Commonwealth Bank of Australia v Iinvest Pty Ltd (In Liq) (No 2)

[2014] NSWSC 1640

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Commonwealth Bank of Australia v Iinvest Pty Ltd (In Liq) (No 2) [2014] NSWSC 1640
Hearing dates:	17/10/2014
Decision date:	21 November 2014
Jurisdiction:	Common Law
Before:	Campbell J
Decision:	See [43]
Catchwords:	PROCEDURE - civil - judgments and orders - application to set aside judgment - where judgment sought to be set aside on the basis of a denial of natural justice - where judgment decided on the basis of an issue not raised by the parties CONTRACT - rectification of trust deed
Legislation Cited:	Australian Securities and Investments Commission Act 2001 (Cth), ss 12DA and 12DB Corporations Act 2001 (Cth), s 471B Duties Act 1997 (NSW) Residential Tenancies Act 2010 (2010) Uniform Civil Procedure Rules 2005 (NSW), r 36.15
Cases Cited:	AMACA Pty Ltd v Doughan [2011] NSWCA 169 Baden's Deed Trusts: In re: [1969] 2 Ch 388 Bank of Western Australia Ltd v Tannous (No 4) [2013] NSWSC 182 Black Uhlans Inc v New South Wales Crime Commission [2002] NSWSC 1060 Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 Cameron v Cole (1944) 68 CLR 571 Chilton v Corporation of London (1878) 7 Ch D 735 Clodumar v Naura Lands Committee [2012] HCA 22; 245 CLR 561 Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 Damberg v Damberg,[2001] NSWCA 87; 52 NSWLR 492 Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184 Drew Robinson & Co v Shearer (1914) 18 CLR 209 Fletcher v Besser [2010] NSWCA 30 Hillston v Bar-Mordecai [2002] NSWSC 477 International Finance Trust Company Ltd v New South Wales Crime Commission [2009] HCA 49; 240 CLR 319 IRC v Williams [1969] 1 WLR 1197 Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432 Lewis v Condon [2013] NSWCA 204; 85 NSWLR 99 Levy v Bablis [2012] NSWCA 128 Mercedes Holdings Pty Ltd & Ors v Waters (No 2) (2010) 186 FCR 450; 78 ACSR 118 Nominal Defendant v Manning [2000] NSWCA 80; 50 NSWLR 139 Ramage v Waclaw (1988) 12 NSWLR 84 Rayfield v Hands [1960] Ch 1 Rix v Mahoney and Ors (No 2) [2012] NSWCA 332 Seltsam Pty Ltd v Ghaleb [2005] NSWCA 208; 3DDCR 1 Stead v State Government Insurance Commission (1986) 161 CLR 141
Category:	Interlocutory applications
Parties:	Commonwealth Bank of Australia (Plaintiff) Iinvest Pty Ltd (In Liquidation) (First Defendant) James Harker Mortlock (Second Defendant)
Representation:	J M White with D Elliot (Plaintiff) D R Pritchard SC (Second Defendant) Gadens Laawyers (Plaintiff) Levitt Robinson Solicitors (Second Defendant)
File Number(s):	2013/108514

Judgment

1. For reasons published on 15th September 2014 ([2014]NSWSC 1257), I refused Mr Harker-Mortlock's application to set aside the default judgment for possession of two properties known as Blackburn and Brecon respectively, entered on 3rd July 2013. I made a number of ancillary orders including striking out a cross-claim irregularly filed on 27th October 2013 but giving leave to Mr Harker-Mortlock to re-plead any cross-claim available to him "in his own right and interest".

1. The decision involved the rejection of Mr Harker-Mortlock's central contention that he had standing to bring a claim involving property rights of a discretionary trust of which he was a beneficiary in his own name in accordance with Ramage v Waclaw (1988) 12 NSWLR 84; Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432; as explained by Perram J in Mercedes Holdings Pty Ltd & Ors v Waters (No 2) (2010) 186 FCR 450; 78 ACSR 118 at [105]-[111]. I rejected Mr Harker-Mortlock's application for reasons stated at [46] - [58]. My central finding was that contrary to the case presented for Mr Harker-Mortlock, Blackburn and Brecon were not trust property because the declarations of trust made on 10th November 2008 were of no legal effect. It followed that the asserted causes of action challenging the Bank's title to possession, which were said to arise under ss 12DA and 12DB, part 2, Division 2 Australian Securities and Investments Commission Act 2001 (Cth), although fairly arguable (see [27] and [53] of my previous judgment), were not trust property either.

