Court of Appeal Supreme Court New South Wales Medium Neutral Citation: The Australian Special Opportunity Fund LP v Equity Trustees Wealth Services Ltd [2015] NSWCA 225 Hearing dates: 26 March 2015 Date of orders: 11 August 2015 Decision date: 11 August 2015 Before: Bathurst CJ at [1]; Macfarlan JA at [183]; Emmett JA at [184] Decision: Appeal allowed in part. Remit the appellant's claim for damages or equitable compensation arising out of the failure by the respondent to appoint a controller in accordance with cl 6.1(b) of the Security Trust Deed to a judge of the Equity Division for hearing. Appeal otherwise dismissed. Direct the parties to make submissions as to the costs of the appeal and the proceedings below within 14 days. Catchwords: EQUITY – trusts – trustees – breach of trust - construction of trust instrument – contract – construction - inconsistent clauses – whether a trust deed obliged the trustee to appoint a controller during the decision period WAIVER – whether appellant waived the respondent's breach of trust EQUITY – trusts – contracts - construction – whether it was necessary for the appellant to establish negligence – whether the evidence demonstrated that the respondent was negligent in failing to appoint a controller – whether exception to liability was made out EQUITY – trusts – trustees – breach of trust – claim for breach of trust by beneficiary who is not the sole beneficiary of a trust – claim for breach of trust by a single beneficiary where a trust is subsisting with a number of beneficiaries EQUITY – trusts – trustees – breach of trust – contract – breach of contract - damages – equitable compensation - evidence of loss – whether appellant established causation and loss sufficient to warrant a quantification hearing EQUITY – trusts – trustees – breach of trust – contract - construction - where direction made in respect of voting for variation to a deed of company arrangement – whether trustee required to comply with the direction Legislation Cited: Corporations Act 2001 (Cth) Motor Car Act 1951 (Vic) Cases Cited: AIB Group (UK) plc v Mark Redler & Co [2014] UKSC 58; 3 WLR 1367 Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 Armitage v Nurse [1998] Ch 241 Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 247 CLR 345 Bristol and West Building Society v Mothew (1998) Ch 1 Byrnes v Kendle [2011] HCA 26; 243 CLR 253 Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534; 85 DLR (4th) 129 Currie v Dempsey [1967] 2 NSWR 532 Electricity General Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 Enkelmann v Glissan (1982) 2 BPR 9640 Fattel v Walbrook Trustees (Jersey) Ltd [2010] EWHC 2767 Frank Davies Pty Ltd v Container Haulage Group Pty Ltd (No 2) (1989) 98 FLR 324 Gosper v Sawyer [1985] HCA 19; 160 CLR 548 Hughes v NM Superannuation Pty Ltd (1993) 29 NSWLR 653 In re Alabama, New Orleans, Texas and Pacific Junction Railway Co (1891) 1 Ch 213 In the matter of Metal Storm Ltd (subject to Deed of Company Arrangement) [2014] NSWSC 813 Jones v Dunkel [1959] HCA 8; 101 CLR 298 Mainteck Services Pty Ltd v Stern Heurtey SA [2014] NSWCA 184 Malec v JC Hutton Pty Ltd [1990] HCA 20; 169 CLR 638 McIntosh v Dalwood (No 4) (1930) 30 SR (NSW) 415 National Trustees Executors and Agency Co of Australia Ltd v Barnes [1941] HCA 3; 64 CLR 268 OzEcom Ltd (in liq) v Hudson Investment Group Ltd [2007] NSWSC 1441 Re Hills Motorway Ltd [2002] NSWSC 897; 43 ACSR 101 Re Jax Marine Pty Ltd and the Companies Act 1961 (1967) 1 NSWR 145 Re Media, Entertainment and Arts Alliance; Ex parte The Hoyts Corporation Pty Limited [1993] HCA 40; 178 CLR 379 Re NRMA Ltd [2000] NSWSC 82; 156 FLR 349 Sargent v ASL Developments Ltd [1974] HCA 40; 131 CLR 634 Segelov v Ernst & Young Services Pty Ltd [2015] NSWCA 156 Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332 Target Holdings Ltd v Redferns (a firm) [1996] AC 421 Vines v Djordjevitch [1955] HCA 19; 91 CLR 512 Walker v Stones [2001] QB 902 Young v Murphy; Swinbank v Murphy (1996) 1 VR 279 Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 484 Category: Principal judgment Parties: The Australian Special Opportunity Fund, LP (Appellant) Equity Trustees Wealth Services Limited (Formerly ANZ Trustees Limited) (Respondent) Representation: Counsel: IM Jackman SC / MR Hall SC (Appellant) CM Scerri QC / HNG Austin (Respondent) Solicitors: Squire Patton Boggs (Appellant) Ashurst Australia (Respondent) File Number(s): 2014/00276461 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division – Corporations List Citation: [2014] NSWSC 813 Date of Decision: 19 June 2014 Before: Black J File Number(s): 2013/377450 [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 respondent, Equity Trustees Wealth Services Ltd, was a trustee for note holders under a Convertible Notes Trust Deed and a security trustee for secured note holders under a Security Trust Deed in respect of notes issued by Metal Storm Ltd (the company). The appellant, the Australian Special Opportunity Fund, LP, was the holder of approximately 86% of the secured notes and also held a small number of convertible notes. The appellant also held a fixed and floating charge over the assets of the company in order to secure its obligations under the secured notes. On 26 July 2012, the company was placed into voluntary administration. Section 441A of the Corporations Act 2001 (Cth) provided that if the property of a company under administration is subject to a security interest, and before or during the "decision period" (defined as the period commencing on the date the administration commences and ending thirteen business days thereafter), the secured party enforces the security interest, the provisions of the Act preventing or limiting the enforcement of such rights do not apply. The respondent did not enforce the security by appointing a controller during the decision period. Subsequent to the company entering into administration, a deed of company arrangement (DOCA) was executed. In connection with a proposed variation to the DOCA, the appellant directed the respondent, by letter, to release and discharge its security over the assets of the company (the December 2013 direction). The appellant claimed that the respondent breached its obligations by not appointing a controller during the decision period and failing to comply with the December 2013 direction. The primary judge found in favour of the respondent on both issues. The appellant appealed on each issue. The primary issues on appeal were: Whether the primary judge erred in finding that the respondent was obliged to appoint a controller during the decision period, such that a failure to do so constituted a breach of trust; Whether, if there was a breach of trust, the primary judge was correct in finding that the appellant had not waived the breach; Whether the primary judge erred in finding that provisions in the Security Trust Deed exempted the respondent from liability for breach of trust; Whether the primary judge erred in finding that the appellant had not demonstrated that it had suffered loss and damage, as a result of the failure to appoint a controller, sufficient to warrant a quantification hearing; Whether the primary judge erred in finding that the respondent was not required to comply with the December 2013 direction. The Court held (Bathurst CJ, Macfarlan JA agreeing, Emmett JA writing separately), allowing the appeal in part, remitting the appellant's claim for damages or equitable compensation to a judge of the Equity Division, otherwise dismissing the appeal: Issue 1: Whether the failure to appoint a controller constituted a breach of trust (i) The rules for construction of contracts also apply to trust instruments, as the contractual relationship provides a common basis for the establishment or definition of a trust. As the Security Trust Deed operated as a trust and a contract, in construing it, the meaning of its terms was to be determined by what a reasonable business person would have taken them to mean. That required consideration of the language used by the parties, the surrounding circumstances and the purposes or objects to be secured under the contract. ([67]-[69] (Bathurst CJ); [183] (Macfarlan JA); [189] (Emmett JA)) Byrnes v Kendle [2011] HCA 26; 243 CLR 253, Segelove v Ernst & Young Services Pty Ltd [2015] NSWCA 156, Gosper v Sawyer [1985] HCA 19; 160 CLR 548, Electricity General Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640, Mainteck Services Pty Ltd v Stern Heurtey SA [2014] NSWCA 184, applied. (ii) In dealing with inconsistent clauses, any conflict should be resolved, if possible, on the basis that one provision qualifies the other and that both have meaning and effect. ([75] (Bathurst CJ); [183] (Macfarlan JA); [189] (Emmett JA)) Re Media, Entertainment and Arts Alliance; Ex parte The Hoyts Corporation Pty Limited [1993] HCA 40; 178 CLR 379, applied. (iii) As a matter of construction, the Security Trust Deed obliged the respondent, as security trustee, to appoint a controller during the decision period. ([79] (Bathurst CJ); [183] (Macfarlan JA); [189] (Emmett JA)) Issue 2: Did the appellant waive the breach? (i) A party will waive a right by engaging in an intentional act, done with knowledge, in a manner inconsistent with that right. A waiver will only occur if the party waiving had knowledge of all material facts. ([86], [89] (Bathurst CJ); [183] (Macfarlan JA); [192] (Emmett JA)) Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570, Sargent v ASL Developments Ltd [1974] HCA 40; 131 CLR 634, applied. (ii) The appellant did not waive the respondent's breach of trust through appointing an administrator and discussing a DOCA as neither act was inconsistent with the right to have a controller appointed. The appellant did not waive its right to sue for breach as the steps taken by the appellant after the expiration of the decision period were not inconsistent with seeking to recover losses flowing from the breach and, at the time of the conduct alleged to constitute a waiver, the appellant did not know the material facts of the breach. ([87], [89] (Bathurst CJ); [183] (Macfarlan JA); [192] (Emmett JA)) Issue 3: Was the respondent exempt from liability under the Security Trust Deed? (i) As a matter of construction, it was a necessary element of any claim by a secured note holder against the security trustee that the note holder establish one of the matters referred to in clause 2.2 of the Security Trust Deed. Thus, it was necessary for the appellant to establish negligence in order to succeed in the proceedings. ([122], [127] (Bathurst CJ); [183] (Macfarlan JA); [189] (Emmett JA)) Vines v Djordjevitch [1955] HCA 19; 91 CLR 512, Armitage v Nurse [1998] Ch 241, Walker v Stones [2001] QB 902, considered. (ii) The evidence, particularly that indicating that the respondent was made aware of the appointment of the administrators before the commencement of the decision period and did not take any steps to consider the issue, gave rise to an inference that the appointment of a controller was ignored or overlooked by the respondent, demonstrating that the respondent was negligent in failing to appoint a controller. Thus, the exception to the limitation on liability contained in the Security Trust Deed was made out and the respondent was not exempt from liability for failure to appoint the controller. ([128]-[131] (Bathurst CJ); [183] (Macfarlan JA); [189] (Emmett JA)) Issue 4: Did the appellant suffer loss or damage as a result of the breach sufficient to warrant a quantification hearing (i) (obiter) In cases where an appellant is not the sole beneficiary of a trust, cases have suggested that the only right of the appellant, as a beneficiary, is to have the trust reconstituted. ([155] (Bathurst CJ); [183] (Macfarlan JA); [192] (Emmett JA)) Target Holdings Ltd v Redferns (a firm) [1996] AC 421, AIB Group (UK) plc v Mark Redler & Co [2014] UKSC 58; 3 WLR 1367, considered. (ii) (obiter) Where a trust is subsisting with a number of beneficiaries, it is correct that a single beneficiary can sue for breach of trust, however, cases have suggested that in these circumstances, all beneficiaries should be joined. ([156] (Bathurst CJ); [183] (Macfarlan JA); [192] (Emmett JA)) Young v Murphy; Swinbank v Murphy (1996) 1 VR 279, National Trustees Executors and Agency Co of Australia Ltd v Barnes [1941] HCA 3; 64 CLR 268, Hughes v NM Superannuation Pty Ltd (1993) 29 NSWLR 653, considered. (iii) Insofar as the appellant's claim was based on contract, the correct approach in assessing whether there was loss or damage to warrant a quantification hearing was that the appellant had to prove, on the balance of probabilities, that it sustained some loss or damage. Some loss or damage could be proved by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value, ascertained by reference to the degree of probabilities or possibilities. ([159] (Bathurst CJ); [183] (Macfarlan JA); [192] (Emmett JA)) Sellers v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332, applied. (iv) Insofar as the appellant's claim was based on breach of trust, it was necessary to prove that the breach caused the loss. ([160] (Bathurst CJ); [183] (Macfarlan JA); [192] (Emmett JA)) Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 484, Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534; 85 DLR (4th) 129, applied. (v) The loss of the opportunity to have a controller appointed had value as, had a controller been appointed, control of the assets of the company would be with the controller rather than the administrators and the security trustee would have been empowered to release the security over the assets of the company to enable an early trade sale. Thus, the appellant made out a prima facie case on causation and damage sufficient to warrant a further hearing on the issue. ([163] (Bathurst CJ); [183] (Macfarlan JA); [190] (Emmett JA)) Issue 5: Was the respondent required to comply with the December 2013 direction (i) As a matter of construction of the Convertible Notes Trust Deed and the Security Trust Deed, the respondent was not required to comply with the December 2013 direction. ([172]-[175] (Bathurst CJ); [183] (Macfarlan JA); [191] (Emmett JA)) Judgment 1. BATHURST CJ: The respondent, Equity Trustees Wealth Services Ltd (formerly ANZ Trustees Ltd) (the respondent), was a trustee for note holders under a Convertible Notes Trust Deed, dated 11 July 2006, in respect of convertible notes issued by Metal Storm Ltd (in liquidation, receivers and managers appointed) (the company). 2. In July 2009, the members of the company approved the division of the convertible notes into two classes of notes, secured notes and interest bearing notes. The respondent was the trustee for secured note holders pursuant to a Security Trust Deed dated 31 July 2009. On 18 August 2009, the company granted the respondent a fixed and floating charge (the Charge) over its assets to secure its obligations under the secured notes. 3. The appellant, the Australian Special Opportunity Fund, LP (the appellant) was the holder, by number and value, of approximately 86% of the secured notes. It also held a small number of convertible interest bearing notes. 