Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Australian Executor Trustees (SA) Limited v Kerr [2021] NSWCA 5 Hearing dates: 2 and 3 April 2020 Date of orders: 4 February 2021 Decision date: 04 February 2021 Before: Gleeson JA at [1] Leeming JA at [336] Emmett AJA at [337] Decision: (1) Appeal against the first respondent (Mr Kerr) dismissed. (2) Appeal against the second to sixty-first respondents (Sparke Helmore) dismissed. (3) Cross-appeal by Mr Kerr dismissed with no order as to costs. (4) The appellant is to pay the first respondent's costs of the appeal. (5) The appellant is to pay the second to sixty-first respondents' costs of the appeal. Catchwords: EQUITY – trusts and trustees – professional trustee company trustee – where beneficiary "covenantholders" invested money in forestry scheme – where covenantholders entitled to share in proceeds of sale of timber – where scheme land subject to encumbrances securing covenantholders' interests – where encumbrances trust property – where scheme land and standing timber sold to third party – where trustee acted in breach of trust by releasing encumbrances CONTRACTS – solicitors – where law firm retained to advise trustee concerning release of encumbrances over scheme land – where advice found to be negligent – whether advice causative of loss to covenantholders occasioned by trustee's breach of trust EQUITY – equitable remedies – equitable compensation – causation – whether award of equitable compensation should be limited to the value of the scheme land – where challenge to factual findings relating to Payout counterfactual – whether award of equitable compensation should be reduced by certain adjustments and deductions EQUITY – equitable remedies – equitable compensation – whether defaulting trustee entitled to apportion loss to law firm – whether South Australian or New South Wales proportionate liability legislation applied – where South Australian law lex loci delicti – whether apportionment provisions procedural in nature or substantive Legislation Cited: Civil Liability Act 2002 (NSW), ss 5A, 5D(3), 5R, 34, Pt 4 Civil Procedure Act 2005 (NSW), s 100 Competition and Consumer Act 2010 (Cth), Pt VA, Sch 2 (Australian Consumer Law, ss 18, 236) Corporations Act 2001 (Cth), s 180, Ch 5C Judiciary Act 1903 (Cth), ss 39(2), 79, 80 Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA), ss 3, 4, 8 Law Reform (Miscellaneous Provisions) Act 1946 (NSW) Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 9 Real Property Act 1886 (SA), Sch 10 Transfer of Land Act 1958 (Vic) Uniform Civil Procedure Rules 2005 (NSW), rr 51.36(2), 42.1 Cases Cited: Aboody v Ryan (2012) 17 BPR 32,359; [2012] NSWCA 395 Addenbroke Pty Ltd v Duncan (No 2) [2017] FCAFC 76; (2017) ALR 1 Adrenaline Pty Ltd v Bathurst Regional Council (2015) 97 NSWLR 207; [2015] NSWCA 123 Agtrack (NT) Pty Ltd v Hatfield (2005) 223 CLR 251; [2005] HCA 38 Ahrkalimpa Pty Ltd v Schmit (No 3) [2019] VSC 197 Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 Application of David Kerr [2017] NSWSC 358 Artahs Pty Ltd v Gall Standfield & Smith (a firm) [2013] 2 Qd R 202 AS Bannister v Sirrom Enterprises Pty Ltd [2016] SASCFC 153 Australian Executor Trustees (SA) Ltd v Korda [2013] VSC 7 Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17 Australian Special Opportunity Fund LP v Equity Trustees Wealth Services Ltd [2015] NSWCA 225; (2015) 323 ALR 570 AVWest Aircraft Pty Ltd as trustee for AVWest Aircraft Trust v Clayton Utz (a firm) (No 2) [2019] WASC 306 Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18 Bank of Tokyo Ltd v Karoon [1987] AC 45 Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd [2019] SASCFC 151 Boensch v Pascoe [2019] HCA 49; (2019) 94 ALJR 112 Boyce v Mouat [1994] 1 AC 428 Caffrey v Darby (1801) 6 Ves Jun 488; 31 ER 1159 Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 Chappel v Hart (1998) 195 CLR 232; [1998] HCA 55 Cherney v Neuman [2011] EWHC 2156 Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 Commercial Union Insurance Co of Australia Limited v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Coulton v Holcombe (1986) 162 CLR 1; [1986] HCA 33 David v David [2009] NSWCA 8 Dominic v Riz [2009] NSWCA 216 Felton v Mulligan (1971) 124 CLR 376 G M & A M Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113 Harding v Coburn [1976] 2 NZLR 577 Hawes v Dean [2014] NSWCA 380 Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 Howe v Earl of Dartmouth (1802) 7 Ves 137; 32 ER 56 Jackson v Lithgow City Council [2008] NSWCA 312 Jadwan Pty Ltd v Rae & Partners (A Firm) [2020] FACFA 62 John Pfeiffer Pty Ltd v Rogerson (2000) 203 CLR 503; [2000] HCA 36 Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 Kerr v Australian Executor Trustees (SA) Ltd; Australian Executor Trustees (SA) Ltd v Fuller and others trading as Sparke Helmore Lawyers [2019] NSWSC 1279 Kerr v Australian Executor Trustees (SA) Ltd; Australian Executor Trustees (SA) Ltd v Fuller and others trading as Sparke Helmore Lawyers (No 2) [2019] NSWSC 1438 Korda v Australian Executor Trustees (SA) Ltd [2014] VSCA 65 Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; [2015] HCA 6 Kuhl v Zurich Financial Services Ltd (2011) 243 CLR 361; [2011] HCA 11 Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681; [2013] HKCFA 93 LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1990) 24 NSWLR 499 Maguire v Makaronis (1996) 188 CLR 449; [1996] HCA 23 Moore v Scenic Tours Pty Ltd [2020] HCA 17; (2020) 94 ALJR 481 Neal v Ambulance Service (NSW) [2008] NSWCA 346 O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Newcrest Mining (WA) Ltd v Commonwealth of Australia (1997) 190 CLR 513; [1997] HCA 38 Ormerod v The Todmodern Joint-Stock Mill Company (1882) 8 QBD 664 Paul v Cooke (2013) 85 NSWLR 167; [2013] NSWCA 311 Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36 Rahme v Benjamin & Khoury Pty Ltd (2019) 100 NSWLR 550; [2019] NSWCA 211 Redbro Investments Pty Ltd v Ceva Logistics (Australia) Pty Ltd (2015) 89 NSWLR 104; [2015] NSWCA 73 Reinhold v New South Wales Lotteries Corporation (No 2) (2008) 82 NSWLR 762; [2008] NSWSC 187 Rizeq v The State of Western Australia (2017) 262 CLR 1; [2017] HCA 23 Rosenberg v Percival (2001) 205 CLR 434; [2001] HCA 18 SEAS Safor Ltd v Commissioner of Stamps (1997) 36 ATR 272 Swindle v Harrison [1997] 4 All ER 705 Target Holdings Ltd v Redferns [1996] AC 421 The Australian Special Opportunity Fund LP v Equity Trustees Wealth Services Ltd [2015] NSWCA 225; (2015) 323 ALR 570 Wallace v Kam (2013) 250 CLR 375; [2013] HCA 19 Water Board v Moustakas (1988) 180 CLR 491; [1988] HCA 12 Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 Texts Cited: Benjamin on Sale of Goods (8th ed, 2010, Sweet & Maxwell) E Sykes and S Walker, The Law of Securities (5th Ed, 1993, Law Book Co) J D Heydon, M J Leeming and P G Turner, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (5th ed, 2015, LexisNexis Butterworths) J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworth) Nygh's Conflict of Laws in Australia (9th ed, 2013, LexisNexis Butterworths) Nygh's Conflict of Laws in Australia (10th ed, 2020, LexisNexis Butterworths) Category: Principal judgment Parties: Australian Executor Trustee (SA) Limited (Appellant) David Kerr (First respondent / Cross-appellant) Adam John Fuller and Others t/as Sparke Helmore Lawyers (as named in the schedule to the Notice of Appeal and Notice of Cross-Appeal) (Second to sixty-first respondents / Cross respondents) Representation: Counsel: J Lockhart SC / C McMeniman (Appellant) A Sullivan QC / D Sulan/ S Hartford-Davis (First respondent / Cross-appellant) S Donaldson SC / A Zahra (Second to sixty-first respondents / Cross-respondents) Solicitors: Gilchrist Connell (Appellant) Piper Alderman (First respondent / Cross-appellant) Yeldham Price O'Brien Lusk (Second to sixty-first respondents / Cross-respondents) File Number(s): 2019/333199 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity – Commercial List Citation: [2019] NSWSC 1279 [2019] NSWSC 1438 Date of Decision: 22 October 2019 Before: Stevenson J File Number(s): 2017/164674 [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] The appellant, Australian Executor Trustees (SA) Limited (AET), was the trustee of a number of forestry schemes pursuant to a deed of trust entered into in 1964 with S.E.A.S. Sapfor Forest Pty Ltd (the Forest Company). Under those schemes, investors who were referred to as "Covenantholders", invested money in forestry plantations and were entitled to receive a share of the proceeds of sales of timber from the lands. Some investors holding covenants in the years 1980 - 1983 were also entitled to share in the proceeds of sale of the land on which the timber was grown. Pursuant to a tripartite agreement between AET, the Forest Company and S.E.A.S. Sapfor Harvesting Pty Ltd (the Milling Company), the Milling Company undertook to provide tree felling and milling services to the Forest Company and had the sole and exclusive right to sell the standing timber or timber felled and sold in log or chip form. Each of the Milling Company and the Forest Company was entitled to charge for its services. The tripartite agreement provided for the application of the proceeds of sales of trees by the Milling Company, after deduction of certain amounts, to the Forest Company. The trust deed provided for the application of the amounts received by the Forest Company to AET for distribution to Covenantholders entitled thereto. AET held the certificates of title to the land on which trees were grown and, following amendments to the trust deed in 1988, encumbrances were registered on the title to the land in the name of AET to secure the interests of investors with respect to amounts owing to them by the Forest Company, including from the proceeds of sales of trees. In 2008, the Forest Company and the Milling Company became subsidiaries of Gunns Limited (Gunns). In 2010, the Forest Company and the Milling Company granted a fixed and floating charge to ANZ Capel Court Limited (the ANZ Charge) to secure repayment of monies lent to the Gunns Group. The ANZ Charge did not take priority over the encumbrances and the grant of that security by the Forest Company was a breach of trust. In 2011, Gunns decided to sell the scheme land and scheme trees as part of a broader asset sale designed to raise cash to pay its debts. In March 2012, AET consented to the sale of the scheme land and scheme trees and discharged the encumbrances. Except for a nominal amount of $1.00, AET did not receive any part of the proceeds of sale for the benefit of investors. In September 2012, administrators were appointed to Gunns and its subsidiaries, including the Forest Company and the Milling Company. In April 2017, the first respondent, Mr David Kerr, was appointed as an additional trustee of the trust by order of a judge of the Equity Division for the purpose of commencing and prosecuting claims against AET of breach of trust. In September 2017, Mr Kerr's appointment was expanded to include commencing and prosecuting claims against Sparke Helmore who had provided legal advice to AET in relation to the transaction in March 2012. In proceedings commenced against AET and Sparke Helmore, Mr Kerr claimed equitable compensation against AET for alleged breach of duty as trustee by releasing the encumbrances over the scheme land without first procuring that it received payment of the amounts that were owed or would become due to Covenantholders from the Forest Company, or substitute security for such amounts. Mr Kerr claimed damages against Sparke Helmore on the grounds that the advice it provided to AET concerning the release of the encumbrances was negligent and misleading and deceptive in contravention of s 18 of the Australian Consumer Law, being Sch 2 to the Australian Competition and Consumer Act 2010 (Cth). The defences raised by AET included that the claims by Mr Kerr against AET and Sparke Helmore were apportionable claims under Pt 4 of the Civil Liability Act 2002 (NSW) or ss 3 and 8 of the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA). AET cross-claimed against Sparke Helmore claiming damages for alleged negligent advice and for misleading and deceptive conduct. Alternatively, AET sought contribution pursuant to the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), or the equivalent provision under the South Australian legislation. The defences raised by Sparke Helmore to AET's cross-claim included contributory negligence and that AET's claim was an apportionable claim under Pt 4 of the Civil Liability Act. The primary judge (Stevenson J) found that the encumbrances were trust property and the release of the encumbrances in March 2012 was a breach of trust by AET. He assessed AET's liability for equitable compensation as comprising the tree sale proceeds of $34 million, the land sale proceeds of $4.88 million, the 2011 harvest proceeds of $11.051 million and the 2012 harvest proceeds of $5.148 million (less the completion adjustment on the tree sale contract of $3.281 million), the Receiver costs of $1.664 million, the appointment costs of $371,979 and the judicial advice costs of $270,757, before pre-judgment interest. He found that the advice provided by Sparke Helmore to AET was negligent, but causation of loss had not been established. He also found that the applicable law to Mr Kerr's claim against AET was the law of South Australia and that a liability for breach of trust was not an "apportionable liability" under the South Australian apportionment legislation: Kerr v Australian Executor Trustees (SA) Limited; Australian Executor Trustees (SA) Limited v Fuller and Others trading as Sparke Helmore Lawyers [2019] NSWSC 1279. The primary judge entered judgment for Mr Kerr against AET in the sum of $76,619,978.42 inclusive of interest under s 100 of the Civil Procedure Act 2005 (NSW), and dismissed Mr Kerr's claim and AET's cross-claim against Sparke Helmore: Kerr v Australian Executor Trustees (SA) Limited; Australian Executor Trustees (SA) Limited v Fuller and Others trading as Sparke Helmore Lawyers (No 2) [2019] NSWSC 1438. AET appealed and Mr Kerr cross-appealed. AET challenged the quantum of equitable compensation awarded by the primary judge and the dismissal of its cross-claim against Sparke Helmore. There was no challenge by AET to the finding of breach of trust. Mr Kerr's cross-appeal against Sparke Helmore was only pressed if, contrary to Mr Kerr's primary position and the finding of the primary judge, Mr Kerr's claims against AET and Sparke Helmore are "apportionable claims" to which Part 4 of the Civil Liability Act applied. The principal issues on the appeal and cross-appeal were: (i) whether the primary judge erred in accepting the Payout counterfactual advanced by Mr Kerr that Gunns would have agreed to pay AET on completion of the transaction in March 2012 the tree sale proceeds, the land sale proceeds, the 2011 harvest proceeds and the 2012 harvest proceeds (less the completion adjustment on the tree sale contract), or provided alternative security for those amounts; (ii) whether the primary judge instead should have found that Gunns would have only agreed to pay AET the value of the encumbered land (of $18.32 million) or provide substitute security to the value of the land (the "land-value" scenario), or Gunns would have excised the encumbered land from the sale (the "excision" scenario), or Gunns would have sold the encumbered land for a discounted price (the "discounted price" scenario); (iii) whether the component of equitable compensation relating to the tree sale proceeds of $34 million which the primary judge found Gunns would have agreed to pay AET on completion should be reduced by certain adjustments and deductions; (iv) whether Mr Kerr's claims against AET and Sparke Helmore were "apportionable claims" to which Pt 4 of the Civil Liability Act 2005 (NSW) applied; (v) whether the primary judge should have made additional findings as to other breaches of duty by Sparke Helmore with respect to the legal advice provided to AET; (vi) whether the primary judge erred in finding that AET had not established causation of loss against Sparke Helmore; (vii) assuming AET established causation of loss against Sparke Helmore, the extent to which AET's cross-claim against Sparke Helmore should be reduced for contributory negligence, or as an apportionable claim to which Pt 4 of the Civil Liability Act applied. Held, dismissing the appeal and cross-appeal (per Gleeson JA; Leeming JA and Emmett AJA agreeing): As to issues (i) and (ii): (1) AET had an evidentiary onus to establish any alternative counterfactual to the Payout counterfactual because its breach of duty created difficulties of proof as to what would have occurred but for its breach, which would not exist if the duty had been performed: at [128]. Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46; Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd [2019] SASCFC 151; Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681; [2013] HKCFA 93 applied. (2) AET's "land-value" counterfactual should be rejected because, among others, it was inconsistent with findings by the primary judge in relation to the Payout counterfactual which were not challenged on appeal, it was not supported by contemporaneous evidence that anyone ever suggested that the Covenantholders should receive only the value of the scheme land (excluding the trees) or that the value of the land should be the benchmark for any negotiations with Gunns / ANZ, and it ignored that the context of the hypothetical negotiations was a transaction that involved AET consenting to the winding up of Covenantholders' interests in the scheme land and trees: at [120]-[140]. (3) Mr Kerr should not be permitted to rely upon a new point on appeal that the value of the scheme land included the standing timber, as this was contrary to what was common ground at trial, and raised evidentiary issues as to how this matter would have been brought to bear by AET in the hypothetical negotiation with Gunns / ANZ, if AET had not breached its duty: at [141]-[144]. Coulton v Holcombe (1986) 162 CLR 1; [1986] HCA 33; Water Board v Moustakas (1988) 180 CLR 491; [1988] HCA 12 applied. (4) AET's "excision" counterfactual should be rejected because, as the primary judge correctly found, it was unlikely that Gunns would have proceeded by the excision of the scheme land from the transaction: at [154]. (5) AET's alternative "discounted price" counterfactual should be rejected because Gunns stood to receive a greater price with the inclusion of the scheme land in the transaction, and this scenario was otherwise pure speculation with no evidentiary basis: at [155]. As to issue (iii): (6) The primary judge did not err in concluding that Gunns would have agreed to pay to AET on completion the tree sale proceeds of $34 million without deduction for (a) covenants held by Gunns' subsidiaries, (b) commissions said to be payable to the Forest Company and the Milling Company under the tripartite agreement and (c) the 2011 and 2012 harvest proceeds: at [162]-[170], [178]-[201]. (7) The post-completion adjustment required by the tree sale agreement for the difference between the harvesting areas referred to in the agreement and those in fact transferred to the purchaser on completion was reflected in the amount of the judgment agreed by the parties: at [174]. (8) There was no error by the primary judge in including the Receiver costs incurred in pursuing certain litigation in the award of equitable compensation: at [214]-[215]. As to issue (iv): (9) The primary judge correctly concluded that the proportionate liability provisions of Pt 4 of the Civil Liability Act 2002 (NSW) did not apply to Mr Kerr's claims against AET because the apportionment legislation is concerned with matters of substance and not merely matters of procedure, and the lex loci deliciti was the laws of South Australia. The South Australian Law Reform (Contributory Negligence and Apportionment of Liability) Act did not provide for the apportionment of liabilities for breach of trust: at [229]-[230]. John Pfeiffer Pty Ltd v Rogerson (2000) 203 CLR 503; [2000] HCA 36; Redbro Investments Pty Ltd v Ceva Logistics (Australia) Pty Ltd (2015) 89 NSWLR 104; [2015] NSWCA 73 applied. As to issue (v): (10) AET's contention that the primary judge should have made additional findings as to other breaches of duty by Sparke Helmore, including breach of a "penumbral duty", should be rejected: at [267], [272]-[275], [279]. David v David [2009] NSWCA 8; Dominic v Riz [2009] NSWCA 216; Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18; Jadwan Pty Ltd v Rae & Partners (A Firm) [2020] FCAFC 62 applied. As to issue (vi): (11) The primary judge's finding that AET had not demonstrated causation of loss against Sparke Helmore was correct: at [284]-[313]. As to issue (vii): (12) It was not appropriate for the Court to resolve the non-dispositive issues raised by Sparke Helmore's notice of contention which the primary judge did not address, namely its defences of contributory negligence and that AET's cross-claim was an apportionable claim to which Pt 4 of the Civil Liability Act applied: at [329]-[332]. Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 and Boensch v Pascoe [2019] HCA 49; (2019) 94 ALJR 112 considered. Judgment 1. GLEESON JA: This appeal concerns a challenge to an award of equitable compensation. These reasons are organised in accordance with the following table of contents: Introduction [2]-[12] Overview of the appeal and cross-appeal [13]-[15] Outline of the basic facts [18]-[67] A. Appeal against Mr Kerr: the primary judge's reasons [68]-[93] Equitable compensation – relevant principles [94]-[104] Grounds 2-4 – the "land value" counterfactual [110]-[144] Ground 5(a) – the "excision" counterfactual [145]-[155] Grounds 5(b)-(f) – AET's suggested deductions/ adjustments [156]-[209] Ground 7 – Receiver costs [210]-[216] Grounds 6-8 [217]-[219] Grounds 17 and 18 – defence of proportionate liability [220]-[230] B. Appeal against Sparke Helmore: the primary judge's reasons [233]-[250] Additional breaches of duty: [256]-[267] • Ground 9(a) – penumbral duty [268]-[275] • Ground 9(b) – unusual or onerous provisions [276]-[279] • Ground 9(c) – advice as to reduction in protections Causation: [280]-[326] • Grounds 10-14 Sparke Helmore's notice of contention [327]-[332] C. Mr Kerr's cross-appeal [334] Orders [335] Introduction 1. The appellant, Australian Executor Trustees (SA) Limited (AET), is a professional trustee company. In 1964, AET agreed to be appointed as trustee of a number of forestry schemes pursuant to a deed of trust dated 6 March 1964 between S.E.A.S. Sapfor Forest Pty Ltd (the Forest Company) and AET. Under those schemes, investors who were referred to as "Covenantholders", invested money in forestry plantations and were entitled to receive a share of the proceeds of sales of timber from the lands. Some investors holding covenants in the years 1980-1983 were also entitled to share in the proceeds of sale of the land on which the timber was grown. 2. Pursuant to a tripartite agreement also dated 6 March 1964 between AET, the Forest Company and S.E.A.S. Sapfor Harvesting Pty Ltd (the Milling Company), the Milling Company undertook to provide tree felling and milling services to the Forest Company and had the sole and exclusive right to sell the standing timber or timber felled and sold in log or chip form. Each of the Milling Company and the Forest Company was entitled to charge for its services. The tripartite agreement provided for the application of the proceeds of sales of trees by the Milling Company, after deduction of certain amounts, to the Forest Company. The trust deed provided for the application of the amounts received by the Forest Company to AET for distribution to Covenantholders entitled thereto. 3. The schemes were conducted on land owned by the Forest Company in an area of Victoria and South Australia known as the "Green Triangle" region. AET held the certificates of title to the land on which trees were grown and, following amendments to the trust deed in 1988, encumbrances were registered on the title to the land in the name of AET to secure the interests of investors with respect to amounts owing to them by the Forest Company, including from the proceeds of sales of trees. 4. The Forest Company and the Milling Company were initially subsidiaries of Auspine Limited (Auspine). In 2008 Auspine was taken over by Gunns Limited (Gunns). In 2010, the Forest Company and the Milling Company granted a fixed and floating charge to ANZ Capel Court Limited (the ANZ charge) to secure repayment of monies lent to the Gunns Group. The ANZ charge did not take priority over the encumbrances in favour of the Covenantholders. In 2011, Gunns decided to sell the scheme land and scheme trees as part of a broader asset sale designed to raise cash to pay its debts. 5. In March 2012, AET consented to the sale of the scheme land and scheme trees and discharged the encumbrances. Except for a nominal amount of $1.00, AET did not receive any part of the proceeds of sale for the benefit of investors. In September 2012, administrators were appointed to Gunns and its subsidiaries, including the Forest Company and the Milling Company. 6. In April 2017, the first respondent, Mr David Kerr, was appointed as an additional trustee of the trust by order of a judge of the Equity Division of the Court for the purpose of commencing and prosecuting claims against AET: Application of David Kerr [2017] NSWSC 358. In September 2017 his appointment was expanded to include commencing and prosecuting claims against Sparke Helmore who had provided legal advice to AET in relation to the transaction in March 2012. 7. Mr Kerr's case was that AET breached its duty as trustee by releasing the encumbrances over the scheme land without first procuring that it received payment of the amounts that were owed or would become due to Covenantholders from the Forest Company, or substitute security for such amounts. Mr Kerr claimed equitable compensation in the order of $57 million and interest thereon. Mr Kerr's case against Sparke Helmore was that the advice it provided to AET concerning the release of the encumbrances was negligent and misleading and deceptive in contravention of s 18 of the Australian Consumer Law, being Sch 2 to the Competition and Consumer Act 2010 (Cth). Mr Kerr claimed damages against Sparke Helmore at common law and pursuant to s 236 of the Australian Consumer Law. 8. The defences raised by AET included that the claims by Mr Kerr against AET and Sparke Helmore were apportionable claims under Pt 4 of the Civil Liability Act 2002 (NSW) or ss 3 and 8 of the Law Reform (Contributory Negligence and Apportionment of Liability) 2001 (SA). 