Application to set aside orders of 15th September 2014

1. Mr Harker-Mortlock has applied to set aside my orders entered on 15th September 2014, arguing that they were entered irregularly and invoking r 36.15 Uniform Civil Procedure Rules 2005 (NSW). His essential point is that I denied him natural justice because my decision that the declarations of trust were of no legal effect was a ground not raised by the Bank, never argued before me, and decided without notice to him. The Bank does not wish to be heard to the contrary.

1. Lest this application fail, in the alternative, he makes a second application to set aside the default judgment. In support of the second application he has read a number of affidavits to demonstrate a pleadable case of rectification in relation to the declarations of trust of 10th November 2008. The purpose of this evidence is to overcome the finding I made at [19] of my previous judgment that rectification was not a remedy sought in his cross-claim and there was no evidence before me suggesting the existence of pleadable facts to support that remedy.

1. The Bank opposes the relief sought. As I have said it does not challenge Mr Harker-Mortlock's natural justice argument. But it says a fairly arguable case of rectification makes no real difference because a case brought against the Bank to vindicate the company's legal rights as trustee is bound to fail for a number of reasons. First, the trust was purportedly created after the company mortgaged the property to the Bank; secondly, the declarations of trust where a purported disposition of the real property in direct contravention of the terms of the mortgage (see Clause 11A, Exhibit NC-1 page 109); thirdly, the exceptional basis for permitting a beneficiary to prosecute the trustee's legal rights is absent because a new trustee, JHM Pty Ltd, has been appointed; and finally, Mr Harker-Mortlock's direct and purposeful involvement in the creation of the trusts in contravention of the mortgages is misconduct that must attract "the clean hands principle" denying him any prospect of obtaining any equitable relief.

1. The reasons which follow assume familiarity with my previous decision.

The natural justice point

1. Rule 36.15(1) is in the following terms:

A judgment or order of the court in any proceedings may, on sufficient cause being shown, be set aside by order of the court if the judgment was given or entered, or the order was made, irregularly, illegally or against good faith.

1. There can be no doubt that an order made in violation of the rules of natural justice is irregular within the meaning of the rule. Such an order will be set aside ex debito justitae: Cameron v Cole (1944) 68 CLR 571.

1. The aspect of natural justice invoked by Mr Harker-Mortlock is the hearing rule defined by Heydon J in International Finance Trust Company Ltd v New South Wales Crime Commission [2009] HCA 49; 240 CLR 319 at 379 [141] in the following terms:

One of the primary principles on which the judicial process in this country operates is the principle that before any judicial decision is made which has substantive consequences there generally should be a "hearing". A hearing takes place before a judge at a time and place of which the moving party has given notice to the defending party. At it both parties have an opportunity to tender evidence relating to, and advance arguments in favour of, the particular orders they ask for. This aspect of the rules of natural justice pervades Australian procedural law.

At 381 [146] his Honour gave a number of illustrations of the operation of the rule including:

A court may not decide a case on a point not raised by one of the parties or by the court for the consideration of the parties. Non-compliance by a court of trial with the duty to give a hearing on a question of law which "must clearly be answered unfavourably to the aggrieved party" will not lead to a new trial, but where no hearing is given on the question whether a finding of fact turning on witness credibility should be made, it is not easy to conclude that a new trial should be refused on the ground that even if a hearing had taken place, "it could have made no possible difference to the result." ...

.... in determining whether the law should be developed in a particular direction, .... an opportunity to deal with all matters which the court regards as material [should be given to the parties]. ( Emphasis added; footnotes omitted.)

1. In developing his argument, Mr Harker-Mortlock referred to Seltsam Pty Ltd v Ghaleb [2005] NSWCA 208; 3DDCR 1 at [9] - [92]. Particular reliance was placed upon the following passage from the judgment of Ipp JA with whom Mason P agreed (at [78] - [79]):

These cases illustrate the general principle that although the basis on which the parties conduct a trial does not bind the judge, if the judge contemplates determining the case on a different basis he or she must inform the parties of this prospect so that they have an opportunity to address any new or changed issues that may arise.