4. On 26 July 2012, the company was placed into voluntary administration by resolution of its directors under s 436A of the Corporations Act 2001 (Cth) (the Act). Section 441A of the Act relevantly provided that if the whole of the property of a company under administration is subject to a security interest and, before or during the "decision period", the secured party has enforced the security interest, the provisions in Pt 5.3A of the Act preventing or limiting the enforcement of such rights do not apply. In the Act, "decision period" is relevantly defined as the period commencing on the date that the administration commences and ending at the end of the thirteenth business day after that date. 5. The respondent did not enforce the security by appointing a controller during the decision period. In these proceedings, the appellant has claimed that the respondent breached its obligations by failing to do so. 6. Subsequent to the company entering into administration, on 22 November 2012, a Deed of Company Arrangement (DOCA) was executed. In connection with a proposed variation to the DOCA, the appellant, by letter dated 13 December 2013 (the December 2013 direction), directed the respondent to release and discharge its security, the Charge, over the assets of the company. The letter stated that the direction reflected an extraordinary resolution of note holders under cl 15.12(a) of the Convertible Notes Trust Deed. The respondent declined to provide this release of the Charge. The appellant claimed that it had breached its obligations in failing to do so. 7. In respect of each alleged breach of trust, the appellant sought declaratory relief and damages (or equitable compensation) from the respondent. 8. In In the matter of Metal Storm Ltd (subject to Deed of Company Arrangement) [2014] NSWSC 813 (the Trial Judgment), the primary judge found in favour of the respondent on both issues. He concluded that, as a matter of construction of the Security Trust Deed, the respondent was not required to comply with the December 2013 direction. Although he held that under the terms of the Security Trust Deed, the respondent was obliged to appoint a controller during the decision period, he concluded that the provisions in that deed limiting the trustee's liability in certain circumstances applied to defeat the appellant's claim. He also concluded that the appellant had not demonstrated that it had suffered loss and damage as a result of the failure to appoint a controller. 9. The appellant has appealed on each issue. 10. To fully understand the background facts and the decision of the primary judge, it is necessary to have regard to a number of the provisions of the Convertible Notes Trust Deed and the Security Trust Deed. The Convertible Notes Trust Deed 1. Clause 7.1 of the Convertible Notes Trust Deed imposed on the respondent, as trustee, an obligation to exercise reasonable diligence to ascertain whether the Company had breached any of the terms applicable to the notes. 2. Clauses 7.4, 7.6 and 7.8 of the Convertible Notes Trust Deed conferred discretions on the respondent, as trustee, in the exercise of its powers in the event of default. These clauses provide as follows: "7.4 Discretion of Trustee as to exercise of powers Subject to clause 7.1, the Trustee will, as regards all the powers, authorities and discretions vested in it by this document, have absolute and uncontrolled discretion as to the exercise or the non-exercise, thereof in all respects, and, in the absence of fraud, negligence or breach of trust, the Trustee will not be responsible in any way for any loss, costs, damages, claims, obligations or inconvenience that may result from the exercise or non-exercise of those powers, authorities and discretions." "7.6 Discretion of Trustee upon default In addition to any protections under any applicable statute or contained in this document, and notwithstanding any actual or constructive notice which the Trustee has of the occurrence of a Default Event, the Trustee has absolute discretion to: (a) exercise or refrain from exercising its powers in relation to a Default Event; (b) enforce the observance or performance of any provision of this document; or (c) enforce any other right of the Note Holders under this document, unless the Trustee is requested to enforce such observance or performance, right or exercise such option (either in writing or by means of a resolution of Note Holders passed at a Meeting convened and conducted in accordance with clause 15) by the Note Holders holding not less than 50% in nominal value of the Notes as at the date of such request, in which case, and for so long as the Trustee is indemnified to its satisfaction against all actions, proceedings, claims, demands, costs, charges, damages and expenses which the Trustee may render itself liable to or thereby incur, the Trustees will act in compliance with such request. Except where expressly provided in this document or required by Corporations Act, the Trustee has no obligation to inform Note Holders of the occurrence of any breach of this document or any Default Event." "7.8 Trustee's costs on enforcement Subject to clause 7.1, the Trustee will not be obliged to take any action or commence any proceedings to enforce the rights of the Note Holders under this document or the Terms unless it is of the reasonable opinion that it has been provided with sufficient funds to meet all the Trustee's likely costs and expenses in so doing or the Trustee is satisfied that adequate provision has been made for ensuring that the Trustee will be adequately reimbursed for such costs and expenses." 1. Clauses 15.11 and 15.12 dealt with the power of convertible note holders to give directions to the respondent, as trustee. Relevantly, they were in the following terms: "15.11 Powers of Meeting Without derogating from the powers conferred on the Trustee by this document (save to the extent to which any Extraordinary Resolution under this clause 15.11 directs the Trustee to take, or to refrain from taking, any action under those powers), a Meeting of the Note Holders will have the following powers exercisable by Extraordinary Resolution, namely, power to: (a) authorise the Trustee to take, or to refrain from taking, any action which may be taken by the Trustee under any express or implied power or authority howsoever conferred; … Provided that if, in the opinion of the Trustee, any such Extraordinary Resolution directly or indirectly especially prejudices or affects any class of Note Holders, that Extraordinary Resolution will not become effective in respect of that class of Note Holders unless it has been approved or confirmed by an Extraordinary Resolution of that class of Note Holders." "15.12 Passing of Resolutions A resolution of Note Holders will be duly passed as an Extraordinary Resolution or Ordinary Resolution (as the case may be) for the purpose of this clause 15 and any other provision of this document if it is approved in any of the following ways: (a) by a resolution in writing signed personally or by attorney, within 90 days from the date stated in the copies of the resolution sent for that purpose by the Company to Note Holders on the Register at that date, by Note Holders which on that date would have been entitled to cast not less than: (i) in the case of an Extraordinary Resolution – 75%; and (ii) in the case of an Ordinary Resolution – 50%, of the votes of all Note Holders at a Meeting held on that date, which resolution may be contained in one document or in several documents in like form each signed by one or more Note Holders; or (b) at a Meeting, by Note Holders which are entitled to cast not less than: (i) in the case of an Extraordinary Resolution – 75%; and (ii) in the case of an Ordinary Resolution – 50%, of the votes of all Note Holders present or represented and voting at the Meeting, and for the purpose of clause 15.12(b), the Note Holders as recorded in the Register 48 hours before the time appointed for the holding of the Meeting will be the only Note Holders entitled to vote and the Notes so recorded at such time will be the only Notes taken into account in determining whether the requisite majority has been obtained." The Security Trust Deed 1. The expressions Controller and Convertible Notes Trust Deed were defined in cl 1.1 of the Security Trust Deed as follows: "Controller has the meaning given to the word 'controller' in Section 9 of the Corporations Act, but as if 'charge' included any Security, and includes a Receiver. It also includes any officer of a similar nature in any relevant jurisdiction." "Convertible Notes Trust Deed means the Convertible Notes Trust Deed in respect of the Metal Storm Convertible Notes Trust between the Company and the Trustee dated 11 July 2006 as amended from time to time." 1. Clause 1.2 was in the following terms: "1.2 Definitions in the Convertible Notes Trust Deed or Terms In this document words and expressions which are defined or given a specific meaning in the Convertible Notes Trust Deed or the Terms but which are not defined or given a specific meaning in this document have the same meaning as in the Convertible Notes Trust Deed or the Terms." 1. Clause 1.8 limited the respondent's liability, as security trustee, in carrying out its functions under the trust. The limitation was subject to cl 1.8(d), which, relevantly to these proceedings was in the following terms: "1.8 (d) The provisions of this clause 1.8 do not affect a right to: … (iii) proceed against the Security Trustee following any fraud, negligence or breach of trust or wilful act, omission or default of the Security Trustee in relation to the Security Trust or any Security Document." 1. Clause 1.11 dealt with the relationship between the beneficiaries and the respondent, as the security trustee. It was in the following terms: "1.11 Rights of Beneficiaries (a) Each Beneficiary will have the benefit of the covenants, warranties, agreements and acknowledgements given by the Security Trustee under and in accordance with the terms of this document. (b) Each Beneficiary and any person claiming under that Beneficiary will be bound by the terms and conditions of this document." It should be noted that beneficiaries were defined in cl 1.1 to include secured note holders, such as the appellant. 1. Clauses 2.1 and 2.2 provided further limitations on the respondent's liability as security trustee: "2.1 Limitation on liability Subject to clause 2.2, the Security Trustee is not, and its directors, officers, employees, Authorised Representatives, agents or attorneys (including an Attorney) are not, liable to any party for: (a) any loss or damage occurring as a result of it exercising, failing to exercise or purporting to exercise any Power under this document or in relation to any Security Document; (b) subject to this document, the default, negligence or fault of any agent, delegate, officer or employee of the Security Trustee; (c) any mistake or omission made by it or its agent, delegate, officer or employee; (d) any other matter or thing done, or not done, in relation to the Security Document; (e) any absence of, or defect in title or for its inability to exercise any of its Powers under any Security Document; (f) any failure by the Company to perform its obligations under the Convertible Notes Trust Deed, the Terms or other Security Document; (g) the financial condition or solvency of the Company; (h) any statement, representation or warranty of the Company being incorrect or misleading in any respect; (i) acting in accordance with the instructions of the Beneficiaries in accordance with this document, or in the absence of instructions in accordance with clause 4.2, or for refraining from acting: (i) in accordance with the instructions of the Beneficiaries in accordance with this document; or (ii) where there are no instructions which are required by this document for the Security Trustee to act or refrain from acting; (j) the value, validity, effectiveness, genuineness, enforceability or sufficiency of any Security Document or the Secured Notes or any other certificate or document given under any of them; and (k) any recitals, statements, representations or warranties contained in any Security Documents, the Secured Notes or in any certificate or other document referred to in or provided for in, or received by it under, any Security Document." "2.2 Exceptions to limitations on liability Clause 2.1 will not apply to the extent that the Security Trustee or any of its employees, agents or officers has been guilty of fraud, negligence or breach of trust or wilful act, omission or default." 1. Clause 4 set out the security trustee's rights and responsibilities. Of particular relevance are cll 4.1, 4.2, 4.11 and 4.15(a): "4.1 Instructions Subject to this document, the Security Trustee must, and is only obliged to, act if and only if it receives clear instructions to do so (either in writing or by means of a resolution of Secured Note Holders passed at a meeting convened and conducted in accordance with clause 15 of the Convertible Notes Trust Deed) by the Secured Note Holders holding not less than 50% in nominal value of the Secured Notes as at the date of such instruction." "4.2 No need to act The Security Trustee is not obliged to act in the absence of instructions from the Beneficiaries in the manner contemplated by clause 4.1, but may so act in what it (in its sole discretion) considers to be the best interests of all the Beneficiaries." "4.11 Security Trustee need not act Despite any other provision of this document, the Security Trustee need not act (whether or not on instructions from one or more of the Beneficiaries) if: (a) it is impossible to act or to act lawfully due to any cause beyond its control (including but not limited to an act of God, war, terrorism, fire, riot, natural disaster, labour dispute or law taking effect after the date of this document); (b) unless its liability is limited in the manner set out in clause 2. No Beneficiary may take action or have recourse to the Security Trustee where the Security Trustee does not act on the Beneficiary's instructions as contemplated by this clause 4.11." "4.15 Protection of Security Trustee In addition to any protections under any law, statute or contained in this document the Security Trustee will not be liable (except to the extent that it is in breach of this document or has engaged in fraud, negligence or breach of trust or wilful act, omission or default) to any Beneficiary or otherwise be responsible for: (a) (Exercise of rights): any loss or damage occurring as a result of its exercising, failing to exercise or purporting to exercise any Power." 1. Clause 5 provided for the respondent, as security trustee, to be indemnified out of the Security Trust Fund in respect of liabilities incurred by it in the performance of its duties. The clause was in the following terms: "5.1 Indemnity out of Security Trust Subject to clause 5.2 the Security Trustee: (a) is and will be indemnified out of any money from time to time received or recovered by the Security Trustee under any Security Document in respect of all claims, actions, damages, losses, liabilities, costs, charges and expenses (including any money paid or to be paid for the employment or appointment of any agent and legal expenses incurred on a full indemnity basis) incurred by it in the exercise, protection or defence of any Powers or the undertaking of any of its obligations, duties or responsibilities or otherwise in relation to a Security Document or other Security Document, including under any indemnity or costs agreement with or in favour of any Receiver; and (b) may, from time to time, retain and pay out of any money recovered from the Security Documents an amount to satisfy such indemnity. 