9. AET cross-claimed against Sparke Helmore claiming damages in contract or in tort for alleged negligent advice and for misleading and deceptive conduct. Alternatively, AET sought contribution pursuant to the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), or the equivalent provision under the South Australian legislation. The defences raised by Sparke Helmore to AET's cross-claim included contributory negligence and that AET's claim was an apportionable claim under Pt 4 of the Civil Liability Act. 10. In his first judgment delivered on 26 September 2019, Stevenson J found that the encumbrances were trust property and the release of the encumbrances in March 2012 was a breach of trust by AET. He assessed AET's liability for equitable compensation in the amount of $51,081,972.38, before pre-judgment interest. He found that the advice provided by Sparke Helmore to AET was negligent, but causation of loss had not been established. He also found that the New South Wales apportionment legislation did not apply to Mr Kerr's claim against AET because the applicable law to Mr Kerr's claim was the South Australian apportionment legislation and a claim for breach of trust was not an "apportionable liability" under the South Australian legislation: Kerr v Australian Executor Trustees (SA) Limited; Australian Executor Trustees (SA) Limited v Fuller and Others trading as Sparke Helmore Lawyers [2019] NSWSC 1279 (the principal judgment or PJ). 11. In his second judgment given on 22 October 2019, the primary judge dealt with final orders and costs. He entered judgment for Mr Kerr against AET in the sum of $76,619,978.42 inclusive of interest under s 100 of the Civil Procedure Act 2005 (NSW). He dismissed Mr Kerr's claim and AET's cross-claim against Sparke Helmore: Kerr v Australian Executor Trustees (SA) Limited; Australian Executor Trustees (SA) Limited v Fuller and Others trading as Sparke Helmore Lawyers (No 2) [2019] NSWSC 1438 (the second judgment or SJ). Overview of the appeal and cross-appeal 1. By its appeal AET challenges the quantum of equitable compensation awarded by the primary judge and the dismissal of its cross-claim against Sparke Helmore. There is no challenge to the finding of breach of trust. AET's primary submission is that the amount of equitable compensation should be reduced to $18,962,734.84 before pre-judgment interest: see [111] below. AET says that Sparke Helmore should bear 50 per cent of its liability to Mr Kerr, either because Mr Kerr's claims against AET and Sparke Helmore are "apportionable claims" to which Pt 4 of the Civil Liability Act applies, or AET's cross-claim against Sparke Helmore for damages is reduced on account of AET's acknowledged contributory negligence. 2. The cross-appeal by Mr Kerr against Sparke Helmore is defensive only. It is only pressed if, contrary to Mr Kerr's primary position and the finding of the primary judge, Mr Kerr's claims against AET and Sparke Helmore are "apportionable claims" to which Part 4 of the Civil Liability Act applies. In that event, Mr Kerr challenges the dismissal of his claim against Sparke Helmore, relying upon the same grounds and contentions as advanced by AET against Sparke Helmore. 3. Sparke Helmore seeks by notice of contention to maintain its contributory negligence and proportionate liability defences relied upon at trial, but not determined by the primary judge. If it is liable to AET, Sparke Helmore says that its liability should be reduced to no more than 10 per cent of AET's liability to Mr Kerr by reason of either contributory negligence of AET, or if AET's claim against Sparke Helmore is apportionable under Pt 4 of the Civil Liability Act. Sparke Helmore did not press its notice of contention insofar as it was asserted that the primary judge erred in finding that its advice to AET was negligent. The character of the jurisdiction 1. One preliminary matter should be noted. Because Mr Kerr's claim and AET's cross-claim both invoked a federal law, namely, ss 18 and 236 of the Australian Consumer Law, the whole of the proceedings was an exercise of federal jurisdiction: Felton v Mulligan (1971) 124 CLR 376 at 373 (Barwick CJ) at 411-412 (Walsh J). The Supreme Court was exercising federal jurisdiction conferred by s 39(2) of the Judiciary Act 1903 (Cth) and the law which governed the exercise of that jurisdiction is to be identified in accordance with ss 79 and 80 of the Judiciary Act: Agtrack (NT) Pty Ltd v Hatfield (2005) 223 CLR 251; [2005] HCA 38 at [8]. 2. The characterisation of the proceedings as involving the exercise of federal jurisdiction has the consequence that any aspect of state law, in particular, the operation of Pt 4 of the Civil Liability Act which was relied on by AET, or the defence of contributory negligence which was relied upon by Sparke Helmore, could have effect only through the agency of a federal law: Rizeq v The State of Western Australia (2017) 262 CLR 1; [2017] HCA 23; Moore v Scenic Tours Pty Ltd [2020] HCA 17; (2020) 94 ALJR 481 at [3]. The issue of federal jurisdiction was not referred to by the parties in this Court, nor below. No party suggested that the federal nature of the Court's jurisdiction affected the outcome of the appeal in anyway. It is appropriate to proceed on that basis. Outline of the basic facts 1. The factual circumstances giving rise to these proceedings are described in detail in the principal judgment at [2]-[199]. The following outline is largely taken from the principal judgment. 2. The trust deed contemplated that each forestry scheme for trees planted yearly up to 1974 would be for a period of 25 years and for plantings thereafter for a period of 20 years. The Forest Company undertook to plant the land with pine trees and to tend and supervise the trees for those periods: cl 12(a). 3. Each investor was entitled under the trust deed to payment of a rateable share of the net proceeds of the sale of timber harvested from the planting referable to the relevant planting year in respect of which their "covenants" had been issued: cl 12(b). In addition, investors holding covenants issued for the 1982 and 1983 planting years were entitled to a share of the value of the land upon which the timber was planted, determined by reference to any appreciation in the value of the land between the time of the planting and the time at which the timber was felled or the land ceased to be the subject of the covenant: cll 13(iv) and 27. 4. The Forest Company was entitled under cl 12(d) of the trust deed to retain 5 per cent of the balance of the proceeds from the sale of timber for its commission and remuneration for its services, as provided by cl 9(d) of the tripartite agreement, and required within 30 days of receipt of such monies from the Milling Company to pay the balance, after deductions of certain expenses, to AET as the trustee for distribution among Covenantholders entitled thereto. 5. The tripartite agreement provided that the proceeds of sale of the timber were to be applied by the Milling Company: (a) retaining a commission of 20 per cent of the gross proceeds, (b) paying a commission of 5 per cent of the balance immediately to the Forest Company and (c) retaining the balance for payment to the Forest Company "by five instalments on the last days of the months of April, May, June, July, August then next following" the September by which the Milling Company received the monies (that is, in the next year): cl 9. The primary judge described this "waterfall" distribution provision as the Proceeds Distribution Process. 6. Clauses 14 and 14A of the tripartite agreement, as amended in October 1999, provided that the Milling Company had the sole and exclusive rights to mill and process the trees and sell the products therefrom in these terms: 14. The Milling Company shall during the currency of this Agreement: (a) have the sole and exclusive right to sell Log Products (which hereinafter means standing timber or timber felled and sold in log (peeled or unpeeled) or chip form from plantations subject to covenant); (b) use its best endeavours to sell all the timber felled as soon as possible after it has been cut; (c) have the right to sell Log Products to a related body corporate, as defined by the "Corporations Law, without the need to attempt to sell or otherwise market those Log Products to any other person." 14A. (a) Any sale of Log Products to a related body corporate shall be at the price fixed by the Second Schedule hereto; (b) where Log Products are not sold to a related body corporate, the Milling Company shall use its best endeavours to secure the best market price reasonably obtainable at the time of the sale of those Log Products; (c) other than when pulplog is supplied to Forestry SA and delivered to Kimberly Clark Australia (SA) Pty Ltd (which shall be a sale governed by Clause 14A(a), where Log Products are delivered to a party which is not a related body corporate, directly from plantations subject to covenant, without any processing by a related body corporate, it shall be a sale governed by clause 14A(b). 1. Although the Covenantholders had no security from the Milling Company, their interests as investors were the subject of a number of protections in the trust deed. First, the trust deed prohibited the sale or encumbrance of the scheme land by the Forest Company without the consent of AET, "until the timber growing [on the scheme land] is … cut and milled and disposed of and the proper proceeds paid to [AET]": cl 2(d)(i). This provision was amended in April 2011 as part of the events leading to the transaction the subject of the proceedings. Following the amendment, AET's consent was subject to it being reasonably satisfied that the Forest Company "is able to continue to observe and perform its obligations pursuant to the [trust deed]", and that there was "no material prejudice to the interests of the Covenantholders or any reduction in the protected [sic] afford [sic] to them pursuant to the [trust deed]": cl 2(d)(i). The full terms of the amended provision are set out at [33] below. 2. Second, the trust deed prohibited the encumbering of the timber planted on the scheme land, without the consent of the trustee: cl 2(d)(iv). 3. Third, AET held the certificates of title and registered encumbrances in the name of AET on the title to the scheme land to secure the interests of investors: cl 2(d)(v). The terms of the trust deed (cl 2(d)(v), as amended in December 1988) and the encumbrances contained a covenant by the Forest Company as the encumbrancer for itself and its successors in title in favour of AET relevantly, "[t]o observe and perform all and singular the terms, conditions, covenants and provisions contained and comprised in" the trust deed. 4. The encumbrances were statutory instruments under the Real Property Act 1886 (SA) and the Transfer of Land Act 1958 (Vic). Addressing the legal nature of such encumbrances, the primary judge adopted the description given in E Sykes and S Walker, The Law of Securities (5th ed, 1993, Law Book Co) at p 327: The statutes confer on the chargee much the same rights and remedies as in the case of the mortgage. 1. The encumbrances provided security for the performance of the Forest Company's obligations under the trust deed, including payment to AET for distribution to the Covenantholders of the net proceeds of the timber under the tripartite agreement, less its 5 per cent commission and certain other expenses: see [21] above. Registration of the encumbrances prevented the Forest Company from dealing with the land without the consent of AET. 2. The primary judge found that the grant of the ANZ charge over the scheme land by the Forest Company in 2010 was in breach of trust, being contrary to the express requirement of the trust deed that the Forest Company not encumber the scheme land without AET's consent: PJ [11]. He also found that AET knew of the existence of the ANZ charge at all relevant times in 2011 and early 2012: PJ [226]. 3. In 2011 Gunns decided to sell the scheme land and trees as part of "the entire estate" in the Green Triangle region, including 3,200 hectares of trees owned by Covenantholders, which was about 10 per cent of the trees the subject of the proposed sale. Initially, Gunns intended to sell the scheme land and its trees, and proposed that Covenantholders' interests, including the encumbrances would continue after the sale: Information Memorandum, par 3.1. As Gunns explained in its letter to AET on 4 March 2011 when formally requesting consent to the proposed sale, "covenant holders' interests remain protected under the trust deeds and the various registered encumbrances and whoever takes the land will take it subject to those interests". The Gunns letter also foreshadowed the possibility of the sale of "all Covenantholder interests as well" and thus, in effect, the winding up of the scheme: PJ [67]. 4. Gunns had retained ANZ Corporate Advisory as its financial advisor on this proposed transaction, and ANZ Corporate Advisory gave this mandate the code name "Project Saturn". 5. On 16 March 2011, Mr Stuart Howard, Senior Relationship Manager, Corporate Trust, at AET indicated to Gunns that AET agreed in principle to Gunns' proposal, subject to the interests of Covenantholders not being materially prejudiced or diminished and to the possibility of obtaining independent advice. Such advice was first sought several months later from Sparke Helmore in late June 2011: see [36] below. 6. As indicated, on 14 April 2011 AET, the Forest Company and the Milling Company agreed to amend cl 2(d)(i) of the trust deed by deleting that provision and replacing it with the following: 2(d)(i) The Forest Company will not: 1. sell land of which it is the registered proprietor; or 2. encumber such land without the consent of the Trustee, which consent shall not be unreasonably withheld subject always to the Trustee being reasonably satisfied that the Forest Company is able to continue to observe and perform its obligations pursuant to the Deed and that there being no material prejudice to the interests of the Covenantholders or any reduction in the protected [sic] afford [sic] to them pursuant to the Deed. 1. On 1 June 2011, Gunns informed the ASX 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 plantation estate in SE Australia'". By this time, Gunns had revised its proposal. A document styled the "Green Triangle Softwood Opportunity, $190 Million softwood Estate Investment Trust", stated that Gunns was now proposing to establish an investment vehicle in the form of a softwood estate investment trust (SEIT) which would own the entire Green Triangle and the associated timber rights, including trees owned by GMO, pursuant to a sale of standing timber on land owned by Gunns in 2009, and trees owned Covenantholders on 3,880 ha, "to be bought back from the Covenantholders". The document valued the Covenantholder timber at $73.7 million by applying an 8 per cent discount rate to the forecast cashflow from harvesting of the Covenantholder trees, and stated that Gunns will settle the Covenantholder liability thereby providing the Covenantholder timber on an unencumbered basis, owned 100 per cent by the new investment vehicle. 2. On 24 June 2011, Gunns advised AET that as a result of a competitive bidding process conducted by it and its financial adviser, ANZ Corporate Advisory, it had reached agreement in principle with a US-based timber investment management organisation to purchase Gunns' softwood plantation estate in the Green Triangle, including the standing timber and land the subject of the Covenantholder scheme. Gunns stated its expectation of a net return to Covenantholders of approximately $45.7 million. 3. On 27 June 2011, AET retained Sparke Helmore to provide advice about the Gunns proposal for the sale of standing timber that related to Covenantholder interests, including advice on whether it is detrimental or materially prejudicial to the Covenantholders. 4. On 28 June 2011, Gunns was asked by Kevin Connors of Nordea Bank ABP to explain why it was only receiving A$107m net return for the Green Triangle Plantation assets, in comparison to "the originally projected $150-170 million realisation value estimated in February 2011". Gunns responded on 30 June 2011 giving the following explanation: The sale process did not achieve original estimates of value circa. $150m. The outcome was adversely impacted by the complexity of the transaction and the consequential difficulty in achieving competitive tension in the sale process … The estate sale incorporated the sale of land and equity interests in a proportion of trees planted on the land. A significant portion of the land (circa. 75% was effectively encumbered by an existing tree crop owned by GMO. The remaining tree crop included an area of trees owned fully by Gunns with another proportion (circa. 15% with shared equity interest with covenant holders. The sale process involved engagement with four global timber funds. The indicative values placed by these funds largely reflected a significant discount for the encumbrance of the land by the existing equity interests. (Emphasis added.) 1. On 14 July 2011, Gunns informed AET that the proposed purchaser was not willing to proceed without assurances from AET that it would not object to the sale of the standing timber and would execute the necessary releases so that the legal and beneficial interest in both the land and the trees passed to the purchaser free of any interest of the Covenantholders. 2. On 15 July 2011, Mr Howard of AET sent an email to his superior, Mr Phillip Joseph, AET's CEO Corporate Trust, informing him that Mr Adam Fuller from Sparke Helmore had completed most of their review of the proposal for the sale of the standing timber and the trust documentation and that subject to receiving some more information in a couple of areas, the proposal looked to be in line with the terms of the trust documents. Mr Howard noted that Mr Nguyen, the Group General Counsel of Gunns, had telephoned the previous day to gauge AET's response and commented to Mr Joseph: On the basis that our legal advice is that the proposal is allowed under the trust documents and we are happy to proceed, we would not object to the sale of the timber and would execute the necessary releases to transfer the interests to the purchaser. 1. The primary judge observed that this passage in Mr Howard's email suggested that his state of mind at that 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" and this was relevant to the question of the extent to which AET relied on the advice ultimately given by Sparke Helmore: PJ [84]. 2. There were further communications between Mr Howard of AET, Mr Nguyen of Gunns, and Mr Andrew Johnson of Sparke Helmore in late-July / early-August 2011. It is not necessary to refer to the detail other than to note that his Honour found 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: PJ [91]. 3. Sparke Helmore gave written advice to AET on 17 August 2011, which was before the creation of any transaction documents. The primary judge noted that, in final submissions, Sparke Helmore eschewed any reliance on the 17 August 2011 advice: PJ [263]. Although it is not necessary to refer to the terms of this Sparke Helmore advice, reference should be made to his Honour's findings concerning Mr Howard's thinking at this time: PJ [347]-[350]: [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 PJ [83] above, where, to repeat, Mr Howard said: On the basis that our legal advice is that the proposal is allowed under the documents and we are happy to proceed, we would not object to the sale of the timber and would execute the necessary releases to transfer the interests to the purchaser. [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". [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 PJ [119] above). [350] Mr Howard made the same point in his email to Mr Joseph on 3 August 2011, that I have set out at PJ [89] in which, to repeat, he said: The purpose of the advice was to ensure that Gunns' proposal to sell the standing timber was in accordance with the [trust] documents. Assuming it is, the valuation would then be reviewed against [the proposed purchaser's] offer and if competitive, we would consent to the proposal. (Emphasis added.) 1. On 4 November 2011, Mr Nguyen provided an update to Mr Howard that Gunns were still negotiating with the proposed purchaser, at that time, GMO Renewable Resources LLC (GMO), as well as a third party, and that the likely structure of the proposed sale was that the proposed purchaser, GMO, would on-sell their trees as part of the transaction with the third party, New Forests Asset Management Pty Ltd (New Forests), being the ultimate purchaser of the "Auspine and Covenant Holder trees". 2. In late November 2011, drafts of the proposed tree sale agreement and put and call option were provided by Mr Nguyen to Mr Howard. Schedule 3 of the draft tree sale agreement contained an "Apportionment between Sellers" of the "Initial Purchase Price" showing AET as one of the "Tree Owners" was $0; whereas, the Forest Company's portion was $20,216,073 in respect of the South Australian trees, and $13,783,927 in respect of the Victorian trees. 3. AET retained Sparke Helmore on 5 December 2011 to provide advice about the draft tree sale agreement and the draft put and call option deed, in particular, whether there were "[a]ny unusual or onerous provisions in the document(s)" and "[c]onfirmation that the document is in order for execution". Sparke Helmore gave advice on 22 December 2011 and again on 14 March 2012. The terms of that advice is referred to in some detail at [235] ff below. 4. In response to an email from Mr Howard on 7 December 2011 enquiring why the proceeds were not coming directly to AET, Mr Nguyen replied by email that Gunns was adopting a similar process to a harvesting distribution event; in effect, the funds would be paid to the Milling Company which would deal with the funds in accordance with the waterfall distribution specified in the tripartite agreement. Mr Howard on-forwarded Mr Nguyen's email to Mr Johnston of Sparke Helmore on 7 December 2011. 5. As to Mr Howard's attitude to this email, the primary judge found at PJ [115]: None of this caused any concern to Mr Howard. In his affidavit he said: My understanding of Mr Nguyen's above response, at the time of receiving it, was that covenantholders' share of the proceeds from the Third Proposal would be distributed in accordance with the process for distributions outlined in the Tripartite Agreement... This did not raise any alarm with me at the time because: (a) if it was in accordance with the terms of the Trust Deed, I believed it was appropriate, particularly as it was my understanding that there was no other process for distribution of proceeds permitted under the Trust Documents; and (b) the Forest Company had never previously defaulted on any of its obligations under the Trust Documents since my involvement with the Trust from 2006. 1. The primary judge also referred to a note of Mr Johnston of Sparke Helmore dated 7 December 2011 which was in evidence, of 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. Mr Howard did not refer to this conference in his affidavit and Mr Johnston deposed in his affidavit that he did not have an independent or specific recollection of his discussions with Mr Howard on 9 December 2011. 2. The primary judge made the following findings at PJ [118]-[123]: [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. [119] So expanded, the note reads: Covenantholder = Gross $34 M[illion] – Forest Co distributes to AET • when thinnings/harvest – P[ut and] C[all Option] transfers the net proceeds • 20% to Milling Co. • 5% commission. • I just thought we were consenting • Purchaser wants us to sign I think. It's fine though. Were also asking for: - We get instructions from trust manager. We get them to say all the R[epresentions] + W[arrantie]s from them are correct ----> back to back S.E.A.S. gives that to us. [AJ or AS]: We'll look into getting security from Gunns as well. - back to back rep[resentations] - letter of U[ndertaking] - valuation – been updated net 33 M[illion] = 34 M[illion]. I'm happy w[ith] that. • They'll do an ASX notice once docs signed. - Covenantholders will be advised (T[rust]ee will be told). Done by 31 Jan. • I'm away tomorrow arvo + Friday - take the doc as final • I'm reas[onably] comfortable w[ith] the R[epresentations] + W[warranties] + U[ndertaking]s • Not too concerned w[ith] the commercials • No real constraint to us to pay the $ to covenantholders. Just subject to the Trust docs." (Emphasis added in PJ.) [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). [121] The note shows that: (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) 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) 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) 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) 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. [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: As discussed, here is the email that I sent to [Mr Nguyen] today and his responses. Please disregard his response in relation to the letter of undertaking. [Mr Nguyen] was referring to the letter provided back in March 2011 from the Forest Company that the proposal to sell the timber was a good thing, rather than the August 2011 letter of undertaking. Attached is the form of instruction that we will receive from [the Forest Company]. I'll send the updated valuation information in a separate email. Please let me know if you have any queries. [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". 1. On 8 December 2011, Gunns told ANZ as the representative of the lender's syndicate, in response to the question whether the entire Green Triangle estate was being sold: The sale comprises land and tree interests owned by the group in the Green Triangle region. Land area is approx. 42,000 ha all of which (apart from some minor equity interests (2,000 ha) held by Investors) is currently owned by the Company. The ownership of the trees is split between the Company (15%), GMO (75%) and Covenant Holders/Investors (10%). As part of the transaction the Company has agreed the purchase of the GMO and Covenant Holder trees from those parties to sell all land and tree [sic] to the purchaser. By doing this the estate could be sold on an unencumbered basis to the new owner and realise a better price. (Emphasis added.) 1. On 22 December 2011, New Forests, Gunns, the Forest Company, the Milling Company, AET and various other Gunns subsidiaries executed a put and call option giving New Forests, as purchaser, the right to call for and the Gunns' interests, as vendor, a right to put to the purchaser the obligation to purchase land and trees, which included the scheme land and the scheme trees. On the same day, Gunns announced to the ASX that the transaction was expected to reduce debt by approximately $85 million through cash received and the retirement of securitisation facilities. 2. On 22 December 2011, Gunns announced to the market: The company has a heads of agreement with a purchaser for the MIS loan book. The purchaser is currently finalising transaction due diligence with completion scheduled in January 2012. This transaction is expected to reduce debt by approximately $85 million through cash received and the retirement of securitisation facilities: PJ [154]. 1. The primary judge found that AET was aware that Gunns was in financial distress at the time of the transaction: PJ [227]. 