. The Receivers cannot demonstrate that they have any means of enforcing a successful judgment against Mr Letten; 2. Irrespective of the merits of the Proposed Proceeding, the Draft SoC is defective and incomplete and would be insufficient to maintain contested proceedings; 3. The Receivers' failure to provide a cost benefit analysis showing the effect of the Proposed Proceeding on the Common Fund including what percentage of investors would receive a distribution and of how much if the Proposed Proceeding was successful and there was a financial recovery. 45 Those contentions repay careful analysis. 46 First, the Proposed Proceeding is just that – a Proposed Proceeding. There is no proceeding on foot to stay. That state of affairs does not mean that the reasons proffered by the Receivers are irrelevant. They are not. The purpose or purposes for which the Receivers seek to commence the Proposed Proceeding are relevant to whether the Proposed Proceeding is in the best interests of the investors. On the material before the Court, there is nothing to suggest that at the present time the Receivers seek to institute and prosecute the proceedings for an improper purpose or, if instituted, would arguably constitute an abuse of process. 47 In that context, a number of facts and matters are worth restating. First, the history of the proceedings. They are recorded in the various judgments published over the last four years. The circumstances giving rise to those various judgments record the involvement of Mr Letten and, to a lesser extent, Mr Lane. Second, consistent with the authorities, the Receivers provided the Court with the Draft SoC (together with the advice of Counsel) which addressed the substance and the merits of the claims. Third, there is a clear public interest in the due and beneficial administration of the estates of the Companies for the benefit of investors. Where, as here, the Receivers provide formulated claims to the Court against the defendants, it is not the Court's role to adjudicate on those claims. It is sufficient to record, as was and is the fact, that the conduct of Mr Letten in relation to the Schemes has resulted in him pleading guilty to 21 charges of operating unregistered managed investment schemes, five charges of breaching directors' duties and one charge of carrying on a financial services business without an Australian Financial Services licence. Fourth, as Counsel for the Receivers submitted, Mr Letten's submission that the Proposed Proceeding is an abuse or improper is somewhat "odd". There is nothing other than Mr Letten's word that he has no money or assets to satisfy any judgment obtained against him. He has not provided sworn evidence to the Court of his financial position or responded positively to the proposal put to him by the Receivers: see [13] above. In those circumstances it is difficult to assess that contention especially in light of the fact that Mr Letten appears to have had access to funds in relation to earlier and related proceedings: see [9] and [10] above. Moreover, he did not seek leave to cross examine Mr Templeton about these issues. In the end, as the Receivers submitted, the Court is entitled to, and should, give weight to Mr Templeton's considered belief in making his determination (with the assistance of legal advice) as to whether or not the Proposed Proceeding should be commenced. Of course, the position may change. If it does, then the defendants may make appropriate application to the appropriate court on proper material. 5.3 Receivers improperly appointed as agents of investors? 48 Mr Letten accepted that a trustee (and thus the Receivers appointed over a trustee) has standing to take proceedings to redress a breach of trust notwithstanding the fact that the trustee may have been a party to the breach of trust: Young v Murphy [1996] 1 VR 279 at 281 to 282 per Brooking J. However, Counsel for Mr Letten submitted that the principles regarding an action structured in the form of the Draft SoC would require that the many beneficiaries (the investors) of the alleged trusts be joined as parties because the effect of the directions would be to improperly appoint the Receivers as agents of each individual investor/beneficiary. 