5.2 Exceptions to indemnity The indemnity in clause 5.1 does not apply to the extent that the Security Trustee has been guilty of fraud, negligence or breach of trust or wilful act, omission or default." 1. Clause 6.1 was the provision of the Security Trust Deed which imposed the obligation to appoint a controller. It was in the following terms: "6.1 Act on instructions (a) Except as expressly provided in the Security Documents, the Security Trustee must in relation to any Security Document, act only on, and exercise its Powers in accordance with, the instructions of the Beneficiaries as provided in clause 4.1. (b) If an administrator is appointed under Part 5.3A of the Corporations Act (or equivalent in any jurisdiction) to the Company and the Security Trustee has not received instructions under this clause 6.1 in time to enable it to appoint a Controller under the relevant Security Document within the 'decision period' (as defined in the Corporations Act) then despite any other provision of this document, the Security Trustee must appoint a Controller within that decision period. (c) The instructions of all Beneficiaries will be required to release a Security Document except: (i) where the Security Trustee is expressly permitted to provide such release without the need for any further consent or instructions from any of the Beneficiaries under the Convertible Notes Trust Deed; or (ii) upon an enforcement in accordance with this document or any other Security Document." 1. Clause 6.2 provided that unless the security trustee received appropriate instructions, it was not bound to exercise any power. It was in the following terms: "6.2 No obligation to enforce Unless it has received instructions from the applicable Beneficiaries in accordance with this document as to the exercise of any Power, the Security Trustee is not bound to exercise any Power or take any other action under any Security." Factual Background 1. The factual background relevant to the disposition of the appeal is relatively confined. As I indicated above, administrators were appointed to the company on 26 July 2012. The respondent did not appoint a controller during the decision period. 2. On 1 November 2012, a meeting of creditors was held to approve the DOCA. The resolution to approve the DOCA was moved by the respondent on the instructions of the appellant. The DOCA provided for a restructure of the company, including the conversion of the secured notes into ordinary shares, provision for the appellant to lend the company $1 million and for directors appointed by the appellant to have day-to-day management of the company. The DOCA, however, was subject to certain conditions precedent, which were not satisfied. 3. On 2 August 2013, the Deed Administrators set out a proposed variation of the DOCA. The proposal involved the sale of the company's assets to the appellant's United States subsidiary, LSOS LLC (LSOS). The consideration was stated to be $2.3 million. However, loan advances made by the appellant to the administrators were to be set off against the purchase price. The balance of the purchase price was to be satisfied by extinguishing amounts owed by the company to the appellant and associated entities under the secured notes, to the value of $1.5 million. The proposal also provided for the establishment of a Deed Fund into which the Deed Administrators would pay all cash on hand or in the bank, the remaining proceeds of the sale and a further amount of $50,000 to be paid by the appellant. The fund was to be distributed according to a specified order of priorities, $50,000 to secured note holders, thereafter, in payment of the administrators' remuneration and costs and thereafter, to priority creditors and other creditors. 4. On 7 August 2013, a direction was given to the respondent, on behalf of the appellant, to vote in favour of the variation to the DOCA at the second meeting of creditors. On 9 August 2013, the respondent's solicitors sent a letter in reply, indicating that their client (the respondent) did not accept that it was required to act upon individual instructions from the appellant. The letter identified reasons for not complying and required an indemnity, supported by a bank guarantee, and that the respondent be put in sufficient funds to meet the costs and expenses of compliance with the direction. 5. The solicitors for the respondent also notified the Deed Administrators that it was not possible for the respondent to discharge its security, as contemplated by the variation proposal, unless it was unanimously instructed to do so by the security note holders or there was an "enforcement" of the security within the meaning of that term in cl 6.1(c) of the Security Trust Deed. 6. By email dated 13 September 2013, the solicitors for the respondent advised the solicitors for the Deed Administrators and the solicitors for the appellant of concerns in respect of the variation proposal including that it: "gives preferential recoveries to one secured noteholder (ASOF) that are not extended to other secured noteholders; seeks to repay funding extended to the administrators (by ASOF) before repayment of secured noteholders (who have priority right of payment); sells the Metal Storm business to a subsidiary of ASOF against the background of the above circumstances; does not pay the Trustee's fees and expenses, which have first priority ahead of all other stakeholders, including secured note holders; and leaves Metal Storm, the entity, in an uncertain state, not having produced its statutory accounts for a long time." 1. In the same email, the respondent invited the appellant to instruct it to appoint receivers to the company on the basis that the appellant would provide the respondent a wide indemnity. The appointment of receivers would have established an "enforcement" for the purpose of cl 6.1(c) of the Security Trust Deed. 2. In late October or early November 2013, the appellant's solicitors sent the respondent's solicitors a revised DOCA proposal, amending the terms of the establishment of the Deed Fund. The proposal also provided that LSOS would, if requested by a secured note holder, issue shares in LSOS such that the note holder would hold a percentage interest in LSOS equivalent to the percentage of interest it held in the secured notes. 3. By letter dated 11 December 2013, the respondent's solicitors indicated to the appellant that the respondent had taken the position that, in the absence of a unanimous direction of all secured note holders instructing the respondent to discharge its security as part of a sale of the company's assets, that security could only be released and discharged pursuant to an "enforcement" within the meaning of cl 6.1(c) of the Security Trust Deed. The letter proposed that the secured note holders instruct the appellant to appoint receivers. In that context, the letter indicated that the respondent sought an indemnity from the appellant for both past costs and expenses incurred by the trust and liabilities to be incurred in connection with the appointment of a receiver. 4. On 13 December 2013, the appellant gave a further direction to the respondent (the December 2013 direction), relying on cll 4.1 and 6.1 of the Security Trust Deed, stating that it reflected an "extraordinary resolution of Note Holders (as defined in the Convertible Notes Trust Deed) … under cl 15.12(a) of the Convertible Notes Trust Deed" and that the appellant, as a note holder holding approximately 86% of the notes, resolved that: "ANZ Trustees Limited ... as the Trustee under the Convertible Notes Deed and the Security Trustee under the Metal Storm Security Trust Deed (Secured Notes) dated 21 July 2009 (Security Trust Deed): (a) be directed by the Note Holders or by The Australian Special Opportunity Fund on behalf of Note Holders (or otherwise be directed by the passing of this extraordinary resolution) to release and discharge the fixed and floating charge held by it over the assets and undertaking of the Company, in the event the Deed Administrator ... is able to sell the Company's assets to a purchaser on terms reasonably acceptable to The Australian Special Opportunity Fund; and (b) be expressly permitted to provide this release and discharge (as referred to in paragraph (a) above) under clause 6.1(c) of the Security Trust Deed without the need for any further consent or instructions from any of the beneficiaries under the Convertible Notes Trust Deed." 1. The direction was not complied with. The reasoning of the primary judge 1. In the Trial Judgment, the primary judge concluded that the respondent was not required to comply with the December 2013 direction. 2. In reaching this conclusion, the primary judge considered whether the requirements of cl 2 and cl 4.11(b) of the Security Trust Deed were satisfied in respect of the December 2013 direction, so as to require the respondent to act on it. He concluded that cl 4.11(b) could not be read as merely requiring for there to be a limitation on the liability of the Security Trustee, i.e. the respondent, in the terms of cl 2, as such a reading would render cl 4.11(b) superfluous. He also rejected an alternative construction that cl 4.11(b) was designed to prevent a liability inconsistent with cl 2 being imposed on the respondent. 3. In these circumstances, the primary judge concluded that the proper construction of cl 4.11(b) of the Security Trust Deed was that it required the limitation contained in cl 2 to have legal effect in the relevant circumstances. He pointed to the fact that cl 2 limited the liability of the security trustee to any "party". He concluded that the word "party" in cl 2.1 extended beyond the named parties in the Security Trust Deed to secured note holders. He also concluded that the clause would potentially have the effect of limiting the respondent's liability in respect of the subject matter of the direction. In regard to the respondent's failure to appoint a controller, the primary judge stated that as the limitation in cl 2 would have effect in respect of the December 2013 direction, cl 4.11(b) did not operate to absolve the respondent from complying with it. 4. The primary judge then turned to cl 6.1 of the Security Trust Deed. He concluded that, to the extent that there was inconsistency between cl 4.1 (the obligation to comply with directions given as a result of a resolution of a majority of note holders) and cl 6.1(c), the provisions of cl 6.1(c) would prevail as cl 4.1 applied "Subject to this document", which included cl 6.1(c). In these circumstances, his Honour concluded that as the December 2013 direction required the release of the security held by the respondent, cl 6.1(c) applied. 5. His Honour then considered whether cl 6.1(c)(i) of the Security Trust Deed applied such that the consent of all beneficiaries was not required to release the security. He pointed to the fact that there was no express provision in the Convertible Notes Trust Deed empowering holders of convertible notes to give their consent for the purpose of cl 6.1(c) of the Security Trust Deed. However, he rejected the respondent's contention that it followed that cl 6.1(c)(i) had no application, as that construction would result in the clause having no operative effect. He stated, on the balance, that on its proper construction, cl 6.1(c)(i) was "directed to an express permission given by secured note holders in the manner which such permission can be given under … cl 15 of the Convertible Notes Trust Deed": Trial Judgment at [44]. His Honour concluded, referring to cl 4.1 of the Security Trust Deed, that the relevant note holders who were required to pass the resolution were the secured note holders. 6. In these circumstances, his Honour stated that, subject to the proviso in cl 15.11, the exception in cl 6.1(c)(i) was capable of being satisfied by a written direction from the appellant in accordance with cl 15.12(a) of the Convertible Notes Trust Deed. However, he concluded that the proviso was capable of applying to such a written resolution "both because cl 15.12 expressly provides that such a written resolution takes effect under cl 15 and because the parties to the Convertible Notes Trust Deed could not have intended that the majority note holders could avoid that proviso by the simple expedient of giving a direction in writing rather than passing a resolution in a meeting of note holders": Trial Judgment at [47]. 7. His Honour rejected the submission that the word "class" in the proviso had the meaning given to it in jurisprudence relating to schemes of arrangement. Rather, he stated that it referred to a group of note holders with a common characteristic, namely, exposure to the relevant prejudice and effect. He accepted that the respondent held the opinion necessary to enliven the proviso and, as a consequence, was not obliged to act on the direction. 8. The primary judge also held that the exception in cl 6.1(c)(ii) had no application as the release was not consequent upon an "enforcement" within the meaning of that term in the subclause. 9. In these circumstances, the primary judge concluded that the respondent was not required to comply with the December 2013 direction. 10. However, the primary judge did conclude that cl 6.1(b) of the Security Trust Deed required the respondent to appoint a controller during the decision period and that the failure to do so constituted a breach of trust. 11. The primary judge rejected the submissions by the respondent that its obligation to appoint a controller was qualified by cll 2.1 and 4.11 of the Security Trust Deed and that it was not required to appoint a receiver during the decision period because its liability in connection with doing so would not have been limited, as contemplated by those clauses. He also rejected the submission that the expression "any party" in cl 2.1 would extend to include a receiver, such that the clause limited liability to a receiver. 12. In these circumstances, the primary judge accepted the submission that cll 4.11 and 6.1(b) of the Security Trust Deed conflicted with each other, when read in isolation, because each expressly applied "despite any other provision of this document". He noted that cl 4.11 provided that the respondent need not act unless its liability was limited in the manner specified, whilst cl 6.1(b) provided that it must act in the relevant circumstances. 