2. On 20 February 2012, Gunns wrote to the ANZ, referring to a meeting with lenders on 16 February 2012. The email stated that a "Review Event (Asset Disposal) is subsisting because the sales of … Green Triangle Forest Estate have not yet been finalised". In justifying a request for consent to continue the facility on the existing terms, the Gunns email stated: The Company has entered into an agreement to sell the Green Triangle Forest Estate to an investment vehicle (taking the form of two stapled unit trusts). The consideration for the sale will be the issue of units in the trusts comprising no less than 39% of the equity value in those trusts. It is proposed that Gunns will provide a mortgage over its units in the trusts to the Security Trustee in exchange for the release of the Green Triangle Forest Estate from the existing Security. This improves the position of Gunns and the syndicate, and provides us with an ability to receive a much greater sale price, as we are in effect swapping security over encumbered land ie encumbered by growers with interests in the trees for 25 years) with security over an interest in trusts that own the land unencumbered. (Emphasis added.) 1. On 24 February 2012, Mr Nguyen informed Mr Howard and Mr Johnston by email that one of the purchaser's investors had withdrawn from the transaction due to their exposure to the European financial situation. In order to proceed with completion and keep the structure of the purchaser in place, Gunns had agreed to take the place of the investor that had withdrawn by becoming a member of the two stapled investment trusts which were established to purchase the assets, and Gunns expected to exit once the purchaser had finalised the arrangement with new investors which was expected to be done by late-May/June. As the primary judge noted, by agreeing temporarily to become a member of the stapled fund that would own and operate the various assets after the purchase, Gunns was in effect providing vendor finance and this was an indication of Gunns' anxiety to ensure that the transaction completed: PJ [158]-[159]. 2. On 9 March 2012, Gunns requested an immediate trading halt for two business days, informing the ASX that a proposed participant in an equity raising had withdrawn and the company was in discussion with equity investors in respect of the raising. 3. What next occurred immediately before completion of the transaction was summarised by the primary judge at PJ [161]–[163] as follows: [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 "[ ]": ● Gunns issues – it is what it is ◦ [Undertaking] from all parties. That's the risk we're taking ◦ I don't know what alternatives we can take ◦ I don't think there's anything else we can do ◦ I'll let you know if there is but all we can do [at the moment] is just sit [and] hope/wait it's fine I understand the [Undertaking]/indemnity is only as good as the parties backing it (i.e. Gunns). [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. [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. 1. This led to some amendments to the tree sale agreement and on 14 March 2012, Sparke Helmore gave a document confirmation advice to AET that the amending deed was in order for execution by AET: see [247] below. The advice included an additional qualification arising out of Gunns' trading halt, stating that the value and utility of indemnities and other benefits provided to the Trustee under various letters of undertaking given by Gunns, including the ability of the parties to make payment under any indemnities may have been adversely affected. 2. The transaction entered by Gunns on 15 March 2012 comprised two parts. One was the sale of land in the Green Triangle region, including the scheme land, pursuant to separate contracts for sale dated 15 March 2012 for the land situated in Victoria and South Australia. The other was the sale of the standing timber on that land pursuant to the tree sale agreement dated 15 March 2012. The respective sellers apportioned the purchase price in those agreements between the land and the trees. The significance of the separate transactions is that AET approached the question of its consent to the tree sale agreement on the basis that the proceeds of sale were subject to the waterfall distribution in the tripartite agreement. 3. By the tree sale agreement, the Milling Company sold the scheme trees to Trust Company (Australia) Limited, as trustee of the investment vehicle taking the form of two stapled unit trusts, of which New Forests was the major investor. The agreement recorded that the purchase price referrable to the scheme trees was $34,000,000, apportioned as to $20,216,071 to the Milling Company and $1.00 to the Forest Company for the South Australian trees, and $13,783,927 to the Milling Company and $1.00 to the Forest Company for the Victorian trees (the tree sale proceeds). AET was a party to the tree sale agreement and gave its consent to the sale of the standing timber on the scheme land by its execution of the agreement, as recorded in recital D. On completion, which occurred on 16 March 2012, AET discharged the encumbrances it held over the scheme land and the tree sale proceeds. AET received $1.00 and the amount required to be paid to the Milling Company ($33,999,998) was paid into Gunns' overdrawn account with ANZ Banking Corporation Limited (ANZ). It seems that the amount paid to ANZ was $33,999,999. Apparently, the Milling Company did not hold a separate bank account. 4. By the two land sale agreements, the Forest Company sold the scheme land to Trust Company (Australia) Limited. While AET was not a party to the land sale agreements, it gave its consent to the sale of the scheme land on 14 March 2012, under the trust deed. The primary judge found, and there is no challenge on appeal, that the true price of the scheme land under the land sale contracts was $18,320,000: PJ [429]. This figure was based on the apportionment of the purchase price in the land sale contracts to the various parcels of land sold by the sellers. The proceeds of sale of the scheme land in the land sale contracts referable to the 1980-1983 Covenantholders' interests were $4,882,380.58 (the land sale proceeds): PJ [173]. 5. In addition to receiving $33,999,999 on 16 March 2012, Gunns also received pursuant to the transaction an amount of $118,970,001 which was applied by Gunns for the subscription of units in the stapled fund which Gunns agreed to become a member of: the Green Triangle Forest Investment Trust and the Green Triangle Forest Operating Trust. 6. In the ordinary course of the schemes, amounts were payable by the Forest Company to AET in 2012 and 2013 from the 2011 and 2012 harvest years, after receipt by the Forest Company from the Milling Company. The 2011 harvest proceeds of $11,051,041.49 were payable around mid-2012, and an amount of $4,952,579.60 was in fact received by AET (the paid 2011 harvest proceeds). Part of this amount was expended by AET on litigation which was ultimately unsuccessful against the receivers appointed by ANZ to the Forest Company and the Milling Company: Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; [2015] HCA 6 (the Korda litigation). 7. The 2012 harvest proceeds of $5,148,552.31 were payable in around mid-2013. None of this amount was received by AET. 8. On 25 September 2012, Gunns Limited and its subsidiaries, including the Milling Company and the Forest Company, were placed into external administration. This was well before the Milling Company was obliged under the tripartite agreement to make any payment to the Forest Company and thereafter the Forest Company to make payment to AET of the tree sale proceeds or the land sale proceeds. 9. The primary judge found that the Covenantholders received no payment for their investment since 2011, and that the tree sale proceeds, the land sale proceeds, part of the proceeds of the 2011 harvest years, and all of the proceeds of the 2012 harvest years had been lost: PJ [198]-[199]. 10. The amount of equitable compensation claimed by Mr Kerr against AET of about $57 million, comprised the following amounts, as his Honour recorded at PJ [29]: 1. the Tree Sale Proceeds: $33,999,998; 2. the Land Sale Proceeds: $4,882,380.58; 3. the 2011 Harvest Proceeds actually received by AET: $4,952,579.60; 4. the 2011 Harvest Proceeds not received by AET: $6,098,461.89; 5. the 2012 Harvest Proceeds: $5,148.552.31; 6. the Receiver Costs: $1,664,500.41; 7. the Appointment Costs: $371,976.90; 8. the Judicial Advice Costs: $270,757.94; and 9. interest from the date of breach on (a)-(e) above. A. APPEAL AGAINST MR KERR The primary judge's reasons Breach of trust 1. The primary judge found that the encumbrances were trust property and that by releasing the encumbrances AET breached its duty as trustee because it failed to protect the encumbrances as trust assets, and failed to vindicate the rights attaching to them as trust assets: PJ [216]-[217]. There is no appeal from these liability findings. 2. His Honour found that Mr Howard did not regard the release of the encumbrances as being particularly significant as he understood at the time that they were no more than water rights or rights of way: PJ [204]. That understanding was obtained from advice Mr Howard had sought from Mr Nguyen of Gunns in March 2011: PJ [238]-[240]. His Honour found that Mr Howard should have understood the true nature of the encumbrances, as he acknowledged in his evidence: PJ [248]. Mr Howard's misunderstanding reflected a lack of vigilance and diligence on AET's part: PJ [249]. His Honour concluded that it was more likely than not that Mr Howard had a less than perfect understanding: PJ [254]. Causation and quantum of equitable compensation 1. After referring to the well-known authorities concerning the test of causation involving claims for equitable compensation, his Honour accepted Mr Kerr's submission that the applicable test for causation is whether "but for" the breach of trust the Covenantholders' loss would not have occurred, and once the "but for" test is satisfied the onus shifts to AET, citing Ahrkalimpa Pty Ltd v Schmit (No 3) [2019] VSC 197 at [33]: PJ [371]. 2. At PJ [379], his Honour identified the critical question as what would have happened had AET insisted that the encumbrances not be released without either payment to the investors of the amount to which they would ultimately be entitled, or the provision of alternative security, and said: … 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. 1. On appeal, AET accepts this approach to causation and does not challenge the conclusion that the "but for" test applies. The Payout Counterfactual 1. Addressing Mr Kerr's submission that it is likely, had AET so insisted, that the Covenantholders would have been paid out at settlement, his Honour accepted five propositions advanced by Mr Kerr in support of what he described as the "Payout counterfactual". 2. First, the transaction evolved into one which would effectively result in the winding up of the trust: PJ [384]. Second, a number of internal ANZ documents, specifically a "Headline Offer Comparison" in September 2011, and internal ANZ communications dated 12 October 2011 and 21 February 2012, suggested 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: PJ [396]. His Honour found that "[t]he documents appear to me to be setting out what ANZ understood would be available to it on completion and to bespeak an understanding by ANZ that Covenantholders would be paid first": PJ [397]. Third, media reports and ASX announcements by Gunns suggested that Gunns was under financial stress and was highly motivated to sell its assets in the Green Triangle: PJ [410]. Fourth, there was evidence which suggested that Gunns was powerfully motivated to ensure that the sale of its Green Triangle assets proceeded and to avoid a "no transaction" scenario: PJ [411]. Fifth, Gunns was proceeding with the Green Triangle sale at what it and the media regarded as a substantial undervalue: PJ [419]. 3. His Honour concluded 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 of about $34 milliion, then ANZ and Gunns would have acceded to AET's demands: PJ [423]. 4. His Honour then turned to and rejected various causation arguments advanced by AET to the contrary, making the following findings. 5. First, whilst it was common ground that the true price of Covenantholder land in the land sale contracts was $18.32 million, the encumbrances secured not only the value of the land, but "all and singular" obligations of the Forest Company under the trust deed and the investors 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. Accordingly, his Honour was not prepared to speculate that ANZ would only have agreed to release to AET the value of the scheme land: PJ [429]-[431]. 6. Second, the alternative scenario advanced by AET that the likely response from Gunns/ANZ would have been to excise the sale of the Covenantholder land from the transaction, involved a high degree of speculation. It was unlikely that Gunns would have proceeded this way, given its earlier stated position that it wished to sell the entire estate; and as a practical matter there was no evidence that the scheme land could be excised: PJ [433], [435], [440]. 7. Third, the submission by AET that Gunns would have required retention of the amounts from the tree sale proceeds representing the value of Gunns' subsidiaries covenants involved a matter of speculation as to whether Gunns would have adopted that position, and in any event, AET could not have agreed to it without acting in breach of trust: PJ [445]. 8. Fourth, the submission by AET that Gunns would not have allowed the 2011 harvest proceeds and the 2012 harvest proceeds to be distributed to the Forest Company and then to AET in the usual way of the delayed payment distribution under the tripartite agreement, was a matter to which Mr Howard of AET gave no thought at the time. Further, as the party in breach, AET bore the onus to establish the unpaid 2011 harvest proceeds and the 2012 harvest proceeds would not have been paid, had a demand been made by AET. His Honour concluded at PJ [456]: … 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. 1. Fifth, that insofar as AET received $4,952,579.60 of the 2011 harvest proceeds before 25 September 2011, these funds were used to fund the Korda litigation and were therefore included in the Receiver costs that Mr Kerr sought to recover as a separate head of loss, which raised the question of double-recovery, but otherwise Mr Kerr was entitled to succeed on this issue: PJ [461]. 2. His Honour concluded that Mr Kerr had 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 of approximately $34 million: PJ [462]. Deductions which AET claimed Gunns would have achieved 1. His Honour then turned to specific arguments advanced by AET, assuming acceptance of the Payout Counterfactual, that Gunns would have succeeded in negotiating certain deductions from the amount payable to AET from the tree sale proceeds of $34 million. 2. The first deduction concerned the post-settlement adjustment in favour of the purchaser under the tree sale agreement to account for the difference between the harvesting areas referred to in the tree sale agreement and lesser number of harvesting areas transferred to the purchaser on completion, by reason of ongoing harvesting of timber in the meantime. AET submitted that this adjustment was $3,281,481.80. His Honour found that there was no evidence that any such adjustment had been made, and noted that whilst AET was given leave to put in short submissions in reply, it had not mentioned the matter in those submissions: PJ [468]-[470]. His Honour also noted that senior counsel for Mr Kerr had conceded that if Mr Kerr was to recover the unpaid 2012 harvest proceeds, it would be reasonable to deduct the amount of $3,218,481.80: PJ [471]. 3. The second and third deductions concerned the commissions of 20 per cent of gross proceeds and 5 per cent of the balance, totalling approximately $8 million, which the Milling Company and the Forest Company respectively were entitled to receive under the tripartite agreement. His Honour was not prepared to infer, in AET's favour, that Gunns would in any negotiations, have insisted on a reduction on account of these commissions: PJ [491]. Receiver costs 1. As to the costs incurred by AET in pursuing the Korda litigation, after noting that these costs would never have been necessary if AET had received payment or substitute security, his Honour found that given that Mr Kerr is entitled as compensation to payment of the full amount of the paid 2011 harvest proceeds, it would be double-counting to include the Receiver costs in the award of equitable compensation in circumstances where those costs were paid from those proceeds: PJ [494]. Appointment costs and judicial advice costs 1. Insofar as Mr Kerr incurred costs in relation to his appointment as an additional trustee of the trust to investigate the matters and commence and prosecute these proceedings ($371,976.90) and in obtaining judicial advice that he would be justified in bringing these proceedings ($270,757.94), his Honour found that Mr Kerr is entitled to recover those costs as part of his claim for equitable compensation: PJ [498] and [500]. There is no challenge by AET to these findings. Apportionment 1. Addressing the question of apportionment, which was relied upon by AET by way of defence to Mr Kerr's claim, his Honour said that this turned on whether Mr Kerr's claim against AET was apportionable under s 34 of the New South Wales Civil Liability Act or ss 3 and 8 of the South Australian Law Reform (Contributory Negligence and Apportionment of Liability) Act, and noted that AET accepted that if South Australian law applies, there could be no apportionment: PJ [504]. 2. After referring to passages in Nygh's Conflict of Laws in Australia (9th ed, 2013, LexisNexis Butterworths) at [20.23], and [16.32] and John Pfeiffer Pty Ltd v Rogerson (2000) 203 CLR 503; [2000] HCA 36 at [99], [100], his Honour concluded that no question of apportionment arose, giving three reasons. 3. First, the 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: PJ [509]. 4. Second, although the trust deed did not have a choice of law clause, the trust had its most real and substantial connection with South Australia, and not New South Wales, and that the lex loci delicti was the law of South Australia: PJ [510]. 5. Third, given the concession by AET earlier noted, if the South Australian legislation applied, as his Honour found that it did, no question of apportionment arose, because that legislation did not provide for apportionment of a liability for breach of trust: PJ [511]; see [88] above. Amount of the judgment 1. As indicated, the primary judge entered judgment for Mr Kerr against AET in the sum of $76,619,978.42 (which was agreed between the parties), inclusive of interest under s 100 of the Civil Procedure Act 2005 (NSW): SJ [2]. Equitable compensation – relevant principles 1. Given the scope of the grounds of appeal, it is only necessary to refer to some matters of principle. The liability of AET as trustee 1. By discharging the encumbrances over the scheme land on 16 March 2012, AET committed breaches of trust and came under an immediate duty to remedy such breaches. The obligation of a defaulting trustee is essentially one of effecting restitution to the trust estate: Maguire v Makaronis (1996) 188 CLR 449 at 469; [1996] HCA 23. Since it was not possible for AET to restore to the trust fund the encumbrances wrongly discharged, the appropriate remedy is payment of compensation for any loss suffered: Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 at [35], citing Lord Browne-Wilkinson in Target Holdings Ltd v Redferns [1996] AC 421 at 437; Maguire v Makaronis at 468-469. 2. As the primary judge found, a claim for equitable compensation requires a causal link between the breach and the loss: Youyang at [44] (adopting the observations of Mummery LJ in Swindle v Harrison [1997] 4 All ER 705, at 733-734, that there "is no equitable by-pass of the need to establish causation" and that "in questions of causation it is important to focus on the relevant equitable duty"); O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262, at 269, 274 (Spigelman CJ, Priestley and Meagher JJA agreeing). 3. AET accepted on appeal that the appropriate test of causation for breach by a defaulting trustee is the "but for" test: O'Halloran v RT Thomas & Family Pty Ltd at 275; The Australian Special Opportunity Fund LP v Equity Trustees Wealth Services Ltd [2015] NSWCA 225; (2015) 323 ALR 570 at [160] (Bathurst CJ, Macfarlan and Emmett JJA agreeing); Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 at [88] (Gageler J). 4. The breach of trust committed by AET left the Covenantholders without any security for the performance of the Forest Company's contractual obligations under the trust deed. The trust fund thereby suffered a loss. Prima facie, the trust fund suffered a loss to the value of the property which AET disposed, assessed as at the date of judgment: Youyang at [69]; J D Heydon, M J Leeming and P G Turner, Meagher, Gummow & Lehane's Equity: Doctrines & Remedies (5th ed, 2015, LexisNexis Butterworths) at [23-175]. 5. The primary judge correctly observed that once the plaintiff's onus to prove loss has been discharged, the onus shifts to the defendant to demonstrate that all or part of the loss would have been suffered even if the defendant had not breached the trust: O'Halloran v RT Thomas & Family Pty Ltd at 276-277; Ahrkalimpa Pty Ltd v Schmidt (No 3) at [33]. The shifting onus in the case of a claim for equitable compensation is explained in Equity Doctrines & Remedies at [23-230] in these terms: Not only is it open to the defendant to avoid an order to pay equitable compensation in the full sum of the loss prima facie established by the plaintiff's case by showing: (a) that the defendant has satisfied the claimed loss in part, and (b) that the balance of the loss for which the plaintiff claims is loss the plaintiff would have suffered even had the defendant adhered to the defendant's equitable duties: the defendant may deploy both arguments together. 1. The causation issue in the present case did not raise any causation defences, except in two respects. One was that AET sought to rely on the rule against double recovery when contending that the loss to the trust fund did not include the distributions that two Gunns' subsidiaries, the Forest Company and Auspine, were entitled to as Covenantholders because Gunns had retained the amount of $5.17 million that those subsidiaries would have received if distributed by AET. Strictly, AET was asserting the defence of satisfaction of liability: Cherney v Neuman [2011] EWHC 2156 at [280]-[283] and [323]. This issue is addressed below in ground 5(b). 2. The other was that AET contended that part of the loss would have been suffered even had AET not breached the trust, specifically that the Receiver costs of $1,664,500.41 in pursuing the Korda litigation would have been incurred in any event notwithstanding the breach of trust. Each of these defences, which the primary judge rejected, is pursued on appeal. 3. With respect to quantification of the loss, Lord Browne-Wilkinson said in Target Holdings at 437, in a passage approved in Youyang at [50]: [T]he fact that there is an accrued cause of action as soon as the breach is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred. The quantum is fixed at the date of judgment at which date, according to the circumstances then pertaining, the compensation is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been in had there been no breach. I can see no justification for "stopping the clock" immediately in some cases but not in others: to do so may, as in this case, lead to compensating the trust estate or the beneficiary for a loss which, on the facts known at trial, it has never suffered. 1. As McLachlan J said in Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 at 163, it is essential that losses made good are only those which, "on a common sense view of causation, were caused by the breach": O'Halloran v R T Thomas & Family Pty Ltd at 273 (Spigelman CJ); G M & A M Pearce & Co Pty Ltd v Australian Tallow Producers [2005] VSCA 113 at [65] (Warren CJ, Chernov JA and Dodds-Stretton AJA agreeing). Lord Browne-Wilkinson said in Target Holdings at 439: Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common sense, can be seen to have been caused by the breach. 1. Whilst AET accepted that the Court is entitled, with the full benefit of hindsight, not to speculate against the interest of the plaintiff, referring to G M & A M Pearce & Co Pty Ltd v Australian Tallow Producers at [66], AET submitted that this principle does not permit a court to circumvent the requirement of the plaintiff to show that the alleged losses, on a common sense view of causation, were caused by the breach. I do not read G M & A M Pearce & Co Pty Ltd v Australian Tallow Producers as suggesting otherwise. Grounds of appeal against Mr Kerr AET's suggested alternative counterfactuals 1. Before turning to the specific grounds challenging the quantum of equitable compensation, it is of assistance to briefly outline the three counterfactuals advanced by AET on appeal as alternatives to the Payout Counterfactual which the primary judge accepted. 2. AET's primary scenario is that Gunns would have only agreed to pay AET on completion an amount up to the value of the encumbered land (of $18.32 million) or provide AET substitute security to that value. It is convenient to refer to this as the "land-value" scenario. This is the subject of grounds 2-4. 3. Alternatively, AET's second scenario is that it is likely that Gunns/ANZ would have excised the encumbered land from the sale. It is convenient to refer to this as the "excision" scenario. This is the subject of ground 5(a). 4. In the further alternative, AET's third scenario is that it is likely that Gunns/ANZ would have sold the Green Triangle assets, including the encumbered land, for a discounted price to account for the encumbrances remaining in place. It is convenient to refer to this as the "discounted-price" scenario. This scenario is not the subject of a ground of appeal but is raised in AET's narrative statement under Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 51.36(2) as one of the findings of fact that AET contends should have been made by the primary judge. 5. AET says that all three scenarios would have resulted in the same outcome, because the encumbrances only secured the performance of the Forest Company, the Gunns entities would likely have gone into administration on or prior to 25 September 2012, at the time of the administration none of the tree sale proceeds ($34 million), unpaid 2011 harvest proceeds ($6,098,461.89) or 2012 harvest proceeds ($5,148,552.31) would have been due to be paid by the Milling Company to the Forest Company, and hence the Forest Company would be an unsecured creditor of the Milling Company for those unpaid proceeds. Grounds 2 - 4: Gunns/ANZ would have agreed to pay up to $18.32 million to AET on completion reflecting the value of the encumbered land 1. Grounds 2 to 4 are related. Ground 2 contends that his Honour erred in concluding that the loss occasioned by AET's breach of duty exceeded the position the Covenantholders would have been in had Gunns agreed to: (a) pay AET on completion an amount representing the value of the scheme land on which the encumbrances were lodged (the encumbered land); or (b) provide security up to the value of the encumbered land as a substitute for releasing the encumbrances on completion. 