France v Siekaup (No 3)

[2021] NSWSC 497

Supreme Court

New South Wales

Medium Neutral Citation:

France v Siekaup (No 3) [2021] NSWSC 497

Hearing dates:

26 April 2021 and 3 May 2021

Decision date:

07 May 2021

Jurisdiction:

Equity - Duty List

Before:

Henry J

Decision:

Limitation on freezing orders sought by the defendants refused.

Catchwords:

CIVIL PROCEDURE – interim preservation – freezing orders – ambit and extent – where second defendant misdescribed as trustee for incorrect trust – whether property held by trustee company for the misdescribed trust caught by freezing order

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 64

Uniform Civil Procedure Rules 2005, rr 36.16, 36.17

Cases Cited:

ASIC v Sigalla (No 4) (2011) 80 NSWLR 113; [2011] NSWSC 62

Brown Brothers Waste Contractors Pty Ltd v Pittwater Council (2015) 90 NSWLR 717; [2015] NSWCA 215

DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510

Federal Bank of the Middle East Ltd v Hadkinson [2000] 1 WLR 1695; [2000] 2 All ER 395

General Credits Limited v Tawilla Pty Ltd [1984] 1 Qd R 388

Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 773

McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623

Octavo Investments v Knight (1979) 144 CLR 360; [1979] HCA 61

Provident Capital Ltd v Zone Developments Pty Ltd [2001] NSWSC 843

R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59

Texts Cited:

Nil

Category:

Procedural rulings

Parties:

Margaret Ann France (Plaintiff)
Karin Elisabeth Siekaup (First Defendant)
Sieve-Storm Pty Ltd ACN 160 562 354 atf Affordable Property Trust (Second Defendant)

Representation:

Counsel:
M Klooster (Plaintiff)
S Bell (Defendants)

Solicitors:
Cordato Partners Lawyers (Plaintiff)
Ian B Mitchell & Associates (Defendants)

File Number(s):

2018/323180

Publication restriction:

Nil

Judgment

1. These reasons relate to a dispute between the parties about the ambit and extent of the freezing order made against the second defendant by Robb J on 26 March 2021 (as extended until further order of the Court) over trust assets held by Sieve-Storm Pty Ltd.

2. The dispute has arisen in the following context: the plaintiff has a judgment in its favour; the second defendant is described in the proceedings, incorrectly, as “Sieve-Storm Pty Ltd ACN 160 562 354 as trustee for the Affordable Property Trust”; the freezing order sought by the plaintiff was directed to and made by Robb J against Sieve-Storm Pty Ltd; and the only assets which appear to be left in Sieve-Storm Pty Ltd’s name are real property assets of the Sieve-Storm Trust.

3. The defendants contend that the freezing order should be limited to the trust assets held by Sieve-Storm Pty Ltd as trustee of the Affordable Property Trust and not extend to the assets held by it as trustee of the Sieve-Storm Trust. The plaintiff says that the freezing order should not be limited in that way as it applies to all assets held by Sieve-Storm Pty Ltd, including any assets of whatever trusts it may be a trustee of.

4. The issue of the ambit and extent of the freezing orders was listed for a short hearing before me as duty judge on 26 April 2021. Following that hearing, I extended the freezing order until 3 May 2021 and directed the parties to provide further submissions and the plaintiff to serve any application to amend the name of the second defendant. After further argument on 3 May 2021, I extended the freezing order until further order of the Court and indicated that I would come back to the parties when I was in a position to give a decision, which I have today. These are my reasons on the issue raised.

5. The background facts are not in dispute. I have set them out below as they assist in understanding how the issue has arisen and my reasons for concluding that the freezing order should not be limited in the manner contended for by the defendants. I have, however, come to the view that the freezing order is ambiguous.

Background

6. These proceedings were commenced on 22 October 2018 by a statement of claim that identified the second defendant as “Stieve-Storm Pty Ltd ACN 160 562 354” in the title to the proceedings. At no time since the filing of the statement of claim has the pleading referred to or pleaded that the second defendant was acting in a trustee capacity.