49 These contentions are rejected. They are based on a misconception. Young v Murphy at 281-285 addresses the standing of a trustee to sue for breach of trust. After extensively analysing the authorities, Brooking J states the principles in the following terms: In general, if the trustee takes proceedings to have a breach of trust redressed, he need not make the beneficiaries parties. For in general the trustee sufficiently represents their interests for the purposes of proceedings to have a breach of trust redressed. As was said by Porter MR in Carson v Sloane (1884) 13 LR Ir 139 at 147: "If one of the cestuis que trust could follow this fund, why cannot the trustee who represents them all?" The right of the trustee in general to sue for breach of trust without making the beneficiaries parties is well established. See, for example, Greenwood v Wakeford (1839) 1 Beav 576; 48 ER 1064; Robinson v Evans (1843) 7 Jur 738; Price v Blakemore (1843) 6 Beav 507; 49 ER 922; Bridget v Hames (1844) 1 Coll 72; 63 ER 326; Horsley v Fawcett (1847) 11 Beav 565; 50 ER 935; Noble v Meymott (1851) 14 Beav 471; 51 ER 367; Wentworth v Tompson (1859) 2 Legge 1238; Davies v Lyon (1875) 1 NZ Jur (NS) 86; Coverlid v Joel (1879) 1 OB and F 138; Re Cross; Harston v Tenison (1881) 20 Ch D 109; Williams v Barton [1927] 2 Ch 9. But, while the trustee in general sufficiently represents the beneficiaries' interests for the purposes of proceedings to redress a breach of trust, they should be made parties if their interests may not be properly represented by the trustee. If it can be said that for any reason the trustee should not be regarded as a party who will properly represent the interests of all beneficiaries, then he should not be regarded as able to sue without joining any beneficiary. … The proceedings which the trustee brings may be such as to raise, or be capable of raising, questions between one beneficiary and another or questions between the beneficiaries and himself. In such a case the trustee does not sufficiently represent the interests of the beneficiaries for the purposes of the proceedings. Accordingly, if in the proceedings the trustee seeks the execution or administration of the trust in addition to seeking to have the breach of trust redressed, the beneficiaries will or may be necessary parties, since their interests inter se or their rights against the trustee may have to be determined. This is not so if in the proceedings the trustee seeks only to get in the trust fund, or seeks in addition only any account necessary for that purpose. On the other hand, in proceedings for the execution or administration of the trust the interests of the beneficiaries may conflict among themselves and there may in addition be a conflict of interest between the trustee and the beneficiaries with regard to the accounting by the trustee required for the purposes of the general distribution of the trust estate which is asked for in the proceedings. 50 As Brooking J said, "a distinction is drawn between proceedings which seek merely to get back the trust fund and proceedings for the execution or administration of the trust. The former can be maintained by the trustee without joining the beneficiaries; the latter are or may be incapable of being so maintained". Here, the Draft SoC is directed at restoring the trust fund. 51 The question which then arises is whether as currently drafted, the rights of the proposed beneficiaries (the investors) will be brought into question in the Proposed Proceeding? Put another way, are there facts and matters that would suggest the need for the investors to be joined to the Proposed Proceeding? Mr Letten referred to the following facts and matters: 1. The Receivers' control over the proceedings; 2. The investors right to sue would be extinguished by the Proposed Proceeding but they could not participate in any post judgment distribution: Young v Murphy at 283-285; and/or 3. By reason of the impossibility of tracing funds, the rights between beneficiaries would be brought into question: Young v Murphy at 285. 52 In relation to the Receivers' control over the Proposed Proceeding, Mr Letten submitted that irrespective of whether the Proposed Proceeding was conducted on a "no win, no fee" basis or simply paid for out of the Common Fund, the effect of the funding arrangements was to improperly appoint the Receivers an agent of the investors. In particular, Mr Letten submitted that the Receivers or King & Wood Mallesons had the capacity to decide whether the Proposed Proceeding would be settled or prosecuted but: 1. the investors would have no oversight of that process; 2. the investors would not have the protections under the Legal Profession Act 2004 (Vic) (the LCA) (particularly in relation to costs disclosure and recovery); 3. it would be open to the Receivers and King & Wood Mallesons to compromise the Proposed Proceeding in such a way that: 3.1 their costs are covered but the Common Fund receives nothing; 3.2 the Common Fund would have been depleted by the costs of the Proposed Proceeding (or by the Disbursements (such as Counsel's fees) under the "no win, no fee" model). 