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Re Permewan (No 2) QSC 114
SUPREME COURT OF QUEENSLAND
Re Permewan No. 2  QSC 114
IN THE WILL OF PRUDENCE VERONICA PERMEWAN, DECEASED
MYLES GERARD MURPHY (AS ADMINISTRATOR OF THE ESTATE OF PRUDENCE VERONICA PERMEWAN, DECEASED)
JOHN SCOTT PERMEWAN
ZERELDA PTY LTD
ACN 623 050 760
DONNA ANNE FRATER
MARLA JEANNE HURLIMANN
MYLES GERARD MURPHY (as administrator of the estate of Prudence Veronica Permewan, deceased)
JOHN SCOTT PERMEWAN
ZERELDA PTY LTD
ACN 623 050 760
BS 6343 of 2020
Supreme Court at Brisbane
10 June 2022
16 May 2022; 17 May 2022; 18 May 2022; 20 May 2022
In BS 6343 of 2020:
In BS 1091 of 2022:
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – INDEMNITY COSTS – PARTICULAR CASES – UNREASONABLE CONDUCT OR DELINQUENCY RELATING TO PROCEEDINGS – where proceedings were commenced seeking remedies against the administrator regarding a series of inter vivos transactions made by the deceased – where the first respondent/third cross-respondent argued that the inter vivos transactions were valid and enforceable against the estate but conceded after the evidence had been heard that the transactions were invalid and unenforceable – where the respondent/second cross respondent and the second respondent/third cross-respondent pleaded that the administrator’s challenge to the enforceability of the inter vivos transactions was “frivolous and vexatious and an abuse of the process” of the Court – where consent orders were subsequently made reflecting that the transactions were invalid and unenforceable at law – whether there has been making of allegations which ought never to have been made or the undue prolongation of the proceeding by groundless contentions – whether indemnity costs should be awarded
Bills of Exchange Act 1909 (Cth), s 90
Barns v Barns (2003) 214 CLR 169, considered
Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, cited
Fairfield Services Pty Ltd (in liq) v Leggett (2020) 5 QR 50;  QSC 183, considered
Frizzo v Frizzo (No 2)  QSC 177, cited
Jones v Dunkel (1959) 101 CLR 298, cited
ONE.TEL Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548, followed
Oshlack v Richmond River Council (1998) 193 CLR 72, cited
Palmer v Bank of New South Wales (1975) 133 CLR 150, applied
Raftland Pty Ltd v Commissioner of Taxation (2006) 227 ALR 598, considered
Re Permewan  QSC 151, related
Westfield Management Limited v AMP Capital Property Nominees Ltd (2012) 247 CLR 129, applied
R Perry QC, with K Kluss, for the applicant/first cross-respondent
MGM Solicitors for the applicant/first cross-respondent
- The applicant, as the administrator of the estate of Prudence Veronica Permewan (deceased), (Administrator) sought declarations as to the validity and enforceability of certain transactions said to have been entered into on 18 April 2018 (Transactions).
- On 20 May 2022, I made declarations by consent that the Transactions were invalid and unenforceable at law. The parties’ agreement as to the making of those declarations was reached in circumstances where the first respondent/second cross respondent (Scott) and the second respondent/third cross-respondent (Zerelda) conceded, after the evidence had been heard but prior to the commencement of closing addresses, that the Court could not find that a promissory note, which was central to the efficacy of the Transactions, had been delivered. Absent delivery the promissory note remained inchoate and incomplete.
- The parties remain in dispute on the question of costs.
- The Administrator, the first cross-applicant (Donna) and the second cross-applicant (Marla) each seek an order that Scott and Zerelda pay their costs of the Administrator’s application and the cross-applications to be assessed on the indemnity basis.
- Scott and Zerelda resist the making of orders that they pay the costs of any of the other parties and submit instead that the costs of all parties should be paid on the indemnity basis out of the estate.
- The discretion to award costs is unfettered but must be exercised judicially, so that the Court arrives at the order it thinks just in the particular circumstances of the case.
- Under r 681 of the Uniform Civil Procedure Rules 1999 (Qld), the general rule is that costs follow the event unless the Court orders otherwise.
- It would be wrong to approach the question of costs by starting with a general proposition that the costs of all parties to probate litigation should be paid out of the estate, or that they should be paid out of the estate unless it is demonstrated that an unsuccessful party’s conduct was shown to be unreasonable. In probate proceedings, the general rule remains that costs should follow the event.
- The question is how the discretion as to the award of costs should be exercised in circumstances where Scott and Zerelda, having argued that the Transactions were valid and enforceable against the estate, ultimately conceded that not to be the case.
- In Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin, McHugh J noted that in the usual course, a court will not make an order for costs in circumstances where there has been no hearing on the merits. In those circumstances the court is deprived of the factor that usually determines whether or how it will make a costs order. However, his Honour noted that a court may, in some cases, make an order for costs even when there has been no hearing on the merits where it is able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action or where a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried.
- Further, in Fairfield Services Pty Ltd (in liq) v Leggett, Bond J (as His Honour then was) explained:
“… [I]t may nevertheless be appropriate to make an order that costs are borne by one side. Each case will depend on its own facts, but it may be relevant to consider the following:
- (a)(in a particular case) the conduct of the defendant prior to the commencement of the proceeding, where such conduct may have precipitated the litigation;
- (b)the whole of the proceeding, including whether the plaintiff has acted reasonably in commencing and continuing to prosecute the proceeding and whether the defendant has acted reasonably in defending it, but bearing in mind that the question of reasonableness may not be one capable of determination absent a full hearing on the merits; and
- (c)the reasons for discontinuance, but bearing in mind that the subjective considerations of one party not put before the other party will generally be immaterial so that the discretion will be exercised on the basis of the objective circumstances established on the evidence.
… [W]hen evaluating the relevant considerations, there is an important distinction between (1) cases in which one party, after litigating for some time, effectively surrenders to the other, and (2) cases where some supervening event, or settlement, so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. As to this:
- (a)In the former type of case, the surrender or capitulation will usually provide a strong reason to award costs against the party who has surrendered or capitulated. It seems to me that this must be a partial reflection of the principles and policies which underlie the r 681 general rule, as identified by McHugh J in Oshlack v Richmond River Council. A classic illustration of the type of case where one party has effectively surrendered to the other is a case where proceedings are dismissed or discontinued because the applicant chooses not to proceed with them.