7. In the proceedings, the plaintiff made claims in relation to two properties, one at 9 O’Toole Street, Weston (Weston Property) and the other at 30–32 West Street, Barraba (Barraba Property). Both were owned by the plaintiff and transferred to the second defendant. The contracts for sale of the Weston and Barraba Properties identified that they were entered into by the plaintiff, as vendor, and Sieve-Storm Pty Limited as trustee for the Sieve-Storm Trust, as purchaser. At the time the proceedings were commenced, the plaintiff’s solicitor had not seen the contracts for sale.

8. On 24 October 2018, the defendants’ solicitor advised the plaintiff’s solicitor that they had “misdescribed the second defendant”, although he did not identify in what way the second defendant had been misdescribed.

9. On 4 December 2018, the plaintiff filed an amended statement of claim which identified the second defendant as “Stieve-Storm Pty Limited as trustee for Affordable Property Trust” in the title to the proceedings. This amendment was based on a document seen by the plaintiff’s solicitor that identified Sieve-Storm Pty Ltd as trustee of the Affordable Property Trust. From that time, the misdescription of the trust went unnoticed by the plaintiff. It was also not corrected by the defendants. It was common ground before me that the second defendant should have been described as Sieve-Storm Pty Ltd as trustee for the Sieve-Storm Trust.

10. On 16 January 2019, a notice of appearance and defence to the amended statement of claim was filed on behalf of the defendants. The defence identifies the second defendant as “Sieve-Storm Pty Ltd atf Affordable Property Trust” in the title to the proceedings and filing details of the cover page. The affidavit verifying the defence was sworn by the first defendant on behalf of Sieve-Storm Pty Ltd. The defence admits that the second defendant was the registered proprietor of the Weston and Barraba Properties but does not plead that the second defendant was acting as a trustee.

11. On 17 September 2020, the plaintiff obtained judgment against both defendants after a final hearing before Parker J. His Honour’s reasons identify Sieve-Storm Pty Ltd as the second defendant on the title page and at [2] but does not identify it in any trustee capacity. His Honour’s orders provide that “judgment be entered for the plaintiff in the sum of $272,421”.

12. The Judgment/Order issued by the Court on 5 February 2021 identifies Sieve-Storm Pty Ltd as trustee for the Affordable Property Trust as the second defendant in the title to the proceedings and in the terms of the Judgment/Order itself.

13. As at 17 September 2020, Sieve-Storm Pty Ltd was the registered proprietor of the Weston and Barraba Properties, a property on Turner Street, Denman (Denman property) and a property on Fifth Street, Weston. The two properties in Weston were sold in December 2020 and in March 2021. The plaintiff did not take any enforcement action pending an appeal brought by the second defendant that is set down for final hearing in the Court of Appeal on 22 June 2021. Sieve-Storm Pty Ltd as trustee for the Affordable Properties Trust is identified as an appellant on the title page of the notice of appeal and amended notice of appeal.

14. On 26 March 2021, the plaintiff sought the freezing order against the second defendant on an ex parte basis because it became aware that real property held in the name of Sieve-Storm Pty Limited had been sold after judgment. The court file records that the orders made by Robb J in chambers on 26 March 2021 include:

5. A freezing order against the Second Defendant in terms of the draft order annexed to this Notice of Motion and marked “A” to the effect that the Second Defendant be restrained from removing from Australia, or in any way disposing of, dealing with, or diminishing the value of his, her or its assets within Australia to the unencumbered value of $281,130.93.

15. The notice of motion seeking the freezing order and proposed short minutes of order identify Sieve-Storm Pty Ltd as the second defendant. The penal notice is also directed to Sieve-Storm Pty Ltd.

16. The freezing order adopts the standard form of order as set out in Practice Note SC Gen 14 with some variations. Order 6, which relates to the freezing of assets, is in the same form but refers to the unencumbered value of AUD$281,130.83. Order 7 states:

For the purposes of this order,

(a)   Your assets include:

(i)   all your assets, whether or not they are in your name and whether they are solely or co-owned;

(ii)   any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and

(b)   The value of your assets is the value of the interest you have individually in your assets.