53 These contentions are misplaced. There is nothing that distinguishes the Proposed Proceeding from any other proceeding in which a trustee, whether or not under the control of receivers, seeks to recover the trust fund or part of it. In particular, because the Receivers are appointed by this Court, they are subject to the Court's oversight and supervision, including any decision to settle or compromise the proceeding. 5.4 Benefits and burdens of Proposed Proceeding not equally shared among investors or beneficiaries 54 Next, Mr Letten's contention that the benefits and burdens of the Proposed Proceeding would not be shared equally among the investors or beneficiaries and the Proposed Proceeding has the potential to extinguish the individual rights of investors. 55 First, the facts. The assets of the Schemes were pooled into the Common Fund following a pooling application: Letten No 7 at [3]-[6]. The distribution of the Common Fund to the investors has been implemented in a way as to bring all of those investors whose claims have been accepted up to a minimum of 27.1 cents in the dollar. Currently, no investor whose claims have been accepted by the Receivers has received less than that amount. However, the majority of investors have received more than 27.1 cents in the dollar while the projects were actually operated: see, by way of example, Letten No 7 at [69], [72], [90] and [98]. 56 Next, the Proposed Proceeding is in relation to three of the 21 Schemes and LGHA. Counsel for Mr Letten submitted that the rights of the beneficiaries in those trusts are not the same as the rights of investors who may not be beneficiaries in those trusts who invested in other projects. Further, any recovery will be deposited into the Common Fund for the benefit of all investors, not just those investors in the three Schemes the subject of the Proposed Proceeding. Mr Letten submitted that the inequality between the beneficiaries arises because of circumstances that existed both before and after the Pooling Orders. In relation to LGHA, because it ran a central treasury, the tracing of individual investments was and remains impossible: see, by way of example, Letten No 7 at [238]. 57 Third, in addition to the contention that the benefits and burdens of the Proposed Proceeding will not be shared equally among the investors or beneficiaries, Mr Letten submitted that the Proposed Proceeding has the potential to distinguish the individual rights of the investors to commence proceedings. In particular, Mr Letten submitted that the investors have not been told about what has been proposed and no evidence has been put to the Court by the Receivers as to the effect of the differential rate of return that might follow from the Proposed Proceeding. 58 Again, these contentions repay careful analysis. The Pooling Orders including the establishment of the Common Fund were made in November 2010. Mr Letten's contention that because of the "differential return", the Court should not propound a proceeding which isolates three of the 21 Schemes ignores the Pooling Orders, the manner in which modern litigation is conducted and, no less importantly, the duties of the Receivers as trustees. It would be contrary to the principles of modern litigation (and the duties of trustees) for there to be a requirement that they commence litigation in respect of each of the 21 Schemes in circumstances where the Receivers have made a risk assessment and business judgment that it is better to focus on the three strongest claims. 