A failure so to inform the parties will ordinarily result in a denial of procedural fairness. A new trial will be ordered if a party is not afforded a fair trial in circumstances where a properly conducted trial might possibly have produced a different result. It will not ordinarily be necessary to lead evidence to prove that the denial of procedural fairness had the potential to affect the outcome; in most cases the facts will speak for themselves.

1. It may also be important to bear in mind what Basten JA said at [160]:

... identifying unfairness should involve identifying a loss of opportunity to deal with a material issue which tends against the interests of the complainant. That is a factual inquiry in relation to procedural steps adopted by the Tribunal. This complaint must demonstrate that unfairness, in a practical sense, has occurred in the particular circumstances of the case.

(See also AMACA Pty Ltd v Doughan [2011] NSWCA 169 by Sackville AJA at [61] - [62] Giles and McColl JJA agreeing).

1. In Damberg v Damberg,[2001] NSWCA 87; 52 NSWLR 492 Heydon JA (as his Honour then was was) raised the question of "the extent to which the parties, by their conduct of proceedings, can prevent the court from deciding a case in accordance with the law or the facts" (518 [148]). His Honour answered that question by reference to the consideration that in adversarial litigation the parties are entitled to choose the ground on which they will fight (see his Honour's dissenting judgment in Clodumar v Naura Lands Committee [2012] HCA 22; 245 CLR 561 at 582 [66]).

1. In Pantorno v The Queen [1989] HCA 18; 166 CLR 466 at 473 Mason CJ and Brennan J said:

When the parties to an adversarial proceeding agree on a proposition of law and conduct their cases on that basis, their agreement does not bind the trial judge. If the judge determines the law to be different, he may apply the law as he determines it to be, but he must inform the parties of the view he has formed when that is necessary to give them an opportunity to address new issues arising from the judge's departure from the proposition of law on which the case was conducted. (Emphasis added)

1. Returning to Damberg, Heydon JA recognised two exceptions to the rule that the parties, and the court, are bound by the parties' conduct of the case, one of which was expressed by his Honour (at 519 [149]) in the following terms:

.... an allegation of a legal right by one party which is not denied by another cannot support a claim or defence.

Heydon JA said this exception arises out of Chilton v Corporation of London (1878) 7 Ch D 735 at 740. There, Sir George Jessel MR said:

if the right by itself is one which cannot be supported in law, it cannot entitle the Plaintiff to judgment merely because the Defendant does not deny the right. The Court is bound to give judgment according to law

1. I accept that both counsel who appeared at the original hearing (who did not include Mr D R Pritchard SC) failed to appreciate that the declarations of trust of 10th November 2008 were ineffective because, by them, the company declared that it held Blackburn and Brecon respectively on trust for itself absolutely: see previous judgment at [18] - [19] and [48] - [50]. I was taken to the instruments only in passing; I was not taken to the precise terms in which the trusts were said to have been created. Only a full reading of the declarations by me in chambers after I had reserved my decision imparted an appreciation of their meaning. However, that meaning is plain and does not depend upon any technique of construction about the application of which there could have been an argument.

1. The principle of law involved is not contestable, or developing, but is "fundamental and uncontroversial": Rix v Mahoney and Ors (No 2) [2012] NSWCA 332 by Meagher at [19]; previous judgment [49]. Had I or Counsel appreciated their mistake during the hearing, the only practical consequence that could be suggested is that Senior Counsel for Mr Harker-Mortlock may have applied for an adjournment to carry out the investigations that have been carried out since my previous judgment, to bring forward the evidence that is now brought forward (as to which see below) to demonstrate a pleadable case in rectification.

1. In passing Mr Pritchard referred to the rule of construction which favours a choice, where one is available, which "validates" the instrument being construed over another which would permit it to fail. This approach is usually expressed in the Latin maxim verba ita sunt intelligenda ut res magis valeat quam pereat. However, the approach is permissible only "in cases of real ambiguity": Drew Robinson & Co v Shearer (1914) 18 CLR 209 at 221 by Isaacs and Rich JJ. The approach does not empower a court to eschew a clearly preferable construction, linguistically speaking: IRC v Williams [1969] 1 WLR 1197 at 1201 by Megarry J (as his Lordship then was).