- (b)In the latter type of case, there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs, and that might provide good reason to decide that each party should bear its own costs. …”
- As to the discretion to order that costs be assessed, the Administrator, Donna and Marla relied on Colgate-Palmolive Co v Cussons Pty Ltd to submit that the award of indemnity costs may be warranted where there is evidence of particular misconduct that causes loss of time to the Court and to other parties, or wilful disregard of known facts or clearly established law or the making of allegations which ought never to have been made, or the undue prolongation of a case by groundless contentions.
- The application of these principles requires consideration of the history of the Transactions and the present proceeding.
- Prudence Veronica Permewan (Prudence) was a widow who had three children: Scott, Donna and Marla.
- Prudence died on 21 September 2019, leaving a will by which:
- (a)Scott was appointed executor and trustee;
- (b)shares in a company, Zalerina Pty Ltd (Zalerina) were bequeathed to Scott;
- (c)the rest of the estate was bequeathed to the Lotus Trust.
- Probate of the will was granted to Scott on 29 January 2020. At that time the trustee of the Lotus Trust was Zalerina, that company having been appointed trustee by deed dated 13 December 2017. The bequeath of the shares in Zalerina to Scott put him in sole control of the company and, by reason of its position as trustee, in sole control of the assets of the Lotus Trust.
- The principal assets of Prudence at the time of her death were:
- (a)her residence in Burpengary;
- (b)shares in a company, Orion Investments Pty Ltd (Orion) which owned commercial premises at Morayfield;
- (c)a loan to Orion.
- The effect of the will was to transfer Prudence’s entire estate either to Scott or to Zalerina as trustee of the Lotus Trust in circumstances where Scott controlled the Lotus Trust.
- The parties conducted the proceeding before me on the basis that those assets had an estimated value of $3 million.
- Donna and Marla, having effectively been excluded from the estate, commenced proceedings pursuant to Part IV of the Succession Act 1981 (Qld) for family provision.
Application for removal of Scott as executor
- On 29 March 2021, Donna filed an application seeking the removal of Scott as executor of the estate and the revocation of the grant of probate in his favour (Removal Application). The Removal Application was heard by Davis J on 27 April 2021.
- The basis for the Removal Application was Donna’s assertion that there should be an inquiry into the validity of the Transactions which are the subject of the consent declarations referred to at  and  above. As observed by Davis J, the effect of those Transactions, if valid and enforceable, would have been to reduce the amount of the estate by $3 million and effectively extinguish the fund from which provision could be made for Donna and Marla under Part IV of the Succession Act. The nature of the Transactions is described in more detail at  to  below.
- On the hearing of the Removal Application, Scott’s position was that the validity of the Transactions should be litigated in the family provision proceedings. Donna opposed such a course on the basis that she should not have to pursue the family provision proceedings only to learn that there is effectively no fund upon which any family provision order could operate.
- Davis J accepted Donna’s submission, finding that it was completely inappropriate to put the estate, as well as Donna and Marla, to the expense of litigating the family provision applications until the issue of the validity of the Transactions had been determined.
- From that point, Davis J concluded that the proper administration of the estate would be frustrated by Scott continuing as executor in circumstances where:
- (a)Scott had a clear interest in defending the validity of the Transactions;
- (b)there was a question as to whether that circumstance was likely to lead Scott to prefer his own interests to the due administration of the estate;
- (c)the inference was open, and was drawn by Davis J, that Scott did not intend to consider, let alone act on, any issue as to the enforceability (or otherwise) of the Transactions;
- (d)there was evidence of a recorded conversation between Scott and Marla in which Scott displayed a deep-seated animosity towards Donna and an intention to access the estate’s funds to fight any claim knowing that Donna would need to fund any legal fees herself.
- Davis J made orders for the removal of Scott as executor, the revocation of the grant of probate issued to Scott and the appointment of the Administrator. Scott was also ordered to do all things reasonably necessary to transfer any property forming part of the estate presently in his name into the name of the Administrator. Pursuant to this order, Scott transferred 10 shares in Zalerina (out of a total of 12 issued shares) from his name into the name of the Administrator. The effect of this was to transfer control of Zalerina, and thus the assets of the Lotus Trust, from Scott to the Administrator.
- The Transactions were sought to be given effect by a number of documents.
- The first document was a statutory declaration signed by Prudence in the following terms:
“1. It is my intention that all payments whether in cash, by cheque or Bearer Promissory Notes or otherwise, that I make from myself to the trustee of the Lotus Trust being a trust constituted by Deed dated 14 February 2011 are by way of gift unless otherwise recorded in writing.”
- Prudence’s signature was witnessed by Brett Hart, a partner of the firm Cleary Hoare. In one form of the statutory declaration, the attestation block states that Prudence signed the statutory declaration at Narangba on 18 April 2018.
- The second document was headed “Bearer Promissory Note” and contained three parts, each of which was signed by Prudence:
- (a)a promise by Prudence to pay the bearer of the note the sum of $3 million;
- (b)a receipt given by Zalerina as trustee of the Lotus Trust recording it as having received the promissory note from Prudence as a gift;
- (c)a further receipt given by Prudence recording her as having received the promissory note back from Zalerina as a loan and the note having been cancelled by her because of the merger of the right to be paid and the obligation to pay.
- One form of the promissory note had each of the parts dated 18 April 2018, indicating that Prudence signed each relevant part of the document on that date.
- The third document was a resolution by Zalerina, as trustee of the Lotus Trust, in the following terms:
“IT WAS NOTED that:
- A Bearer Promissory Note in the amount of $3,000,000.00 has been received from Prudence Veronica Permewan by way of gift of capital to the Trustee of the Trust to be held upon the terms of the Trust.
IT WAS RESOLVED:
- To acknowledge receipt of the Bearer Promissory Note by execution of the Bearer Promissory Note.
- To lend the money gifted by Bearer Promissory Note to Prudence Veronica Permewan.