13. His Honour accepted the respondent's submission that it would not make commercial sense for it to be obliged to act in circumstances that may expose it to significant liability, such as the appointment of receivers, where it was uncertain that it would be indemnified against such liabilities. His Honour stated that "such a construction would amount to [the respondent] being required to risk funding such actions from its own resources, without any certainty of recovering that funding": Trial Judgment at [135]. His Honour dealt with the submission in the following terms: "[136] This submission has substantial force and the issue is one of great difficulty. However, I have concluded, with real hesitation, that I cannot accept this submission, because it would substantially deprive cl 6.1(b) of the Security Trust Deed of practical operation in the situation to which the clause is specifically directed. It is likely that, where secured note holders have not provided instructions to ANZ Trustees and that clause would apply, they will also not have indemnified it in respect of the appointment of a controller. The position that ANZ Trustees advances therefore has the consequence that, in the very situation where the clause contemplates the appointment of a controller, that controller would not be appointed. On balance, it seems to me that this clause must prevail in the specific situation in which it applies over the general provision in cl 4.11 of the Security Trust Deed and that ANZ Trustees is obliged to appoint a controller where it has not received an indemnity from the secured note holders in that situation. That course would not always involve commercial risk for ANZ Trustees, because ANZ Trustees' rights to indemnity and a lien against a company's assets might well be sufficient to meet any liability in respect of an indemnity which it is required to provide to the controller that it appoints. Where cl 6.1(b) of the Security Trust Deed takes its present form, it seems to me that ANZ Trustees has assumed the commercial risk that sufficient assets are not available to support such an indemnity, which could readily have been avoided had cl 6.1(b) been expressly qualified to address that risk." 1. The primary judge also rejected the proposition that cll 7.6 and 7.8 of the Convertible Notes Trust Deed could be implied into the Security Trust Deed such that the respondent would not be obliged to appoint a controller unless it was of the opinion that it had been provided with sufficient funds to meet its obligations. This conclusion was not challenged on appeal, so it is unnecessary to deal with it further. 2. The primary judge also rejected the submission that the appellant waived any entitlement to complain about such a breach by knowingly pursuing inconsistent causes of action, because it did not have a choice of doing so. The primary judge also rejected the respondent's reliance on the defences of laches and acquiescence on the basis that the appellant did not know the material facts relating to the breach, as the respondent had denied receiving notice of the appointment until shortly before the hearing. The latter conclusion was not challenged on the hearing of this appeal. 3. In dealing with the question of limitation of liability, the primary judge noted that the appellant did not suggest that there was moral turpitude in the respondent's failure to comply with its obligations under cl 6.1(b), but rather, it submitted that the respondent took no steps to appoint a controller. 4. The primary judge rejected the contention that cl 7.4 of the Convertible Notes Trust Deed or cl 1.8 of the Security Trust Deed operated to limit the respondent's liability for the breach. However, he found that cl 2.1 of the Security Trust Deed operated to absolve the respondent from any such liability. In that context, he concluded that the limitations in cl 2.2 did not apply in the circumstances of the present case. 5. In dealing with cl 2.2, the primary judge noted that neither party made any submission on the question of onus. He rejected the proposition that what had occurred was self-evidently negligent, stating that the complexity of the clause was such that a party exercising reasonable care might have misunderstood the clause and failed to comply with it, although he noted that there was no evidence that this had occurred. He concluded that in those circumstances, negligence was not demonstrated and, as a consequence, cl 2.2 did not operate to prevent the security trustee from being exempt from liability by virtue of cl 2.1. It should be noted that in this paragraph of the judgment the primary judge did not specify the complexities to which he referred. Presumably, he was referring to what he said in par [136] of the Trial Judgment (see par [46] above). 6. So far as causation was concerned, the primary judge noted that it was common ground between the parties that the appellant needed to demonstrate causation and the existence of loss to warrant another hearing as to quantification. 7. The primary judge accepted the appellant's submission that, had a controller been appointed, an "enforcement" would have taken place and it would have been open to the appellant to direct a return of the security under cl 6.1(c) of the Security Trust Deed. However, he stated that this did not establish loss, which depended "upon a comparison of the hypothetical position where a controller had been appointed and the actual position where a controller was not appointed and where [the appellant] sought to achieve its commercial objectives in the administration and through successive versions of a deed of company arrangement": Trial Judgment at [162]. 8. The primary judge concluded that the appellant had not established loss and damage. His conclusion was in the following terms: "[164] It seems to me that the fundamental difficulty with ASOF's claim in this regard is that it made no substantive attempt to establish that it would have been in a better position had ANZ Trustees complied with cl 6.1(b) of the Security Trust Deed by appointing a controller in August 2012, than the position in which it is now in. As ANZ Trustees points out, Mr Easton's affidavit evidence does not suggest that ASOF would in fact have acted differently, in any respect, had a controller been appointed as it contends should have occurred and, so far as the evidence goes, it appears that ASOF was committed to the pursuit of a restructuring utilising a deed of company arrangement throughout the relevant period, which delivered the advantages of a moratorium in respect of claims of creditors and also allowed Metal Storm to receive a substantial research and development rebate which would otherwise not have been available to it. As ANZ Trustees also points out, ASOF had nominated the directors that sit on the Metal Storm board pursuant to the Initial DOCA and has had, since 22 November 2012, full management and operational control of Metal Storm to pursue business opportunities, and also had the benefit of the recovery of amounts from the $562,375 research and development tax refund amount received by Metal Storm on 28 December 2012 and a further $30,000 in GST refunds (CB 6/1326). It seems to me that this is not merely a matter of quantification of loss and involves a more fundamental failure by ASOF to establish that the suggested breaches have in fact been causative of any loss. For these reasons, ASOF's Cross-Claim should therefore be dismissed." The appeal A The failure to appoint a controller 1. During the hearing, the parties focussed principally on the failure to appoint a controller during the decision period. This essentially involved the following issues. First, whether the primary judge was correct in concluding that cl 6.1(b) of the Security Trust Deed imposed an unqualified obligation on the respondent to appoint a controller in the decision period such that a failure to do so constituted a breach of trust. The appellant submitted that this conclusion was correct while the respondent, by notice of contention, contested this finding. Second, whether, if there was a breach of trust, the appellant had waived the breach. Once again, the appellant contended that the primary judge was correct in finding that there was no waiver, while the respondent contended that he erred in making this finding. 2. The third issue, on which the respondent succeeded at trial, was whether it was exempt from liability, by virtue of cl 2.1 of the Security Trust Deed, or whether the exceptions to those limitations, contained in cl 2.2, applied. 3. The fourth issue, on which the respondent also succeeded at trial, was whether the appellant had demonstrated, to a sufficient degree, that the breach had caused loss and damage such as to warrant a quantification hearing. 4. It is convenient to deal with the issues in that order. (i) Did the failure to appoint a controller constitute a breach of trust The parties' submissions 1. The respondent repeated the submission it had made at trial to the effect that it did not make commercial sense for the trustee to be obliged to appoint a receiver in circumstances where it might be exposed to significant liability without any certainty of recovery of the liability incurred. 2. The respondent submitted that the primary judge erred in not reading cll 2, 4.11 and 6.1(b) of the Security Trust Deed together in a way that gave primacy to cll 2 and 4.11. It submitted that the respondent was only required to act in certain circumstances and its liability was strictly limited by cll 1.8, 2.1 and 2.2 of the Security Trust Deed. It described cl 4.11 as "an important aspect of the protection of the Trustee from exposure to personal liability". It pointed out that that clause relieved the trustee from having to act "whether or not on instructions from one or more of the beneficiaries" unless its liability was limited in the manner set out in cl 2. It submitted that these words applied in circumstances where the trustee was required to act despite the absence of instructions, such as the position envisaged by cl 6.1(b). The respondent submitted that this was consistent with what it described as the fundamental principle of trust law, namely, that the trustee "can call for exoneration (to be put into funds) before it incurs liability, in order to preserve the trustee's solvency". 3. Senior counsel for the appellant emphasised that it did not appear to be in dispute that there was an entitlement to an indemnity in circumstances where instructions to appoint a controller were given under cl 4.1. He submitted that there was no reason why the position would be different if there was an appointment under cl 6.1(b). He submitted that the only matter which distinguished cl 6.1(b) was that it applied during the decision period. He submitted that the very circumstance in which the trustee would need protection was when the company was under administration. 4. The appellant submitted that the interpretation given to cl 6.1(b) by the primary judge was consistent with its plain meaning, which should be given effect to in a professionally drafted document. It submitted that the words "despite any other provision of this document" indicated that the parties did not intend for the clause to be affected by cl 4.11, notwithstanding that cl 4.11 contained the same formula. The appellant also contended that the respondent had the benefit of the indemnities in cl 2.2 and thus, there was no tension between cl 6.1(b) and cl 4.11. 5. The appellant submitted that the primary judge was correct in perceiving that the reliance by the respondent on the lack of commercial sense had less force than contended for. It pointed out that risk to the trustee would only arise if the assets of the trust were inadequate to satisfy the separate indemnity under cl 5 of the Security Trust Deed. It submitted that a clause was not uncommercial merely because it required a party to take some risk. 6. The appellant also submitted that there was "no special rule that trustees are always entitled to an implied indemnity beyond that contained in a trust deed". It submitted that the case relied on by the respondent, McIntosh v Dalwood (No 4) (1930) 30 SR (NSW) 415, was only authority for the proposition that where parties have specified for an indemnity, it may be enforced by an application for specific performance. 7. Senior counsel for the appellant pointed to the fact that cl 6.1(b) may well be triggered in circumstances where a trustee has not received instructions in time to enable a controller to be appointed. In these circumstances, it was submitted that the note holders may not be aware of the appointment of the voluntary administrator. He submitted that against that background, there was no reason to assume that the requirement to make an appointment would be on the same terms as if the appointment had been made on the instructions of the beneficiary. He submitted that the respondent's construction would deny operation to the clause. 8. The appellant also submitted that the primary judge was correct in giving primacy to the specific provision in cl 6.1(b) over the general provisions in cl 4.11. Consideration 1. It is well established that the rules for construction of contracts also apply to trust instruments: Byrnes v Kendle [2011] HCA 26; 243 CLR 253 at [102]; Segelov v Ernst & Young Services Pty Ltd [2015] NSWCA 156 at [83]. 2. As was pointed out by Heydon and Crennan JJ in Byrnes v Kendle at [143], quoting Mason and Deane JJ in Gosper v Sawyer [1985] HCA 19; 160 CLR 548 at 568-569, a reason for this is that "The contractual relationship provides one of the most common bases for the establishment or implication and for the definition of a trust". That is clearly the situation in the present case where the Security Trust Deed operates not only as a deed of trust but, by virtue of cl 1.11, as a contract between each beneficiary (defined to include secured note holders) and the security trustee. 3. It follows that in construing the Security Trust Deed, the meaning of its terms is to be determined by what a reasonable business person would have taken them to mean. This requires consideration of the language used by the parties, the surrounding circumstances and the purposes or objects to be secured under the contract: Electricity General Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at [35]; see also Mainteck Services Pty Ltd v Stern Heurtey SA [2014] NSWCA 184 at [74]-[86]. 4. The question of whether the respondent, as security trustee, was obliged to appoint a controller during the decision period depends upon the interrelationship of cll 2, 4.11, 6.1 and 6.2. Each of these clauses individually and collectively presents some difficulties of construction. 5. Clause 2.1 contains an exclusion of liability to "any party". I agree with the primary judge that this extends to liability to secured note holders. This is for two reasons. First, it gives content to the words "any party". Second, it is consistent with the provisions of cl 1.11(b), which provides that each beneficiary (secured note holder) is bound by the terms and conditions of the Security Trust Deed. 6. Clause 4.11(b) provides that the security trustee need not act, whether or not on an instruction from one or more of the beneficiaries, unless its liability is limited in the manner set out in cl 2. The clause, in my opinion, is directed to liability other than the liability to "any party" referred to in cl 2.1. If that was not the case, the clause would be otiose. In these circumstances, I agree with the primary judge that, to the extent cl 4.11(b) applies, it entitles the security trustee to protection against liability arising out of the appointment of a receiver, subject to the exception in cl 2.2. However, the provision is silent as to the manner in which such liability is to be limited. The parties have proceeded on the basis that in the circumstances of the present case, the clause would be satisfied by the grant by the appellant to the respondent of an indemnity from said liability. 