2. Ground 3 contends that his Honour erred in concluding that Gunns would have agreed to pay AET on completion the amount of $51,800,490.58, comprising: (a) the tree sale proceeds of $33,999,998 minus $3,281.481.80 in adjustment deductions which his Honour found would have been paid on completion, giving a net amount of $30,718,516.20; (b) the land sale proceeds of $4,882.380.58; (c) the paid 2011 harvest proceeds of $4,952,579.60; (d) the unpaid 2011 harvest proceeds of $6,098,461.89; and (e) the 2012 harvest proceeds of $5,148,552.31. 3. Ground 4 contends that his Honour should have found that Gunns would have only agreed to pay AET on completion an amount up to the value of the encumbered land (of $18.32 million) or provide AET substitute security to that value. AET says that the total amount of equitable compensation before pre-judgment interest should have been $18,962.734.80 comprised of: (a) the $18.32 million sale price of the encumbered land; (b) the $371,976.90 in appointment costs; and (c) the $270,757.94 in judicial advice costs. AET's submissions 1. The dispositive reasoning by the primary judge for rejecting AET's "land-value" scenario is found at PJ [430]-[431]: [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. [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. 1. AET submitted that the enforcement value of the scheme land was only $18.32 million, yet his Honour found that Gunns would have agreed to pay all of the amounts that Covenantholders could potentially receive from the Forest Company in the future amounting to $51,800,490.58. AET says that it is inherently improbable that Gunns/ANZ would have placed a premium of $33.5 million on the maximum enforcement value of the encumbrances in order to procure their release. According to the submission, in any negotiation between AET and Gunns the value of the encumbrances would have been closely scrutinised given that Gunns was anxious to maximise the funds that it could retain from the transaction to pay down its debt to ANZ and avoid insolvency. 2. Next AET challenged his Honour's finding that the encumbrances were of greater value than the encumbered land because they secured the ongoing obligations of the Forest Company under the trust documents. AET submitted that his Honour failed to have proper regard to the fact that the Proceeds Distribution Process in the trust documents meant that there was a significant risk that the proceeds of sale of Covenantholders' trees would never make it into the hands of the Forest Company for payment to AET, and if that occurred, the encumbrances would be worthless because they only secured the obligations of the Forest Company and the Covenantholders had no security over the Milling Company. 3. AET further submitted that proper performance of its duty only required exchanging the existing security for substitute security of the same or equivalent protection and to substitute $18.32 million for the encumbrances would leave the Covenantholders in the "same" position. 4. Implicit in AET's "land-value" scenario is an assumption, which AET says was common at trial, that the value of the scheme land (on the $18.32 million basis) does not include the standing trees in the event of enforcement of the encumbrances. The correctness of this assumption was belatedly challenged by Mr Kerr in oral argument on appeal, after the Court asked a question whether the scheme land included the standing trees. The Court invited submissions on this issue, which were received after the hearing. 5. In his supplementary submissions, Mr Kerr contended that the scheme land did include the standing trees. Support for that view can be found in SEAS Safor Ltd v Commissioner of Stamps (1997) 36 ATR 272 at 278-279, where Williams J (Matheson and Olsson JJ agreeing) held, in the context of a stamp duties legislation, that the growing pines on land are to be characterised as fructus naturales. That is, the natural growth of the soil such as grass, timber, and fruit on trees are regarded at common law as being part of the soil: see Benjamin on Sale of Goods (8th ed, 2010, Sweet & Maxwell) at par 91. 6. In its supplementary submissions, AET submitted that the contention that the value of the land includes the standing trees in the event of enforcement of the encumbrances was not raised by any party below, nor was it considered by the primary judge. Mr Kerr did not dispute that this was a correct statement of the position at trial. In the circumstances, it is preferable to address the grounds of appeal on the basis of what was common ground at trial, before considering whether the Court should permit Mr Kerr to rely upon a new point on appeal. Decision 1. There are essentially four difficulties with AET's submissions. First, AET's "land-value" counterfactual is inconsistent with findings by his Honour with respect to the Payout counterfactual which are not challenged on appeal. 2. Second, AET's submissions postulate that Gunns/ANZ were in a powerful negotiating position, but no evidence was adduced from Gunns/ANZ concerning their likely response to the hypothetical negotiations. 3. Third, AET did not identify any contemporaneous evidence that anyone ever suggested during 2011 or 2012 that the Covenantholders should receive only the value of the scheme land (excluding the trees), or that the value of the land (on the $18.32 million basis) should be the benchmark for any negotiations with Gunns/ANZ. 4. Fourth, AET's submissions ignored that the context of the hypothetical negotiations was a transaction that involved AET consenting to the winding up of Covenantholders' interests in the scheme land and trees. (1) Unchallenged factual findings – Payout counterfactual 1. Acceptance of the "land-value" scenario (on the basis of $18.32 million), would be inconsistent with the following findings which are not challenged on appeal. 2. First, his Honour found that neither Gunns nor its lenders had any anticipation of Covenantholders' entitlements being applied in reduction of Gunns' indebtedness: PJ [396]. That finding was in turn based on his Honour's review of a number of ANZ documents which showed that: * ANZ did not anticipate (in September 2011) receiving on completion of the proposed sale the $45.7 million it understood was due to Covenantholders: PJ [389]; * ANZ contemplated (in October 2011) that the Covenantholders will be paid $44 million before any "Gunns Proceeds" would be available to reduce Gunns' indebtedness to ANZ: PJ [392]; and * In February 2012, Gunns' Company Secretary, Mr Wayne Chapman, confirmed, to the satisfaction of ANZ's Director of Lending Services, Mr Russell Smith, that there would be a "payout" to Covenantholders in settlement of $34 million: PJ [395]. 1. Second, his Honour found 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: PJ [423]. That finding was in turn based on unchallenged findings, supported by the contemporaneous documents, which showed that: * Gunns was under financial stress and highly motivated to sell its assets in the Green Triangle: PJ [410]; * Gunns was powerfully motivated to ensure that the sale of its Green Triangle assets proceeded and to avoid a "no transaction" scenario: PJ [411]; * Gunns was desperate to get the transaction over the line: PJ [415]; and, * Gunns was proceeding with the Green Triangle sale at what it and the media regarded as a substantial undervalue: PJ [418]. (2) and (3) – AET's evidentiary onus 1. The second and third matters are related and may be conveniently dealt with together. 2. It is not in dispute that AET had an evidentiary onus because its breach of duty created difficulties of proof as to what would have occurred but for its breach, which would not exist if the duty had been performed: Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 at 59; Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd [2019] SASCFC 151 at [98]-[102]; Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681; [2013] HKCFA 93 at [138]. 3. In Houghton v Immer equitable compensation was awarded in a case involving equitable fraud (but not breach of fiduciary duty), where the defendants had improved common property without lawful authority. After observing that the failure of the defendants to keep proper accounts of their actual expenditure on the common property made it difficult to assess the compensation due to the plaintiff, Handley JA said at 59 that the Court should assess compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party "whose actions have made an accurate determination so problematic", citing LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1990) 24 NSWLR 499 at 508. 4. In Blong Ume Nominees, the South Australian Full Court (Kourakis CJ, Stanley and Lovell JJ) referred with approval to the remarks of Handley JA in Houghton v Immer at 59, when also citing the statement in Meagher, Gummow & Lehane's Equity: Doctrines and Remedies at [23-275] that where, "a party's actions have made an accurate determination of damage or loss problematic, doubtful questions should be resolved against that party and the [C]ourt should assess damages or compensation in a robust manner". 5. Blong Ume Nominees also referred with approval to Libertarian Investments Ltd v Hall at [138] (Lord Millett NPJ), where the Court of Final Appeal of Hong Kong cited the passage in Houghton v Immer at 59 for the proposition that the evidentiary difficulties faced by the Court in that case form part of the consequences flowing from the defendant's original wrongdoing as a defaulting fiduciary and in such circumstances the Court adopts a robust approach to the assessment of compensation where there are difficulties of proof. 6. In this case, the attitude of Gunns and ANZ to the "land-value" scenario is not known and there is no evidence that Gunns or ANZ would have adopted the negotiating position that AET postulates. Nor did AET identify any documents that support that assumption. 7. The primary judge was correct to apply the presumption against the wrongdoer, here AET, when rejecting the "land-value" scenario. (4) The context of AET's breach of duty 1. AET's submissions ignore that as the holder of security over the scheme land, AET was in a strong negotiating position with respect to release of the encumbrances, given the imperative for both Gunns and ANZ to complete the larger transaction involving the sale of the whole of the Green Triangle estate, of which the Covenantholder land comprised only about 10 per cent. 2. Moreover, it is entirely artificial for AET to postulate that upon the winding up of the Covenantholders' interests, a prudent trustee in the position of AET would have released the encumbrances to permit Gunns to dispose of the scheme land and the trees on the basis that Covenantholders would be left with no security for the contractual entitlement to receive the tree sale proceeds under the delayed payment arrangements in the trust documents. 3. Insofar as AET placed reliance on the "payment risk" associated with the waterfall distribution of the tree sale proceeds under the trust documents, this conflates what actually happened in that AET consented to the transaction on this basis, with what would have happened if AET had insisted, as it should have, upon upfront payment or security for an amount equivalent to that upfront payment. Mr Kerr correctly submitted that the delayed distribution process was not mandated by the trust documents in the event of the release of the encumbrances, nor was it an outcome that a competent trustee would have accepted. 4. As to the characterisation of his Honour's findings as involving a $33.5 million "premium", this is answered as to the $34 million tress sale proceeds, by the primary judge's finding that "neither Gunns nor its lenders had any anticipation of Covenantholders' entitlements being applied in reduction of Gunns' indebtedness": PJ [396]. There is no challenge to this finding. Gunns/ANZ did not expect to receive the money secured by the encumbrances. 5. As to the balance, this is answered by the primary judge's findings that Gunns would have released the 2011 and 2012 harvest proceeds or provided alternative security. The terms of the encumbrances secured the performance and observance of "all and singular" of the Forest Company's obligations, in particular, its obligations under cl 2(d)(v) of the trust deed and the encumbrances. Whilst the encumbrances remained in place, AET as trustee held security for the present and future payment of obligations of the Forest Company. Thus, AET had an effective power of veto over the sale of the scheme land and the trees if the amount secured by the encumbrances was not paid or substitute security provided. 6. AET's argument that to substitute $18.32 million for the encumbrances would leave the Covenantholders in the "same" position, assumes that the encumbrances secured only the value of the land. That is not so for the reasons given at [137] above. 7. If, as AET submitted, it had released the encumbrances in return for only $18.3 million, that would undoubtedly erode and materially prejudice the protection afforded to Covenanholders, in breach of the trust deed, as Mr Kerr correctly submitted. That is because AET would have been left unsecured for the remaining amounts presently owing and in the future by the Forest Company. Grounds 2 to 4 should be rejected. New point on appeal 1. In view of the above conclusion, the new point sought to be raised by Mr Kerr on appeal, that the value of the scheme land included the standing timber, does not need to be addressed. As I understood the submissions, the significance of this argument, if accepted, is that the proceeds of the tree sale agreement would not be subject to the waterfall distribution under the tripartite agreement, and that would have strengthened AET's negotiating position in the hypothetical negotiation with Gunns/ANZ. That is not how the parties approached the issues at trial, where Mr Kerr accepted that the true price of the scheme land in the land sale contracts was $18.32 million. 2. Ordinarily, parties are bound by the conduct of their case at trial and are not permitted to raise new arguments on appeal: Coulton v Holcombe (1986) 162 CLR 1 at 7; [1986] HCA 33. 3. In addition, a new point should not be allowed if it could possibly have been met by the calling of evidence below: Water Board v Moustakas (1988) 180 CLR 491 at 497; [1988] HCA 12. 4. Contrary to what was common ground at trial – that the value of the scheme land did not include the standing timber – the new point raised evidentiary issues as to how this matter would have been brought to bear by AET in the hypothetical negotiation with Gunns/ANZ, if AET had not breached its duty. Mr Kerr should not be permitted to rely upon this new point on appeal. Ground 5(a): Would the encumbered land have been excised from the sale? 1. Ground 5(a) addresses the second scenario advanced by AET, in the alternative to grounds 2-4. AET contends that if payment to AET of the value of the encumbered land on completion was not acceptable to AET, Gunns would have excised the encumbered land form the sale of Forest Company. AET says that this could have been easily achieved. 2. In support of the excision scenario, AET referred to the following statements in the information memorandum released by Gunns in January 2011 in relation to the proposed sale of the scheme land and submitted: * the total amount of land being sold by Gunns was about 115,000 acres, of which about 9,390 acres was Covenantholders' land, being about 10 to 11 per cent of the land being sold; * the land being sold was not a distinct, contiguous piece of land, rather it was a number of disparate plots of forest sites spread over the whole of the Green Triangle region which extended into South Australia and Victoria, and within which there were plots of forest owned by other forestry operators; * the land Gunns was seeking to sell was subject to different types of encumbrances, including the Covenant holder encumbrances, leases with commercial parties and Crown land leases. The information memorandum stated that the structure of the sale of Gunns' forestry management business would be subject to negotiation with prospective buyers and that Gunns remained open to proposals for the purchase of the whole of the business, or part thereof, with all rights and entitlements therein. 1. AET also referred to a letter sent by the purchaser, New Forests, to Gunns dated 11 August 2010 which indicated that New Forests may have been willing to purchase the assets offered by Gunns, excluding the encumbered land. 2. AET submitted that his Honour should have found that if AET was unwilling to accept payment of the land sale value upfront or substitute security for such amount, then "it is likely that Gunns/ANZ would have either excised the encumbered land from the sale, or sold all of its Green Triangle assets (including the encumbered land) with the encumbrances in place". 3. Mr Kerr's response is that there is no evidence that excision of the scheme land was ever proposed or considered at the time and that AET's submission proceeds upon mere assertion and is against the weight of the available evidence. Decision 1. In rejecting the "excision" counterfactual, the primary judge found that the submission involved a high degree of speculation (PJ [433]), that in any event it was "unlikely that Gunns would have proceeded this way" given statements by Gunns in a number of contemporaneous documents (PJ [435]), and that there was no evidence that the scheme land could be excised (PJ [440]). 2. The contemporaneous statements by Gunns to which his Honour made reference included the public statements by Gunns in the information memorandum dated 14 January 2011 that it wished to "sell the entire estate": PJ [61], [435]. That statement was consistent with other statements in the information memorandum that "ownership of land and standing timber will not always form part of its core business". Similarly, in the Gunns' 2011 Financial Report, the Chairman stated in his Review that "[t]he decisions implemented in the 2011 year are pivotal to the Company's future": PJ [405]. His Honour correctly took these statements into account as objective indicators that Gunns would not have wished to excise and retain the scheme land from the transaction. 3. The objective indicators of Gunns' intentions are supported by contemporaneous statements by Gunns that it could achieve a higher price for its own land on a global sale of the estate on an unencumbered basis. In June 2011 Gunns told ANZ that having engaged with four global timber funds, the encumbrances of GMO and Covenantholders were making it difficult to achieve "competitive tension in the sale price" because the "indicative values placed by these funds largely reflected a significant discount for the encumbrance of the land by the existing equity interests". 4. That New Forest indicated to Gunns in August 2020 that it may have been willing to purchase the assets offered by Gunns, excluding the encumbered land, is of little weight when assessing the "excision" counterfactual, particularly given subsequent statements by Gunns. On 8 December 2011, Gunns told ANZ that by selling all GMO and Covenantholder trees to the purchaser, "the estate could be sold on an unencumbered basis to the new owner and realise a better price". Again, on 20 February 2012, Gunns told ANZ that the sale of the entire estate, including Covenantholder interests, "provides us with an ability to receive a much greater sale price". 5. There was no error by the primary judge in finding that it was "unlikely that Gunns would have proceeded this way", that is, excision of the scheme land from the transaction: PJ [435]. 6. AET's alternative "discounted-price" scenario, that Gunns would have sold the scheme land subject to the encumbrances remaining in place, "but for a discounted price", is answered by two matters. One is that Gunns stood to receive a greater sale price with the inclusion of the scheme land in the transaction: see [151] above. The other is that this scenario is pure speculation with no evidentiary basis. Ground 5(a) should be rejected. Grounds 5(b)-(f) 1. Grounds 5(b)-(f) are connected. These grounds contend, in the alternative to grounds 2-4, that his Honour erred in concluding that Gunns would have agreed to pay to AET on completion the tree sale proceeds of $34 million without certain adjustments and deductions, namely: 1. deduction for Gunns' Covenants ($5.17 million); 2. adjustments on completion of the tree sale agreement ($3,281,481.80); 3. deduction for commissions – 5 per cent for the Forest Company ($1,228,740.69) and 20 per cent for the Milling Company ($6,143,703.44); and 4. deduction for 2011 harvest proceeds ($11,051,047.49) and 2012 harvest proceeds ($5,148,552.31). Ground 5(b): Covenants held by Gunns' entities – $5.17 million 1. Ground 5(b) contends that if AET had pressed Gunns for payment of the tree sale proceeds of $34 million on completion, Gunns would have (1) identified that Gunns' entities owned a significant portion of the covenants; and (2) required that $5.17 million of the tree sale proceeds be retained by Gunns because that represented the amount Gunns' entities would have received as distributions of the tree sale proceeds based on the covenants that they owned. 2. The primary judge described AET's calculations of the value of the covenants owned by the Gunns' Covenantholders as a "complicated series of calculations": PJ [442]. It is not in dispute that the Forest Company and Auspine owned 2,075.24 covenants in respect of the 1980-1985 planting years. 3. AET submitted that the primary judge erred in finding that what AET would have done in relation to the Gunns' subsidiaries' covenants was speculation and that AET could not have agreed to such a proposal without breaching its duty to act impartially and not to favour one beneficiary over others: PJ at [443]-[445]. 4. In support of this submission, AET pointed to two documents. One was entitled "Project Saturn Update" dated 30 January 2012, which AET submitted indicated that Gunns anticipated holding onto $8.1 million from the $34 million transaction proceeds, being the amount it estimated the Forest Company and Auspine were entitled to as Covenantholders. AET acknowledged that this estimate in January 2012 did not take into account the completion adjustments, which reduced Gunns' entitlement to $5.1 million. 5. The other document was the ASX announcement by Gunns on 22 December 2011 that Gunns needed $119.4 million in net consideration to pay down its debt to ANZ from $340 million to $216 million. According to the submission, if AET had sought payment of the tree sale proceeds on completion, Gunns would have pressed for retention of the Forest Company and Auspine's entitlements as covenantholders so that Gunns could ensure that it paid down its debt in accordance with its refinancing requirements. The submission continued that, contrary to the primary judge's finding, allowing the Forest Company and Auspine to hold onto those amounts would not have offended the rule against preferring the Forest Company and Auspine over other beneficiaries. Decision 1. AET's submissions involved the proposition that certain beneficiaries (related to Gunns) should receive advance payment of amounts due by the Forest Company to AET under the tripartite agreement and by AET to Covenantholders the trust deed, whilst the remaining beneficiaries should take their chances on the solvency of the Gunns Group at the future date when the Forest Company was obliged to make payment to AET. That proposition should be rejected both on the facts and as being contrary to AET's duties as trustee. Project Saturn Update 1. As to the facts, the Project Saturn Update document recorded that: 1. the purchase price of $259 million for Stage 1 of the sale transaction included the "Covenant Holder Interest (C + D)" of $42.7 million, being "Covenant Holder Trees (C)" of $34 million and "Land interest Liability (D) of $8.7 million"; 2. that "Gunns will hold the $42.7 million from Stage 1 and distribute $26.4 million to Covenent Holders over May-September 2012 (Gunns' Stage 1 net proceeds is $16.3 million)"; 3. the allocation of the purchase price from Stage 1 due to Gunns of $145.8 million, including "Covenant Holder Trees" was: 1. $34 million to the "Covenant Holder Trees", which: Based on valuation, includes Gunns interest in covenants and in Harvesting and Marketing commissions; and 1. $8.7 to Land Interest Liability (D), which: Land Interest liability for Covenant holder Interest is estimated by Gunns at $8.72 million; 1. the consideration to Gunns of $119.4 million, comprised $103.1 million plus harvesting and marketing commission of $8.2 million and Gunns' Covenant Interests of $8.1 million. 1. Contrary to AET's submission, Gunns did not intend on completion in March 2012 that the proposed allocation of the purchase price to Covenantholders of $34 million was to be reduced by $8.1 for the Gunns' Covenants. Rather, according to the Project Saturn Update, a document apparently prepared by ANZ Corporate Advisory, this amount was intended to be paid "over May-September 2012" by AET as part of the amount due to all Covenantholders. AET's duty to act impartially 1. As to the legal position, the primary judge correctly observed that the scenario advanced by AET would involve a breach of its duty to act impartially and not to favour one beneficiary over others. His Honour cited Howe v Earl of Dartmouth (1802) 7 Ves 137; 32 ER 56, a case involving the general disposition of personal property by a testator to persons in succession without any further indication of intention as to the enjoyment of the property. 2. The trustee's duty of impartiality not to prefer one beneficiary over another requires that "a trustee must act fairly by all the beneficiaries": Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd at [82]; see also J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia (8th ed, 2016, LexisNexis Butterworth) at [17-11]. 3. The submission by AET that it would have been required to pay those amounts to the Forest Company and Auspine "in any event" is not to the point. As Mr Kerr correctly submitted, payment to those companies as Covenantholders would have occurred at a later point in time under the waterfall distribution process in the tripartite agreement and the trust deed when other Covenantholders were also paid. The primary judge was correct to find that a prudent trustee in the position of AET would not have given two Covenantholders related to Gunns preferential treatment in the hypothetical negotiation with Gunns. 4. AET's submission that Mr Kerr's claim to be compensated for these amounts so that they could be then distributed as compensation to "Gunns" offends the rule against double recovery, should be rejected. Regard must be had to the separateness of entities: Hawes v Dean [2014] NSWCA 380 at [73] (Barrett JA, Bathurst CJ and McColl JA agreeing), referring to the remarks of Goff LJ in Bank of Tokyo Ltd v Karoon [1987] AC 45 at 64. AET's submissions conflated the separate legal personality of Gunns with its subsidiaries. 