17. The Judgment/Order issued at 5:44 pm on 26 March 2021 in relation to the freezing order identifies the second defendant as “Sieve-Storm Pty Ltd atf Affordable Property Trust” in the title to the proceedings but otherwise refers to the Second Defendant.

18. The freezing order was extended by consent on 1 April 2021 and 8 April 2021.

19. On 22 April 2021, the defendants’ counsel indicated to the Court that the defendants agreed to a further extension to the freezing order subject to one point of clarification, namely, to make clear that the defendants take the freezing order as being made against the assets of the Affordable Property Trust, noting that Sieve-Storm Pty Ltd was the trustee of more than one trust. Based on the transcript, it seems that the defendants’ counsel was seeking to have the freezing order varied or noted as being limited to Sieve-Storm Pty Ltd’s role in relation to the Affordable Property Trust. Orders were made by consent extending the freezing order and for the matter to be listed before the duty judge to resolve the issue as to the ambit and extent of the freezing order over the trust assets. The plaintiff was directed to file an affidavit on the issue and the parties were to serve short written submissions, which they have done.

20. According to the evidence of the first defendant, Sieve-Storm Pty Ltd does not trade in its own right and the Barraba and Denman properties are held in the Sieve-Storm Trust. The Barraba Property is presently vacant, is estimated to have a sale value of $100,000 and is mortgaged to Westpac in the sum of $105,000.

21. The Denman property was purchased in November 2015 for $298,000.

Consideration

22. The plaintiff submits that the freezing order should not be limited in the manner sought by the defendants and should continue in its current form. She submits that the freezing order does not delineate between any trusts but simply refers to Sieve-Storm Pty Ltd as the second defendant. On that basis, she contends that the freezing order attaches to all the assets held by Sieve-Storm Pty Ltd, including assets held for whatever trusts it may be a trustee of, and restrains it from disposing of any real property in its name.

23. The plaintiff submits that the freezing order should be interpreted in that way because, unlike a company, a trust is not a separate legal entity or recognised as having an additional or qualified legal personality, referring to Octavo Investments v Knight (1979) 144 CLR 360 at 367–368; [1979] HCA 61 (Octavo Investments). I was also referred to the observation of Young CJ in Eq in Provident Capital Ltd v Zone Developments Pty Ltd [2001] NSWSC 843 (Provident Capital) at [49] where he stated:

Indeed, there does not appear to have been any proper analysis on the plaintiffs’ side as to what one is really doing when one takes property in the name of X as trustee for Y. I note commercially it is done very often, and accounting firms evidently recommend it. But when one is dealing with a significant amount of property one has to deal with these questions as matters of law and not as matters of accounting practice.

24. The plaintiff also submits that the defendants’ application to limit the freezing order should be refused as it appears that the only real property left are assets of the Sieve-Storm Trust, the misdescription of Sieve-Storm Pty Ltd as trustee for the Affordable Property Trust arose out of a mistaken impression on the part of the plaintiff’s solicitor, and it is common ground that the correct trust, to the extent it exists, is the Sieve-Storm trust.

25. The defendants’ position that the freezing order should be limited relies on the description of the second defendant as Sieve-Storm Pty Ltd as trustee for the Affordable Properties Trust, particularly in the Further Amended Statement of Claim filed on 6 August 2019 and the Judgment/Order issued on 5 February 2021. They say that, as the second defendant was sued in its capacity as trustee of a particular trust, the freezing order is effective to deal with the assets of that trust only and not the assets of any other trusts. They also argue that where a company trades on behalf of a trust, the company can only be sued to the extent of the assets of that trust, referring to Provident Capital at [52] which cites McLean v Burns Philp Trustee Co Pty Ltd (1985) 2 NSWLR 623.

26. It is a question of fact as to whether a company that trades on behalf of a trust can only be sued to the extent of the trust assets: ProvidentCapital at [52]. A trustee can limit their liability to the assets of a trust but can only do so by clear words of limitation. A description of a person as a trustee identifies the legal person to whom the trust and trust property relate but does not reflect a mutual intention that the person’s liability be limited to the assets of the trust: Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 773 at 778.