1. In re: Baden's Deed Trusts [1969] 2 Ch 388 was a case concerning the construction of a deed establishing a discretionary trust. At page 400 Harmon LJ (with the agreement of Karminski LJ) said:

... I am of opinion that the court is at liberty, if the considerations on both sides seem evenly balanced, to lean towards that which may effectuate rather than frustrate the settlor's intentions. This is a true application of the doctrine ut res magis valeat quam pereat. I by no means hold that the court may take this course by flying in the teeth of the provisions of the deed, so that the weaker view may prevail because it is likely to have an effectual result, but where the terms of the deed produced a balance so even as the present I am of opinion that the doctrine may be called in aid. (Emphasis Added)

1. I am not persuaded that I breached the hearing rule aspect of natural justice in my first decision for the following reasons:

(a)   the question of law was the construction of the very instruments relied upon as the foundation of Mr Harker-Mortlock's argument. They were the central evidence tendered to support it. On their face the instruments did not justify the case.

(b)   that question of law is one, for the reasons I gave in my first judgment, and to which I have referred above, "which "must clearly be answered unfavourably to the aggrieved party" i.e. Mr. Harker-Mortlock: International Finance Trust at 381 [146]; Stead v State Government Insurance Commission (1986) 161 CLR 141 at 145 - 146;

(c)   given the fundamental and uncontroversial nature of the relevant rule of law, the case is not one where it was "necessary to give [the parties] an opportunity to address new issues arising from [my] departure from the proposition of law on which the case was conducted": Pantorno at 473;

(d)   in any event, and for the same reason, the exception identified by Heydon JA in Damberg at 519 [149] based on Chilton v Corp. of London was engaged: Mr Harker-Mortlock's claim was one that could not be supported in law. That the Bank did not deny the purported creation of a trust "cannot entitle [Mr Harker-Mortlock] to judgment"based on it;

(e)   There was no practical injustice. First, because rectification was never raised it is not possible that an indefinite adjournment of an application to set aside default judgment to investigate such a case for the first time could be justified when a second interlocutory application is permissible: Nominal Defendant v Manning [2000] NSWCA 80; 50 NSWLR 139. Secondly, the clarity of the language in which the declarations of trust are expressed would not permit application of the "validate if possible" (see Rayfield v Hands [1960] Ch 1) approach to construction.

1. I refuse the application to set aside my orders under r 36.15.

A second application to set aside default judgment for possession

1. I turn then to consider the question of whether I should accede to Mr Harker-Mortlock's second application to set aside the default judgment for possession of each of Blackburn and Brecon.

1. I take it to be clearly established by decisions binding upon me that without more it is not an abuse of process for an applicant to bring a second application of an interlocutory nature seeking the same relief: Nominal Defendant v Manning [71] - [72] and [122] - [124]. The relevant authorities were considered by Davies J in Bank of Western Australia Ltd v Tannous (No 4) [2013] NSWSC 182. Like his Honour, I note the doubts expressed by Allsop P (as his Honour then was) in Fletcher v Besser [2010] NSWCA 30 at [2] about the continued authority of Manning for the regime established by the Civil Procedure Act 2005 (NSW) and particularly the efficiency provisions contained in ss 56 to 60. The point was reiterated by Barrett JA in Levy v Bablis [2012] NSWCA 128 at [20] with the agreement of Whealy and Meagher JJA.

1. However, there has been no reconsideration of Manning let alone overruling of it and it remains binding on me. Like Davies J in Tannous at [47] I agree with Bryson J (as he then was) (see Hillston v Bar-Mordecai [2002] NSWSC 477), that the Court's practice continues to be "shaped" by the decision of McLelland J in Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46. The ordinary rule of practice is that a second application of a substantive interlocutory nature should be founded on a material change of circumstance, or the discovery of new material. However, given Manning this can only be a rule of restraint in matters of practice and procedure and not a necessary condition of a second invocation of the court's interlocutory powers. Indeed, in Manning Heydon JA specifically rejected such a proposition as representing the law (at [72]).

1. In any event, Mr J M White of Counsel, who appeared for the Bank, accepted that the body of new affidavit evidence read on the second application constituted a material change of circumstances.