5. Moreover, in the present case, the tree sale proceeds were in fact paid on completion into the overdrawn bank account of Gunns with ANZ, thereby reducing Gunns' debt to ANZ. There is no evidence that any part of this amount was ever received by the Forest Company or Auspine qua Covenantholder. The double recovery argument should be rejected. 6. Ground 5(b) should be rejected. It is not necessary to address Mr Kerr's submission that there was insufficient evidence to support AET's calculation of this deduction. Ground 5(c): Adjustment on completion - $3,281,481.80 1. Ground 5(c) contends that his Honour erred in not finding that if Gunns had agreed to pay AET all of the tree sale proceeds on completion, the completion adjustments that were required by the tree sale agreement would have been made, with the consequence that the amount of the adjustment would have formed no part of what would have been paid to AET on completion. 2. It is not in dispute, as the primary judge found, that the tree sale agreement called for adjustments to be made, after settlement, to account for the difference between the harvesting areas referred to in that agreement and the harvesting areas in fact transferred to the purchaser on completion. The difference was explained by ongoing harvesting of timber in the meantime. 3. At trial a question arose as to whether there was evidence that any such adjustment had in fact been made post completion. AET was given leave to put in short submissions in reply on this issue. In its note provided to the Court on 9 July 2019, AET pointed to two pieces of evidence that the tree sale proceeds were adjusted on completion and that the adjustment in favour of the purchaser was $3,281,481.80. The primary judge's observation at PJ [469] that the matter was not addressed by AET in its reply submissions, was an error. It seems that his Honour overlooked AET's note on this issue. However, the error is immaterial because it is common ground that in the final award of equitable compensation the relevant adjustment was reflected in the amount of the judgment agreed by the parties: SJ [2]. 4. Accordingly, it is not necessary to address AET's alternative submission in its supplementary submissions dated 9 April 2020 (at par [24]), that if the Court sets aside the component of the award of compensation for the 2012 harvest proceeds, the post-completion adjustments required under the tree sale agreement were in fact $4.1 million. Ground 5(d): Deduction for commissions – $7,372,444.13 1. Ground 5(d) contends that his Honour erred in finding that Gunns would have agreed to pay AET the tree sale proceeds on completion without deducting the commissions that each of the Forest Company (5 per cent) and the Milling Company (20 per cent) were entitled to under the trust deed and tripartite agreement. 2. AET submitted that his Honour should have found that: 1. Gunns intended to deduct the commissions due to the Forest Company and the Milling Company from the $34 million in tree sale proceeds, and that the amount to be distributed to Covenantholders under the tripartite agreement would be $26 million in the following year over the period May to September 2012; 2. the valuation of the Covenantholders' trees obtained by Gunns included the commissions due to the Forest Company and the Milling Company; and 3. Gunns required the $8.2 million (in fact $7.3 million) in commissions to form part of the $120 million in sale proceeds to pay down Gunns debt to the ANZ from $340 million to $216 million. 1. AET further submitted that since the trust deed and the tri partite agreement contemplated the sale of standing timber, and this is what occurred under the tree sale agreement, the primary judge erred in failing to refer to and apply those provisions of the trust documents and in failing to conclude that the Milling Company and the Forest Company had a contractual entitlement to the commissions. Decision (1) The valuations 1. The primary judge addressed the deduction of commissions primarily by reference to valuations obtained by Gunns from Van Diemen Forestry Consultants (VDFC), who gave opinions as to the net value of the scheme trees in July 2011 (based on volumes of inventory on 30 June 2011) and November 2011 (based on volumes of inventory on 24 November 2011). Both valuations were given on the same terms of reference, referred to "expenses" as including the commissions payable to the Milling Company of 20 per cent and the Forestry Company of 5 per cent, considered three valuation methods, and recommended the third valuation method which was described in summary terms as "NPV (at 8%) of Logs at Rotation Maturity based on Market Price Stumpages". 2. His Honour found by reference to schedules annexed to the first valuation that the recommended valuation of $34,756,612 was net of deductions for the 20 per cent commission to which the Milling Company was entitled and the 5 per cent commission to which the Forest Company was entitled: PJ [478]. There is no challenge to this finding. 3. His Honour further found that the recommended valuation of $33,105,149 in the second valuation, referred in terms to "expenses" and although this valuation was not pellucid on this point, his Honour inferred that the second valuation was probably net of the commissions payable to the Milling Company and the Forest Company. 4. His Honour reasoned that the second valuation was only $1,650,851 less than the first valuation, and it was likely the difference between the two valuations was attributable to the further harvesting of timber between June and November 2011. In addition, as the first valuation was net of commission of about $8,000,000, his Honour considered that could not account for the relatively modest difference between the two valuations: PJ [486]. 5. AET challenges the finding that the November 2011 valuation was probably net of commissions payable to the Milling Company and the Forest Company: PJ [487]. AET submitted that the commissions are deducted in the November 2011 valuation only in the second valuation method, reducing the value under this method from $39,356,003 to $30,059,116. Contrary to AET's submission, whilst commissions are deducted in the second valuation method, the reduction in the value from $39,356,003 to $30,059,116 was attributable to the NPV discount calculation at 8%, not the deduction of commissions. 6. As indicated, both valuations were prepared on the same basis, considered three valuation methods and recommended the third valuation method. In the first valuation, the "expenses taken into account" under the third valuation method were described in par 7.2.3 in these terms: The expenses were the plantation insurance, annual maintenance costs – 20% of gross proceeds, sales commission as 5% of the balance of gross proceeds and 5% of land value as land rental costs. (emphasis added). 1. By contrast in the second valuation, the "expenses taken into account" under the third valuation method were described in par 7.2.3 in these terms: The expenses were plantation insurance, annual maintenance costs of 5% of the land value as land rental costs. 1. The omission of the highlighted words from the par 7.2.3 in the second valuation compared to the same par 7.2.3 in the first valuation, is not mentioned in the second valuation, nor explained in the evidence. One obvious possibility, although not mentioned by either party, is that there was a typographical or formatting error in par 7.2.3 of the second valuation. That inference is supported by the circumstance that the second valuation was addressing the same valuation methodology and did not mention that there had been a change in approach from the first valuation. 2. Counsel for Mr Kerr suggested other possibilities. It was submitted that the table summarising the third valuation method in the November 2011 valuation contained some "baffling" differences to the same table in the July 2011 valuation which could not be explained by additional harvesting of trees between 30 June and 24 November 2011. Counsel also submitted that the total figures in last column of table 3 didn't add up. The submission continued that the valuation would have invited inquiry by a prudent trustee in the position of AET. 3. It is not necessary to attempt to reconcile the figures in table 3 in the November 2011 valuation, or address an issue which does not seem to have been raised at trial concerning whether table 3 would have invited inquiry by a prudent trustee. If the November 2011 valuation was not net of commissions then it is surprising, as Mr Kerr submitted, that no party noticed at the time the significance deterioration in the value of the scheme trees between June and November 2011. Nor did AET identify any contemporaneous correspondence which indicated that AET or Gunns had noticed any such deterioration. I am not persuaded that the primary judge misinterpreted the reference to expenses in the November 2011 valuation. (2) Gunns' intentions 1. AET next challenged the primary judge's finding that there was "no direct evidence of what Gunns intended in relation to the commissions": PJ [490]. AET says that this finding is incorrect having regard to the Project Saturn Update dated 30 January 2012. AET emphasised that this document recorded that: 1. the purchase price of the stage 1 of the sale transaction was allocated as to $34 million to the "Covenant Holder Trees": Based on valuation, includes Gunns interest in covenants and in Harvesting and Marketing commissions; and 1. Gunns intended to "distribute $26.4 million to Covenent Holders over May-September 2012". 1. His Honour described the Project Saturn document as one of the documents that counsel for AET had referred to as having been "recently produced by ANZ", and although AET did not refer to this document in oral address, it recorded "ANZ's understanding that the amount to be distributed to Covenantholders following settlement was to be $26,000,000 'over May-September 2012'": PJ [475]-[476]. His Honour was not prepared to draw the inference which, he assumed he was invited by AET to make, that the difference between this figure and the tree sale proceeds of $33,999,998 was on account of commission in the order of $8 million: PJ [476]. 2. His Honour reasoned that however ANZ saw things, there would be no basis for Gunns to argue in the hypothetical negotiation that the amount payable to the Covenantholders would be subject to deduction of commissions if the amount Gunns had negotiated to be paid for the scheme trees took account of commissions: PJ [477]. As indicated, his Honour found that the valuations of the standing trees were net of commission. 3. The Project Saturn document contains the Gunns' logo and, it may be inferred, was prepared by ANZ Corporate Advisory, Gunns' financial advisor on the sale of the Green Triangle estate. Insofar as his Honour found that this document recorded "ANZ's" understanding, this should be read as meaning ANZ Corporate Advisory. Mr Kerr accepts that the Project Saturn document is inconsistent with the valuations obtained by Gunns but says that the valuations are probative evidence as to whether the amounts calculated were already net of commission. Mr Kerr draws attention to the provenance of the Project Saturn documents – they were produced by "ANZ" on subpoena – and says that absent further evidence and explanation, these documents could not displace the conclusion which his Honour drew from the valuations. 4. Mr Kerr's submissions should be accepted. AET sought to rely upon the Project Saturn Update to undermine the probative value of the valuations of the scheme trees, which his Honour found were net of commission. AET had the evidentiary onus to demonstrate that the Project Saturn Update reflected Gunns intentions at the time. By contrast, the valuations by VDFC were procured by Gunns for AET's benefit. It was within AET's power to call evidence on this topic to displace the content of the valuations, but AET did not do so: Kuhl v Zurich Financial Services Ltd (2011) 243 CLR 361 at [63]-[64]; [2011] HCA 11; Commercial Union Insurance Co of Australia Limited v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418 (Handley JA). In these circumstances, his Honour did not err in finding that, however "ANZ" saw things, that was not determinative. The contractual entitlement to commission under the trust documents 1. Contrary to AET's submission, his Honour had regard to the provisions of the trust documents dealing with the contractual entitlements of the Milling Company and the Forest Company to commissions. Mr Kerr submitted at trial that it was not clear that the tripartite agreement gave rise to an entitlement to commissions in the context of the winding up of the scheme which did not involve felling and milling trees, because the work of felling and milling the trees did not have to be done in the context of a sale of the scheme land and trees to a third party. 2. After recording Mr Kerr's submission at PJ [489], in these terms: Further, as was said on behalf of Mr Kerr in submissions in reply: (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) 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) in those circumstances, it may be that Gunns did not think the commissions were payable, his Honour found that, given that the terms of the valuations suggested that the tree sale price was net of commissions, he was not prepared to infer, in AET's favour, that Gunns would have insisted on a deduction on account of commissions, in the absence of direct evidence of what Gunns intended: PJ [490]-[491]. 1. It is not necessary to determine the true construction of the commission provisions in the tripartite agreement in the event of the sale of the whole of the scheme land and the timber. The relevant question is whether Gunns thought the commissions were payable and how would Gunns likely have responded if AET had disputed there was an entitlement to commissions with respect to the sale transaction. 2. It may be accepted that the Project Saturn Update was some evidence from which an inference might be drawn as to Gunns' intentions. However, as his Honour said with reference to the terms of that document, there was no direct evidence of what Gunns intended in relation to the commissions. In my view, there was no error by his Honour in not drawing an inference, in AET's favour, that Gunns would in any negotiation, have insisted on a deduction on account of such commissions. (3) Were the commissions required by Gunns to pay ANZ? 1. AET also challenged the finding that the ANZ internal documents, which identified a breakdown of the sale proceeds and indicated that there would be a "payout" to the Covenantholders on completion of $34 million, "appear to me to be setting out what ANZ understood would be available to it on completion and to bespeak an understanding by ANZ that Covenantholders would be paid first": PJ [397]. 2. AET says that the ANZ documents were not prepared for the purpose of any potential negotiation between Gunns/ANZ and AET in relation to the release of the encumbrances and were internal workings only between Gunns and ANZ. Both those matters can be accepted given there never was any hypothetical negotiation. 3. AET also says that the ANZ documents rise no higher than identifying the amount referable to Covenantholders which, assuming Gunns managed to survive, would be contractually due to be paid by the Milling Company to the Forest Company and thereafter to AET in the order of one year after completion in accordance with the Proceeds Distribution Process. That submission is a gloss on the ANZ documents. On the face of these documents, the tree sale proceeds of $34 million were to be distributed to Covenantholders in the near future – May to October 2012 – subject to a deduction for commissions. His Honour was correct to find that ANZ understood that Covenantholders would be paid first and receive a payout on completion of $34 million. 4. Further and importantly, as his Honour noted, AET did not refer to any evidence to the contrary that "neither Gunns nor its lenders had any anticipation of Covenantholders' entitlements being applied in reduction of Gunns' indebtedness": PJ [396]. 5. Ground 5(d) should be rejected. Ground 5(e): 2011 and 2012 harvest proceeds - $11,051,041.49 and $5,148,552.31. 1. Ground 5(e) contends that his Honour erred in finding that Gunns would have agreed to payment of the 2011 harvest proceeds and the 2012 harvest proceeds. The 2011 harvest proceeds totalled $11,051,041.49, of which $4,952,597.60 was in fact paid before 25 September 2012 leaving $6,098,461.89 as unpaid. The 2012 harvest proceeds totalled $5,148,552.31 which was never paid. 2. AET contends that his Honour's approach to this deduction involved three errors. First, in reversing the onus of proof on the ground that AET was the party in breach. Second, in taking into account an irrelevant matter, namely, that AET, through Mr Howard, gave no thought to claiming the unpaid harvest proceeds at the time. Third, in finding that he was not prepared to speculate against Mr Kerr in favour of AET, the defaulting trustee. Decision 1. The relevant question at trial was whether Mr Kerr had established that it was more probable than not that in the hypothetical negotiation Gunns would have agreed to pay AET the 2011 and 2012 harvest proceeds on completion of the tree sale agreement. As explained in Jackson v Lithgow City Council [2008] NSWCA 312 at [12] (Allsop P, Basten JA and Grove J agreeing), "[t]he inference must be available and be considered to be more probable than other possibilities". This does not mean more probable than any other possibility, but more probable than not. 2. Importantly, there is no challenge to his Honour's finding that AET was not obliged to release its encumbrances until it had received all the proceeds: PJ [451]. Nor is there any challenge to the finding that Mr Howard, on behalf of AET, had not turned his mind to whether the unpaid harvest proceeds (for 2011 and 2012) should be claimed at the time that he agreed to release the encumbrances: PJ [453]. 3. In my view, his Honour was correct not to speculate against Mr Kerr in favour of AET, the defaulting trustee, particularly as it was clear that AET, through Mr Howard, gave no thought to the matter at the time. The absence of direct evidence as to what Gunns/ANZ would have done had AET demanded payment of the 2011 and 2012 harvest proceeds was a direct consequence of AET's failure to negotiate with Gunns at the time. 4. That Mr Howard gave no thought to claiming the unpaid harvest proceeds at the time was plainly relevant as it underscored the speculation involved in accepting AET's submission that Gunns would not have released the 2011 and 2102 harvest proceeds in the hypothetical negotiation. 5. AET also submitted, by reference to the Project Saturn Update dated 30 January 2012, which set out the breakdown of how Gunns and ANZ proposed to apply the amounts they would receive on completion of the tree sale agreement, and internal Gunns / ANZ emails of 21 February 2012, that these documents showed that there was nothing available to pay AET the 2011 or 2012 harvest proceeds on completion. 6. As indicated, his Honour addressed the Project Saturn Update in the context of AET's suggested deduction for the covenants held by Gunns' entities and the deduction for commissions, noting that AET did not in fact refer to this document in oral address. Mr Kerr objected to AET raising a new point on appeal that there was nothing available to pay AET the 2011 or 2012 harvest proceeds on completion. Mr Kerr says that this matter was not raised below and is not open on the pleadings. In its reply submissions, AET did not dispute that the point was not raised below. In these circumstances, AET should not be permitted to rely upon a new point on appeal: Coulton v Holcombe at 7. Ground 5(e) should be rejected. Ground 7: Receiver costs - $1,664,500.41 1. Ground 7 contends that his Honour erred in including the Receiver costs of $1,664,500.41 in the award of equitable compensation, and ought to have concluded that the Korda litigation would have been pursued by AET in any event. 2. It is to be recalled that his Honour found that the Receiver costs were paid using part of the paid 2011 harvest proceeds and his Honour found that had AET not breached its duties, the full amount of the paid 2011 harvest proceeds ($4,952,579.60) would have been distributed to Covenantholders: PJ [460]. His Honour rejected AET's submission that the Receiver costs incurred by AET in conducting the unsuccessful Korda litigation ought not to be deducted from this amount. However, his Honour accepted that since Mr Kerr is entitled to payment of the full amount of the paid 2011 harvest proceeds, it would be double-counting for Mr Kerr to also receive as compensation the amount of the Receiver costs, given that those costs were paid from the paid 2011 harvest proceeds: PJ [494]. 3. AET submitted that his Honour ought to have found that in any counter factual scenario it is unlikely that Gunns would have agreed to pay AET on completion all of the tree sale proceeds, land sale proceeds, 2011 harvest proceeds and 2012 harvest proceeds (emphasis added). The submission continued that it is likely that the Korda litigation would have been pursued by AET to seek recovery of the amounts that remained unpaid (although the amounts were not identified in the submission), and that AET would have been indemnified for the costs of that litigation from the paid 2011 harvest proceeds. 4. The premise of this submission – that the Korda litigation would have occurred in any event – assumes, contrary to the Payout counterfactual which his Honour accepted was probable, that AET would have agreed to accept something less than the full claim of the Covenantholders on the winding up of the scheme and would have commenced and pursued litigation against the Receivers for the difference between what AET would have received under this alternative hypothetical counterfactual and the full entitlements of the Covenantholders on the winding up of the scheme. 5. Mr Kerr submitted that no evidence was adduced by AET as to whether the litigation would have occurred in any event, being a matter which was directly within AET's capacity to address through evidence, and the inference arose that any such evidence would not have assisted AET: Kuhl v Zurich Financial Services Ltd at [63]-[64]; Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8; and Commercial Union Insurance Co of Australia Limited v Ferrcom Pty Ltd at 418. That should be accepted. 6. Moreover, the fundamental difficulty with AET's submission is that the inference that the Korda litigation would have occurred in any event, depends upon an acceptance of one of AET's three counterfactuals, none of which has been established on appeal. Ground 7 should be rejected. 7. It is not necessary to address the separate dispute between the parties as to the precise subject matter of the Korda litigation, relevantly, whether, as Mr Kerr submitted, the 2011 and 2012 harvest proceeds were not part of the Korda litigation instituted by AET because they were not addressed in the orders of the High Court, or as AET says, the claim in the Korda litigation extended to the unpaid 2011 harvest proceeds and the 2012 harvest proceeds, given the remarks of Sifris J at first instance in Australian Executor Trustees (SA) Ltd v Korda [2013] VSC 7 at [8], and the remarks of Robson AJA on appeal in Korda v Australian Executor Trustees (SA) Ltd [2014] VSCA 65 at [78]. Grounds 6 and 8 1. Grounds 6 and 8 are related. Ground 6 contends that his Honour ought to have concluded that the maximum amount that AET would have received from Gunns would have been $23,272,579.60 (being the $18,320,000 sale price of the encumbered land and the $4,952,579.60 paid 2011 harvest proceeds received by AET prior to Gunns going into administration). 2. Ground 8 contends that his Honour ought to have concluded that the total amount of compensation Mr Kerr is entitled to is $23,272,579.60 (plus pre-judgment interest) comprised of: (a) the $23,272,579.60 referred to in ground 6, (b) the $371,976.90 in appointment costs; and (c) the $270,757.94 in judicial advice costs. 3. As grounds 6 and 8 both assume success on ground 4, these grounds do not arise. Grounds 17 and 18: Defence of proportionate liability 1. Grounds 17 and 18 contend that the primary judge erred in applying South Australian law in determining whether Mr Kerr's claim against AET is apportionable. 2. Proportionate liability is dealt with in Pt 3 ("Apportionable liability") of the South Australian Law Reform (Contributory Negligence and Apportionment of Liability) Act. Section 4(1) of the South Australian Act indicates that Pt 3 only applies to specified types of claims: 4—Application of Act (1) This Act applies to liabilities of the following kinds – (a) a liability in damages that arises under the law of torts; (b) a liability in damages for breach of a contractual duty of care; (c) a liability in damages that arises under statute. ... 1. AET accepted below that if South Australian law applied, then Mr Kerr's claim against AET for equitable compensation for breach of trust was not an apportionable liability under the South Australian Act. That is, a defence of proportionate liability was not available in the present case. 2. AET does not challenge his Honour's finding that the lex loci delicti is the law of South Australia: PJ [511]. Instead, AET repeated its submission at trial that apportionment legislation is procedural in nature and is accordingly governed by the law of the forum, here New South Wales, and that a defence of proportionate liability was available under Pt 4 ("Proportionate liability") of the New South Wales Civil Liability Act. 3. AET relied upon a passage in Nygh's Conflict of Laws in Australia (9th ed, 2014, LexisNexis Butterworths) at [20.32], where the learned authors suggest that some of the legislative apportionment provisions "appear procedural in effect", because they operate as a directive to the courts, rather than as an adjustment of the parties' rights and liabilities. This passage is repeated, without alteration, in the current edition of Nygh's Conflict of Laws in Australia (10th ed, 2020, LexisNexis Butterworths) at [20.32], which it is convenient to reproduce in full: Some of the legislative provisions are phrased in terms of what a Court should do, rather than in terms of the rights and obligations of the parties themselves. That makes them appear procedural in effect, operating as a directive to the Courts of the legislative jurisdiction. For example, all eight jurisdictions have modified the rules of joint and several liability by introducing proportionate liability for claims concerning economic loss or property damage. (Emphasis added.) 