- That such loan be repayable on demand and secured by way of Mortgage over real property acceptable to the Trustee.
- To execute a Loan Agreement and Mortgage security documents to effect these Resolutions.”
- The resolution was signed by Prudence as the sole director of Zalerina.
- The fourth document was a loan agreement entered into between Prudence and Zalerina. Prudence signed the loan agreement on her own behalf as well as on behalf of Zalerina. By that loan agreement, Prudence was loaned $3 million by Zalerina as trustee of the Lotus Trust and agreed, when required by Zalerina, to provide security for the loan in the form of a mortgage over her residence at Burpengary and a security interest over all shares in Orion.
- The fifth document was a security deed which was, again, signed by Prudence both in her personal capacity as grantor, and on behalf of Zalerina as the secured party.
- The sixth document was a deed of assignment between Prudence and Zalerina as trustee of the Lotus Trust. Prudence signed the deed of assignment on her own behalf as well as on behalf of Zalerina. On its face, the effect of this document was to assign a debt of $876,229.62 owed by Orion from Prudence to Zalerina as trustee of the Lotus Trust.
- One form of each of the resolution, the loan agreement, the security deed and the deed of assignment bears the date 18 April 2018, indicating that Prudence signed those documents on that date.
- The purported effect of the Transactions was as follows:
- (a)Prudence gifted, through the provision of the promissory note, $3 million to the Lotus Trust.
- (b)the Lotus Trust loaned $3 million to Prudence.
- (c)to secure the loan, Prudence mortgaged or otherwise charged her assets.
- (d)the consequence would be that Prudence’s financial position changed from having had assets worth approximately $3 million before the Transactions to having a debt of $3 million to the Lotus Trust secured over her assets.
- Prudence did not have $3 million in cash to pay to the Lotus Trust if the promissory note was called upon. In that event, Prudence would have had to liquidate her assets and, even if she did so, the obligation to pay capital gains tax upon the realisation of those assets would be likely to leave a shortfall. Likewise, the Lotus Trust did not have $3 million in cash to loan to Prudence.
- When the Removal Application was argued before Davis J, Scott’s position was that the Transactions were entered into on 18 April 2018.
Change of trustee and commencement of enforcement proceedings
- Davis J delivered his reasons for removing Scott as executor of the estate and making other orders on 24 June 2021.
- One week later, on 1 July 2021, Scott, in his capacity as the principal of the Lotus Trust, executed a deed of change of trustee by which Zerelda was appointed trustee of the Lotus Trust in place of Zalerina. Scott controls Zerelda. The effect of the change of trustee was to return control of the trustee, and through it control of the assets of the Lotus Trust, to Scott.
- It was submitted by Mr Perry QC, who appeared with Ms Kluss on behalf of the Administrator, that the only conclusion the court can draw is that the purpose of changing the trustee was to ensure that the control of the Lotus Trust remained with a company that was itself controlled by Scott. I accept that submission. It is the only sensible inference to draw in the circumstances.
- Following the change of trustee, Merthyr Law, the solicitors for Scott and Zerelda, sent a letter dated 20 August 2021 to the Administrator which asserted that Prudence’s indebtedness in the amount of $3 million to the Lotus Trust was a liability of the estate. The letter also advised the Administrator that Zerelda, as new trustee of the Lotus Trust, would be issuing a demand to Orion (the shares of which formed part of the estate) for repayment of the debt which Prudence had assigned to the Lotus Trust.
- On 23 November 2021, Merthyr Law sent a further letter to the Administrator which made written demand for repayment under the loan agreement between Prudence and the Lotus Trust. The next day Merthyr Law sent another letter to the Administrator asserting default under the mortgage which secured Prudence’s obligations under the loan agreement with the Lotus Trust. On 3 December 2021, Merthyr Law sent a letter to the Administrator asserting that Zerelda had taken possession of Prudence’s former residence in Burpengary pursuant to the terms of the mortgage.
- On 27 January 2022, Zerelda commenced proceedings BS 1091 of 2022 in this court (Enforcement Proceedings) which sought:
- (a)against the Administrator:
- repayment of the $3 million loan, together with interest;
- recovery of possession of Prudence’s former residence in Burpengary;
- an order pursuant to s 175 of the Corporations Act 2001 (Cth) that the register of members of Orion record that the shares in Orion held by the Administrator be conveyed to Zerelda;
- (b)against Orion, recovery of the debt the subject of the deed of assignment between Prudence and the Lotus Trust.
- In its statement of claim in the Enforcement Proceedings, Zerelda pleaded that “on or before” 18 April 2018:
- (a)Prudence affirmed the statutory declaration (see  above);
- (b)Prudence gave the promissory note to the Lotus Trust promising to pay it $3 million (see (a) above);
- (c)the Lotus Trust received the promissory note and resolved to accept that note as capital (see (b) above);
- (d)in the premises, Prudence became indebted to the Lotus Trust for $3 million by way of the promissory note.
- The statement of claim then alleged that “on or about” 18 April 2018:
- (a)Prudence and the Lotus Trust entered into the loan agreement (see  above);
- (b)the Trust returned the promissory note to Prudence in the sum of $3 million (see (c) above);
- (c)Prudence received and accepted the promissory note as being the sum to be advanced to her under the loan agreement;
- (d)in the premises, the Lotus Trust advanced Prudence the loan of $3 million contemplated by the loan agreement.
- Further, Zerelda alleged that “on or about” 18 April 2018:
- (a)Prudence executed the security deed (see  above);
- (b)Prudence and Zalerina (as trustee of the Lotus Trust) entered into the deed of assignment of the loan to Orion (see  above).
The parties’ pleadings in this proceeding
- After the Administrator filed the application seeking determination of the enforceability or otherwise of the Transactions, the parties were directed to file points of claim and points of defence.