27. A trustee sued for a debt incurred by it in its capacity as trustee is not, by reason of the trusteeship, only sued in a representative capacity. The liability asserted against a trustee is a personal liability for that debt. The trustee is entitled to be indemnified against that liability from the trust assets they hold. For the purposes of enforcing the indemnity, the trustee possesses a charge or lien over trust assets which amounts to a proprietary right and a beneficial interest in the trust assets: Octavo Investments at 367. That right of indemnity continues after the trustee ceases to act in that position.

28. A judgment creditor, such as the plaintiff, has limited rights against trust assets. Ordinarily, trust assets cannot be taken in execution even though the judgment is against a trustee. However, a judgment creditor may have an indirect claim against the trust assets by way of subrogation to the right of indemnity of the trustee: General Credits Ltd v Tawilla Pty Ltd [1984] 1 Qd R 388 at 389.

29. In this case, there is no dispute that Sieve-Storm Pty Ltd is personally liable for the judgment debt. The defendants accept that the freezing order applies to any assets of Sieve-Storm Pty Ltd “itself” as well as to the assets of the Affordable Property Trust.

30. White J observed in ASIC v Sigalla (No 4) (2011) 80 NSWLR 113; [2011] NSWSC 62 (ASIC v Sigalla (No 4)) at [129] that a trust asset is the property of the trustee. Where assets are held on trust, the interest of the beneficial owner is imposed on the interest of the trustee as legal owner. In that way, the assets belong to both the legal and beneficial owners: DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510 at 519.

31. Applying that approach, the words “your assets” in the freezing order would extend to all the assets in respect of which Sieve-Storm Pty Ltd is the registered proprietor and holds legal title, including the assets of the Sieve-Storm Trust, notwithstanding that it was incorrectly identified in the proceedings as trustee for the Affordable Property Trust.

32. It also seems to me to be seriously arguable that, as a matter of fact, Sieve-Storm Pty Ltd incurred the judgment debt in its capacity as trustee for the Sieve-Storm Trust. The judgment arose out of a claim founded on business transactions entered into by Sieve-Storm Pty Ltd seemingly in discharge of its trustee duties, namely the purchase of the Weston and Barraba Properties as trustee for the Sieve-Storm Trust. It would follow that there must be a reasonable basis for an argument that Sieve-Storm Pty Ltd has a right of indemnification out of the trust assets of the Sieve-Storm Trust in respect of the judgment debt, which right has priority over the rights of beneficiaries to receive the trust assets: Octavo Investments at 369–370. If that is the case, then Sieve-Storm Pty Ltd would also have a beneficial interest in the assets of the Sieve-Storm Trust and they would form part of “your assets” for the purposes of the freezing order even though those assets held by Sieve-Storm Pty Ltd as trustee: ASIC v Sigalla(No 4) at [143]–[145].

33. It will be a matter for the second defendant to exercise what rights of indemnity are available to it in respect of any assets it holds and how it chooses to discharge the judgment debt due to the plaintiff. As there are assets in the Sieve-Storm Trust, it may choose (if entitled) to exercise its right of indemnity over part of them. In my view, the limitation for which the defendants contend, which would not freeze assets over which Sieve-Storm Pty Ltd may have recourse to in satisfying the judgment debt, creates a risk that the plaintiff’s rights might be defeated in this case. This is particularly in circumstances where the plaintiff has not had an opportunity to investigate the trust arrangements relating to the assets of the Sieve-Storm Trust.

34. For the above reasons, in my view, it is open to construe the freezing order as extending to the assets of the Sieve-Storm Trust, as the plaintiff contends.

35. Further, to the extent that the defendants seek additional words to be included in the freezing order that provide for it to only apply to assets held by Sieve-Storm Pty Ltd as trustee for the Affordable Property Trust, I am not persuaded that such a limitation is warranted in this case. As noted above, there is no pleading that the second defendant acted in a trustee capacity. The contracts for sale of the two properties in respect of which judgment was made in the proceedings identified that the purchaser was Sieve-Storm Pty Ltd as trustee for the Sieve-Storm Trust and the parties agreed that the second defendant was incorrectly identified. But for the misdescription, this issue would not have arisen. It also seems to me that, if the mistake had been identified to the Court or the plaintiff at the hearing, it would have been corrected as a matter of course and not led to any prejudice on the part of the defendants.