1. Assuming that New South Wales law applies, AET submitted that Mr Kerr's claims against it are apportionable under s 34(1)(a) of the New South Wales Civil Liability Act on the basis that the claims arise out of a failure to take reasonable care, which requirement is discussed in Rahme v Benjamin & Khoury Pty Ltd (2019) 100 NSWLR 550; [2019] NSWCA 211 at [135]-[136]. 2. Both Mr Kerr and Sparke Helmore sought to uphold the primary judge's reasoning. Decision 1. The relevant principles are uncontroversial. In John Pfeiffer Pty Ltd v Rogerson at [97]-[102], a case involving the limitation on damages under a workers compensation statute, the joint judgment of Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ, after acknowledging that the distinction between questions of substance and questions of procedure is sometimes doubtful or even artificial, said at [99]-[100] and [102]: [99] Two guiding principles should be seen as lying behind the need to distinguish between substantive and procedural issues. First, litigants who resort to a court to obtain relief must take the court as they find it. A plaintiff cannot ask that a tribunal which does not exist in the forum (but does in the place where a wrong was committed) should be established to deal, in the forum, with the claim that the plaintiff makes. Similarly, the plaintiff cannot ask that the courts of the forum adopt procedures or give remedies of a kind which their constituting statutes do not contemplate any more than the plaintiff can ask that the court apply any adjectival law other than the laws of the forum. Secondly, matters that affect the existence, extent or enforceability of the rights or duties of the parties to an action are matters that, on their face, appear to be concerned with issues of substance, not with issues of procedure. Or to adopt the formulation put forward by Mason CJ in McKain, "rules which are directed to governing or regulating the mode or conduct of court proceedings" are procedural and all other provisions or rules are to be classified as substantive. [100] These principles may require further elucidation in subsequent decisions but it should be noted that giving effect to them has significant consequences for the kinds of case in which the distinction between substance and procedure has previously been applied. First, the application of any limitation period, whether barring the remedy or extinguishing the right, would be taken to be a question of substance not procedure (which is the result arrived at by the statutes previously referred to). The application of any limitation period would, therefore, continue to be governed (as that legislation requires) by the lex loci delicti. Secondly, 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. … [102] … The lex loci delicti should be applied by courts in Australia as the law governing all questions of substance to be determined in a proceeding arising from an intranational tort. And laws that bear upon the existence, extent or enforceability of remedies, rights and obligations should be characterised as substantive and not as procedural laws. [Citations omitted; emphasis added.] 1. In Redbro Investments Pty Ltd v Ceva Logistics (Australia) Pty Ltd (2015) 89 NSWLR 104; [2015] NSWCA 73, a case involving statutory contribution between tortfeasors, Leeming JA (Basten JA and Simpson J agreeing) said at [17], consistently with what was held in John Pfeiffer Pty Ltd v Rogerson at [102] concerning "laws that bear upon the existence, extent or enforceability of remedies, rights and obligations", that the statutes permitting contribution between tortfeasors "should be characterised as substantive and not as procedural laws". 2. Senior counsel for AET acknowledged that the weight of authority was against AET's submission. That concession was properly made. Adopting the language of John Pfeiffer Pty Ltd v Rogerson at [102] the statutes permitting apportionment of liability between wrongdoers such as the South Australian Law Reform (Contributory Negligence and Apportionment of Liability) Act, being "laws which bear upon the existence, extent or enforceability of remedies, rights and obligations", should be characterised as substantive, not procedural. 3. There was no error in the primary judge's conclusion that the proportionate liability provisions of Pt 4 of the New South Wales Civil Liability Act did not apply to Mr Kerr's claims against AET. In these circumstances, it is not necessary to address Sparke Helmore's alternative submissions as to any apportionment for loss and damage as between AET and Sparke Helmore if the Court were to find that Pt 4 of the Civil Liability Act applied to Mr Kerr's claims against AET. Conclusions on AET's appeal against Mr Kerr 1. AET's appeal against Mr Kerr has failed. There is no reason why costs should not follow the event: UCPR, r 42.1. B. APPEAL AGAINST SPARKE HELMORE 1. Given the scope of the grounds of appeal against Sparke Helmore it is necessary to refer in more detail to those parts of the primary judge's reasons addressing the scope of the retainer, the terms of the advice given by Sparke Helmore and the issue of causation. The primary judge's reasons Scope of the retainer 1. As to the scope of the retainer, the primary judge made the following findings: 1. AET did not seek Sparke Helmore's advice as to whether it should consent to Gunns' proposal to sell the scheme land and the scheme trees, noting Mr Howard's agreement in cross-examination that "we weren't asking them to opine on the winding up of the scheme": PJ [200]; 2. by the time AET committed itself to the transaction by executing the put and call option deed on 22 December 2011, AET knew two things about the consequences of it consenting to the proposal: one was that no money would be paid to investors on completion of the proposed transactions; the other was that the encumbrances would be discharged on completion: PJ [201]-[203]. 3. the scope of the retainer in the 5 December 2011 email from Mr Howard to Mr Johnston of Sparke Helmore seeking a review of the tree sale agreement and the put and call option deed to "provide a legal signoff … in the attached format", required, among others, identification of any "unusual or onerous provisions in the document(s)" and confirmation that the documents were "in order for execution": PJ [265]-[266]; 4. the scope of the retainer was not limited to whether the proposal was "permissible" under the trust documents but did not require Sparke Helmore to advise AET whether or not it should consent to the proposal: PJ [268]-[269]. 1. The five matters listed in the "attached format" to the 5 December 2011 retainer letter were: 1. Details of document(s); 2. Confirmation that the document reflects the instructions from the Manager; 3. Any unusual or onerous provisions in the document(s); 4. Confirmation that the document includes the Trustee's limitation of liability clause; and 5. Confirmation that the document is in order for execution. Sparke Helmore's advice 1. The primary judge described the two advices given by Sparke Helmore on 22 December 2011 as the "22 December 2011 Certification" and the "22 December 2011 Document Confirmation Advice". 2. The 22 December 2011 Certification stated that: Based on our review of the Documents and subject to the assumptions and qualifications set out in this letter, we are of the opinion that: … (c) if the Forest Company proceeds with the Proposal, this would not of itself be materially prejudicial to the Covenantholders' interests under the Trust Documents; and (d) on the basis of (a), (b) and (c) above, the Trustee is able to provide its consent to the Proposal; (e) in order to facilitate the Proposal, the Trustee has the power to enter into the following documents: (1) a Put and call option deed to be entered into between, among others, the Trustee, the Forest Company and the Milling Company; (2) a Tree Sale Agreement to be entered into between, among others, the Trustee, the Forest Company and the Milling Company; and (3) a Side Letter Agreement to be entered into between, among others, the Trustee, the Forest Company and the Milling Company. 1. His Honour found that the 22 December 2011 Certification did no more than advise that the proposal was permissible under the trust documents. He noted that AET did not suggest that this advice, so far as it went, was incorrect: PJ [304]-[305]. 2. The 22 December 2011 Document Confirmation Advice recorded that the Forest Company and the Milling Company proposed to sell all of the scheme trees and the scheme land in accordance with the trust documents and continued: We have acted as your legal advisors in connection with reviewing the following documents on your behalf: (a) a Put and call option to be entered into between, amongst others, [AET], the [purchaser], the Forest Company, the Milling Company, Auspine Limited ... and Gunns Limited ... ; (b) a Tree Sale Agreement to be entered into between, among others, [AET], the Forest Company, the Milling Company, Auspine and Gunns ... ; and (c) a Side Letter Agreement to be entered between, among others, [AET], the Forest Company, the Milling Company, Auspine and Gunns. (the Documents). … 5 Confirmation in relation to the Documents: We confirm that: (a) the Documents have been reviewed and settled in accordance with the instructions given by Stuart Howard; (b) the Trustee proposes to enter into the Documents as part of the 'Seller' group, which is the group of entities selling the Covenantholder Standing Timber and certain other assets ... (Other Assets). The Documents contain various obligations, liabilities, representations, warranties and undertakings of, or given by, the Trustee in relation to the Sellers (other than the Trustee), the Other Assets and matters or things in connection with the Sellers (other than the Trustee) and the Other Assets. In accordance with your instructions, such provisions in the Documents are acceptable to the Trustee on the basis that it has received the benefit of the representations, warranties, undertakings and indemnities from the Forest Company, the Milling Company, Auspine and Gunns which are contained in the Undertaking Letter and the Milling Company Sign Off; (c) each Document includes a limitation of liability clause for the Trustee, that was provided and approved by the Trustee; and (d) on the basis of: (1) (a), (b) and (c) above, and (2) the Proposal being acceptable to the Trustee, we confirm that the Documents are in order for execution by the Trustee. (Emphasis added in Principal Judgment.) 1. The advice stated that it was subject to the assumption that qualifications thereafter set out, which relevantly included: (jj) the Forest Company: (1) has done and will do everything in its power to inquire into and investigate measures calculated to secure reasonable financial returns to the Covenantholders; (2) has inquired into the best method of cutting and felling the Standing Timber; and (3) has used and will use its best endeavours to obtain reasonable returns for each Covenantholder; … (mm) the sale of any Standing Timber and any real property on which Standing Timber is located (and any amendment of any Trust Documents to allow for the sale of any Standing Timber and any real property on which Standing Timber is located) will not: (1) affect or impact in any way the Forest Company's ability to observe and perform its obligations under the Trust Documents; (2) materially prejudice the interests of any Covenantholders; or (3) reduce any protections, rights or benefits afforded to any Covenantholders pursuant to the Trust Documents; … (k) on and after the date of this letter, all parties' obligations under or in connection with the Trust Documents, the Covenants and the Proposal (including any Environmental Law) will be strictly complied with, including that: (1) each Covenantholder will receive his or her due proportion of the benefit in respect of the relevant Covenant in accordance with the Trust Documents; and (2) all moneys due to a Covenantholder in respect of the relevant Covenant will be paid to that Covenantholder in accordance with the Trust Documents; and (3) the Forest Company will: (A) comply with all of its obligations in connection with distributing proceeds to the Covenantholders ... . 1. Addressing the 22 December 2011 Document Confirmation Advice, his Honour made the following findings. 2. First, whilst Sparke Helmore's retainer to confirm that the documents were "in order for execution" required more than confirmation that the proposal was "permissible", the retainer did not require Sparke Helmore to advise whether or not it should consent to the Proposal: PJ [268]-[269]. 3. Second, insofar as the retainer required Sparke Helmore to advise whether there were any provisions in the transaction documents which were "onerous or unusual", that 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. In this regard, 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. Accordingly, 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, which were exactly what Mr Howard was expecting: PJ [282]-[285]. 4. Third, AET had not retained Sparke Helmore to negotiate the terms of the transaction and was not seeking Sparke Helmore's advice about this: PJ [290]. Sparke Helmore had no duty to give advice beyond its retainer: PJ [292]. 5. Fourth, the 22 December 2011 Document Confirmation Advice was subject to 44 assumptions or qualifications, including those referred to by the primary judge at PJ [326]-[328]: [326] One was, as I have set out earlier, in sub-cl (mm): (mm) the sale of any Assets and any real property on which any Assets is located will not: (1) materially prejudice the interests of any Covenantholders; or (2) reduce any protections, rights or benefits afforded to any Covenantholders pursuant to the Documents …. [327] Another was in cl 1.2 which stated: In making each of the above assumptions, we assume that each matter the subject of each assumption is true, correct and complete in every particular. [328] Another, also set out earlier, was in qualification (k), which included that: (1) each Covenantholder will receive his or her due proportion of the benefit in respect of the relevant Covenant in accordance with the Trust Documents; (2) all moneys due to a Covenantholder in respect of the relevant Covenant will be paid to that Covenantholder in accordance with the Trust Documents; (3) the Forest Company will comply with all of its obligations in connection with distributing proceeds to the Covenantholders …. 1. His Honour found that Sparke Helmore must have known that the assumption (mm)(2) was contrary to the true position and that, accordingly, so was the assumption in cl 1.2, because Spark Helmore knew that implementation of the proposal by the tree sale agreement would reduce the Covenantholders protections since the encumbrances were to be released on completion: PJ [332]-[333]. Accordingly, the assumptions and qualifications to which the 22 December 2011 Document Confirmation Advice was subject rendered it to be of little, if any, value: PJ [338]. After noting that Mr Howard agreed that in light of its assumptions and qualifications, this advice was "useless and worthless", his Honour concluded that the "sign off" comprised by that advice was one no reasonable trustee could have relied upon: PJ [341]. 2. Fifth, the advice that Sparke Helmore gave AET fell short for what was called for by the 5 December 2011 retainer, for the following reasons given at PJ [342]: [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: (a) the Tree Sale Agreement provided for the sale by the Forest Company of the Scheme Land; (b) under cl 2(d)(i) of the Trust Deed, the sale could not proceed without AET's consent; (c) by executing the Tree Sale Agreement, AET would consent to the sale; (d) under cl 2(d)(i) of the Trust Deed, AET could not unreasonably withhold its consent; (e) under cl 2(d)(i) AET could reasonably withhold its consent if the sale of the Scheme Land would cause the interests of Covenantholders to be materially prejudiced or cause any reduction in the protection afforded to the Covenantholders under the Trust Deed; (f) the effect of the Tree Sale Agreement would be to reduce the protection afforded to Covenantholders as the Encumbrances, which presently gave them security over the Scheme Land for the performance by the Forest Company of its obligations under the Trust Deed and the Tripartite Agreement, would be released on completion without any funds being paid to the Covenantholders; and (g) in those circumstances, the Tree Sale Agreement was in order for execution by AET only if AET has concluded that it should, in these circumstances, consent to the sale. 1. As indicated, the trading halt announced in relation to Gunns on 9 March 2012 caused some amendments to the tree sale agreement to be made. In that context, Mr Howard asked Mr Johnston of Sparke Helmore to confirm that "your signoff dated 22 December 2011 is still current", which the primary judge found was a reference to the 22 December 2011 Document Confirmation Advice. His Honour summarised what next occurred at PJ [167]-[168]: [167] On 14 March 2012, Sparke Helmore gave this "Confirmation": Confirmation We confirm that: (a) the Amending Deed has been reviewed and settled in accordance with the instructions given by Stuart Howard; (b) the Amending Deed includes a limitation of liability clause for the Trustee, that was provided and approved by the Trustee; and (c) on the basis of: (1) (a) and (b) above; and (2) the Proposal being acceptable to the Trustee, we confirm that the Amending Deed is in order for execution by the Trustees. [168] Sparke Helmore added the following qualification, arising out of Gunns' trading halt: (g) The shares of Gunns Limited (the ultimate holding company of the Gunns Group Parties and listed on the Australian Securities Exchange) were recently placed in a trading halt and there has also recently been a reduction in the share price and the total market capitalisation value of Gunns Limited. As a result, the value and utility of the indemnities and other benefits provided to the Trustee under [various letters of undertaking given by Gunns] (including the ability of the parties to the [letters of undertaking] to make payment under any indemnities) may have been adversely affected. Notwithstanding this, we confirm the trustee's instructions that the proposal, the [letters of undertaking] are acceptable to it from a commercial perspective." 1. Senior counsel for Sparke Helmore confirmed in oral argument that Sparke Helmore did not challenge the liability findings recorded at PJ [342]. Causation 1. Turning to the question of what AET would have done if Sparke Helmore had advised it appropriately in relation to the tree sale agreement and the put and call option deed, his Honour referred to Mr Howard's evidence, the absence of evidence from Mr Howard or anyone else from AET as to why AET decided to proceed and what decision he would have made had AET given appropriate advice. His Honour said that he was unable to come to any conclusion as to what AET would have done had Sparke Helmore given it the advice called for by the retainer and accordingly, AET failed to establish that Sparke Helmore's inadequate advice caused AET's breach of trust: PJ [361]. 2. It is convenient to reproduce in full his Honour's reasons for that conclusion which appear at PJ [355]-[360]: [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. [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. [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). [358] But, as I have found, AET must also be taken to have known of the ANZ Charge (see [219] to [226] above). [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. [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. Appeal grounds against Sparke Helmore 1. AET relies upon the following grounds of appeal against Sparke Helmore. 2. Ground 9 contends that his Honour ought to have concluded that the Sparke Helmore advice fell short of what was called for by the 5 December 2011 retainer in three additional respects. 3. Grounds 10 to 14 challenge his Honour's finding on causation – that AET would have executed the tree sale agreement and released the encumbrances, even if AET had received adequate advice from Sparke Helmore. 4. By its notice of contention, Sparke Helmore maintained its contributory negligence (par 5) and proportionate liability defences (pars 6-8), which were relied upon at trial, but not determined by the primary judge. (1) Breach of duty by Sparke Helmore 1. Sparke Helmore accepted on appeal the liability findings, which are set out at [246] above. Grounds 9(a), (b) and (c) challenge the failure by the primary judge to make additional findings as to other breaches of duty by Sparke Helmore. These grounds were not the subject of oral submissions. Ground 9(a): Penumbral duty 1. Ground 9(a) contends that in discharge of a "penumbral duty", Sparke Helmore ought to have advised AET to seek to "negotiate a better deal" than had been negotiated between Gunns and the purchaser. 2. This contention is based in part on evidence given by Mr John Schembri, a solicitor called by AET to give expert evidence. However, as his Honour noted and Mr Schembri agreed in cross-examination, AET had not retained Sparke Helmore to negotiate the terms of the transaction; its retainer was to review the documents and give the advice sought in the 5 December 2011 retainer: PJ [290]. 3. Ordinarily a solicitor is not required to advise upon the wisdom of transactions in relation to which they act: Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36 at [75]; Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398 at 418; Boyce v Mouat [1994] 1 AC 428 at 437. There is debate in the authorities as to whether a solicitor may have a duty of care beyond the ambit of the solicitor's retainer, a so-called "penumbral" duty, which requires the solicitor to take some further action for the protection of the client's interests beyond the function specified in the retainer. The better view is that what reasonable care requires in particular circumstances is fact dependent. 4. In David v David [2009] NSWCA 8, Allsop P (Hodgson JA and Handley AJA agreeing) said at [76] that: … the notion that a solicitor may owe a client a 'penumbral' duty that extends beyond scope of the retainer is doubtful. If, however, the solicitor during the execution of his or her retainer learns of facts which put him or her on notice that the client's interests are endangered or at risk unless further steps beyond the limits of the retainer are carried out, depending on the circumstances, the solicitor may be obliged to speak in order to bring to the attention of the client the aspect of concern and to advise of the need for further advice either from the solicitor or from a third party. 1. In Dominic v Riz [2009] NSWCA 216, Allsop P explained at [91] that the passage quoted above from David v David at [76] was not meant to be "an operative legal principle". Rather, it was intended "to do no more than posit the possibility that the performance of the retainer, and what is learnt during it, may affect how the retainer is properly discharged". 2. In Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18, Gageler J spoke to similar effect at [57]: Performance of that duty might well require the solicitor not only to undertake the precise function specified in the retainer but to provide the client with advice on appurtenant risks. 1. Gageler J noted that differences of view had emerged as to whether a solicitor may owe a client a penumbral duty that extends beyond scope of the retainer, but that question did not need to be determined in that case. 2. In Jadwan Pty Ltd v Rae & Partners (A Firm) [2020] FCAFC 62, Bromwich, O'Callaghan and Wheelahan JJ said at [439] that a solicitor's "penumbral" duty has often been considered in the context where it has been alleged that a solicitor's duty to take reasonable care required that advice be given as to the prudence of a proposed transaction, and emphasised at [442] that what reasonable care requires in particular circumstances is fact-dependent. That is consistent with the statements in David v David at [76] and Dominic v Riz at [91]. Their Honours also expressed a preference at [443] for the statement by Kourakis CJ in AS Bannister v Sirrom Enterprises Pty Ltd [2016] SASCFC 153 at [92] that "what is sometimes described as a penumbral duty is no more than a particular aspect of a solicitor's primary duty". I agree that this is a preferable way of looking at cases involving a so-called "penumbral" duty. 3. By contrast, in Aboody v Ryan (2012) 17 BPR 32,359; [2012] NSWCA 395, a case involving an unconscionable transaction, Allsop P observed at [78] that the "fundamental inadequacy" of the solicitor's advice was the failure to address with the respondent the financial and practical consequences of what he was doing. In that case the solicitor "was dealing with an old man who was giving away the capital in his home", and his Honour considered that the potential consequences and risks of that were "clear". Accordingly, his Honour held that it was part of the solicitor's duty in that case to see that the respondent "understood fully the legal and practical consequences of what he was doing". 4. The present case did not raise any issue of principle. The issue here is whether the primary judge was correct in finding that the circumstances did not justify a conclusion that Sparke Helmore had a duty to have advised AET to seek to "negotiate a better deal" than had been negotiated between Gunns and the purchaser. 5. His Honour rejected the alleged duty. After referring to Provident Capital Ltd v Papa at [75]; Rahme v Benjamin & Khoury Pty Ltd at [108]; and AVWest Aircraft Pty Ltd as trustee for AVWest Aircraft Trust v Clayton Utz (a firm) (No 2) [2019] WASC 306 at [369], his Honour said at PJ [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". 1. In my view, his Honour was correct to reject this alleged duty. Sparke Helmore was not retained to negotiate the terms of the transaction and AET did not seek advice about that topic. As a professional corporate trustee, AET's demonstrated its sophistication as the client in seeking specific advice in an "attached format", limited to the five listed matters on which advice was sought concerning the proposal. And, as Mr Howard conceded, AET was not asking Sparke Helmore to opine on the winding up of the scheme. Taken together these circumstances firmly tell against finding of a duty to give advice beyond the retainer: Artahs Pty Ltd v Gall Standfield & Smith (a firm) [2013] 2 Qd R 202 at [64]. Ground 9(a) should be rejected. Ground 9(b): Unusual or onerous provisions 1. Ground 9(b) contends that Sparke Helmore should have advised AET that the release of the encumbrances was an unusual or onerous provision. AET seeks a factual finding to this effect on appeal. 2. The starting point is that there is no challenge to his Honour's finding that the reference in the 5 December 2011 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: PJ [282]. 