CRC Gosford Pty Ltd & Anor v Columbus Investment Services Ltd as Trustee for the Gosford Ownership Trust and the Gosford Landholding Trust & Anor [2020] NSWSC 1153

Supreme Court New South Wales

Medium Neutral Citation: CRC Gosford Pty Ltd & Anor v Columbus Investment Services Ltd as Trustee for the Gosford Ownership Trust and the Gosford Landholding Trust & Anor [2020] NSWSC 1153 Hearing dates: 1, 2, 4, 22 and 23 June 2020 Decision date: 21 August 2020 Jurisdiction: Equity Before: Rein J Decision: [156]-[157] Catchwords: EQUITY — Trusts and trustees — Unit trusts – The First Plaintiff ("CRC"), a unitholder in a commercial unit trust the purchase of whose holdings were financed by the Second Plaintiff ("Max"), sought to recover funds held by the First Defendant ("CIS") as the trustee of the trust known as the Gosford Ownership Trust ("GOT") and funds held by a receiver. Under the GOT Constitution CRC was entitled to monthly distributions of income from the net income of a commercial property via another trust, Gosford Landholding Trust ("GLT"), and an amount due on redemption of the units following a sale of the property ("the Withdrawal Price"). CIS, as trustee of both GOT and GLT, filed a submitting appearance but the Second Defendant ("SIF"), as a holder of the Residual Units asserted that CIS was justified in withholding the monies otherwise due to CRC as part of the Withdrawal Price: (a) because monies paid to CRC over a lengthy period exceeded the Taxable Income on the net income earnt by the Trust and hence exceeded the amount to be "distributed" by the Trustee on behalf of the Trust; (b) because it was claimed $3.6M had been loaned by GOT to CRC; and (c) because if SIF's contentions under (a) and (b) were accepted then the monies received by CRC were monies paid by CIS as trustee of GLT under the GLT Indemnity and CIS claimed it was entitled to be subrogated to CRC's rights to the balance of the Withdrawal Amount (or alternatively to Max's rights to the balance of the Withdrawal Amount) – construction of the GOT Constitution and whether cl 11.2(d) granted the trustee a discretion and, if so, whether it ought be inferred the discretion had been exercised by CIS – HELD: the trustee was granted a discretion but it should be inferred that the discretion was exercised in favour of the distributions to CRC exceeding Taxable Income – CRC is entitled to the balance of the Withdrawal Amount. EVIDENCE - burden of proof, presumptions, and weight and sufficiency of evidence – onus of proof – failure of SIF to call any witnesses concerning its claim that CIS paid excess amounts to CRC and loaned money to CRC – implications of failure to call witnesses – HELD: SIF bore the onus of proof which it has failed to discharge and further the implication was that evidence of such witnesses could give would not have assisted SIF's case. EQUITY — Subrogation — Indemnity/ sureties – right of subrogation – alternative argument advanced on right of subrogation – CRC entered into an indemnity under which CIS (as trustee for GLT) agreed to indemnify CRC – whether the principles of subrogation apply to the GLT Indemnity and if so whether the claim by SIF on behalf of CIS (as trustee for GLT) extended to CRC's right to recover the unpaid balance of the Withdrawal Price from GOT – HELD: there was no right of subrogation either on basis of indemnity or surety. EQUITY — Trusts and trustees — Trust instruments – Construction of cl 7 of the GLT Indemnity - whether the clause excluded the subrogation claim or whether it is ambiguous and should be read down – HELD: cl 7, of and by itself, excluded a claim for subrogation by GLT and was not ambiguous and should not be read down. ESTOPPEL — Estoppel by convention — Mutual assumption — Course of dealing – an alternative estoppel argument was advanced by CRC that GOT is estopped from contending amounts received by CRC after 1 July 2007 are to be dealt with differently than the amounts received before that date as it was not indicated that those payments were a mix of Taxable Income and undocumented loan drawdowns that would have to be repaid by CRC in the future – whether GOT's actions gave rise to an estoppel by representation or by convention – HELD: if contrary to the Court's finding that CIS as trustee of GOT had not in fact distributed all of the net income to CRC, the requirements for conventional or representational estoppel were not met. Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: AFG Insurances Ltd v Brighton City (1972) 126 CLR 655 Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424 Arthur Murray (NSW) Pty Ltd v Federal Commissioner of Taxation (1965) 114 CLR 314 Australian Securities and Investments Commission (ASIC) v Hellicar [2012] HCA 17; (2012) 247 CLR 345 BI (Contracting) Pty Ltd v AW Baulderstone Holdings Pty Ltd [2007] NSWCA 173 Blatch v Archer (1774) 98 ER 969 Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269 British Traders' Insurance Co Ltd v Monson (1964) 111 CLR 86 Burnand v Rodocanachi Sons & Co (1882) 7 App Cas 333 Canty v Paperlinx Australia Pty Ltd [2014] NSWCA 309 Castellain v Preston (1883) 11 QBD 380 Cochrane v Cochrane (1985) 3 NSWLR 403 Coghlan v SH Lock (Australia) Ltd (1987) 8 NSWLR 88 Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394 CPT Custodian Pty Ltd v Commissioner of State Revenue; Commissioner of State Revenue v Karingal 2 Holdings Pty Ltd [2005] HCA 53; (2005) 224 CLR 98 Dundee General Hospitals Board of Management v Walker [1952] 1 All ER, 1952 SC (HL) 78 Electricity Generation Corp v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 Falcke v Scottish Imperial Insurance Co (1886) 34 Ch D 234 Finch v Telstra Super Pty Ltd [2010] HCA 36; (2010) 242 CLR 254 Friend v Brooker [2009] HCA 21; (2009) 239 CLR 129 Futurepower Developments Pty Ltd v TJ & RF Fordham Pty Ltd t/as TRN Group [2019] NSWSC 1554 Ghana Commercial Bank v Chandiram [1960] AC 732 Globe Church Inc v Allianz Australia Insurance Ltd (2019) 99 NSWLR 470 H & S Credits Ltd (in liq), Tucker v Roberts [1969] Qd R 280 Hampton Court Ltd v Crooks (1957) 97 CLR 367 HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342 Jones v Dunkel (1959) 101 CLR 298 Karger v Paul [1984] VR 161 Kent v SS "Maria Luisa" (No 2) (2003) 130 FCR 12 Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 Lewski v Commissioner of Taxation (2017) 254 FCR 14 Lumbers v W Cook Builders Pty Ltd (in liq) [2008] HCA 27; (2008) 232 CLR 635 Manly Council v Byrne [2004] NSWCA 123 Meacock v Bryant & Co [1942] 2 All ER 661 Medical Defence Union Ltd v Department of Trade [1980] Ch 82 Morris v Ford Motor Co Ltd [1973] Q.B. 792 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 O'Day v Commercial Bank of Australia Ltd (1933) 50 CLR 200 Perry v Anthony [2016] NSWCA 56 Re TH Knitwear (Wholesale) Ltd [1987] 1 W.L.R. 371 Segelov v Ernst & Young Services Pty Ltd (2015) 89 NSWLR 431 Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15; (2014) 252 CLR 307 Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 The Glendarroch [1894] P 226 Transport Accident Commission v CMT Construction of Metropolitan Tunnels [1988] HCA 46; (1988) 165 CLR 436 Victoria v Tatts Group Ltd [2016] HCA 5; (2016) 90 ALJR 392 Yonge v Reynell (1852) 9 Hare 809 Texts Cited: Ball, Hon Justice M L, and Kelly, D St L, Kelly & Ball Principles of Insurance Law (LexisNexis, 2019) Birds, J, Lynch, B, and Milnes, S, MacGillivray on Insurance Law: Relating to all Risks Other than Marine (Sweet & Maxwell Ltd, 12th ed, 2012) Birds, J, Lynch, B, and Paul, S, MacGillivray on Insurance Law: Relating to all Risks Other than Marine (Sweet & Maxwell Ltd, 14th ed, 2018) Clarke, M.A., The Law of Insurance Contracts (Informa, 6th ed, 2009) Heydon, JD, Leeming, MJ, and Turner, PG, Meagher, Gummow and Lehane's: Equity Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015) Mitchell, Charles, The Law of Subrogation (1994, Clarendon Press, Oxford) O'Donovan, J & Phillips, J, Modern Contract of Guarantee (Thomson Reuters, 4th ed, online service) Ong, Dennis SK, Ong on Subrogation (The Federation Press, 2014) Seddon, T.G. (ed), Laws of Australia: Insurance and Income Security (Thomson Reuters, 2014) Thomas, Geraint W, Thomas on Powers (Oxford University Press, 2nd ed, 2012, Oxford University Press) Category: Principal judgment Parties: CRC Gosford Pty Ltd & Anor (First Plaintiff) MAX Realty Pty Limited (Second Plaintiff) Columbus Investment Services Ltd as Trustee for the Gosford Ownership Trust and the Gosford Landholding Trust (First Defendant) SIF Holdings Pty Ltd (Second Defendant) Representation: Counsel: Mr P Braham SC with Mr J Arnott & Mr D Reynolds (First and Second Plaintiffs) Ms V Whittaker SC with Mr T Prince (Second Defendant)