1. It is necessary to recap somewhat. I rejected Mr Harker-Morlock's first application to set aside the default judgment for possession because I was not satisfied that Mr Harker-Mortlock had shown that he had an arguable case on the merits "that may reasonably bring about a different result": previous judgment [46]. I arrived at this conclusion substantially because there was no trust of Blackburn and Brecon and, accordingly, no trust of the statutory causes of action said to be appurtenant to the mortgages over that real property: previous judgment [50]. Nor was there any evidence from which I could infer a pleadable case in rectification: previous judgment [19]. That has changed. The modern law of rectification has been stated by the Court of Appeal in Commissioner of Stamp Duties (NSW) v Carlenka Pty Ltd (1995) 41 NSWLR 329 by McLelland AJA (at 345):

In general, the remedy of rectification of an instrument is available where it is established by clear and convincing proof that at the time of execution of the instrument the relevant party or parties as the case may be had an actual intention (if more than one party, a common intention) as to the effect which the instrument would have which was inconsistent with the effect which the instrument as executed did have in some clearly identified way. In this context"effect" means the legal and factual operation of the instrument according to its true construction, but does not include legal or factual consequences of the operation of the instrument of a more remote, or collateral, kind (for example, its liability to stamp duty).

(See at 331 by Mahoney A-P, and at 336 by Sheller JA).

1. At this interlocutory stage it is enough that Mr Harker-Mortlock demonstrate an arguable case, in the sense of one that has a real, not fanciful, prospect of success, that the declarations of trust of 10th November 2008 will be rectified so that the trustee holds the real property on trust as part of the Trust Fund established by the Deed of Settlement of the Harker-Mortlock Family Trust. It is sufficient if the proofs proffered now persuade me that Mr Harker-Mortlock has evidence available which if led at the trial, and accepted by the trial judge, is capable of establishing an entitlement to rectification: see previous judgment [32].

1. Subject to the arguments advanced by the Bank I am satisfied from the affidavit of Mr Harker-Mortlock sworn on 26th September 2014, the affidavit of Benjamin Brady sworn on 26th September 2014, the affidavit of Roderick Storey sworn on 26th September 2014 and the affidavit of Mary Dorothy Mortlock sworn on 8th October 2014 that there is evidence available to Mr Harker-Mortlock which, if led at the trial, is capable of being accepted as the necessary "clear and convincing proof at the time of execution of [the declarations of trust]" that Mr Harker-Mortlock, and through him Mrs Mortlock, had the common intention that the declarations would constitute the company as trustee of the real property for the discretionary objects of the Harker-Mortlock Family Trust.

1. I turn then to consider the arguments of the Bank.

The Banks's arguments

1. As I tried to explain at [32] of my previous judgment "there is an obvious cross over between the court's approach to an arguable case for the purpose of setting aside a default judgment and the existence of a triable issue for the purpose of refusing summary judgment". And "[a] court satisfied that there is a sufficiently arguable case to set aside the default judgment is unlikely, at the same time, to conclude that the outcome of the litigation is sufficiently certain to justify summary judgment" at the suit of the otherside. Given the findings made above at [25]-[26], for the Bank to prevail I would have to be satisfied that its arguments were such as to "justify summary judgment". This may be expressed in various ways. One is that I would need to be satisfied that the Bank's arguments are so self-evident that it would be futile to permit Mr Harker-Mortlock to advance his otherwise arguable case.

1. It is necessary also to record the contingent finding I made at [54] of my previous judgment:

Were I satisfied that Blackburn and Brecon were assets of the Harker-Mortlock Family Trust, I would have been satisfied that the argument based upon the statutory causes of action, in their various permutations, rise to a sufficient level to create a triable issue. I would have set aside the judgment and permitted Mr Harker-Mortlock to bring the action on the principles discussed by Perram J, if that were necessary, given the insolvency of the company

I adhere to this view (see also [23] - [27] of the previous judgment).