7. Clause 6.1(a) provides that, except as expressly provided in the security documents, the security trustee must act only on the instructions of the beneficiaries in the exercise of its powers under any security document. As a corollary, cl 6.2 provides that unless the security trustee has received the appropriate instructions, it is not bound to exercise any power. 8. Clause 6.1(b) provides an exception to cl 6.1(a) in that it obliges the security trustee to act without instructions from the beneficiaries in the situation envisaged by the clause. The central issue is whether the security trustee is required to do so without its liability being limited in the manner contemplated by cl 4.11(b). 9. On the face of it, there is inconsistency between cl 6.1(b) and cl 4.11 because each clause expressly states that it applies notwithstanding anything to the contrary contained in the Security Trust Deed. In dealing with inconsistent clauses, the plurality in Re Media, Entertainment and Arts Alliance; Ex parte The Hoyts Corporation Pty Limited [1993] HCA 40; 178 CLR 379 at 386 stated that such a conflict "is to be resolved, if at all possible, on the basis that one provision qualifies the other and, hence, that both have meaning and effect". 10. In the present case, it seems to me that the two provisions are capable of reconciliation. Clause 4.11 applies in circumstances where the security trustee is required to act in accordance with the directions of a beneficiary, something which is dealt with in cll 4.1, 6.1(a) and 6.2. That cl 4.11 applies in these circumstances is demonstrated by the fact that the clause applies whether or not instructions are given by one or more of the beneficiaries. 11. By contrast, cl 6.1(b) deals with circumstances where an instruction from a beneficiary is not a precondition to the exercise of powers by the security trustee. The subsection imposes an unqualified obligation upon the security trustee to appoint a controller during the "decision period". It is not limited by the provisions of cl 4.11. 12. I appreciate the force of the argument that generally, a trustee may not be prepared to appoint a receiver without an appropriate indemnity. However, I do not consider this to be decisive for three reasons. First, cl 6.1(b), unlike cl 4.11, does not contain such a qualification. Second, cl 6.1(b) operates in circumstances where prompt action is required. It may not be practical to inform the note holder of the appointment of an administrator, much less to negotiate the terms of the indemnity. Third, the security trustee still has a right of indemnity out of the trust fund. That right, which exists in general law, is confirmed by cl 5 of the Security Trust Deed. Further, cl 8.1 of the Security Trust Deed provides that the security trustee has priority in the application of funds received as a result of the appointment of a controller, including priority over any monies due to the controller. 13. In these circumstances, the primary judge was correct in concluding that cl 6.1(b) obliged the respondent, as security trustee, to appoint a controller during the decision period. (ii) Did the appellant waive the breach The parties' submissions 1. The respondent contended that the primary judge erred in concluding that there was no waiver of the respondent's breach because the appellant never had a choice of electing between inconsistent courses of action. It submitted that the conclusion of the primary judge failed to take into account the fact that the appellant had the power to direct the security trustee to appoint a controller under cll 4.1(a) and 6.1(a) of the Security Trust Deed. It referred, in particular, to evidence that the appellant had been requested to give a direction to the respondent to appoint a receiver, but declined to do so. 2. In making the latter submission, the respondent referred to what it described as threats made by the respondent to appoint a receiver to obtain support for the DOCA. It referred, in that context, to a report from the administrators dated 22 August 2012, which stated that if the creditors accepted an alternative proposal to that proposed by the appellant, the appellant would direct the Security Trustee to appoint a receiver. In cross-examination, the administrator, Mr Adam Shepard, said that he had been told that this was the position taken by Mr Easton, an officer of the appellant. 3. The respondent also referred to an email from its solicitors to the solicitor for the appellant, dated 13 September 2013, dealing with a proposed variation of the DOCA and suggesting that a solution may be that an instruction be given to the respondent to appoint a receiver, who could then sell to the highest bidder. This, however, involved the respondent receiving what was described in the email as an "appropriate indemnity". However, it was submitted that the refusal of the appellant to accede to that course could not be explained by any concern as to the provision of an indemnity, as the appellant had declined a suggestion by the administrators to request that the respondent appoint a receiver without offering an indemnity. The evidence relied on to support this submission was first, the chain of emails in September 2013 between the administrators, their solicitor and Mr Easton, containing various options to compel the respondent to release the security and second, a further chain in December 2013 discussing an application to the court. In an email of 10 December 2013, the solicitor for the administrators suggested adding to a draft document, which was in the form of the December 2013 direction, words to the effect that, if a court determined that the respondent was not entitled to release the security pursuant to the direction, the appellant directed the respondent to appoint a receiver. 4. The respondent submitted that the trial judge rejected its submission at trial that what occurred constituted a waiver in the sense explained by Gummow, Hayne and Kiefel JJ in Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; 238 CLR 570 (Agricultural & Rural Finance) at [56], [68] and [88]. The first of these passages of the judgment of the plurality referred to waiver in the sense of election between inconsistent rights. The second paragraph noted a submission by the respondent in those proceedings that waiver could arise from forbearance in the exercise of a contractual right. The third paragraph also referred to a submission by the respondent in those proceedings that waiver could arise by what was described as "abandonment" or "renunciation". 5. The appellant submitted that the steps said by the respondent to constitute a waiver took place after the opportunity to have the respondent perform its duty had been lost. It said that what happened thereafter was mitigation, as distinct from an election. 6. The appellant also submitted that there was "no doctrine of waiver as contended for by the Respondent". It noted that the second and third paragraphs of the judgment of the plurality in Agricultural & Rural Finance, cited by the respondent, recorded submissions made by the unsuccessful respondent in those proceedings. It submitted that there were defined doctrines of election between inconsistent rights and estoppel, "but no separate doctrine of waiver is known to equity". Consideration 1. In Agricultural & Rural Finance at [56], Gummow, Hayne and Kiefel JJ noted that cases in the High Court had described "an intentional act, done with knowledge, whereby a person abandons a right by acting in a manner inconsistent with that right" as a "waiver" of that right. They pointed out that many such cases concerned an election between inconsistent rights: at [56]. 2. In the present case, the primary judge was correct in concluding that no waiver in that sense had occurred. It does not seem to me that the conduct of the appellant during the decision period, to which I have referred in par [149] below, particularly, the facilitation of the appointment of Mr Shepard as administrator and discussions concerning a DOCA, amounted to such a waiver. As to the first matter, the appointment of an administrator was a necessary precondition to the exercise by the security trustee of its power under cl 6.2(b) and facilitating the appointment of a particular person as administrator was not inconsistent with the right to have a controller appointed. As to the second matter, discussions concerning a DOCA during the decision period could not, of itself, constitute a waiver. At the most, this may have been foreshadowing an election: Agricultural & Rural Finance at [59]. These actions do not constitute a waiver by election between inconsistent rights or by acting inconsistently with the right to have a controller appointed. 3. In its submissions on this point, the respondent did not seek to rely on what occurred during the decision period (although it did so in its submissions on causation and damage), rather, it relied on conduct which occurred subsequent to its expiration. Following the expiration of the decision period, there was no opportunity to elect between having a controller appointed pursuant to cl 6.1(b) and some other right, as the obligation on the respondent to appoint a controller was limited to the decision period. 4. There remains the question as to whether the appellant otherwise waived the breach. There are two difficulties with this proposition. First, the steps taken by the appellant were not inconsistent with seeking to recover losses flowing from the breach, although issues of causation will arise in considering whether any of the expenditure incurred was caused by the breach. Second, waiver will only occur if the party waiving had knowledge of all material facts: Sargent v ASL Developments Ltd [1974] HCA 40; 131 CLR 634 at 642, 645-656. The primary judge rejected the defences of laches and acquiescence on the basis that the appellant did not know the material facts of the breach (see par [48] above). This finding is also fatal to the claim that the breach has been waived. For the same reason, there could not be said to be any abandonment or renunciation of the right to sue for the breach. 5. In these circumstances, the primary judge was correct in concluding that the appellant had not waived its right to have a controller appointed under cl 6.1(b) or its right to sue for breach if it could be established that the failure to appoint a controller was in breach of trust and caused it loss and damage. (iii) Did cl 2.1 of the Security Trust Deed exempt the respondent from liability The parties' submissions 1. The primary judge stated that he did not determine the question on the basis of which party bore the onus of proving whether the exceptions to the limitations of liability in cl 2.1, contained in cl 2.2 of the Security Trust Deed, applied. However, there was a debate between the parties as to whether the onus was on the respondent to establish the exception or whether the onus was on the appellant to demonstrate that the exception applied such that the limitations on liability in cl 2.1 did not apply. 2. The appellant contended that the primary judge ought to have held that the respondent had the onus of establishing the limitation on liability contained in cl 2.1. It submitted that cl 2 should be read as a whole and as a defence to the liability which would otherwise be imposed. It submitted that the whole of cl 2 of the Security Trust Deed operated to confer this defence if certain facts were demonstrated and the person asserting the defence must demonstrate these facts, including the fact that the breach did not bear the characteristics set out in cl 2.2. 3. In that context, the appellant relied on the dictum of Walsh JA (as his Honour then was) in Currie v Dempsey [1967] 2 NSWR 532 at 539: "… The proposition was that the expression 'the burden of proof', as applied to judicial proceedings, 'has two distinct and frequently confused meanings: (1) the burden of proof as a matter of law and pleading – the burden, as it has been called, of establishing a case, whether by preponderance of evidence, or beyond a reasonable doubt; and (2) the burden of proof in the sense of introducing evidence'. The author went on to say, and this also was approved in the case last cited, that the burden of proof in the first sense is always stable, but the burden of proof in the second sense may shift constantly. In my opinion, the burden of proof in the first sense lies on a plaintiff, if the fact alleged (whether affirmative or negative in form) is an essential element in his cause of action, e.g. if its existence is a condition precedent to his right to maintain the action. The onus is on the defendant, if the allegation is not a denial of an essential ingredient in the cause of action, but is one which, if established, will constitute a good defence, that is, an 'avoidance' of the claim which, prima facie, the plaintiff has." 1. The appellant also sought to draw upon the analogy with the law of bailment, the bailor only being required to prove that the goods were lost, it being up to the bailee to establish the absence of fault. The appellant submitted that a contrary construction would sit uncomfortably with the principle that such exemption clauses are construed against the trustee. 2. The appellant accepted that in Armitage v Nurse [1998] Ch 241, where a fraud exception to a limitation of liability clause was relied upon, the English Court of Appeal approached the issue on the basis that the task of pleading fraud fell on the plaintiff. However, it submitted that the approach of the Court in relation to pleading fraud was different to the approach in relation to negligence. 3. The appellant pointed to the fact that the primary judge recorded that the appellant led no evidence of the reason why the respondent failed to appoint a controller. It pointed out that despite indicating that the onus was not decisive, his Honour rejected the appellant's claim on the basis that it had not demonstrated that the failure to appoint a controller was either negligent or a deliberate breach of trust. It submitted that that was "simple reasoning from a failure to discharge an onus" and was erroneous. 4. Senior counsel for the appellant submitted that the matter should be determined as one of substance rather than of pure drafting. He submitted that the substance was that cll 2.1 and 2.2 should be read together. He pointed to the fact that cl 2.1 effectively covered any activity of the security trustee and submitted that if the onus fell on the appellant, cl 2.2 would be meaningless, as the security trustee would not have to show anything at all to establish an exemption from liability. 