59 Next, the Pooling Orders. As Letten No 7 recorded at [275], 'although some Investors object[ed] to the Scheme property being pooled … it was largely accepted that a scheme by scheme distribution was inappropriate because it was too costly". The reasons for judgment summarised the position in the following terms: 332. … [I]t is to no-one's advantage that a very long time and very large costs be spent in working out the entitlements and liabilities on a Scheme by Scheme basis … where: 1. as a result of the way in which Mr Letten and companies associated with him (including the Corporate Defendants) conducted the Schemes, it is not possible to say now what are the net assets of any Scheme and there appear to have been so many inter-Scheme transactions that it is not possible to say what assets were acquired by what Scheme using whose money; 2. the Receivers have been unable to trace investor contributions because receipts and payments in relation to each Scheme were made through four primary LGHA bank accounts and funds frequently were moved between these accounts, the LGHA bank accounts were often in overdraft and payments were commingled; 3. a number of the Schemes were oversubscribed in that the amount of investor contributions in relation to a particular Scheme exceeded the funding requirements for that Scheme. These oversubscriptions were not refunded or returned to investors: see, by way of example, Schemes numbered 14 (Twinview, see [135] above), 8 (Low Head - see [148] above) and 5 (Cimitiere House, see [205] above); 4. a significant proportion (up to $38 million) of investor contributions to Schemes appears to have been used to pay distributions to investors in other Schemes in circumstances where there were not sufficient profits or funds in the other Schemes to fund payment of distributions: see, by way of example, Scheme numbered 18 (Aurora Park, see [72] above); 5. the tracing of funds is further complicated and, I consider, rendered impossible by the lack of reliable financial and accounting data and the estimated cost ($18 million). Such a cost and burden would reduce what is already a limited expected return with no guarantee of any certainty of outcome. … 335 … [T]he investors suffered a "common misfortune", and any method of distribution should reflect that fact. Put simply, the alternative – distribution of Scheme property in a particular Scheme to those entitled to the property in proportion to their entitlements – is practically impossible at a number of levels. Given the manner in which these Schemes were operated and the difficulties identified in unscrambling the affairs of the Schemes, no rational person would undertake or engage in that task. 60 In those circumstances, there was and is no differential rate of return from and after the Pooling Orders. 61 The issue of any differential rate of return as a result of events before the Pooling Orders were made was addressed in Australian Securities and Investments Commission v Letten (No 20) (2012) 92 ACSR 630 (Letten No 20), especially at [84]ff. For the detailed reasons set out in Letten No 20, the Common Fund was distributed to investors across all Schemes by permitting investors to claim on the Common Fund for the full amount of their initial contribution but to require the investors to account for the monies already received by the investors by applying the amounts already received by the investors in reduction of the distribution that would otherwise be payable to the investors from the Common Fund (defined as Method 2): see [85]. The reasons for judgment concluded at [91]-[92] by stating: … [T]he Court accepts that Method 2 achieves the greatest equality amongst the claimants on the Common Fund. It will not please all or even the majority of the investors. In the end, the investors must understand that what they received and were told did not reflect the true state of affairs. Some investors received distributions. Some did not. Some investments did well. Some did not. The fact is that the funds contributed by investors were not necessarily used in accordance with their instructions. The funds were used for a variety of purposes. Moreover, the payments received by investors (if they received them) were funded from a variety of sources. Each investor has faced and continues to face hardship. The hardship varies between investors but the source of their misfortune is common. Method 2 is the best method of achieving equality between investors in this common misfortune. As a result, investors will be required to bring any payments historically received from the Letten Entities into account in order to asset a claim on the Common Fund. 62 Mr Letten (and Mr Lane) were at the centre of the investors' common misfortune. The contention that the Receivers should not be able to proceed without informing and joining all of the investors to the proceeding, as the proceeding is to be funded out of the Common Fund, is incorrect legally (see [49]) above and contrary to the facts. 