1. The arguments advanced for the Bank are in large measure an elaboration of the arguments advanced at the first hearing, adapted to take account of the evidence that has been forthcoming about rectification. It is true that the putative trusts were created after the mortgages were entered into and the disposition of the company's interest in the real property by declaration of trust arguably constitutes a breach of its obligations under the mortgage. However, I accept Mr Pritchard's argument that at least in a material degree the Bank's arguments about this are not to the point. Essentially the argument based on Mercedes Holdings is about the standing of a beneficiary to advance the legal rights vested in the trustee, including the statutory causes of action under federal law which I am satisfied are "appurtenant" to the mortgages. I do not regard the Bank's position to be so self-evidently strong as to render the outcome of the proposed cross-claims sufficiently certain to justify summary judgment. To put it another way, the arguments are not so self-evidently strong as to render the advancement of the statutory claims futile.

1. However, as I said at [54] of my previous judgment it is not obvious that it is necessary to permit Mr Harker-Mortlock to bring the cross-claim as the evidence suggests that JHM Pty Ltd was validly appointed as new trustee by deed dated 29th October 2012. For the reasons explained by Leeming JA in Lewis v Condon [2013] NSWCA 204; 85 NSWLR 99 at [85], the new trustee is competent to vindicate the legal rights vested in the former trustee.

1. I have expressed a somewhat firm view about that matter. But my view is not so firm as to justify foreclosing any reasonably open avenue of recovery. Like so many issues in this case, much will depend upon all the facts, matters and circumstances actually proved at a hearing. And perhaps the appropriate order, subject to the Bank's last argument, is to permit Mr Harker-Mortlock to bring a derivative trustee action in the alternative to an action brought by the new trustee.

1. The final point argued by the Bank relates to the application of "the clean hands principle". Particular reliance was placed upon the decision of Campbell J (as his Honour then was) in Black Uhlans Inc v New South Wales Crime Commission [2002] NSWSC 1060. In general terms his Honour expressed the principle at [158]:

That someone who comes to equity must have clean hands is an equitable maxim. Such a maxim provides an explanation for the circumstances in which equity recognises rights, and confers remedies, across a broad range of equity's jurisdiction. The approach to the recognition of rights and conferring of remedies which the maxim articulates has resulted in various specific principles of law which are recognised as part of the substantive law of equity. The law of promissory estoppel provides one example. However, the maxim remains of ongoing importance, as a guide to how cases not governed by specific rules of substantive law ought be decided, or as a guide to how specific rules of substantive law ought be extrapolated.

1. As I have said, the Bank's case is that because Mr Harker-Mortlock is the guiding mind of the company, his conduct in causing the company to breach the mortgage by declaring that it held Blackburn and Brecon on trust is relevantly "a depravity in a legal as well as in a moral sense" which bears "an immediate and necessary relation to the equity sued for": Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184.

1. The principal right which Mr Harker-Mortlock wishes to vindicate arises under statute. Equitable maxims may inform a court's decision where there is room for discretion, but they can hardly have "direct application". However, Mr White argues that the relevant "equity" is the principle which permits a beneficiary to institute proceedings in the stead of the trustee. The main thrust of the argument is that the clean hands principle is so clear in its application to this matter that I should not permit any cross-claim which depends on that equity to proceed.

1. In the end I am of the view that the application of the principle cannot be determined as a preliminary point in an interlocutory application. Again, it seems clear that its application in a given case will depend upon all the facts, matters and circumstances actually established by evidence acceptable to the trial judge at a final hearing. A decision allowing the case to proceed does not deprive the Bank of the opportunity to raise the principle if so advised at the appropriate time, which is the hearing.

1. I am satisfied that it is appropriate to accede to the second application to set aside the default judgment and permit Mr Harker-Mortlock and JHM Pty Ltd the opportunity to defend the Bank's action and advance a cross-claim based on the statutory causes of action.

Ancillary matters

1. In my first judgment I questioned whether the company was a necessary party in the light of the appointment of the new trustee: see [55] - [57]. I now think, at this interlocutory stage, the better view is that Invest Pty Ltd (in liquidation) as registered proprietor of Blackburn and Brecon ought to be joined as a defendant as the trusts are not noted on the title to the real property.

1. Mr White argued that in the absence of further evidence from the liquidator as to his or her current attitude I should not make any order granting leave to join the company as a party. However there is simply no reason to suppose that the attitude of the liquidator as evinced by Exhibit "A" might have changed. Mr Harker-Mortlock no longer presses for the company to be joined as a moving party. And I would not permit this given the liquidators statement that the liquidation is without funding to bring any action or to make any payment of any adverse costs orders that may arise. Nor does the liquidator believe that an action by the company has any benefit for creditors as the bank "is the first ranking secured creditor in the liquidation". (Exhibit A).