- In points of claim filed on 11 March 2022, the Administrator pleaded that:
- (a)the sole purpose of the Transactions was to strip the estate of assets by permitting the Trustee of the Lotus Trust, at its discretion, to enforce the Transactions and to thereby preclude any successful application for family provision being brought by Donna and Marla;
- (b)Scott had evinced an intention to effect Prudence’s intentions as to her estate and the purpose of the Transactions, that being to preclude any successful application for family provision being brought by Donna and Marla;
- (c)if Prudence entered into the Transactions for the purpose of stripping the estate of assets so as to preclude any successful application for family provision being brought by Donna and Marla then she would not have acted in good faith;
- (d)if Scott sought to implement and give effect to the Transactions for that same purpose then he would not have acted in good faith;
- (e)if the Transactions were entered into for that same purpose they would be void as contrary to the public policy underpinning Part IV of the Succession Act.
- In points of defence filed on 28 March 2022, Scott and Zerelda pleaded:
- (a)that the Administrator’s challenge to the enforceability of the Transactions was “frivolous and vexatious and an abuse of the process” of this court;
- (b)a positive allegation that from about October 2017 to her death, Prudence held the intention:
- that upon her death her estate should pass to the Lotus Trust for the benefit of Scott and her grandchildren; and
- to ensure that the passing of her estate to the Lotus Trust was structured in a manner that was not capable of being successfully challenged pursuant to the provisions of section 41 of the Succession Act;
- (c)that it was open to Prudence to give effect to that intention by transferring her assets to Scott or to the Lotus Trust during her lifetime, but that such a course would have been to expose the transferee to a liability to pay transfer duty and to expose Prudence to a liability to pay capital gains tax;
- (d)Prudence made her will on 29 November 2017 and entered into the Transactions “on or about” 18 April 2018 to give effect to her intention and so as not to expose herself to any capital gains tax liability or to expose Scott or the Lotus Trust to any transfer duty liability. The purpose of avoiding any tax or duty liability was described as Prudence’s “commercial purpose” for entering into the Transactions;
- (e)That, from about October 2017, Scott was aware of Prudence’s intention as set out in (b) above.
- On 5 April 2022, Donna filed a response to the Administrator’s points of claim which, in effect, adopted the bases upon which the Administrator challenged the enforceability of the Transactions. Donna also pleaded points of cross-claim which alleged that the Transactions were a sham in circumstances where Prudence, and through her Zalerina as trustee of the Lotus Trust, had no intention to give effect to the documents recording the Transactions. Marla subsequently adopted the same position as Donna.
- On 10 May 2022, less than a week before the application was listed for hearing, Scott and Zerelda filed points of defence to the points of cross-claim pleaded by Donna. It was in that document that Scott and Zerelda pleaded for the first time that:
- (a)the documents recording the Transactions were signed by Prudence on 29 November 2017, the same date as she executed her will, but were not dated or delivered on the date they were signed;
- (b)Prudence’s will and the documents recording the Transactions comprised the structure adopted to give effect to her intention as set out at (b) above;
- (c)the documents recording the Transactions were kept in their signed but undated form by Cleary Hoare pending, among other things, Zalerina being appointed trustee of the Lotus Trust and the receipt of instructions from Prudence and Zalerina to date and deliver those documents;
- (d)Prudence, in her personal capacity and in her capacity as sole director of Zalerina, gave instructions to date and deliver the documents on 18 April 2018;
- (e)pursuant to those instructions, Mr Hart dated and delivered the documents recording the Transactions, or caused those documents to be dated or delivered.
- No explanation has been offered by Scott and Zerelda as to why, in light of the position pleaded in its points of defence to Donna’s points of cross-claim:
- (a)Scott took the position on the Removal Application referred to at  above;
- (b)Zerelda pleaded the allegations in the Enforcement Proceeding referred to at  to  above;
- (c)Scott and Zerelda pleaded the allegation in its points of defence to the Administrator’s points of claim referred to at (d) above.
Relevant evidence at the hearing of the application
- Prior to Prudence’s signing of the documents recording the Transactions, there was a meeting between Prudence, Scott, Brett Hart and Prudence’s accountants where the subject of the protection of Prudence’s assets was discussed.
- In his affidavit sworn on 12 May 2022, Mr Hart gave the following evidence about that meeting:
“6.On 12 October 2017, I met with Prudence Permewan (Prue) and [Scott] at [Northern Business Consultants’] Mango Hill office, with Joe [Kong] and David Robertson, the accountants of Prue and Scott, to discuss the potential work. I recall that:
- The basis of the meeting was that Prue intended to exclude her two daughters, whom she did not get on well with, from any significant benefit in her estate.
- Prue was aware of and concerned about asset protection upon her death and the prospect of a challenge to her estate, from her two daughters.
- I discussed an asset protection model which [Cleary Hoare] (and other advisers) use, which we refer to as ‘Secured Debt’, in order to protect her assets now and provide substantial protection against any result of a challenge to Prue’s estate.
- Where I refer to the ‘Secured Debt’, I am referring to a gift and loan back process, whereby an entity gifts an amount of money almost equal to their net equity to a trust which, in turn, loans the amount of the gift back to the originating entity, and takes security for the loan amount (Secured Debt).
- The effect of implementing Secured Debt is that the net equity which the originating entity (in this case Prue) intends to protect is moved to a separate trust structure.
- Secured Debt is a common form of asset protection strategy.
- We discussed the Secured Debt process at length, including the control mechanisms in the in the (sic) Lotus Trust and asset protection generally …”
- In his affidavit, Mr Hart also addressed a further meeting on 29 November 2017 at which Prudence signed the documents recording the Transactions. Relevantly, he said:
“14. On 29 November 2017, I attended Prue’s property in Burpengary again, with another solicitor of [Cleary Hoare] at the time, Catherine Da Silva (Catherine), to execute Prue’s Secured Debt documents and Will. Whilst there, and before execution of the documents, I explained in detail again the effect of the Secured Debt process and documents. I recall that:
- Prue demonstrated she understood the effect of the documents, including that she was giving away almost her entire net worth and that, should the loans be called in during her lifetime, she may be forced to sell her assets to repay the loan; as would her estate.
- Prue was ultimately satisfied that the cost and complexity of implementing the Secured Debt work was warranted to reduce the effect of an attack on her estate by her daughters, and during her lifetime.