63 The costs of the administration of the receivership are borne by the investors in common, as a method of ensuring equality. Similarly, the costs of the Proposed Proceeding, which seeks to add to the Common Fund, will be borne by the investors in common. That principle would apply regardless of the method chosen to fund the litigation. It must be recalled that any financial return from the Proposed Proceeding would be paid into the Common Fund and distributed using Method 2. In that context, it is necessary to consider Mr Letten's submissions about the costs disclosure obligations under Pt 3.4 of the LPA. Counsel for Mr Letten submitted that because it would be the Common Fund which would fund the Proposed Proceeding (at least in relation to Disbursements), the investors became: 1. Third party payers, as defined in s 3.4.2A of the LPA; 2. Entitled to written disclosure of proposed costs: see ss 3.4.9 and 3.4.11 of the LPA; and 3. Entitled to costs disclosure in relation to the proposed settlement of litigious matters: see s 3.4.13 of the LPA. 64 The Investors are not "third party payers" as that phrase is defined in s 3.4.2A of the LPA. They are not persons who are not the client of a law practice but under a legal obligation to pay all or part of the legal costs charged by the law practice. If Mr Letten's submission is founded on the proposition that the Receivers are agents for the investors who, as disclosed principals, have a legal obligation to pay King & Wood Mallesons' legal fees, then that submission falls away because the proceeding is able to be properly instituted by each Company: see [35] above. If, however, the submission is based on the proposition that beneficiaries of a trust incur a legal obligation when the trustee engages a lawyer to act in proceedings to recover the trust fund, then that submission is inconsistent with fundamental and elementary principles about the relationship between a trustee and a beneficiary. The legal obligation to pay the costs is the trustee's alone. The existence of a right of indemnity or exoneration of that liability out of the trust fund does not create a legal obligation in the beneficiaries to personally pay the costs. 65 There is no lack of clarity about the capacity in which the Receivers are proposing to act: they are proposing to cause the Proposed Proceeding to be brought in the names of the trustees of the three Schemes referred to in the Draft SoC – the Companies. The Receivers themselves are not suing in their capacity as alleged trustees, contrary to the submissions of Mr Letten. 66 It is irrelevant whether proceedings are brought in relation to one, two, three, five or 21 schemes. The Receivers exercised judgment (with the benefit of legal advice) in seeking a balance between the costs and complexity of proving the case through the chosen number of schemes, and the possible benefit or return. The fact that the Receivers have not proposed claims in respect of other schemes does not of itself prevent proceedings being brought at a later time if that was subsequently considered appropriate. 67 That leaves the contention that the Proposed Proceeding can only have a material adverse effect on investors and even if the Proposed Proceeding delivered a financial return, it is more than likely that many investors would receive nothing further but that their rights would be extinguished if the action was taken on their behalf. Mr Letten's complaint was that the Receivers had not provided any information or evidence to the Court or to investors about the cost benefit analysis of the Proposed Proceeding and that the cost benefit analysis would need to address: 1. the expected costs of the Proposed Proceeding; 2. the legal advice the Receivers have obtained as to the likelihood of success of the claims; 3. to what extent any judgment against Mr Letten could be satisfied; 4. what net effect the Proposed Proceeding would have on the Common Fund; 5. the level of projected recovery from the Proposed Proceeding to ensure that the Common Fund was increased after the costs of the Proposed Proceeding were deducted. 