5. The respondent submitted that the onus to establish the exception in cl 2.2 of the Security Trust Deed fell on the appellant. It submitted that the decision in Armitage v Nurse was consistent with this submission and a similar approach had been taken in subsequent cases, citing Walker v Stones [2001] QB 902 and Fattel v Walbrook Trustees (Jersey) Ltd [2010] EWHC 2767. 6. The respondent submitted that this approach was consistent with the dictum of Walsh JA, to which I have referred above in par [93]. 7. Senior counsel for the respondent submitted that, as a matter of construction, the clause could not operate differently for negligent, as opposed to fraudulent, breaches of trust. He submitted that, in these circumstances, the reasoning in Armitage v Nurse was apposite in the present case. 8. Irrespective of the question of onus, senior counsel for the appellant submitted that it had established that the respondent had acted negligently in failing to appoint a controller. In making that submission, senior counsel referred to the following evidence. 9. On 27 July 2012, an email attaching a letter from the administrators advising of their appointment was forwarded to an email address, PPSR_spg_migrated@anz.com. The letter attached to the email was addressed to the appellant, with a copy to the ANZ Banking Group Ltd Liquidation Department. 10. Later on that day, the letter was forwarded by a person named Diana to a Mr Chris Frangopoulos. The email identified the fact that the forwarding address of the first email belonged to the respondent. 11. On 31 July 2012, the email was forwarded by Diana to a Mr Peter Woods, described in the email as "Project Manager, Business Enablement, Australia Operations". On 1 August 2012, Mr Woods forwarded the email to a Ms Claire Hausler. The email stated, "We have received advice that an Administrator has been appointed to one customer of ANZ Trustees Limited". 12. On the same day, Ms Hausler sent an email to a Ms Kathryn Jackson, with a copy to a Ms Mercia Chapman. The email was in the following terms: "Hi Kathryn, I have let Peter know that you're the contact for this one. Obviously you will need a hand from Mercia, hence I've cc'd her into this email. Thanks, Claire" 1. On the same day, Mr Mark Latham, the Head of Account Management & Business Services for the appellant, emailed Ms Jackson, with a copy to Ms Chapman, in the following terms: "Kathryn, With Metal Storm having administrators appointed please verify our position and confirm any action that is required on our behalf as Trustee. I want to make sure we have no exposures here, and that we do whatever is required in terms of managing the unit holders. Thanks Mark Latham" 1. Immediately upon receipt of that email, Ms Chapman emailed Mr Latham and Ms Jackson stating that she (Ms Chapman) "should review the deed to see what obligations we have". Ms Chapman is described in the email as "Senior Legal Counsel ANZ Trustees Limited". Later on that day, Ms Jackson sent the following email to Ms Chapman and Mr Latham: Thanks Mercia, Mark, this is the first factual information I've received. When I raised this with you earlier it was in response to a phone call I received. However I confirmed with Brett Farmer that an administrator at that stage had not been appointed to Metal Storm Limited. Recent events were disclosed to the ASX on 20 July 2012 and enquiries were made at this time for potential administrators in the event the board decided that such an appointment was necessary. As we can now confirm that things have changed I can assist Mercia with what is required after the legal review. I'm in the office tomorrow so we can catch-up. Regards Kathryn Jackson" 1. Senior counsel for the appellant submitted that this chain of emails demonstrated that Ms Jackson, the Account Manager, and Ms Chapman, the Senior Legal Counsel, were fully seized of the task of reviewing the Security Trust Deed. 2. Senior counsel for the appellant pointed to the fact that there was no further documentary evidence until 16 August 2012, the day following the expiration of the decision period. 3. On that day, Mr Latham wrote an email to the administrators, with a copy to Ms Jackson, in the following terms: "ATTN: Adam Shepard/Adam Farnsworth I am writing in relation to the recent ASX notification regarding Metal Storm and the appointment of your company as administrator (refer attached). ANZ Trustees is the trustee for the noteholders of Metal Storm and as such we are seeking your advice regarding the current position of the company and any planned action to be undertaken on your part. As the trustee we have an obligation to the noteholders and need to ensure all are aware of the current situation with the company. It would be appreciated if you could advise what actions have occurred since the appointment of the Administrator so we can determine if a meeting of the noteholders needs to be called. I look forward to your early reply on this matter. Regards Mark Latham" 1. In response, on 17 August 2012, the administrators forwarded to Mr Latham a copy of their letter of 27 July 2012, together with a letter of 10 August 2012. By email of 19 August 2012, Mr Latham said that the correspondence sent to the Bank's head office at Docklands did not appear to have made its way to the respondent. 2. In an affidavit filed on behalf of the respondent on 6 February 2014, Mr Michael Budnow, who described himself as a Senior Manager of the respondent deposed that, to the best of his knowledge, the respondent never received the letter of 27 July. The affidavit was witnessed by Ms Chapman. 3. In a subsequent affidavit of 14 May 2014, also witnessed by Ms Chapman, Mr Budnow deposed that it had come to his attention that the respondent had received the 27 July letter. He annexed to the affidavit the emails to which I have referred above. He stated that Ms Jackson had responsibility for the matter and that she was on sick leave on 6 August 2012. He stated that Ms Jackson commenced long-term sick leave in August 2013 and left the respondent's employment in April 2014. 4. Neither Mr Latham nor Ms Chapman were called to give evidence. 5. Senior counsel for the appellant submitted, putting what he described as a "benign view" on the events which had occurred, that Mr Latham simply forgot about the matter. He submitted that this pointed strongly against the proposition that in the decision period, the respondent had been considering the difficult issues to which the primary judge referred (see par [46] above). He submitted that in these circumstances, the conclusion which should be reached was that the respondent "simply let the matter slip". 6. Senior counsel for the appellant pointed to the failure to call Mr Latham or Ms Chapman. He submitted, taking the "benign view" of Mr Latham's conduct, that he would not have forgotten about the matter had he been wrestling with the difficult issues referred to by the primary judge. He also said that there was no evidence that the respondent sought an indemnity in respect of the appointment of a receiver, something which would have been expected if it had had concerns in relation to this issue. 7. The respondent submitted that it could not be concluded that its failure to appreciate that it had an unqualified obligation to appoint a controller was in itself negligent, pointing to the complexities identified by the primary judge. It submitted that no submissions were made as to what should have been apparent to the respondent. 8. Senior counsel for the respondent accepted that no explanation was given for the failure to appoint a controller, but submitted that the inference that the respondent was negligent in doing so was not the only inference available. He submitted that the principle in Jones v Dunkel [1959] HCA 8; 101 CLR 298 did not assist the appellant because the only inference which could be drawn from the failure to call Mr Latham and Ms Chapman was that their evidence would not have assisted the respondent's case, not that they would have given evidence adverse to the respondent. Consideration 1. In dealing with what was described as the question of onus, the reasoning of Walsh JA, to which I have referred in par [93] above, does not seem to me to be of particular assistance. The question is whether it is an essential element of the cause of action that the trustee acted negligently (which Walsh JA described as "the burden of proof in the first sense") or whether, once the failure to appoint a controller was established, the onus fell on the respondent to establish that it was not negligent. 2. In Vines v Djordjevitch [1955] HCA 19; 91 CLR 512, the High Court considered s 47(1) of the Motor Car Act 1951 (Vic), which gave rights to claim damages from the Nominal Defendant in respect of an accident caused by an unidentified motor vehicle. The proviso to the provision stated that judgment could not be obtained against the Nominal Defendant unless notice of intention to make a claim was given to the Minister as soon as possible after the plaintiff knew that the identity of the vehicle could not be established. The Court made the following comments at 519: "When an enactment is stating the grounds of some liability that it is imposing or the conditions giving rise to some right that it is creating, it is possible that in defining the elements forming the title to the right or the basis of the liability the provision may rely upon qualifications exceptions or provisos and it may employ negative as well as positive expressions. Yet it may be sufficiently clear that the whole amounts to a statement of the complete factual situation which must be found to exist before anybody obtains a right or incurs a liability under the provision. In other words it may embody the principle which the legislature seeks to apply generally. On the other hand it may be the purpose of the enactment to lay down some principle of liability which it means to apply generally and then to provide for some special grounds of excuse, justification or exculpation depending upon new or additional facts. In the same way where conditions of general application giving rise to a right are laid down, additional facts of a special nature may be made a ground for defeating or excluding the right." 1. It seems to me that a similar approach to construction arises in considering cl 2 of the Security Trust Deed. The issue is whether the parties intended that the security trustee would only be liable if its conduct fell within the exception in cl 2.2 or whether it would be liable for any breach of trust unless it could establish that its conduct fell outside the exceptions contained in that clause. 2. In my opinion, the former construction is correct. Clause 2.1 makes it clear that generally, the security trustee will not be liable for its conduct. This is said to be subject to the exception in cl 2.2. It seems to me that in those circumstances, as a matter of construction, it is a necessary element of any claim by a secured note holder against the security trustee that it establishes one of the matters referred to in the latter subclause. 3. Although clauses of this nature must be considered having regard to their own particular wording and the context in which they appear, the construction which I have reached does derive some support from authority. In Armitage v Nurse, the relevant trust deed provided that a trustee should not be liable for loss or damage unless such loss or damage was caused by actual fraud. In an action against the trustee, the issue which arose was whether the claim against the trustee pleaded fraud. In striking out the statement of claim, the Court of Appeal concluded that it did not. Although the question was not directly addressed, it was implicit in the decision that fraud was an element of the cause of action. 4. In Walker v Stones, the relevant clause was in the following terms (extracted at 912): "Exoneration and indemnity of trustees generally. (1)(a) In the professed execution of the trusts and powers hereof no trustee … shall be liable (i) for any loss to the trust fund arising by reason of any improper investment made in good faith or in consequence, of the failure depreciation or loss of any investment made in good faith by such trustee or by any other trustee or by any delegate or agent appointed in good faith (ii) for the negligence or fraud of any agent employed by such trustee or by any other trustee although the employment of such agent was not necessary or expedient provided such employment was in good faith (iii) by reason of any mistake or omission made in good faith by any trustee (iv) by reason of any other matter or thing other than wilful fraud or dishonesty on the part of the trustee whom it is sought to make liable …" 1. Once again, the question in issue was whether the statement of claim adequately pleaded fraud. The Court in that case held that it did. The conclusion of the Court (Sir Christopher Slade, Mantell and Nourse LJJ agreeing) was expressed in the following terms at 945: "In my judgment the plaintiffs have on the pleadings and evidence shown sufficient foundation for a case against Mr Stones based on dishonesty in the sense explained above, even though it is not suggested that he personally stood to gain from any of the relevant transactions." It is implicit in that conclusion that fraud was a necessary element of the cause of action. 1. The appellant submitted that these cases could be explained having regard to the well-known requirement that fraud must be specifically and clearly pleaded. So much may be accepted. However, the need to plead fraud in those cases only arose if fraud formed part of the cause of action. 2. It follows that, in my opinion, it was necessary for the appellant to establish negligence in order to succeed in the proceedings. 3. However, I am unable to agree with the primary judge that the evidence failed to establish that the respondent was negligent in failing to appoint a controller. The evidence to which I have referred above demonstrated that the respondent was made aware of the appointment of the administrators by no later than 31 July 2012. Mr Latham instructed Ms Jackson to confirm any action that was required by the appellant and Ms Chapman, the Senior Legal Counsel, was engaged in a legal review. Further, the email from Ms Jackson to Mr Latham and Ms Chapman of 1 August 2012 disclosed that the relevant officers of the respondent were aware that the appointment had taken place on 20 July (see par [107] above). The decision period expired on 15 August 2012. 4. There was no evidence adduced either orally or in documentary form that any further steps were taken to consider the issue. I have set out the email written by Mr Latham to the administrators on 16 August 2012, the administrators' response and Mr Latham's email of 19 August in pars [110]-[111] above. Mr Latham's statement to the administrators that he had not received the notification of appointment, viewed in the context of his early instructions to Ms Jackson and Ms Chapman of 1 August, gives rise, in my opinion, to a strong inference that the matter was overlooked or ignored by those responsible for reviewing the deed during the decision period. This, in my view, was negligent, such that cl 2.2 applied. The inference is strengthened by the first affidavit of Mr Budnow, witnessed by Ms Chapman, stating that the letter of 27 July 2012, notifying the respondent of the appointment of the administrators, had not been received. 5. In these circumstances, it is important that there was no evidence to support the contrary inference referred to by the primary judge, namely, that the respondent had given consideration to the difficult issues raised by the clause. If the respondent had, one would have expected Mr Latham to recall the original receipt of notification of the appointment. 6. The inference that the question of the appointment of a controller was ignored or overlooked by the respondent was thus available on the evidence. The unexplained fact that Mr Latham and Ms Chapman were not called means that it can be drawn more confidently: Jones v Dunkel at 308, 312, 320-321; Australian Securities and Investments Commission v Hellicar [2012] HCA 17; 247 CLR 345 at [165]-[167], [212]. 7. It follows that the trustee was negligent in failing to appoint a controller. The exception to the limitation on liability contained in cl 2.2 has been made out. (iv) Was loss or damage caused by the breach The parties' submissions 1. The appellant noted that it was not in issue that it had incurred very substantial costs in supporting the administrator. It pointed to the fact that the criticism made by the primary judge was, in effect, that had a controller been appointed, the appellant, as the principal secured creditor, may have been expected to contribute to its costs. 2. The appellant submitted that the conclusion of the primary judge that the appellant was obliged to bring evidence of two calculations, the first, a hypothetical calculation of the risks, costs and benefits it would have achieved had a controller been appointed and the second, a calculation of this compared to what in fact occurred, set the burden on a separate hearing "far too high". The appellant submitted that it was sufficient to show that it had incurred costs which it would not have otherwise incurred and the subsequent hearing would determine what would have occurred in any event and any offsetting benefit. 3. In that context, the appellant referred to the evidence of Mr Easton, to the effect that there was value in the patent portfolio owed by the company and that, as a consequence, the appellant agreed to fund the company to preserve its value until the company could be sold as a going concern. Mr Easton's evidence was that he expected that this would take six to nine months. He said that as costs were incurred over time, the longer the administration, the greater the cost. He stated in his affidavit that the advances made by the appellant totalled $856,658.88. 4. Mr Easton's evidence was that the attempts to recapitalise the company were unsuccessful. In par [20] of his affidavit of 20 February 2010, he gave the following evidence: "20 Although there is considerable demand for Metal Storm's products as evidenced by inquiries received both domestically here in the US and internationally, the drawn-out voluntary administration process has severely hampered MSI from pursuing those opportunities. MSI is unable to secure meaningful new contracts while its status as a going concern is in question. In addition, while there is investor interest in capitalising MSI, these investors will not invest in MSI while its parent company remains under administration. Further, as a result of delays in completing the voluntary administration process, the amount of capital required to get to market has increased which, in turn, has effectively devalued the company." 1. It was submitted that this evidence demonstrated that the longer the administration persisted, the greater the loss of value to the secured creditor. 2. The appellant submitted that the primary judge was correct in holding that had a controller been appointed, there would have been no doubt about the release of the security and, even if a DOCA was in place, the delay caused by the inability of the trustee to release the security would not have occurred. 3. The appellant submitted that the conclusion of the primary judge on this issue, which I have set out in par [54] above, was erroneous. It submitted that the question was "whether [the appellant] had shown, sufficiently to take the matter to a second hearing on quantum, that it had incurred costs or suffered losses by reason of breach of trust". It submitted that "It was sufficient to show that it would not have incurred some costs or suffered some losses". 4. Senior counsel for the appellant referred to the Trial Judgment at [161], which stated, "It was common ground between the parties that ASOF [the appellant] needed, in this hearing, to demonstrate causation and the existence of loss that would warrant a later hearing as to quantification". He submitted that that was the way this Court should approach the question. 5. Senior counsel for the appellant stated that what was involved was a comparison of the actual position with the hypothetical position. He said that the actual position emerged from the evidence of Mr Easton, to which I have referred, whilst the hypothetical position emerged from the objective circumstances. 6. Senior counsel for the appellant submitted that if a receiver had been appointed under cl 6.1(b) of the Security Trust Deed, all of the assets would have been taken out of the administrator's control. He submitted that the DOCA would not have been contemplated, as the assets were under the control of the receiver and there would be no option other than to wind-up and the receiver would have had little choice but to sell the assets in which, according to the evidence of Mr Easton, there was a good deal of interest. He submitted that this at least would have obviated the need for the expenditure incurred by the appellant over the period of the administration. 7. Referring to Malec v JC Hutton Pty Ltd [1990] HCA 20; 169 CLR 638, senior counsel for the appellant submitted that the case fell within what he described as "loss of a chance jurisprudence". He submitted that the real issue was the "relative chances about the timing of [a] sale" by the receiver. He submitted that that was a matter for a quantification hearing. 8. Senior counsel for the appellant also submitted that Mr Easton did not need to prove a counter factual because the counter factual, namely, the appointment of a receiver in August 2012 over all of the assets of the company, would have led to the assets being sold, there being no option other than to wind-up the company, with the receiver embarking on a trade sale. 9. Senior counsel for the appellant referred to the trial judge's finding in the Trial Judgment at [164] that "ASOF was committed to the pursuit of a restructuring utilising a deed of company arrangement throughout the relevant period, which delivered the advantages of a moratorium in respect of claims of creditors and also allowed Metal Storm to receive a substantial research and development rebate". He accepted that this statement was correct, but submitted that it was irrelevant for two reasons. First, the respondent was obliged to appoint a controller, irrespective of the wishes of the appellant. Second, the occasion for the appointment of the controller only arose during the decision period and any conduct after that period had expired had no bearing on the issue. 10. Senior counsel for the appellant also submitted that the fact that the appellant could have directed the appointment of a receiver after the decision period was not relevant because it would have been required to cover the costs of indemnifying the receiver. 11. The respondent submitted that the appellant adduced no evidence that it had incurred any specific expense as a result of the failure to appoint a controller during the decision period. It pointed to the fact that any obligation to appoint a controller arose as a result of the appointment of an administrator, so the counter factual involved both and administrator and a controller being in place. It submitted that there was no evidence that the expenses incurred by the appellant would have been any less in such a joint administration. 12. The respondent relied on the fact that, as stated by Mr Easton, up to August 2013, the appellant pursued a strategy of seeking to recapitalise the company rather than provide for an assets sale. It submitted that this demonstrated that the appellant was "firmly opposed to the appointment of receivers both during and after the decision period". 13. The respondent referred to a series of matters which occurred both during and after the decision period as pointing to the fact that no loss was caused by the failure to appoint an administrator. They included the fact that prior to the appointment of Mr Shepard as administrator, Mr Shepard had advised Mr Easton that it was better for the appellant to act first in appointing an administrator, rather than wait for the directors to do so and appoint a receiver "over the top". The respondent also pointed to evidence which showed that the appellant facilitated Mr Shepard's appointment and that prior to the end of the decision period, representatives of the appellant exchanged emails concerning the proposed DOCA and the identity of proposed board members to be appointed to the company in connection with the restructure. 14. The respondent also pointed to the matters to which I referred in pars [81] and [82] above on the question of waiver as evidencing that the appellant would not have acted differently had a receiver been appointed. 15. The respondent also pointed to the fact that Mr Easton did not state in his affidavit that the appellant would have acted differently had a receiver been appointed during the decision period. In these circumstances, it submitted that the primary judge was correct in concluding that the appellant had not sustained any loss as a result of the breach. 16. Senior counsel for the respondent submitted that it would have been counterintuitive for the appellant to have done anything differently having regard to the determination of the appellant to proceed with the DOCA. He stated that the submission by senior counsel for the appellant, to which I have referred in par [142] above, was speculative. Consideration 1. A number of cases have considered the level of proof of damage required to warrant a separate trial of the issues of liability and damages. 2. In Enkelmann v Glissan (1982) 2 BPR 9640, Rath J stated that for an order for an inquiry as to damages to be made, there would need to be evidence of damage or at least of the probability of damage. In Frank Davies Pty Ltd v Container Haulage Group Pty Ltd (No 2) (1989) 98 FLR 324 at 325, Hodgson J, as his Honour then was, stated that at least a prima facie case of damage needed to be shown in order to warrant an inquiry into damages: see also OzEcom Ltd (in liq) v Hudson Investment Group Ltd [2007] NSWSC 1441 at [48]-[50]. 3. The claim for damages, at least according to senior counsel for the appellant, was made both for breach of trust and breach of contract. So far as it involved a claim for breach of trust, there were a number of difficulties which were not addressed in the parties' submissions. First, unlike the parties in cases such as Target Holdings Ltd v Redferns (a firm) [1996] AC 421, the appellant was not the sole beneficiary of the trust. The appellant, albeit the major beneficiary, was only one of a number of beneficiaries. In such cases, it has been suggested that the only right of the beneficiaries is to have the trust reconstituted: see Target Holdings at 434; AIB Group (UK) plc v Mark Redler & Co [2014] UKSC 58; 3 WLR 1367 at [100] per Lord Reed JSC, Lord Neuberger PSC, Baroness Hale DPSC and Lord Wilson JSC agreeing. 4. Second, once it is appreciated that the trust is subsisting with a number of beneficiaries, the question arises as to whether the action should have been brought without a joinder of all of the other beneficiaries. It is correct that a single beneficiary can sue for breach of trust: Young v Murphy; Swinbank v Murphy (1996) 1 VR 279 at 281; National Trustees Executors and Agency Co of Australia Ltd v Barnes [1941] HCA 3; 64 CLR 268 (Barnes) at 278. However, cases have suggested that in these circumstances, all beneficiaries should be joined: Barnes at 277-278; Hughes v NM Superannuation Pty Ltd (1993) 29 NSWLR 653 at 656. 5. The third matter is that no consideration was given to whether or not the principles of causation or assessment of damage differed depending on whether what was claimed was a breach of trust or a breach of contract: Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 484 (Youyang) at [38]-[39]; c/f Bristol and West Building Society v Mothew (1998) Ch 1 at 18; AIB Group (UK) plc v Mark Redler at [71]. 6. However, as none of these matters were raised in argument, it is unnecessary to address them further. 7. The appellant put its case on the basis that the failure to appoint a controller deprived it of the opportunity to have the assets of the company sold in a more expeditious manner and to avoid the costs which it incurred while the DOCA was on foot. It submitted that this involved a consideration of the hypothetical position of what would have happened had the breach not occurred compared with the actual position. The appropriate approach, so far as the case was based on contract, was stated by the plurality in Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332 at 355: "Notwithstanding the observations of this Court in Norwest, we consider that acceptance of the principle enunciated in Malec requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s. 52(1), should be ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued. … On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable." 1. It is also clear that so far as a claim is based on a breach of trust, it is necessary to prove that the breach caused the loss: Youyang at [44]. As was pointed out by McLachlin J, as her Ladyship then was, in a frequently cited passage in Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534; 85 DLR (4th) 129 at [84]: "In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach, i.e., the plaintiff's lost opportunity. The plaintiff's actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach." 1. As I indicated, the appellant submitted that it lost the opportunity to avoid the expense which it in fact incurred and to have the assets of the company sold at an earlier point in time. It submitted that damages should be assessed by reference to the possibility of its loss being avoided and the sale taking place at an earlier point of time. 2. There is much force in the respondent's contention, upheld by the primary judge, that the evidence suggested that had a controller been appointed, a DOCA would still have been negotiated and the events as they transpired would have occurred in any event. There is certainly evidence which supports the conclusion of the primary judge that the appellant was committed to the pursuit of a restructure of the company which would deliver the advantage of a moratorium and allow the recovery of a substantial research and development rebate. 