36. That said, I am also of the view that the freezing order is ambiguous. Like an injunction, a failure to comply with the freezing order would expose the second defendant to significant consequences. Thus, the freezing order needs to be drafted in clear and unambiguous terms that leave no room for doubt as to whether or not any future conduct will fall within the scope or boundaries of the order: Brown Brothers Waste Contractors Pty Ltd v Pittwater Council (2015) 90 NSWLR 717; [2015] NSWCA 215 at [165].

37. As White J observed in ASIC v Sigalla (No 4), there is competing authority on whether the words “his assets and/or funds” in a freezing order refer to assets belonging to a defendant and extend to assets in a defendant’s name which they do not own beneficially: Federal Bank of the Middle East Ltd v Hadkinson [2000] 1 WLR 1695; [2000] 2 All ER 395; R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59.

24. As a general matter, I am also inclined to the view that it is not unreasonable for a defendant that is a trustee of multiple trusts and sued in proceedings in its capacity as trustee of only one trust to interpret a freezing order made against it in those proceedings as not extending to the assets it holds as trustee of the other trusts unless there are words in the order that make that clear.

25. Further, there is ambiguity arising from the references to Sieve-Storm Pty Ltd as trustee for the Affordable Property Trust as the second defendant in these proceedings. The decision to describe the second defendant in a manner inconsistent with the other documents filed in the proceedings when seeking the freezing order made on 26 March 2021 has justifiably led to some confusion on the part of the defendants.

26. At the hearing on 26 April 2021, plaintiff’s counsel contended that, even though the proper second defendant is Sieve-Storm Pty Ltd as trustee for the Sieve-Storm Trust, it was unnecessary to make any application to amend the rectify the mistake. This was said to be because there is a current appeal and any amendment could be dealt with in that jurisdiction.

27. At the resumed hearing on 3 May 2021, the plaintiff maintained that a variation to the freezing order was unnecessary but also made an application to amend the title page of the freezing orders issued on 26 March 2021 to remove the words “atf Affordable Property Trust” from the description of the second defendant in the title of the proceedings to avoid any confusion on the part of the second defendant. The application was made pursuant to s 64(4) of the Civil Procedure Act 2005 (NSW).

28. The defendants object to an amendment being made to the description of the second defendant on the title page of the freezing order or to any other references to the second defendant in the proceedings. They argue that the Court does not have power to do so as it would involve an amendment to an order or judgment, relying on s 64(5) of the Civil Procedure Act.

29. The conclusion I have come to is that the amendment proposed by the plaintiff to delete the words “atf Affordable Property Trust” in the description of the second defendant is of little utility. The confusion and ambiguity arise not from the reference on the title page to the freezing order but from the multiple references to the second defendant in the wrong trustee capacity throughout the proceedings and the question of how freezing orders should be construed in respect of trust assets more generally.

30. I am also of the view that it would be preferable to rectify the mistaken description of the second defendant in all of the records of the proceedings which would require an amendment to the terms of the Judgment/Order issued in favour of the plaintiff on 5 February 2021. I am not persuaded that I have the power to amend the Judgment/Order under s 64(5) of the Civil Procedure Act or r 36.16(3) of the Uniform Civil Procedure Rules (UCPR) and no application was made by the plaintiff for the Court to amend the judgment or freezing order under the slip rule: UCPR, r 36.17.

31. In sum, I do not consider that the freezing order should be limited in the manner contended for by the defendants although I accept there is ambiguity with the freezing orders as drafted. It will be a matter for the parties to decide whether to make an application to vary the freezing order based on these reasons. I should record that, subject to hearing from the parties, I would grant leave to the plaintiff to do so on an urgent basis if it wishes to clarify that the freezing order extends to the assets held by Sieve-Storm Pty Ltd as trustee for the Sieve-Storm Trust.

32. I will hear the parties on the issue of costs.

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Decision last updated: 07 May 2021