68 Counsel for Mr Letten further submitted that due to the Disbursements and adverse costs orders that may be made; the investors would actually suffer a loss if the Proposed Proceeding was allowed to be issued because there was no evidence that Mr Letten or Mr Lane had any assets that could satisfy a judgment debt. 69 These contentions may be put to one side. The Receivers have set out the basis of their calculations (see [21] above). It is possible that the investors would receive a lower distribution from the Common Fund if the proceeding is unsuccessful in whole or in part. In the present circumstances, that is a risk, a calculated risk, that the Receivers consider should be taken. For the reasons earlier expressed, the questions which remain about the financial position of Mr Letten (and to a lesser extent, Mr Lane) cannot be relied upon by Mr Letten as a complete, or substantive, defence to the Proposed Proceeding. What steps, if any, he and Mr Lane may take to defend the proceedings is a matter for each of them and their legal advisers. 70 The last matter concerns the contention that if the Proposed Proceeding was instituted and was prosecuted, investors rights would be extinguished without their informed consent for that action to be taken. Again, that contention proceeds on a false premise. In relation to those Schemes unconnected with the Companies, the "rights" however defined are unaffected. In respect of the Companies and LGHA, the "rights" of investors are being prosecuted by the institution of the Proposed Proceeding: see Young v Murphy at 286. 5.5 Draft SoC defective or incomplete? 71 Counsel for Mr Letten submitted that the Draft SoC (1) is defective as it does not comply with the Supreme Court (General Procedure) Rules 2005 (Vic) (Supreme Court Rules) and (2) is incomplete in that it will require the addition of numerous plaintiffs and defendants before the litigation could proceed. 72 Counsel for Mr Letten submitted that the Draft SoC does not comply with the Supreme Court Rules as it does not plead the necessary material facts as required by r 13.02(1)(a), does not fully particularise each instance of a breach of trust required by r 13.10(3)(a), and does not fully particularise each allegation of fraud as required by r 13.10(3)(b). As Counsel for the Receivers submitted, those matters should be dealt with by the Supreme Court in the event they are pursued after the Proposed Proceeding has been filed and served. The Receivers are not asking this Court to settle or endorse the precise form of the pleading, and the points raised do not go to the real issue for the Court: whether such a proceeding should be instituted. 73 Further, Mr Letten submitted that the Draft SoC does not provide the required material facts to properly identify in what capacity Mr Letten is being sued. Counsel for Mr Letten submitted that while the Draft SoC ostensibly pleads fraudulent breaches of trust, it relies on Mr Letten's standing as director to support the alleged breaches, as it pleads that Mr Letten: 1. was a director and company secretary of each Company and LGHA; 2. was the controlling mind and will of each Company and LGHA; 3. caused each Company and LGHA to commit the alleged breaches. 74 This reliance on Mr Letten's actions as a director was said to be defective because where: 1. the alleged breaches are caused by a corporate trustee, the only cause of action for breaches of director's duties lies as between the defaulting trustee and its then directors. Director's duties are not owed to the beneficiaries – as such, breaches of director's duties are not trust property: Young v Murphy at 302 to 303. 2. a defaulting trustee is in liquidation, it is for the liquidator to bring an action for breaches of director's duties – such action would be brought on behalf of the creditors and not the beneficiaries: Young v Murphy at 303. 75 The Draft SoC identifies the capacity in which Mr Letten is being sued – as a person who knowingly assisted dishonest and fraudulent breaches of trust by each Company. The Draft SoC does not plead any cause of action against Mr Letten for breach of his duties as a director. 76 In this context, Counsel for Mr Letten also submitted that there was an arguable case that the Proposed Proceeding also would be in breach of s 1317M of the Corporations Act. That section provides: A court must not make a declaration of contravention or a pecuniary penalty order against a person for a contravention if the person has been convicted of an offence constituted by conduct that is substantially the same as the conduct constituting the contravention. A declaration of contravention, or a pecuniary penalty order, are remedies sought by the Australian Securities and Investments Commission. They are not (and cannot be) orders sought in the Proposed Proceeding. 