- 16.I recall Prue wanting to sign the Secured Debt documents that day, with the dates to be left blank and the documents not to be immediately effective. Whilst this is not common practice for myself or [Cleary Hoare], I knew that the documents would not come into effect until dated. This was also explained to Prue. Prue proceeded to sign the Secured Debt documents, without dating them, which I took with me to [Cleary Hoare’s] office at Newstead for safe keeping.”
- A file note of the meeting on 29 November 2017 referred to in paragraph 14 of Mr Hart’s affidavit was prepared by Ms Da Silva. That file note records that, although not mentioned in Mr Hart’s discussion of the meeting, Scott was present at that meeting. I am satisfied, on the balance of probabilities, that Scott attended the meeting on 29 November 2017, as well as the earlier meeting on 12 October 2017.
- In cross-examination, Mr Hart gave evidence relevant to Prudence’s intention and purpose in entering into the Transactions based upon his discussions with her at these meetings. In summary, the effect of that evidence was:
- (a)the purpose of the Secured Debt structure proposed to Prudence by Mr Hart was to ensure that there was so little, if anything, left in the estate on or after Prudence’s death that any family provision application under section 41 of the Succession Act by Donna and Marla would have no prospect of success;
- (b)Prudence sought to control the trustee of the Lotus Trust as a means of ensuring her intention to protect her assets from a family provision application by Donna and Marla could not be circumvented;
- (c)Prudence’s control of the Lotus Trust also ensured that there was no prospect that the loan to Prudence from the Lotus Trust would be called on during her lifetime;
- (d)the liability to pay money under the promissory note would only arise if that note was called upon by the trustee of the Lotus Trust so that any prospect of the promissory note and loan back arrangement actually resulting in a transfer of funds was itself entirely dependent upon the exercise by the trustee of its discretion to call upon the promissory note;
- (e)Prudence did not have $3 million in cash and would have to sell her assets to satisfy a call on the promissory notes, but did not wish to sell those assets and had no intention of selling those assets.
- As to the giving of instructions on 18 April 2018 to date and deliver the documents recording the Transactions, Mr Hart deposed in his affidavit as follows:
“19.On 18 April 2018, Catherine and I again met with Prue and Joe, to review and finalise the work from November 2017. At the meeting, we were instructed by Prue to:
- Date the Promissory Note and deliver it to Zalerina;
- Prue instructed me as the sole director of Zalerina to date the receipt of the Promissory Note by Zalerina;
- Prue then instructed me to date the loan and mortgage on behalf of her as the borrower;
- Prue then instructed me to date the loan and mortgage on behalf of Zalerina as lender;
- In exchange for delivery of the loan and mortgage to Zalerina, Prue instructed me to deliver the Promissory Note to her as the advance of the loan;
- Prue then instructed me to date the receipt of the Promissory Note on her behalf (in effect cancelling the Promissory Note) but preserving the note as evidence of the transaction;
- Prue then instructed me to lodge the mortgage for registration.
- 20.The Deed of Assignment of the loan amount owing by [Orion] to the Lotus Trust was then discussed. The Deed had been signed on 29 November 2017. It could not be effective until Zalerina became trustee. On the 18th April 2018 Prue said that the amount to be included in the preamble was to be whatever debt was owed to her at 30 June 2017. She said accounts had not been completed, so the exact amount was unknown. She said it was in the vicinity of $870,000. Prue instructed me to date the Deed of Assignment 18 April 2018 and to insert the amount in the preamble once the exact figure was known. …
- 21.Upon review of the file in preparing this affidavit, it has come to my attention that the amount of the loan in the preceding paragraph was recorded differently as at 30 June 2017 in Orion’s 30 June 2017 and 30 June 2019 financial statements. The loan amount is recorded to be:
- $820,121 at 30 June 2017, in the 30 June 2017 financial statement; and
- $876,229.62 at 30 June 2017, in the 30 June 2019 financial statement.
Whilst the figure from the 30 June 2019 financial statement was used in the Deed of Assignment, I am unaware of the accounting purpose for the shift in the loan amount owing at 30 June 2017.”
- Mr Hart prepared a file note of the meeting on 18 April 2018 referred to in paragraph 19 of his affidavit. That file note records that again, although not referred to in Mr Hart’s evidence concerning the meeting, Scott was present at that meeting. Mr Kong also gave evidence that Scott Permewan was present at the meeting held on 18 April 2018. Again, I am satisfied on the balance of probabilities that Scott attended that meeting.
- In cross-examination, Mr Hart gave evidence as to what occurred at the meeting on 18 April 2018 to the following effect:
- (a)Mr Hart explained to Prudence the effect of each of the various documents recording the Transactions and the capacity in which Prudence was acting in respect of those documents before asking whether she was happy for each of the documents to come into effect on that date. Prudence gave that confirmation by saying words to the effect of “Yes, let’s date it today,” or “Yes. It’s okay.” Prudence did not give instructions expressly in the terms deposed to by Mr Hart in paragraph 19 of his affidavit;
- (b)Mr Hart’s understanding was that delivery required only the process undertaken at the meeting: him explaining the promissory note to Prudence, taking her through it to explain the different capacities in which she had signed and explaining its effect, asking Prudence at each stage “Is that okay?” and Prudence responding “Yes.”;
- (c)Mr Hart did not date the documents at the meeting on 18 April 2018 and he did not see anyone date the documents at that meeting. Mr Hart was unable to say when the documents were dated.
Scope of the concession made by Scott and Zerelda
- As noted at  above, the concession made by Scott and Zerelda was limited in its scope: that the Court could not find that the promissory note had been delivered. That concession was said to have been made in the face of Mr Hart’s evidence under cross-examination (see  above). As to that evidence, Scott and Zerelda submit that they should not be visited with the “extraordinary and inexplicable” conduct of Prudence’s solicitors, both in 2017 and 2018, as well as in the course of this proceeding.
Consideration of other grounds of invalidity
- Having conceded the unenforceability of the Transactions on that limited basis, Scott and Zerelda submit that there is no occasion or necessity to consider other grounds upon which the Administrator, Donna and Marla relied in asserting the Transactions were invalid.