3. However, it must be remembered that it was only necessary for the appellant to establish a prima facie case of damage. It seems to me that the loss of the opportunity to have a controller appointed had value. This is because had a controller been appointed, control of the assets of the company would have been reposed in the controller rather than the administrators and importantly, would have empowered the security trustee to release the security over the assets of the company to enable an early trade sale to be negotiated. The extent to which loss can be established will depend on the evidence as it ultimately emerges. However, in my opinion, the appellant has made out a case on causation and damage sufficient to warrant a further hearing on this issue. B Was the respondent required to comply with the December 2013 direction 1. The appellant accepted that even if it established that the primary judge erred in concluding that the respondent was not required to comply with the December 2013 direction, no substantive relief would flow as a result and the matter was only relevant to the question of costs. In the circumstances, this issue can be dealt with relatively briefly. The parties' submissions 1. The appellant did not dispute that the respondent was only required to comply with the direction if the conditions in cl 6.1(c) of the Security Trust Deed applied. It also accepted that the primary judge was correct in concluding that, for the purpose of cl 6.1(c), permission could be given by a written resolution of 75% of the note holders, consistent with cl 15.12 of the Convertible Notes Trust Deed. 2. However, the appellant submitted that the primary judge erred in concluding that this involved incorporation of the whole of cll 15.11 and 15.12 of the Convertible Notes Trust Deed, including the proviso to cl 15.11. 3. In support of that proposition, the appellant submitted that there was nothing in the Security Trust Deed equivalent to the proviso to cl 15.11. Further, it submitted that in any event, a resolution under cl 15.12 of the Convertible Notes Trust Deed was not qualified by cl 15.11. 4. The appellant also submitted that the word "class" in the proviso to cl 15.11 should be given the same meaning as that expression had been given in cases dealing with classes for the purpose of schemes of arrangement. It submitted that for the proviso to be commercially workable, "class" must be "defined by having a common characteristic other than the characteristic of being prejudiced or affected". 5. Senior counsel for the appellant referred to the fact that the majorities required to support a resolution were different in cll 15.11 and 15.12 of the Convertible Notes Trust Deed, in further support of the proposition that the proviso did not apply to a resolution passed in accordance with cl 15.12. 6. The respondent pointed to the fact that cl 6.1(c) of the Security Trust Deed referred to express permission without the need for any further instructions from the beneficiaries under the Convertible Notes Trust Deed. It submitted that if the primary judge was correct in stating that express permission was capable of being given by a resolution under cl 15.12, cl 15.12 was not a freestanding provision but was rather a means by which such a resolution of note holders could be passed. In this context, it submitted that the proviso applied, the relevant class being minority note holders. 7. However, the respondent submitted that the primary judge erred in concluding that cl 6.1(c) could be satisfied by an extraordinary resolution under cl 15.12 of the Convertible Notes Trust Deed. It submitted that cl 6.1(c) could not support such a construction and, notwithstanding the fact that there was no express provision in either the Security Trust Deed or the Convertible Notes Trust Deed permitting release of security without further consent or instruction from any of the beneficiaries under the Convertible Notes Trust Deed, the clause should be given its natural meaning. Consideration 1. Clause 6.1(c) expressly provided that the consent of all beneficiaries was required to release the security, except where the security trustee was expressly permitted to provide such a release without the need for further instructions from any of the beneficiaries under the Convertible Notes Trust Deed or upon an enforcement (it was common ground the latter exception did not apply). 2. Clause 4.1 of the Security Trust Deed provided that the security trustee must act if required to do so by a resolution at a meeting convened and conducted, in accordance with cl 15 of the Convertible Notes Trust Deed, by secured note holders holding 50% in value of the secured notes. That does not seem to me to amount to an express provision for the purpose of cl 6.1(c) of the Security Trust Deed. To construe cl 4 in such a way would render cl 6.1(c)(ii) nugatory. 3. Clause 15.11 of the Convertible Notes Trust Deed empowered the note holders to exercise certain powers by special resolution. These powers included sanctioning the trustee's release from any obligation under the document on such terms as the trustee may arrange with the company (cl 15.11(b)). However, there was no provision expressly providing for the release of the security, as contemplated by cl 6.1(c)(i) of the Security Trust Deed. 4. In these circumstances, in my opinion, the respondent, as trustee, was neither entitled nor required to comply with the direction. 5. Even if, contrary to the conclusion that I have reached, the power to release the security could have been given by an extraordinary resolution under cl 15 of the Convertible Notes Trust Deed, the primary judge was correct in concluding that the proviso to cl 15.11 entitled the trustee not to act on the resolution if it had formed the opinion that a class of note holders was especially prejudiced or effected. 6. Contrary to the submission of the appellant, in my opinion, the proviso operated in respect of a resolution passed in one of the manners set out in cl 15.12. Clause 15.12 was merely a provision which provided a convenient method of passing a resolution without the necessity for a formal meeting. Clause 15.12 itself stated that such a resolution was said to be duly passed as an extraordinary resolution for the purpose of that clause. It did not acquire any greater force than if passed at a duly convened meeting. In these circumstances, in my opinion, the proviso to cl 15.11 applied. 7. Further, a minority of note holders could constitute a "class" for the purpose of cl 15.11. I accept that the power to issue notes on different terms was implicit in the power conferred on the directors in cl 4.1 of the Convertible Notes Trust Deed to issue notes on such terms as they resolved. However, it does not seem to me that that leads to the conclusion that "class" in the proviso to cl 15.11 had the meaning conferred on that expression in cases relating to schemes of arrangement, namely, creditors whose rights are not so dissimilar so as to make it impossible for them to consult together with a view to their common interest: see, for example, Re Jax Marine Pty Ltd and the Companies Act 1961 (1967) 1 NSWR 145 (Re Jax Marine) at 148; Re Hills Motorway Ltd [2002] NSWSC 897; 43 ACSR 101 at [11]-[12]. In that context, it must be remembered that in cases of schemes of arrangement, the Court has a power to refuse to approve the scheme where it is unfair or unreasonable to some creditors or shareholders, even if approved at a scheme meeting: Re NRMA Ltd [2000] NSWSC 82; 156 FLR 349 at [41]; In re Alabama, New Orleans, Texas and Pacific Junction Railway Co (1891) 1 Ch 213 at 243-244. Further, in the case of schemes of arrangement, the Court has power, at the approval stage, to discount votes if it considers that the majority, or part thereof, had a special interest to render their view a self-interested view, rather than a class view: Re Jax Marine at 148. If cl 15.11 was given the limited effect contended for by the appellant, it would follow that the trustee would have no power to protect the interests of a minority if such interests were especially prejudiced. 8. In these circumstances, the primary judge was correct in concluding that the respondent was not required to comply with the December 2013 direction. Conclusion 1. In the result, the appeal should be allowed in part. The proceedings should be remitted to a judge in the Equity Division to determine the appellant's entitlement (if any) to damages or equitable compensation for the respondent's breach of its obligations in failing to provide the release during the decision period. The orders should not be taken to preclude consideration of the issues raised in pars [155]-[157] above. 2. So far as the question of costs is concerned, the appellant has been partly successful. As presently advised, my opinion is that the respondent should pay 50% of the appellant's costs of the appeal. The costs of the proceedings at first instance should be left in the discretion of the judge who hears the appellant's claims for damages or equitable compensation. However, the parties should be given an opportunity to make submissions on the question of costs. Unless the parties contend to the contrary, that issue will be dealt with on the papers after delivery of submissions. 3. In the result, I would make the following orders. 1. Appeal allowed in part. 2. Remit the appellant's claim for damages or equitable compensation arising out of the failure by the respondent to appoint a controller in accordance with cl 6.1(b) of the Security Trust Deed to a judge of the Equity Division for hearing. 3. Appeal otherwise dismissed. 4. Direct the parties to make submissions as to the costs of the appeal and the proceedings below within 14 days. 1. MACFARLAN JA: I agree with Bathurst CJ. 2. EMMETT JA: This appeal is concerned with a trust deed dated 31 July 2009 (the Trust Deed) whereby the respondent, Equity Trustees Wealth Services Ltd, formerly ANZ Trustees Ltd, was appointed as trustee for holders of secured notes issued by Metal Storm Ltd (in liquidation, receivers and managers appointed) (the Company). In 2006, the Company had issued convertible notes in respect of which the respondent was made the trustee under a convertible notes trust deed. In 2009, the convertible notes were divided into two classes of notes, being secured notes and interest bearing notes. A fixed and floating charge, signed on the same day as the Trust Deed, creates a security interest over the whole of the property of the Company in favour of the respondent for the benefit of the holders of the secured notes. The appellant, the Australian Special Opportunity Fund LP, is the holder of approximately 86 per cent of the secured notes and also holds a small number of the interest bearing notes. 3. On 26 July 2012, the directors of the Company passed a resolution under s 436A of the Corporations Act 2001 (Cth) (the Act) as a result of which the Company was placed into voluntary administration. Part 5.3A of the Act would ordinarily prevent or limit the enforcement by a secured party of a security interest over the property of a company in administration. However, under s 441A of the Act, the prohibition and limitation in Pt 5.3A does not apply if the secured party has enforced the security interest during the decision period, as defined in s 9 of the Act. The decision period is, relevantly, the period commencing on the date of commencement of the administration and ending at the end of the thirteenth business day after that date. 4. The respondent could have enforced the security created by the Trust Deed by appointing a receiver during the decision period. It did not do so. The appellant contends that the respondent breached its obligations under the Trust Deed by failing to do so. 5. The Company subsequently entered into a deed of company arrangement (the DOCA). In connection with a proposed variation of the DOCA, the appellant directed the respondent to release and discharge its security interest over the property of the Company. The respondent declined to do so. The appellant contends that the respondent breached its obligations under the Trust Deed by failing to do so. 6. The appellant commenced proceedings in the Equity Division against the respondent seeking declaratory relief and damages or equitable compensation. A judge of the Equity Division (the primary judge) found in favour of the respondent on both of the above questions. In respect of the first question, his Honour held that, although the respondent was obliged to appoint a receiver during the decision period, the provisions of the Trust Deed limiting the respondent's liability in certain circumstances defeated the appellant's claim. His Honour also concluded that the appellant had not demonstrated that it had suffered loss and damage as a result of any failure to appoint a receiver. In respect of the second question, his Honour concluded that, as a matter of construction of the Trust Deed, the respondent was not required to comply with the appellant's direction. The primary judge ordered that the proceedings be dismissed with costs. The appellant now appeals from those orders. 7. I have had the advantage of reading in draft form the proposed reasons of the Chief Justice. I agree that there was a breach of trust by the respondent by its failure to take steps following notification of the appointment of the administrator to the Company. The evidence gave rise to an inference that, having received that notification, the respondent overlooked the requirement to appoint a receiver. Such an inference is more readily to be drawn by reason of the failure of the respondent to call relevant witnesses to explain why nothing was done. That was negligence such as to constitute an exception to the limitation on liability contained in the Trust Deed. 8. While the appellant's statement of claim did not particularise the causal connection between the alleged loss and the breach, there was sufficient material to justify a conclusion that, had the respondent acted as it should have acted and appointed a receiver, there was a real prospect that the receiver would have disposed of the business expeditiously, particularly in circumstances where the appellant was a willing purchaser. That was the causal connection advanced in submissions and was not dealt with by the primary judge. In the circumstances, the appellant demonstrated with a sufficient degree of probability that it had suffered loss as a result of the breach by reason of having expended money that it would not have expended had a receiver been appointed. 9. I also agree with the Chief Justice that the primary judge was correct in concluding that the respondent was not required to comply with the direction by the appellant to release and discharge its security interest over the property of the Company. 10. I agree with the orders proposed by the Chief Justice, for the reasons proposed by his Honour. ********** Amendments 18 August 2015 - [67] "Segelove" changed to "Segelov" [159] "Sellers" changed to "Sellars" 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: 18 August 2015