6. CONCLUSION 77 For those reasons, a form of the directions and orders sought by the Receivers are appropriate to be made. The directions and orders have been amended. If there is a Recovery, as that word is defined in the Orders, the Receivers will be entitled to reasonable remuneration and reasonable costs and expenses properly incurred (not exceeding the amount of the Recovery) as may be fixed by the Court on the application of the Receivers, such sum to be calculated on the basis of the time reasonably spent by the Receivers, their partners and staff, in the conduct of the Breach of Trust Litigation at the rates previously ordered by the Court multiplied by 1.25 as per the Proposed KPMG Fee Agreement. I certify that the preceding seventy-seven (77) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate: Dated: 26 June 2014 SCHEDULE OF PARTIES LGH HOLDINGS LIMITED (ACN 007 191 943) Second Defendant 211 WELLINGTON ROAD PTY LTD (ACN 092 663 860) Third Defendant BLUEMIST HOLDINGS PTY LTD (ACN 097 306 922) Fourth Defendant DELLWOOD HOLDINGS PTY LTD (ACN 098 505 803) Fifth Defendant ENMORE ENTERPRISES PTY LTD (ACN 082 158 487) Sixth Defendant FIRBANK ARCH PTY LTD (ACN 059 464 381) Seventh Defendant GLENLINE PTY LTD (ACN 098 532 364) Eighth Defendant GERLING HOLDINGS PTY LTD (ACN 091 726 457) Ninth Defendant LGH ADMINISTRATION PTY LTD (ACN 077 165 069) Tenth Defendant LGH FINANCE PTY LTD (ACN 078 859 248) Eleventh Defendant LOW HEAD VILLAGE PTY LTD (ACN 091 731 958) Twelfth Defendant NICHOLSON STREET PTY LTD (ACN 069 104 089) Thirteenth Defendant HOLLOWAY CREST PTY LTD (ACN 091 731 967) Fourteenth Defendant ROSEBERY ENTERPRISES PTY LTD (ACN 091 826 229) Fifteenth Defendant SIMMS INVESTMENTS PTY LTD (ACN 093 504 511) Sixteenth Defendant SY21 RETAIL PTY LTD (ACN 107 874 564) Seventeenth Defendant THE GLEN CENTRE HAWTHORN PTY LTD (ACN 089 906 543) Eighteenth Defendant CASTELLO HOLDINGS PTY LTD (ACN 088 204 175) Nineteenth Defendant TWINVIEW NOMINEES PTY LTD (ACN 097 307 278) Twentieth Defendant YARRA VALLEY GOLF PTY LTD (ACN 066 632 479) Twenty-First Defendant ADINA RISE PTY LTD (ACN 083 181 122) Twenty-Second Defendant ALBRIGHT INVESTMENTS PTY LTD (ACN 088 204 166) Twenty-Third Defendant ASHFIELD RISE PTY LTD (ACN 093 504 806) Twenty-Fourth Defendant BRADFIELD CORPORATION PTY LTD (ACN 088 204 371) Twenty-Fifth Defendant COPELAND ENTERPRISES PTY LTD (ACN 093 504 824) Twenty-Sixth Defendant DEVLIN WAY PTY LTD (ACN 088 264 813) Twenty-Seventh Defendant FIRST HAZELWOOD PTY LTD (ACN 093 505 303) Twenty-Eighth Defendant GLENBELLE PTY LTD (ACN 097 306 646) Twenty-Ninth Defendant GLENVALE WAY PTY LTD (ACN 088 287 021) Thirtieth Defendant GREENVIEW LANE PTY LTD (ACN 093 505 312) Thirty-First Defendant HALLMARK CORPORATION PTY LTD (ACN 093 505 312) Thirty-Second Defendant MOORLEIGH HOLDINGS PTY LTD (ACN 088 287 058) Thirty-Third Defendant NORTON RIDGE PTY LTD (ACN 078 821 066) Thirty-Fourth Defendant RALEIGH GLEN PTY LTD (ACN 088 204 380) Thirty-Fifth Defendant REDCREST HOLDINGS PTY LTD (ACN 100 836 486) Thirty-Sixth Defendant SURI CORPORATION PTY LTD (ACN 093 505 321) Thirty-Seventh Defendant SUTTON RISE PTY LTD (ACN 088 204 399) Thirty-Eighth Defendant THE VIRTUAL MLMER PTY LTD (ACN 065 374 665) Thirty-Ninth Defendant TIVENDALE PTY LTD (ACN 093 505 349) Fortieth Defendant TULLOCH DOWNES PTY LTD (ACN 078 895 048) Forty-First Defendant MAINKING PTY LTD (ACN 100 790 485) Forty-Second Defendant TOPGLEN PTY LTD (ACN 096 857 564) Forty-Third Defendant ALLBLUE PTY LTD (ACN 100 836 388) Forty-Fourth Defendant ARANBAY PTY LTD (ACN 098 532 319) Forty-Fifth Defendant MELVILLE CORPORATION PTY LTD (ACN 091 911 045) Forty-Sixth Defendant TILLEY LANE PTY LTD (ACN 086 136 361) Forty-Seventh Defendant HPSC PTY LTD (ACN 059 930 139 Forty-Eighth Defendant JENSDALE PTY LTD (ACN 098 367 974) Forty-Ninth Defendant OAKDALE RISE PTY LTD (ACN 091 598 908) Fiftieth Defendant MAYWOOD INVESTMENTS PTY LTD (ACN 091 599 218) Fifty-First Defendant ACETRAIN PTY LTD (ACN 100 820 282) Fifty-Second Defendant SAGE BAY PTY LTD (ACN 097 306 628) Fifty-Third Defendant TOBAGO HOLDINGS PTY LTD (ACN 093 504 520) Fifty-Fourth Defendant