- I disagree. Having heard the evidence and having had the benefit of both written and oral opening submissions, I am confident that the Administrator was almost certain to have succeeded on his application, and both Donna and Marla were almost certain to have succeeded on their cross-applications, in obtaining declarations that the Transactions were invalid and unenforceable at law for reasons other than the matter the subject of the concession made by Scott and Zerelda.
- The principal ground advanced by the Administrator in arguing invalidity was that enforcement of the Transactions would be contrary to public policy.
- The Administrator relied upon the following statement of Jordan CJ in the case of In re Jacob Morris:
It is well settled that a contract is not enforceable if its enforcement would be opposed to public policy. Public policy is not, however, fixed and stable … As a general rule, it may be said that any type of contract is treated as opposed to public policy if the practical result of enforcing a contract of that type would be generally regarded as injurious to the public interest.
- More recently, a majority of the High Court stated the principle as follows in Westfield Management Limited v AMP Capital Property Nominees Ltd:
“Windeyer J observed in Brooks v Burns Philp Trustee Co Ltd that a person upon whom a statute confers a right may waive or renounce his or her rights unless it would be contrary to the statute to do so. It will be contrary to the statute where the statute contains an express prohibition against ‘contracting out’ of rights. In addition, the provisions of a statute, read as a whole, might be inconsistent with a power, on the part of a person, to forego statutory rights. It is the policy of the law that contractual arrangements will not be enforced where they operate to defeat or circumvent a statutory purpose or policy according to which statutory rights are conferred in the public interest, rather than for the benefit of an individual alone. The courts will treat such arrangements as ineffective or void, even in the absence of a breach of a norm of conduct or other requirement expressed or necessarily implicit in the statutory text.”
- The public policy upon which s 41 of the Succession Act is based is “the making of provision for the maintenance of members of a family who are found to be in need of such maintenance when the family tie has been broken by death. That policy is of public, as well as private importance.”
- It was submitted on behalf of Scott and Zerelda that the Transactions constituted an inter vivos gift of Prudence’s property, adopting a gift and loan-back structure, the lawful effect of which was intended to be, and was, that upon her death the estate had no assets.
- The submission that the Transactions were lawful rests on the following obiter statement from the judgment of Gleeson CJ in Barns v Barns:
“In the present case, there has been no attempt by an eligible claimant to contract out of the rights given by the Act. If, upon the true construction of the Act, the consequence of the deed was that there was no estate within the meaning of s 7, then a court would be obliged to give effect to that consequence. If the deceased had divested himself of all his assets before he died, then there would have been no estate within the meaning of s 7. In a colloquial sense, that might be described as defeating the operations of the Act; but in a legal sense that would simply produce a state of affairs upon which the Act would operate according to its terms. Unlike some corresponding legislation, the Act does not provide for a notional estate. The legislative purpose does not extend beyond dealing with a deceased’s estate. A transaction which produces the consequence that a deceased person has no estate means that there is nothing that falls within the legislative scheme. If the Act and the deed had been found to have the legal consequences for which the first and second respondents contended, there would have been nothing to justify a refusal to give effect to those consequences.”
- The following paragraph of the judgment of Gleeson CJ should also be noted:
“The appellant also relied upon a qualification expressed in the reasons of Lord Cross of Chelsea, speaking for the majority in Schaefer v Schuhmann. His Lordship stated that he was considering ‘the rights of a person on whom a testator has agreed for valuable consideration under a bona fide contract to confer a benefit by will’ (emphasis added). The meaning of the expression ‘bona fide’ in this context is a little obscure. No doubt his Lordship was concerned with the obvious possibility that, if his general conclusions were correct, then it would be very easy for a person, who was not willing to divest himself or herself of all assets prior to death, to make, by deed or for nominal consideration, a binding contract to make a certain form of testamentary disposition and thereby leave the legislation with no work to do. But why could not a person, in good faith, set out to do that? In this case, the Court knows very little of the reasons behind the actions of the parties. It may be inferred that at least one of the purposes of the deed and the mutual wills was to make it impossible for the appellant to claim under the Act against the estate of the survivor of the deceased and the second respondent. Unless that, of itself, is sufficient to justify a conclusion that the legal arrangements were not bona fide, then the qualification expressed by Lord Cross would not be relevant. However, for the reasons already given, if the deed and the wills had that effect, it was only because of the scheme of the Act. There is no reason to describe conduct intended to produce a state of affairs that falls outside the scheme of the Act as, on that account, lacking good faith. If the deceased, during his lifetime, had given all his assets to charity, that would have left the appellant without a claim under the Act; but it would have been a bona fide gift, even if one of the reasons for making the gift was to deprive the appellant of a claim.”
- The present case does not fall within the circumstances described by Gleeson CJ in those paragraphs. This was not a case of Prudence having divested herself of all her assets before she died. Having regard to the evidence given by Mr Hart (see  above), I would not accept that the Transactions involved a bona fide inter vivos gift of Prudence’s assets. Prudence had no intention of disposing of her property during her lifetime. The documents which recorded the Transactions were executed contemporaneously with Prudence’s will and the Transactions were only ever intended by her to take effect upon her death. Prudence never intended that the Lotus Trust, which she controlled, would call on the promissory note or attempt to enforce the loan while she was alive. If that occurred, she would have been placed in the position of having to sell her assets to meet her obligations and she never intended to do so. Evidence given by Mr Kong was also consistent with the conclusion that the Transactions were not intended to take effect during Prudence’s lifetime.
“A transaction by which the promisor has placed his property in the name of another and for the benefit of that other on his death, whilst really retaining it for himself in his lifetime, is for the purpose in hand a testamentary transaction which would be in breach of a promise to leave by will … whilst the promisor is free to divest himself of the property by a transaction inter vivos, he may not either enter into an illusory transaction whereby he appears, contrary to the reality, to have parted with his property, or into a transaction whereby he keeps an interest in the property during his lifetime, so arranging the transaction that the property passes on his death to the person into whose name he has transferred it. So to do is to deal with the property in a testamentary fashion in breach of the promise.”