1. However, unless the company is a cross-defendant, it will not be bound by any orders made on the cross-claim which may deprive Mr Harker-Mortlock and JHM Pty Ltd, if successful, of the legal advantages properly accruing to them. It seems to me necessary that the registered proprietor, as well as the Bank, as mortgagee, be parties to the cross-claim to enable any orders made by the Court in due course to be carried fully into effect in a way that binds those affected by them. Further, it seems apparent that the liquidator would not acknowledge the validity of the trusts without judgment to that effect as the liquidator has accepted the Bank's entitlements as a secured creditor.

1. In my previous judgment, I acceded to the Bank's application for summary judgment for possession against Mr Harker-Mortlock who claims to occupy Blackburn pursuant to a lease under the Residential Tenancies Act 2010. I adhere to the views expressed at [60] to [63] that the residential tenancy agreement is ineffective as against the Bank and that any contrary argument is completely untenable. However, as the effect of these reasons is that the default judgments for possession will be set aside, and Mr Harker-Mortlock and JMH Pty Ltd will be permitted to challenge the Bank's title to possession, it is appropriate that my order for summary judgment for possession against Mr Harker-Mortlock also be set aside.

1. For these reasons I make the following orders:

(1) Under r 36.16(3A) Uniform Civil Procedure Rules 2005 Orders 1, 2, 3, 4, 5, 6, 8, 10, 11 and 13 pronounced by me on 15th September 2014 are set aside;

(2)   The default judgment for the plaintiff for possession of the whole of the land comprised in folio identifier 2/1166883 situated at and known as 1380 Cooks Hill Road, Yass in the State of New South Wales is hereby set aside;

(3)   The default judgment for the plaintiff for possession of the whole of the land comprised in folio identifier 1/1105157 situated at and known as 1205 Cooks Hill Road, Yass in the State of New South Wales is hereby set aside;

(4)   Orders 7 and 9 pronounced on 15th September 2014 are confirmed;

(5)   The second defendant to have leave to re-plead a cross-claim in respect of any claim available to him in his own right and interest, and as a beneficiary of the Harker-Mortlock Family Trust within 14 days of today;

(6)   The plaintiff has leave to join JHM Pty Ltd as an additional cross-claimant to the cross-claim referred to in order 5, if so advised;

(7) Under s 471B Corporations Act 2001 (Cth) leave granted to join Iinvest Pty Ltd (In Liquidation), the first defendant, as a cross-defendant to the cross-claim.

(8)   The costs of and incidental to the hearings on 8th November 2013 and 17th October 2014 are the plaintiff's and the second defendant's costs in the cause.

(9) By consent, the Court orders pursuant to s 304 of the Duties Act1997 (NSW), the second defendant, within 48 hours of the making of this order:

(a)   transmit to the Chief Commissioner of State Revenue (at the Office of State Revenue, Lang Centre, 132 Marsden Street, Parramatta) by hand delivery the following documents, being Exhibit APG-9 to the affidavit of James Robert Harker-Mortlock sworn 21 October 2013:

(i)   deed of settlement establishing the Harker-Mortlock Family Trust dated 10 November 2008;

(ii)   declaration of trust dated 10 November 2008 executed for and on behalf of Iinvest Pty Limited in respect of the property known as "Brecon", Cooks Hill Road, Yass and contained in certificate of title Folio Identifier 1/1105157; and

(iii)   declaration of trust dated 10 November 2008 executed for and on behalf of Iinvest Pty Limited in respect of the property known as "Blackburn", Cooks Hill Road, Yass and contained in certificates of title Folio Identifiers 102/1083908, 1/835351, 2/38531 and 2/1105157; and

(iv)   a copy of this order; and

(b)   provide written notice to the liquidator of Iinvest Pty Limited (in liquidation), at the offices of the liquidator, that the second defendant has made the transmission to the Chief Commissioner in accordance with paragraph (a).

(10)   Reserve liberty to the parties to apply in respect of these orders to be exercised by notice given no later than 5 p.m. Tuesday 25th November 2014.

**********

Amendments

01 December 2014 - Renumbering

Amended paragraphs: 43

Decision last updated: 01 December 2014