3. AET accepted that his Honour correctly found that Mr Howard knew the encumbrances would be released on completion. AET's complaint is that his Honour overlooked or failed to consider that Mr Howard did not appreciate that the encumbrances provided security for the obligations of the Forest Company. The difficulty with this submission is that it conflated the scope of the retainer and its performance by Sparke Helmore, with Mr Howard's subjective state of mind. The primary judge found that, as the Senior Relationship Manager Corporate Trust at AET, Mr Howard's asserted misapprehension of the nature of the encumbrances was an "astonishing state of affairs": PJ [252]. There is no challenge to that finding. The evidence does not support a finding that Sparke Helmore's solicitor's knowledge or reasonable belief as to AET's expertise and knowledge relevant to the transaction, extended to Mr Howard's misapprehension of the nature of encumbrances: Artahs Pty Ltd v Gall Standfield & Smith (a firm) at [64]. 4. AET submitted that his Honour's conclusion that Mr Howard was expecting the terms of the transaction documents (such that there was nothing in them that was unusual or onerous) appears to rely upon the findings made in relation to a conversation Mr Howard had with Sparke Helmore on 7 December 2011, at PJ [121] which are set out at [49] above. AET challenged sub-pars (2)-(5) of PJ [121]. It is convenient to again reproduce in full those findings: [121] The note shows that: (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) 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) 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) 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) 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. 1. The finding in sub-par (2) is accurate. AET's complaint is more nuanced; that although Mr Howard knew the encumbrances were to be discharged upon settlement, his Honour accepted that Mr Howard did not appreciate at the time that they were in the nature of security. This complaint goes nowhere. That Mr Howard subjectively misapprehended the nature of the encumbrances, a matter which his Honour correctly found was an "astounding state of affairs" (PJ [252]), did not render the release of the encumbrances in the transaction documents an "onerous or unusual" provision. 2. As to the finding in sub-par (3), AET submitted that there was no basis for his Honour to interpret Mr Howard's reference to not being concerned with "the commercials", as a reference to "the potential risk of selling the scheme land and scheme trees and waiting for the waterfall distribution process to be applied to the proceeds of those sales". I do not agree. Read in the context of the whole note, Mr Howard's reference to "the commercials" is not limited, as suggested by AET, to the price being supported by an independent valuation. Moreover, immediately before speaking with Mr Johnston of Sparke Helmore on 7 December 2011, Mr Howard understood having received Mr Nguyen's response to certain questions (see [46] above), that the Covenantholders' share of the tree sale proceeds would be distributed in accordance with the process for distributions in the tripartite agreement. 3. AET's criticism of the finding in sub-par (4), that Mr Howard saw no "constraint" on AET requiring it to ensure that the land sale proceeds and the tree sale proceeds be paid to the Covenantholders, is misplaced. That finding was open on the face of the note and is consistent with Mr Howard's evidence recorded by his Honour at PJ [254]. 4. As to the finding in sub-par (5), AET complained that this is a finding that Mr Howard was opining that the proposal was in accordance with the trust documents. I do not read the finding that way. The finding, which was open on the face of the note, was that Mr Howard was satisfied that payment of the tree sale proceeds be made in accordance with the waterfall distribution provisions in the trust documents. As indicated, that accorded with Mr Howard's affidavit evidence: see [273] above. Ground 9(b) should be rejected. Ground 9(c): Advice as to reduction in protection etc 1. Ground 9(c) contends that his Honour should have found that Sparke Helmore's advices of 22 December 2011 and 14 March 2012 failed to advise AET that: (i) AET only had the power to consent to the sale of the scheme land under the trust documents if the sale did not reduce the projections afforded to Covenantholders under the trust deed and was not materially prejudicial or detrimental to the interests of Covenantholders; and (ii) releasing the encumbrances without receiving sale proceeds on completion or substitute security reduced the protections afforded to Covenantholders under the trust deed and was materially prejudicial or detrimental to the interests of Covenantholders. 2. In writing AET identified this ground as challenging his Honour's findings that: (a) the effect of the 22 December 2011 Certification was that it confirmed that AET had power under the trust deed to enter into the relevant transaction documents, and (b) the Certification did no more than advise that the proposal was permissible under the Trust documents: PJ [304]. 3. AET submitted that these findings did not grapple with the failure of Sparke Helmore to discuss the risks associated with AET moving from a secured to an unsecured position post completion. AET pointed to the unchallenged evidence of Mr Schembri in his 9 November 2018 report (par 31(g) in these terms: … given the length of time the Covenantholder Proceeds could have remained outstanding, a failure to discuss the risks associated with movement from a secured to an unsecured position would not have been widely accepted in Australia as being expected of a competent professional solicitor. 1. The difficulty with this submission, as his Honour noted at PJ [305], is that AET did not submit at trial that the advice in the 22 December 2011 Certification, so far as it went, was incorrect. I am not persuaded that the advice contained in the 22 December 2011 Certification was negligent in failing to address a matter outside the terms of the subject matter of the certification. (2) Grounds 10 to 14: Causation 1. The causation issue directs attention to whether AET would likely have acted differently if adequate advice had been given by Sparke Helmore to the effect his Honour found at PJ [342]: see [246] above. 2. AET submitted that his Honour should have found that had correct legal advice been given, Mr Howard would not have disregarded it and there is no logical reason on the evidence why AET would not have pursued a negotiation with Gunns/ANZ, if Mr Howard had been advised of the true nature of the encumbrances. The stated premise of this submission is that Mr Howard was the principal decision maker and the relevant person at AET in charge of the transaction. 3. AET says that his Honour should have found that Sparke Helmore's inadequate advice breached its duties in tort and contract and was misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law and the loss caused by Sparke Helmore's inadequate advice is the same loss caused by AET's breach of duty to the investors. 4. Sparke Helmore submitted that Mr Howard was not the sole decision maker at AET in relation to the transaction and drew attention to the absence of evidence from Mr Joseph, Mr Howard's superior, noting his Honour's findings at PJ [356], which are set out at [250] above. Sparke Helmore also raised two constructions of cl 2(d)(i) of the trust deed in support of a submission that there was an insufficient causal nexus between Sparke Helmore's breach and AET's decision to enter the transaction. Decision 1. The causation question required a determination of what AET would likely have done had Sparke Helmore given adequate advice to the effect his Honour found should have been given. It was not suggested that there was any difference in approach to AET's case in contract or in tort or for misleading and deceptive conduct. The inference as to what AET would have done in those circumstances must be more probable than not: Jackson v Lithgow City Council at [12]. 2. The present case involved a failure to advise AET. It is well-accepted that in cases of non-disclosure, courts tend to attach more weight to evidence of surrounding matters when making the assessment of the causal effect of non-disclosure: Addenbroke Pty Ltd v Duncan (No 2) [2017] FCAFC 76; (2017) ALR 1 at [500]. That is for good reasons. Subjective evidence of what a person would have done if a particular matter had been disclosed is necessarily hypothetical and because of its self-serving nature, often regarded as of little weight: Chappel v Hart (1998) 195 CLR 232 at 246 fn (64) (McHugh J); [1998] HCA 55; Rosenberg v Percival (2001) 205 CLR 434; [2001] HCA 18 at [16] (Gleeson CJ). 3. But that does not render subjective evidence inadmissible, subject to the considerations raised by s 5D(3) of the Civil Liability Act which provides: 5D General principles … (3) If it is relevant to the determination of factual causation to determine what the person who suffered harm would have done if the negligent person had not been negligent— (a) the matter is to be determined subjectively in the light of all relevant circumstances, subject to paragraph (b), and (b) any statement made by the person after suffering the harm about what he or she would have done is inadmissible except to the extent (if any) that the statement is against his or her interest. … 1. In Wallace v Kam (2013) 250 CLR 375; [2013] HCA 19, a medical negligence case, the joint judgment said at [16]-[17]: [16] The determination of factual causation in accordance with s 5D(1)(a) involves nothing more or less than the application of a "but for" test of causation. That is to say, a determination in accordance with s 5D(1)(a) that negligence was a necessary condition of the occurrence of harm is nothing more or less than a determination on the balance of probabilities that the harm that in fact occurred would not have occurred absent the negligence. [17] … What the patient would have done if warned is to be determined subjectively in the light of all relevant circumstances in accordance with s 5D(3)(a), but evidence by the patient about what he or she would have done is made inadmissible for that purpose by s 5D(3)(b), except to the extent that the evidence is against the interest of the patient. (Citations omitted.) 1. The effect of s 5D(3) in a case such as the present is that evidence of what Mr Howard would have done if Sparke Helmore had given adequate advice was inadmissible (except to the extent that the statement is contrary to the plaintiff's interest) on AET's claim for damages for harm resulting from negligence, regardless of whether the claim is brought in tort, in contract, under statute or otherwise: Civil Liability Act, s 5A: see the discussion in Paul v Cooke (2013) 85 NSWLR 167; [2013] NSWCA 311 at [41] (Leeming JA). 2. In the absence of such testimony, the types of considerations that are relevant to the causation question include conduct of the plaintiff at or about the relevant time; evidence (contemporaneous) from the plaintiff as to how he or she felt about certain matters; the evidence of others in a position to assess the plaintiff's conduct and motivations; and other matters that may have influenced the plaintiff: Neal v Ambulance Service (NSW) [2008] NSWCA 346 at [40] (Basten JA). 3. On the other hand, evidence of what Mr Howard would have done if Sparke Helmore had given adequate advice was admissible on AET's claim for damages under s 236 of the Australian Consumer Law for misleading and deceptive conduct, because such a claim does not involve a claim for damages for harm resulting from negligence: s 5D. The parties did not advert to this distinction in their submissions in this Court. 4. Addressing Sparke Helmore's failure to advise AET, it is necessary to ask whether, if properly advised, AET would have entered the transaction and released the encumbrances. Contrary to AET's submission, his Honour did not narrowly focus on the choices AET faced in the circumstances that actually occurred, being the choice between maintaining the status quo and entering a transaction to release the encumbrances as part of the sale of the scheme land and the scheme trees. His Honour squarely addressed the question of what AET would likely have done had adequate advice from Sparke Helmore been given. 5. The considerations relevant to the causation question in the present case include, as his Honour found, Mr Howard's email of 15 July 2011 which indicated that AET's consent to the proposal was contingent on "the proposal being allowed under the documents and AET" being happy to proceed" (see [39] above); that AET was happy to proceed, as indicated by Mr Howard's statement on 7 December 2011 that he was "not too concerned with the commercials" (see [48]-[49] above); and that Mr Howard's position during his telephone call with Mr Johnston on 13 March 2012 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: see [57] above. 6. As to the last matter, AET complained that his Honour rejected its submission that the comments made by Mr Howard as set out in the Sparke Helmore file note of 13 March 2012 should have alerted Mr Johnston, and thus Sparke Helmore, that AET was labouring under a misapprehension and that Mr Howard did not know what alternatives were available or that there was anything that AET could do. AET acknowledged that this alleged negligence by Sparke Helmore was not the core of its case and was relied upon as a "backup". This submission should be rejected. There was no error in his Honour's finding that the 13 March 2012 note suggested that Mr Howard was not seeking any advice, rather, Mr Howard was acknowledging the problematic position that AET was in as it was committed to the transaction. 7. AET submitted that there "was evidence and considerations" which militate in favour of a conclusion that, on the counterfactual, AET would have acted differently, and that it would have informed Gunns that it could not consent to the sale, which would have led to the negotiation that his Honour found AET should have engaged in with Gunns. 8. It can be accepted, as AET submitted, that there was evidence of Mr Howard's practice of seeking and following legal advice where a transaction had the potential to effect the rights or entitlements of beneficiaries, was complex or required entry into agreements, and that on each occasion he received advice from Sparke Helmore during the transaction he followed his usual practice. It can also be accepted, as Mr Howard said in cross-examination, that AET "were relying on the sign-off" from the lawyers and "[w]e wouldn't have proceeded with the transaction without a sign-off". 9. In cross-examination, the proposition was put to Mr Howard by counsel for Mr Kerr that, "in hindsight", he would never have agreed to enter into the tree sale agreement and give up the security unless at the same time the trustee received monies representing the value of the Covenantholders' interests in the property. His Honour allowed that question over objection by counsel for AET. Mr Howard's response was to the effect that in the first instance he would have "possibly" or "perhaps" sought the payment of money or equivalent security, as the following passage of evidence reveals: Q. Would you answer the question please? A. Possibly received the money in lieu of the release of security, or some other form of security, I mean there would be in hindsight yes, I would be wanting to see something either equivalent security or something that wouldn't diminish the covenant holders position— Q. You would want either security or ideally rather - so you wouldn't need security at all, the payment of the money, wouldn't you? A. Yes. Q. Yes and that would be the optimum solution for you, get the payment of the money, wouldn't it? A. Yes. Q. And that's what you would've sought in the first instance had you been aware of the nature of the encumbrance with which you were blessed? A. Perhaps, or as I say, equivalent security. (Emphasis added.) 1. This evidence of Mr Howard, to the extent it was admissible, provides little assistance for AET on the question of causation. As hindsight evidence, it is necessarily hypothetical and because of its self-serving nature is of little weight. That is more so given the evidence is rather vague and expressed at a level of generality. 2. Accepting that Mr Howard had the day-to-day management and oversight of the transaction and made the decisions on behalf of AET in relation to it (PJ [252]), the causation question directs attention to what would likely have occurred if Mr Howard had received adequate advice from Sparke Helmore. Would Mr Howard have shared that advice with Mr Joseph and would he have conferred with Mr Joseph if he considered that AET should withdraw its commitment in principle to the transaction? I would answer each question in the affirmative. 3. First, on Mr Howard's evidence of his usual practice he would have conferred with Mr Joseph, the CEO, Corporate Trust, before making such a major decision. AET did not suggest otherwise. 4. Second, that Mr Howard would have conferred with Mr Joseph in the hypothetical scenario presently under consideration, is consistent with the evidence of Mr Joseph's involvement in the decision-making process within AET, as the following references to Mr Howards' oral evidence show: 1. although he could not recall specific discussions, Mr Howard agreed in cross-examination that there was internal discussion about the pros and cons of the proposal, which went through a number of stages, and those discussions more likely would have been with Mr Joseph; 2. Mr Howard said that by 3 August 2011 he had concluded that the transaction was in the Covenantholders' interests, provided the transaction was permitted under the trust documents and the valuation (of the trees) stacked up with the offer. He then gave the following evidence: Q: And that discussion would have been of a kind that I averted to before; of weighing the pros and cons of letting the scheme run on, or taking advantage or an offer to wind it up with some value to the covenant holders now? A: Yes. 1. The reference in that answer to discussions of the kind "adverted to before" may be taken to be a reference to the internal discussions involving Mr Joseph referred to in (1) above; 2. Mr Howard accepted that Mr Joseph had "direct involvement" in the decision making as to whether it was in Covenantholders' interests to go ahead with the transaction, that is, to approve the transaction; 3. after being referred to his earlier email to Mr Joseph dated 15 July 2011 (see [39] above), in which he said: … If the proposal is allowed under the trust documents and we are happy to proceed, we would not object …, 1. Mr Howard agreed to the following propositions: Q: You being happy with it involved the process of deciding whether or not assessing the various risks and benefits of consenting or rejecting it was in the covenant holders' interests? A: Yes. Q: And, as far as you can recall, after careful consideration by you and Mr Joseph of those matters, you decided that it was? A: Yes (emphasis added); 1. a little later in his evidence, Mr Howard answered the following question concerning Mr Joseph's role in consenting to the transaction: Q: Would it be fair to say that as far you understand, Mr Joseph thought that this proposal for an early conclusion of the scheme was a very good idea in the interests of covenant holders? A: I don't know specifically what he thought, but yes, the general decision by AET to consent to the proposal, subject to certain other things, yes, so Mr Joseph would have consented, and thought it was a. I can't say what he thought, but by his actions and our actions, it was a positive thing. (Emphasis added.) 1. AET sought to explain the absence of evidence from Mr Joseph in three ways. 2. First, AET submitted that Mr Howard, not Mr Joseph, had the day-to-day management of the transaction and authority to make decisions on behalf of AET, referring to Mr Howard's affidavit evidence. The submission continued that Mr Howard was the one who decided to consent to the transaction on behalf of AET. That can be accepted but is not a complete answer on the causation question because it does not address the significance of the absence of evidence from Mr Joseph given Mr Howard's evidence that he consulted Mr Joseph before making any major decision, and that Mr Joseph had "direct involvement" in the decision to approve the transaction. AET accepted so much in oral argument describing Mr Howard as the "principal decision maker". 3. Second, AET submitted that it cannot be inferred that Mr Joseph appreciated all of the relevant integers of the transaction, particularly in relation to the reduction in protection that arose from the release of the encumbrances, such that he weighed them up and decided that AET should nonetheless proceed because it was in the best interests of Covenantholders. This submission should be rejected. 4. An initial difficulty with this submission, as his Honour correctly noted at PJ [356], is that in the absence of evidence from Mr Joseph, one does not know whether Mr Joseph was "labouring under the same astonishing alleged misunderstanding of Mr Howard" as to the nature of the encumbrances, although his Honour accepted that there was force in the submission by Sparke Helmore that this was "unthinkable". It was for AET to establish that Mr Joseph did not appreciate the reduction in protection that arose from the release of the encumbrances. It did not do so, and thus failed to demonstrate causation. 5. Another difficulty with the submission is that it assumes, in the absence of evidence from Mr Joseph, that an inference can be drawn in favour of AET, which had the onus to establish that Mr Joseph, as a relevant decision maker, did not appreciate the reduction in protection that arose from the release of the encumbrances. That submission should be rejected. 6. A further difficulty with this submission is that the documentary evidence contradicts the premise that Mr Joseph did not appreciate all of the relevant integers of the transaction. There is a significant volume of email communications between Mr Howard and Mr Joseph, and between Sparke Helmore and Mr Howard that were copied to Mr Joseph, that show that Mr Joseph was closely involved in many of the communications relating to the significant aspects of the transaction during all stages of its negotiation by Gunns with the proposed purchaser. Those communications include: * Mr Howard's 15 July 2011 email to Mr Joseph advising that the release of the encumbrances was necessary to transfer the scheme land and scheme trees to the purchaser: see [39] above; * in November 2011, after Mr Howard had copied Mr Joseph on an email attaching the valuation by VDFC of the standing timber relating to the Covenantholders, Mr Joseph emailed Mr Howard asking whether AET was able to rely on the valuation and commented, "You may need a letter addressing it to us?". Mr Howard then requested Mr Nguyen to arrange for the valuation to be addressed to AET; * Mr Howard copied Mr Joseph on emails in late November 2011 negotiating an indemnity sought by the purchaser in the tree sale agreement; * in late November 2011 and December 2011, Mr Joseph was copied on emails between Mr Howard and Sparke Helmore attaching the draft tree sale agreement and put and call option deed, and seeking advice in relation to various drafting issues and a revised undertaking letter to be given by the "Auspine" companies. Importantly, those emails included answers given by Mr Nguyen to Mr Howard's questions concerning the distribution of the proceeds of sale under the tree sale agreement in Mr Nguyen's email of 7 December 2011. It is not necessary to add to these references. Plainly, Mr Joseph was closely involved in much of the detail of the transaction. 1. As his Honour found, AET was faced with a difficult decision, in effect, the prospect of replacing one contingency, leaving Covenantholders with the status quo, with another, winding up the trust against the background of Gunns' evidently deteriorating financial position: PJ [359]. The evidence of Mr Joseph's direct involvement in the decision by AET to approve the transaction, after carefully considering the various risks and benefits of consenting or rejecting the transaction, precludes drawing the inference that AET seeks that Mr Joseph did not appreciate all of the relevant integers of the transaction, particularly in relation to the reduction in protection that arose from the release of the encumbrances. 2. AET also submitted that Mr Joseph could not have formed the view in relation to the reduction in protection that arose from the release of the encumbrances because he would have discussed it with Mr Howard who had day-to-day carriage of the transaction and was making the decisions. The submission continued that Mr Joseph could not have discussed it with Mr Howard because, had he done so, Mr Howard would no longer have laboured under his misunderstanding and there is no documentary evidence from Mr Howard that he had any conversation with Mr Joseph during which the encumbrances were discussed. 3. The premise of this submission is flawed. It assumes that in his discussions with Mr Howard of the "pros and cons" of the transaction which involved the release of the encumbrances, Mr Joseph would have spoken in terms of the release of the encumbrances in a way that would have triggered in Mr Howard's mind his misapprehension of the nature of the encumbrances. That is speculation. Further and importantly, Mr Joseph had been told by Mr Howard in his 15 July 2011 email that the purchaser required the release of the encumbrances, and Mr Joseph can be taken to have known that Mr Howard knew that this was something that AET was being asked to give up. Both Mr Joseph and Mr Howard knew of the potential risk of selling the scheme land and scheme trees and waiting for receipt of the proceeds of sale under the waterfall provisions in the trust documents. There was no reason, based on the evidence, for Mr Joseph to have addressed the discussions with Mr Howard in a manner that required correction of Mr Howard's "astonishing alleged misunderstanding" of the nature of the encumbrances. 4. As to the suggested forensic significance of the absence of any documentary evidence of a discussion between Mr Joseph and Mr Howard, this submission is misplaced. Mr Howard agreed in his oral evidence that the proposal was discussed internally within AET, including with Mr Joseph. No record of those discussions was adduced by AET in evidence. That there is no note of Mr Joseph discussing with Mr Howard the release of the encumbrances in the context of reduction in the protections for Covenantholders, does not support an inference that Mr Joseph could not have formed the view in relation to the reduction in protection that arose from the release of the encumbrances. 5. Third, AET submitted that no adverse inferences are available to be drawn against AET in circumstances where AET called the relevant principal decision maker, Mr Howard; the case is not one which depended on inferences to establish AET's case; and it cannot be suggested that any evidence of others at AET would elucidate a particular matter in the way discussed by the majority in Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 at 413-345; [2012] HCA 17 at [169]-[170]. 6. This submission is directed to rebutting a Jones v Dunkel inference, but his Honour did not draw such an inference based on the absence of evidence from Mr Joseph. Rather, the point made by his Honour was that AET had not made out its case on causation as to what would likely have happened if Sparke Helmore had given adequate advice, given Mr Joseph's position as Mr Howard's superior and his role in the decision making process within AET. 7. In my view, his Honour's finding that AET had not demonstrated causation was correct. Sparke Helmore's construction arguments relating to causation 1. Sparke Helmore also raised two constructions of cl 2(d)(i) of the trust deed in support of its submission that there is an insufficient causal nexus between Sparke Helmore's breach and AET's decision to enter the transaction. In view of the conclusion on causation, the construction arguments do not require determination. However, I will briefly indicate my views. 2. For this purpose, it is convenient to set out the terms of cl 2(d)(i), as amended in April 2011, including the chapeau to the clause: 2(d) That in order to return due compliance by the Forest Company with the terms and conditions hereof the Forest Company undertakes that until the timber growing thereon is so cut and milled and disposed of and the proper proceeds thereof paid to the Trustee: (i) The Forest Company will not: 1. sell land of which it is the registered proprietor; or 2. encumber such land without the consent of the Trustee, which consent shall not be unreasonably withheld subject always to the Trustee being reasonably satisfied that the Forest Company is able to continue to observe and perform its obligations pursuant to the Deed and that there being no material prejudice to the interests of the Covenantholders or any reduction in the protected [sic] afford [sic] to them pursuant to the Deed. [emphasis added] 1. Clause 2(d)(i) contains three elements: (1) AET's consent was required for the sale of the scheme land by the Forest Company, (2) AET's consent could not be unreasonably withheld, and (3) the provision of AET's consent is "subject always to" AET being reasonably satisfied that there is no material prejudice to the interests of the Covenantholders or any reduction in the protections afforded to them pursuant to the trust deed. 2. It is to be recalled that the primary judge held that AET could reasonably withhold its consent under cl 2(d)(i) of the trust deed if it was reasonably satisfied that 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: at PJ [322]. 3. Sparke Helmore submitted that the provision is grammatically clumsy because the words in cl 2(d)(i) following "subject always to" cannot sensibly be treated as a qualification on the words that precede them which concern the obligation of the trustee not to unreasonably withhold consent. The submission continued that the effect of the provision is that AET is not to be taken to have unreasonably withheld consent if the sale (or encumbrance) of scheme land serves (relevantly) to materially prejudice the interests of Covenantholders or reduce the protection afforded to them under the deed. 4. The effect of Sparke Helmore's submission is that the words "subject always to" are in the same condition as the words which are coupled with them, namely, "the Trustee being reasonably satisfied that …", and therefore the words "subject always to" simply identify a circumstance in which AET is not to be taken to have unreasonably withheld consent, and are not words of limitation: cf Ormerod v The Todmodern Joint-Stock Mill Company (1882) 8 QBD 664 at 676 (Brett LJ). I do not agree. 5. The words "subject to" are "are standard way of making clear" that the unqualified provision prevails: Adrenaline Pty Ltd v Bathurst Regional Council (2015) 97 NSWLR 207; [2015] NSWCA 123 at [56] (Leeming JA), citing Newcrest Mining (WA) Ltd v Commonwealth of Australia (1997) 190 CLR 513 at 580-581; [1997] HCA 38 (McHugh J), in turn citing Harding v Coburn [1976] 2 NZLR 577 at 582. The addition of the word "always" in the phrase "subject always to" reinforces that the unqualified provision prevails in all circumstances. Thus, the words "subject always to" operate as a limitation on the requirement in cl 2(d)(i) that AET's consent not be unreasonably withheld. 6. Alternatively, Sparke Helmore submitted that, on proper construction of the trust deed, there is "no reduction in the protection afforded to Covenantholders pursuant to the Deed" where the unsecured rights under the proposed transaction are materially different to the rights that were previously secured under the terms of the trust deed. The submission continued that the transaction that AET approved in this case secured benefits that were not available absent the transaction and that the exchange of a partially secured right to future proceeds of timber milling operations for an unsecured right to a share of the proceeds of the sale of the scheme land and the scheme timber is not a "reduction in protections". 7. This submission directs attention to the net effect of the terms of the transaction. On this issue, the primary judge said at PJ [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. 1. AET's response was that this observation by his Honour could only be correct if the net effect of the transaction would be no material prejudice and no reduction in the protections afforded to Covenantholders. I agree. 2. The submission by Sparke Helmore that the release of the encumbrances did not result in a reduction in protections under the trust deed, required a finding that the encumbrances would have been worth nothing if AET held onto them. That is incorrect. So much was accepted by senior counsel for Sparke Helmore in oral argument when acknowledging that his Honour found the advice that should have been given was "there was least some reduction in protection associated with the release of the encumbrances". 3. Sparke Helmore's construction arguments should be rejected. Conclusion on causation 1. AET has failed to establish error in the primary judge's finding on causation. (3) Notice of contention 1. I have considered whether pars 5 and 6-8 of Sparke Helmore's notice of contention should be resolved, although unnecessary to the outcome of the appeal: see Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12]; Boensch v Pascoe [2019] HCA 49; (2019) 94 ALJR 112 at [8], [101]. 2. Paragraph 5 of the notice of contention seeks a finding on Sparke Helmore's defence of contributory negligence to AET's cross-claim, which the primary judge did not address. The parties agreed that any reduction in common law damages for contributory negligence should be assessed pursuant to s 9 of the Law Reform (Miscellaneous Provisions) Act 1965 (NSW) and s 5R of the Civil Liability Act. 3. In the absence of factual findings by either the primary judge or this Court explaining how causation was established by AET against Sparke Helmore, it is not appropriate for this Court to address the issue of contributory negligence which requires, among others, an assessment of the causal potency of respective failure by AET and Sparke Helmore to exercise reasonable care in the context of a particular counterfactual, had causation been established. 4. Paragraphs 6-8 of the notice of contention seek a finding on Sparke Helmore's defence of proportionate liability which was also pleaded as a defence to AET's cross-claim. Sparke Helmore contended that if it is held to be liable to AET, then Mr Joseph, Mr Howard and any other directors or officers of AET who are involved in the decision-making process in relation to the subject transaction are concurrent wrongdoers in relation to AET's claims within the meaning of Pt IV of the Civil Liability Act 2002 (NSW) and / or Pt VA of the Competition and Consumer Act 2010 (Cth). 5. Sparke Helmore's written submissions on the proportionate liability defence were perfunctory, comprising a single paragraph. As the issue was not mentioned in oral argument by senior counsel for Sparke Helmore, I take it not to have been pressed. 6. If I am wrong in this regard, it is not appropriate for this Court to address the issue of proportionate liability given the absence of factual findings against the relevant alleged concurrent wrongdoers that they breached their duties to AET under s 180 of the Corporations Act 2001 (Cth): Reinhold v New South Wales Lotteries Corporation (No 2) (2008) 82 NSWLR 762; [2008] NSWSC 187 at [19]. If it was necessary to address this issue, the appropriate course would be to remit this part of Sparke Helmore's defence to AET's cross-claim to the primary judge for determination. Conclusion on AET's appeal against Sparke Helmore 1. AET's appeal against Sparke Helmore has failed. Again, there is no reason why costs should not follow the event: UCPR, r 42.1. C. MR KERR'S CROSS-APPEAL AGAINST SPARKE HELMORE 1. In view of the failure of AET's appeal against Sparke Helmore, Mr Kerr's cross-appeal against Sparke Helmore does not arise. The cross-appeal should be dismissed with no order for costs. Mr Kerr's cross-appeal was entirely derivative on the success of AET's appeal against Sparke Helmore, and no additional costs of any significance were incurred by either party on the cross-appeal. Orders 1. I propose the following orders: 1. Appeal against the first respondent (Mr Kerr) dismissed. 2. Appeal against the second to sixty-first respondents (Sparke Helmore) dismissed. 3. Cross-appeal by Mr Kerr dismissed with no order as to costs. 4. The appellant is to pay the first respondent's costs of the appeal. 5. The appellant is to pay the second to sixty-first respondents' costs of the appeal. 1. LEEMING JA: I agree with Gleeson JA. 2. EMMETT AJA: Introduction This appeal is concerned with the affairs of a trust (the Trust) established by a trust deed made on 6 March 1964 (the Trust Deed) between the appellant, Australian Executor Trustees (SA) Ltd, then known as Farmers' Co-operative Executors and Trustees Limited (the Trustee), and a company then known as Southern Australia Perpetual Forests Limited (the Forest Company). By the Trust Deed, the Trustee agreed to be trustee of a forestry scheme concerning pine forests (the Scheme). Trees (the Scheme Trees) were to be planted on land owned by the Forest Company situated in an area in Victoria and South Australia known as the "green triangle" (the Scheme Land). 1. On 6 March 1964, the Trustee, the Forest Company, and a company associated with the Forest Company, S.E.A.S Sapfor Harvesting Pty Ltd (the Milling Company), entered into an agreement (the Tripartite Agreement) whereby the Milling Company agreed to fell and remove Scheme Trees from the Scheme Land as directed by the Forest Company and market and sell the timber resulting from such Scheme Trees. The Tripartite Agreement specified how the proceeds of sale of the timber were to be dealt with. 2. The beneficiaries of the Trust were the investors in the Scheme (the Covenantholders). Under the Scheme, Covenantholders acquired interests (described as Covenants) in the property of the Trust in return for their investment in the Scheme. Covenants entitled Covenantholders to a payment from the Forest Company in the event that Scheme Trees were logged, milled and sold and the proceeds of sale were paid by the Milling Company to the Forest Company. Thus, each Covenantholder was entitled to a rateable share of the net proceeds of the sale of timber referrable to a planting year. Some Covenants also contained an additional entitlement to receive a rateable share of any appreciation in the value of that part of the Scheme Land on which particular Scheme Trees were planted between the time of planting and the time when the Scheme Trees were felled or the land ceased to be the subject of the Covenant. 3. Clause 2(d)(v) of the Trust Deed required the registration of encumbrances under the Real Property Act 1886 (SA) on the title of the Forest Company to the Scheme Land (Encumbrances) to protect the interests of Covenantholders. Although the proceeds of sale of timber products were to be received by the Milling Company, the Covenantholders had no security from the Milling Company. 4. At the time of the Trust Deed and the Tripartite Agreement, the Forest Company and the Milling Company were subsidiaries of Auspine Limited (Auspine). In 2008, Auspine became a wholly-owned subsidiary of Gunns Limited (Gunns), as a result of which the Forest Company and the Milling Company became subsidiaries of Gunns. On 8 February 2010, the Forest Company and the Milling Company granted fixed and floating charges over their assets (the ANZ Charge) to ANZ Capel Court Limited (ANZ). The ANZ Charge was granted as security for repayment of money lent by ANZ to Gunns and its subsidiaries. However, the ANZ Charge did not take priority over the Encumbrances. 5. These proceedings arise out of a decision made by Gunns in 2011 to sell the Scheme Land and the Scheme Trees to raise funds to reduce its indebtedness to ANZ. Ultimately, on 15 March 2012, the Trustee, the Forest Company and the Milling Company entered into contracts for the sale of the Scheme Land (the Land Sale Agreement) and contracts for the Sale of the Scheme Trees (the Tree Sale Agreement). The consideration that was referrable to the interest of the Covenantholders in the Scheme Trees was $33,999,999 (the Tree Sale Proceeds). The consideration that was referrable to the interest of the Covenantholders in the Scheme Land was $4,882,380.58 (the Land Sale Proceeds). 6. The Tree Sale Agreement and the Land Sale Agreement provided, relevantly, that, on completion, the Trustee was required to discharge the Encumbrances, and that the Land Sale Proceeds and the Tree Sale Proceeds, save for the sum of $1, were to be paid, not to the Trustee, but to the Milling Company. Accordingly, on completion, the Trustee discharged the Encumbrances and received $1. The result was that the Land Sale Proceeds the Tree Sale Proceeds, except for the sum of $1.00 received by the Trustee, were received by the Milling Company. The Tree Sale Proceeds and the Land Sale Proceeds were paid into an overdrawn account of Gunns with ANZ and no part was received by the Trustee, save for the sum of $1.00. 7. At the time when the transactions were completed, the Forest Company was under obligations to pay amounts to the Trustee from the 2011 harvest year (the 2011 Harvest Proceeds) and the 2012 harvest year (the 2012 Harvest Proceeds). The 2011 Harvest Proceeds totalled $11,051,041.49, of which only $4,952,579.60 was received by the Trustee. The 2012 Harvest Proceeds totalled $5,148,552.31, none of which was received by the Trustee. 8. On 25 September 2012, prior to the time when the Milling Company was obliged to make any payment to the Forest Company, Gunns and its subsidiaries, including the Milling Company and the Forest Company, were placed into external administration. The result was that neither the Trustee nor the Covenantholders received any part of the Land Sale Proceeds, the Tree Sale Proceeds or the Harvest Proceeds, save for the sum of $1.00. 9. The Trustee instituted proceedings against the Forest Company and the Milling Company alleging that they held the Tree Sale Proceeds and the Land Sale Proceeds on trust for the Covenantholders. That claim was ultimately unsuccessful when an appeal from favourable decisions of the Victorian Supreme Court was allowed by the High Court of Australia. [1] 10. On 7 April 2017, the first respondent in the present appeals, Mr David Kerr (the Receiver), was appointed by a judge sitting in the Equity Division of the Supreme Court as an additional trustee of the Trust for the purpose of bringing these proceedings against the Trustee, for the benefit of the Covenantholders. The Receiver commenced proceedings in the Commercial List of the Equity Division against the Trustee and against the partners in a firm of solicitors (the Solicitors). The Receiver alleged a breach of trust by the Trustee arising out of the Land Sale Agreement and the Tree Sale Agreement and the other transactions that occurred at that time, whereby the Scheme Land and the Scheme Trees were sold and the Encumbrances were released without any return to the Covenantholders. The Solicitors had given advice to the Trustee in relation to the release of the Encumbrances on completion of the sale of the Scheme Land and the Scheme Trees and the Receiver alleged that the advice was negligently wrong. The Trustee filed a cross-claim against the Solicitors making the same allegations as the Receiver. 11. On 22 October 2019, for reasons published on 26 September 2019 [2] and on 22 October 2019, [3] a judge of the Equity Division, sitting in the Commercial List (the primary judge) made an order directing judgment for the Receiver against the Trustee in the sum of $76,619,978.42 inclusive of interest under s 100 of the Civil Procedure Act 2005 (NSW). The primary judge also ordered that the Receiver's claim against the Solicitors be dismissed and that the cross-claim by the Trustee against the Solicitors be dismissed. 12. By notice of appeal filed on 14 November 2019, the Trustee appealed from the orders made by the primary judge. The Trustee filed an amended notice of appeal on 25 February 2020. By notice of cross-appeal filed on 28 November 2019, the Receiver appealed against the dismissal of the claim against the Solicitors. The Solicitors filed a notice of contention on 13 December 2019. 13. The cross-appeal by the Receiver is defensive and is pressed only if, contrary to the Receiver's primary position and the finding of the primary judge, the Receiver's claims against the Trustee and the Solicitors are "apportionable claims" to which Pt 4 of the Civil Liability Act 2002 (NSW) applies. In that event, the Receiver challenges the dismissal of his claim against the Solicitors. The claim against the Trustee 1. The primary judge found that the Trustee was in breach of its duty by its failure to protect and vindicate trust property, namely, the Encumbrances. His Honour then considered what would have happened had the Trustee insisted that the Encumbrances not be released without either payment to the Covenantholders of the amount to which they would ultimately be entitled or the provision of alternative security. It was common ground that, had the Trustee refused to release the Encumbrances, there would have been a renegotiation between the Trustee, Gunns, ANZ and the other lenders to Gunns and the Encumbrances would not have been released without payment being made for the benefit of Covenantholders or alternative security would have been given. His Honour concluded therefore that the loss suffered by the Covenantholders was caused by the breaches on the part of the Trustee. 2. The primary judge concluded that, had the Trustee insisted on receiving payment or the receipt of alternative security in exchange for discharging the Encumbrances, it is probable that the Covenantholders would have received the Tree Sale Proceeds, the Land Sale Proceeds, the 2011 Harvest Proceeds (to the extent that they had not already been received) and the 2012 Harvest Proceeds. His Honour also concluded that the costs of appointing the Receiver and costs of obtaining judicial advice would not have been incurred. Accordingly, those amounts constituted the measure of the loss suffered by the Covenantholders as a result of breaches by the Trustee. The claim against the Solicitors 1. On 5 December 2011, the Trustee asked the Solicitors to provide a quote to review a draft of the Tree Sale Agreement and a proposed put and call option deed and to provide "a legal sign off" to the Trustee in a format that sought the following: * details of the proposed contractual documents; * confirmation that the documents reflected instructions; * any unusual or onerous provisions in the documents; * confirmation that the documents included the Trustee's limitation of liability clause; and * confirmation that the documents were in order for execution. The Solicitors responded on the following day with an estimate of their costs, which appears to have been accepted by the Trustee. 1. On 22 December 2011, the Solicitors sent two documents to the Trustee. The first document was a "certification" and the second was a "document confirmation advice" (the Advice). It was not suggested that the certification was incorrect since it did no more than advise that the proposal was permissible under the Trust Deed. By the Advice, the Solicitors confirmed that the documents were "in order for execution" on the basis of four matters. The Advice said that it was subject to certain assumptions and qualifications that were set out. 2. The principal thrust of the complaint against the Solicitors is that they failed to advise the Trustee on the effect of cl 2(d)(i) of the Trust Deed. That provision, as in force at the relevant time, provided as follows: "… in order to secure due compliance by the Forest Company with the terms and conditions hereof the Forest Company undertakes that until the timber growing thereon is so cut and milled and disposed of and proper proceeds thereof paid to the Trustee … the Forest Company will not: (1) sell land of which it is the registered proprietor; or (2) encumber such land; without the consent of the Trustee, which consent will not be unreasonably withheld subject always to the Trustee being reasonably satisfied that the Forest Company is able to continue to observe and perform its obligations pursuant to the Deed and that there being no material prejudice to the interests of the Covenantholders or any reduction in the protected afford [sic] to them pursuant to the Deed." 1. The primary judge found that the Solicitors should have advised that the Trustee could reasonably withhold its consent if the transaction would cause the interests of the Covenantholders to be materially prejudiced or cause any reduction in the protection afforded to the Covenantholders under the Trust Deed. His Honour held that the sign off comprised by the Advice was one that no reasonable trustee could have relied on and that the advice that the Solicitors thereby gave to Trustee fell short of what was called for by their retainer of 5 December 2011. However, his Honour concluded that the inadequate advice provided by the Solicitors did not cause the Trustee's breach of trust. 2. Thus, the Trustee's consent could not be withheld unreasonably. However, before giving its consent, the Trustee must be reasonably satisfied that the Forest Company is able to continue to observe and perform its obligations and must also be reasonably satisfied that there will be no material prejudice to the interests of the Covenantholders or any reduction in the protection afforded to them by the Trust Deed by reason of the sale or encumbrance of the Scheme Land. The primary judge held that the Solicitors failed to provide that advice and that, in so failing, they were in breach of their obligations to the Trustee. His Honour held that the Trustee had failed to establish that, on the balance of probabilities it would have acted differently had the Solicitors provided the advice that the primary judge found should have been provided. The appeal 1. In the appeal, the Trustee contends that any negotiation that took place between Gunns and the Trustee would have resulted in an agreement for Gunns to provide, from the proceeds of sale, an amount equal to the value of the Scheme Land of approximately $18 million, as distinct from amounts totalling, before interest, approximately $51 million, which his Honour found the Receiver would have recovered. The Trustee contends that the primary judge erred in concluding that the loss occasioned by its breach of duty exceeded the position in which the Covenantholders would have been had Gunns agreed to pay to the Trustee, on completion of the transactions, an amount representing the value of the Scheme Land in respect of which the Encumbrances were registered or agreed to provide the Trustee with security up to the value of the Scheme Land as a substitute for releasing the Encumbrances. The Trustee asserted that his Honour erred in concluding that, had it not breached its duty to the Covenantholders, Gunns would have agreed to pay to the Trustee on completion the amount of $51,800,490.58 and should have concluded that Gunns would only have agreed to pay to the Trustee on completion an amount of the value of the Scheme Land or provide the Trustee with security up to the value of the Scheme Land. 2. The Trustee also asserted that the primary judge erred in including in the award of compensation the sum of $4,952,579.60 representing the 2011 Harvest Proceeds that had been paid. The Trustee contended that his Honour ought to have concluded that the total amount of compensation to which the Receiver is entitled is $18,962,734.84, plus pre-judgment interest, consisting of: * the sale price of the Scheme Land of $18,320,000; * costs of the appointment of the Receiver of $371,976.90; and * the costs of judicial advice obtained by the Receiver of $270,757.94. 1. In relation to the Solicitors, the Trustee contended that the primary judge ought to have included that the Solicitors should have advised the Trustee to seek to negotiate a better deal to ensure that the transaction documents complied with the terms of the Trust Deed and to minimise risk to the Trustee and the Covenantholders. The Trustee also contended that his Honour erred in concluding that the Trustee would have entered into the Tree Sale Agreement in the form in which it was completed, even if the Trustee had received adequate advice from the Solicitors and ought to have concluded that, if the Trustee had received adequate advice, it would have sought to negotiate a different transaction with Gunns such that entering into the Tree Sale Agreement would not have resulted in material prejudice to the interests of the Covenantholders or any reduction in the protection afforded to the Covenantholders pursuant to the Trust Deed. The Trustee also contended that his Honour erred in concluding that no reasonable trustee would have relied upon the advice of the Solicitors. 2. I have had the opportunity of reading in draft form the reasons of Gleeson JA for concluding that the appeal should be dismissed and that the cross-appeal should be dismissed. In particular, I agree with his Honour's reasons for concluding that the primary judge made no error in the assessment of compensation payable by the Trustee by reason of its breaches of trust. I also agree with his Honour's reasons for concluding that the breach of duty by the Solicitors did not have a relevant causal connection with the loss suffered by the Covenantholders. I agree with the orders proposed by Gleeson JA. ********** Endnotes 1. See Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62. 2. See Kerr v Australian Executor Trustees (SA) Ltd; Australian Executor Trustees (SA) Ltd v Fuller and others trading as Sparke Helmore Lawyers [2019] NSWSC 1279. 3. See Kerr v Australian Executor Trustees (SA) Ltd; Australian Executor Trustees (SA) Ltd v Fuller and others trading as Sparke Helmore Lawyers (No 2) [2019] NSWSC 1438. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 February 2021