- Although the context of this proceeding is different, Barwick CJ’s statement is apt to describe Prudence’s conduct. She entered into an illusory transaction whereby she appeared, contrary to the reality, to have parted with her property. That conduct amounted to dealing with her property in a testamentary fashion. The sole purpose of that conduct was to ensure that there was so little, if anything, left in the estate upon Prudence’s death that any family provision application under section 41 of the Succession Act by Donna and Marla would have no prospect of success. In those circumstances, the effect of enforcing the Transactions would be to “defeat or circumvent” the public policy upon which s 41 of the Succession Act is based, and would thereby “be generally regarded as injurious to the public interest”.
- In those circumstances, I am confident that the Administrator was almost certain to have succeeded on his application on the basis that enforcement of the Transactions would be contrary to public policy.
- The cross-applications by Donna and Marla adopted the Administrator’s contentions on the ground of public policy. They also advanced a separate argument that the Transactions were invalid on the basis that they constituted a sham.
- As to what constitutes a “sham”, Kiefel J (as her Honour then was) stated in Raftland Pty Ltd v Commissioner of Taxation:
“The term ‘sham’ has been used in the context of commercial transactions and the ITAA. It has come to be applied where persons have entered into an ‘ostensible transaction as a disguise to conceal their true transaction’. In Sharrment Pty Ltd v Official Trustee in Bankruptcy, Lockhart J reviewed the authorities on the meaning of ‘sham’ in this context, and concluded:
A ‘sham’ is therefore for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.
Critical to a characterisation of a transaction as a sham is that the parties do not intend to give effect to the ostensible transaction … In Sharrment his Honour gave the example of a purported disposal of property and the creation of a debt. In his Honour’s view it might be a sham if the donor and donee do not intend to give effect to the transaction, it being agreed between them that there will be no change in the legal and beneficial ownership of the property. His Honour referred to Lord Diplock’s judgment in Snook v London & West Ryding Investments Ltd where it was explained that a sham arose where acts are done, or documents are created, which are intended to give the appearance of creating the parties’ legal rights and obligations, different from the actual legal rights and obligations. His Lordship considered it to be clear, in legal principle, that to be a sham the parties must have ‘a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating’.”
- In this case, the Transactions meet that description of a “sham”. Contrary to the terms of the promissory note, Prudence never intended to pay the sum of $3 million to the Lotus Trust. The Lotus Trust, being under Prudence’s control, had no intention of receiving (nor seeking to enforce the payment of) the $3 million. Consequently, the Lotus Trust never had any expectation that it would have $3 million (or Prudence’s property representing that amount) for it to be in a position to lend that amount or those assets back to Prudence. As already noted, the Transactions were only ever intended by her to take effect upon her death.
- In those circumstances, I am confident that Donna and Marla were almost certain to have succeeded on their cross-applications on the basis the Transactions were shams, as well as on the basis of the public policy ground.
- Having reached that position, in order to decide the question of costs it is not necessary for me, and I do not propose, to consider the further grounds of invalidity raised by the Administrator or Donna and Marla, including the argument that the appointment of Zalerina as trustee of the Lotus Trust was invalid.
Consideration as to the exercise of the costs discretion
- Having regard to the conclusion I have reached in  to  above, the usual position described by McHugh J in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin does not apply. In circumstances where I am almost certain that the Administrator would have succeeded on his application, and both Donna and Marla would have succeeded on their cross-applications, in obtaining declarations that the Transactions were invalid and unenforceable at law for reasons other than the matter the subject of the concession made by Scott and Zerelda, this is a case where the court is in a position to exercise the discretion to make an order for costs by reference to “the event”.
- Further, despite the submission made by Scott and Zerelda as to the cause of them having to concede the invalidity of the Transactions, this is, in my view, a case in which the distinction referred to by Bond J in Fairfield Services Pty Ltd (in liq) v Leggett can be drawn (see  above). Scott and Zerelda surrendered or capitulated to the Administrator, Donna and Marla on the central question of the validity of the Transactions. There was no supervening event which removed, or modified, the subject of the dispute. Nor did the Administrator, Donna and Marla obtain the declaratory relief they sought in the proceeding by settlement or extra-curial means. Neither the application nor the cross-applications became futile for some external reason.
- The circumstances in which the consent declarations were made in this proceeding are, in my view, closely analogous to those considered in ONE.TEL Ltd v Deputy Commissioner of Taxation, where Burchett J observed:
“By contrast with the decisions I have been discussing, the present matter involves a clear winner. The applicants, by their proceeding, sought to challenge the validity of certain notices, and to have them set aside. The respondent, after initially defending those notices, encountered at least an evidentiary difficulty, and acknowledged that they were to be set aside. That means that the applicants have succeeded, just as the respondent succeeded in Ahmetaj v Minister for Immigration and Multicultural Affairs, where a proceeding failed by reason of the occurrence of an event that was always liable to occur and to defeat the proceeding; in those circumstances, Sackville J, when the hearing did not proceed, distinguished Ex parte Lai Qin and made a costs order. As in that case, so here, the result one party sought was achieved without a hearing, but not by a ‘settlement’ in the ordinary sense, or as McHugh J used the word, and certainly not by what his Honour called ‘extra-curial means’.”
- The fact that Mr Hart gave evidence in cross-examination which was destructive of the case propounded by Scott and Zerelda explains the concession from their subjective perspective, but that does not matter when considering what costs order should be made from the point of view of doing justice as between the contesting parties.
- In my view, the appropriate exercise of the discretion requires that Scott and Zerelda pay to each of the Administrator, Donna and Marla that party’s costs of and incidental to:
- (a)the Removal Application (which are presently reserved);
- (b)the Administrator’s application; and
- (c)the cross-applications brought by Donna and Marla.
- That leaves the question of the basis upon which those costs are to be assessed.
- The analysis above addresses the invalidity of the Transactions by reference to the intentions of Prudence and Zalerina at a time it was controlled by Prudence (as concerns the public policy and sham grounds) and the events of the meeting on 18 April 2018 (as concerns the concession made by Scott and Zerelda). In order to conclude that Scott and Zerelda have engaged in conduct that would warrant costs being assessed on the indemnity basis I must be satisfied that they were aware of matters which would make it inappropriate for them to resist the Administrator’s application, and the cross-applications made by Donna and Marla, on the basis that the Transactions were based upon a valid and effective inter vivos gift of Prudence’s property to the Lotus Trust.
- I have found that Scott attended the meetings on 12 October 2017 and 29 November 2017 (see  above) where Mr Hart discussed with Prudence her desire to protect her assets and the structure which would be put in place to effect that purpose. His attendance at those meetings provides a basis to infer that, by virtue of being present during the discussions, Scott became aware of Prudence’s intentions concerning the disposition of her property about which Mr Hart gave evidence under cross-examination (see  above). This inference might be more confidently drawn in circumstances where Scott did not give evidence and his failure to do so has not been explained.
- I have also found that Scott attended the meeting on 18 April 2018, when Mr Hart discussed with Prudence the dating of the documents recording the Transactions (see  above). His attendance at that meeting provides a basis to infer that, by virtue of being present during the discussions, Scott was aware that the relevant events did not take place as Mr Hart deposed to in paragraph 19 of his affidavit, but as was revealed subsequently during cross-examination (see  above). Again, the inference might be more confidently drawn where Scott did not give evidence.
- Having drawn the inference that Scott was aware of those matters I am satisfied that his conduct, and that of Zerelda to the extent it was also involved, in seeking to give effect to the Transactions by resisting the Removal Application, commencing the Enforcement Proceedings and resisting the Administrator’s application and cross-applications by Donna and Marla on the basis that the Transactions were based upon a valid and effective inter vivos gift of Prudence’s property to the Lotus Trust involved the making of allegations which ought never to have been made and the undue prolongation of the proceeding by groundless contentions. On that basis, I am satisfied that this is an appropriate case in which to order that the costs to be paid by Scott and Zerelda be assessed on the indemnity basis.
- Scott and Zerelda accept that in light of their concession, and the declarations I made that the Transactions were invalid and unenforceable at law, it is appropriate to dismiss the Enforcement Proceedings. I will make an order to that effect in the Enforcement Proceedings. For the reasons already addressed, Zerelda is to pay the costs of the Administrator and Orion of and incidental to the Enforcement Proceedings to be assessed on the indemnity basis.
- The final matter concerns an application by the Administrator that:
- (a)Scott be removed from his position as Principal of the Lotus Trust and replaced by the Administrator, or that Scott be restrained from exercising any of the powers or responsibilities granted to him as Principal of the Lotus Trust;
- (b)Zerelda be removed from its position as trustee of the Lotus Trust and replaced by the Administrator or some other person.
- Scott and Zerelda submit that those aspects of the Administrator’s applications should be dismissed on the basis that, even if the Administrator’s arguments about the validity of the appointment of Zalerina as trustee were to be accepted, the end result would be that Scott would remain the Principal and the sole trustee of the Lotus Trust.
- When asked during addresses about the Administrator’s position on this aspect of his applications, Mr Perry QC stated that the dismissal of those parts of the applications were contested, but only to the extent of having the court consider the validity or otherwise of Zalerina’s appointment as part of the consideration of costs, that being a further ground of invalidity of the Transactions advanced by the Administrator. I did not understand the Administrator to press for the replacement of Scott or Zerelda as Principal and trustee. That would be consistent with that relief no longer being necessary to protect the estate following the making of the declarations that the Transactions are invalid and the consequent dismissal of the Enforcement Proceedings.
- As noted at  above, I have not found it necessary, in order to decide the question of costs, to resolve the argument as to whether the appointment of Zalerina as trustee of the Lotus Trust was invalid or to make factual findings concerning that issue. In those circumstances, and in light of the position taken by the Administrator, it is appropriate that those paragraphs of the Administrator’s application be dismissed. That dismissal does not alter my conclusion as to the appropriate costs orders on the Administrator’s application or otherwise.
- During the argument on costs, counsel sought an opportunity to consider these reasons and to seek to agree upon a form of orders which reflects the conclusions I have reached. That is appropriate in this case.
- I direct that on or before five days from the date of publication of this judgment the parties confer and deliver to my associate agreed orders giving effect to these reasons or, if orders cannot be agreed, each party deliver the form of orders it proposes together with supporting submissions limited to three pages.
Bills of Exchange Act 1909 (Cth), s 90.
Fairfield Services Pty Ltd (in liquidation) v Leggett  QSC 183 at .
Oshlack v Richmond River Council (1998) 193 CLR 72 at  – .
Frizzo v Frizzo (No 2)  QSC 177 at  and  – .
(1997) 186 CLR 622 at 624 –625 (McHugh J).
 QSC 183 at  –  (citation omitted).
(1993) 46 FCR 225 at 230.
Re Permewan  QSC 151.
Re Permewan  QSC 151 at .
Re Permewan  QSC 151 at , citing Barns v Barns (2003) 214 CLR 169 at .
Re Permewan  QSC 151 at .
Re Permewan  QSC 151 at .
Re Permewan  QSC 151 at  – .
Re Permewan  QSC 151 at .
Re Permewan  QSC 151 at  – .
Re Permewan  QSC 151 at  – .
Transcript 1-56 to 1-57.
Transcript 1-91 to 1-92.
Transcript 1-82 to 1-85.
Transcript 3-16 to 3-17.
Transcript 3-19 to 3-20.
(1943) 43 SR (NSW) 352 at 355-6 (citations omitted).
(2012) 247 CLR 129 at  (citations omitted).
Barns v Barns (2003) 214 CLR 169 at .
(2003) 214 CLR 169 at .
(2003) 214 CLR 169 at  (emphasis in original, citation omitted).
Transcript 2-21 to 2-22 and 2-25.
(1975) 133 CLR 150.
(1975) 133 CLR 150 at 159 (citations omitted).
(2006) 227 ALR 598 (citations omitted).
(2000) 101 FCR 548 at  (citation omitted).
Jones v Dunkel (1959) 101 CLR 298 at 308, 312 and 320-321.
Paragraphs 1 and 2 of the application filed by the Administrator on 16 February 2022.
Transcript 4-4 and 4-39.
- Published Case Name:
Re Permewan (No 2)
- Shortened Case Name:
Re Permewan (No 2)
 QSC 114
10 Jun 2022
- Selected for Reporting: