Holden v Kukuy (No 2); Re Jay Invest Property Pty Ltd (in liq)
[2023] VSC 54
•28 February 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2020 04194
| IN THE MATTER OF JAY INVEST PROPERTY PTY LTD (IN LIQUIDATION) (ACN 609 003 296) | |
| TIMOTHY MARK SHUTTLEWORTH HOLDEN (AS LIQUIDATOR OF JAY INVEST PROPERTY PTY LTD (IN LIQUIDATION) (ACN 609 003 296)) | 1st plaintiff |
| AND | |
| JAY INVEST PROPERTY PTY LTD (IN LIQUIDATION) (ACN 609 003 296) | 2nd plaintiff |
| v | |
| JULIA KUKUY | Defendant |
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JUDGE: | Elliott J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 13, 14 December 2022 |
DATE OF JUDGMENT: | 28 February 2023 |
CASE MAY BE CITED AS: | Holden v Kukuy (No 2); Re Jay Invest Property Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 54 |
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CORPORATIONS – Liquidation of trustee company – Application by liquidator for appointment as receiver and manager of trust – Company acting as bare trustee – Trustee’s right of indemnity – Appointment of receiver without security – Application allowed – Corporations Act 2001 (Cth), ss 418, 477(2), 556; Schedule 2 Insolvency Practice Schedule (Corporations), ss 90-15, 90-20 – Supreme Court Act 1986 (Vic), s 37 – Supreme Court (General Civil Procedure) Rules 2015 (Vic), rr 36.01, 39.02, 39.05.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | C Rome-Sievers | Baker Jones |
| For the defendant | J Kukuy (self-represented) (for part of the hearing) | – |
HIS HONOUR:
IntroductionA.
This is a case in which the mis-conceived governance of a corporate trustee and the bare assertions and dilatory conduct of its director have resulted in an application by a court-appointed liquidator to sell and realise trust assets.
Broadly speaking, the plaintiffs, Timothy Mark Shuttleworth Holden (“Holden”) as liquidator, and Jay Invest Property Pty Ltd (in liquidation) (“the Company”), have sought orders and directions pursuant to sections 90-15 and 90-20 of the Insolvency Practice Schedule (Corporations) in Schedule 2 of the Corporations Act 2001 (Cth) (“Schedule 2”), section 37 of the Supreme Court Act 1986 (Vic), rules 39.02 and 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (“the Rules”) and the inherent jurisdiction of this court. These were sought to preserve, realise and distribute the assets of the Jay Property Trust (“the Trust”) and to have Holden appointed as receiver of the assets and undertakings of the Trust, amongst other orders and directions.
For the reasons to follow, orders and directions will be made to the substantive effect ultimately sought.
BackgroundB.
B.1 Incorporation of the Company and the execution of the Trust Deed
On 28 October 2015, the Company was incorporated. The defendant, Julia Kukuy (“Kukuy”), was and is the sole director, secretary and shareholder of the Company.
On the date of its incorporation, Kukuy, as the sole director of the Company, passed a series of resolutions confirming the establishment of a discretionary family trust. The resolutions relevantly state:
… [W]here it is recorded in writing by the Company, all acts matters and things including but not limited to the conduct of any business or the making of any investment [are] undertaken by the Company in its fiduciary capacity as trustee of [the Trust] and not otherwise.
…
… [T]he Company from the date hereof and until and unless otherwise determined in writing shall enter all transactions, agreements, arrangements and undertakings in its capacity as [t]rustee(s) of [the Trust] and for the exclusive benefit of the said Trust.
…
… [T]he Company in its capacity as trustee(s) of [the Trust] open a bank account and that the authorised signatory(ies) be Julia Kukuy.
On 29 October 2015, the Jay Property Trust deed was executed by Kukuy on behalf of the Company and by Bella Kukuy (Kukuy’s mother) as settlor of the Trust (“the Trust Deed”). According to the second schedule of the Trust Deed, the primary beneficiaries of the Trust are Kukuy and Zarah Feldman (Kukuy’s daughter, who is a minor) and any children and future children thereof. Notably, Bella Kukuy is listed as both the settlor and appointor of the Trust in the second schedule to the Trust Deed. The second schedule includes:
Item
Description
Details
Item 1
Name of Settlor
BELLA KUKUY
of [residential address]Item 2
Name of Trustee(s)
JAY INVEST PROPERTY PTY LTD (ACN 609003296)
of [company address]Item 3
Amount of Settled Sum
$10.00
Item 4
Name of this Trust
JAY PROPERTY TRUST
Item 5
Names of primary beneficiaries
JULIA KUKUY
ZARAH FELDMAN
and any children and future children thereof.
Item 6
General Beneficiaries
(optional)
The beneficiaries as set out in Clause 21 of this deed.[1]
Item 7
Names of default beneficiaries
(optional)
At the date of this Deed no person has been included.
Item 8
Additional members of the excluded class
(optional)
At the date of this Deed no person has been included in this class.
Item 9
Names of First Appointor(s)
BELLA KUKUY
of [residential address]
[1]Clause 21 included a large number of different classes of beneficiaries, including the primary beneficiaries.
…
Clause 35 of the Trust Deed sets out the circumstances in which the office of the trustee would cease:
35 Vacation of office. The office of Trustee will be determined and vacated if:
…
(3)the Trustee is unable to administer the Trust or the Trust assets because of the Trustee’s mental incapacity;
…
(11)an order is made or a resolution passed for the winding up, or the dissolution without winding up, of the Trustee other than for the purpose of reconstruction or amalgamation;
(12)the Appointor by deed removes the Trustee.
Clause 36 of the Trust Deed enables the appointment of a new trustee:
36 Appointment of new trustee. The place of the Trustee who retires, resigns or is removed may be filled by a sole appointment or the appointment of more than one Trustee.
Under the terms of the Trust Deed, the trustee has rights of reimbursement, indemnity, recoupment and exoneration out of the trust assets against liabilities properly incurred by it or arising from administering the trust:
63 Trustee’s rights to reimbursement, indemnity and recoupment. Subject to the preceding clause, the Trustee has rights of reimbursement, indemnity, recoupment and exoneration out of the Trust assets against liabilities properly incurred by it or arising from administering the Trust and, for these purposes, it may reimburse itself out of capital or income as it may decide.
…
66Priority. The Trustee may retain and pay its costs and expenses, including its rights to reimbursement, indemnity, recoupment, exoneration and remuneration, out of Trust assets in priority to any claim by beneficiaries.
Clause 84 of the Trust Deed stipulates that “[t]he Settlor is ineligible to be appointed as Appointor”.
In the months after the Company’s incorporation and the execution of the Trust Deed, Kukuy, in her capacity as director of the Company, secured a loan from the Commonwealth Bank of Australia (“the Commonwealth Bank”) and opened 3 accounts with the Commonwealth Bank in the name of the Company, in its capacity as trustee for the Trust.
On 13 January 2016, the Company became the registered proprietor of a unit in Brighton, Victoria (“the Brighton Property”). The Brighton Property is held by the Company on trust.[2]
[2]The capacity in which the Company holds the Brighton Property is discussed further in pars 49, 56-58 below.
Kukuy managed the affairs of the Company for approximately 2 further years. However, for reasons it is unnecessary to explore, at the end of this period the Australian Securities and Investments Commission (“the Commission”) commenced a strike-off action against the Company.
B.2 Deed of Appointment and Removal
On 18 January 2018, shortly after the Commission commenced the strike-off application, Bella Kukuy (as appointor) purportedly removed the Company as trustee for the Trust and appointed Kukuy as the new trustee.
Under the terms of the deed of appointment and removal of trustees (“the Deed of Appointment and Removal”), “Trust Property” was defined as all property presently vested in the trustee as trustee for the Trust. By clause 3.2 of the Deed of Appointment and Removal, the Company agreed to do all things necessary to transfer the legal title of the Trust Property to the new trustee (that is, Kukuy). By clause 3.3, Kukuy agreed to do all things necessary to secure herself legal title to the Trust Property and all things reasonably required to enable her to assume and carry out her duties as trustee for the Trust.
Thus, on their face, the terms of the Deed of Appointment and Removal required Kukuy, as the individual in control of the Company and purportedly appointed as the new trustee of the Trust, to take the necessary steps to transfer the Brighton Property into her name as trustee, engage with the Commonwealth Bank to assume the loan secured against the Brighton Property and move the funds held in the Company’s bank accounts to accounts held in her own name as trustee. However, she did not do so. At trial, counsel for the plaintiffs pointed to this example as 1 of several “ramp off” opportunities in which the current application to sell the Brighton Property could have been avoided.[3]
[3]However, contrary to this submission, Kukuy was not validly appointed as trustee of the Trust and therefore did not have the authority to transfer the Brighton Property into her own name: see pars 44-47 below.
As a result of Kukuy not transferring the Trust Property into her own name as the purported new trustee for the Trust, the Company remained the registered proprietor of the Brighton Property and continued to incur liabilities in the form of municipal rates and owners’ corporation fees, which went unpaid on an ongoing basis. Kukuy’s solicitors later informed the court that the reason the owners’ corporation fees remained unpaid was that Kukuy disputed them.
B.3 Appointment of a liquidator
The Company was subsequently deregistered by the Commission pursuant to section 601AB of the Corporations Act. However, the Company was later reinstated on 6 September 2019 by an order of Gardiner AsJ, following an application by a body corporate creditor. His Honour also made orders for the winding up of the Company, including for Holden’s appointment as liquidator (“the Winding Up Orders”).
Following Holden’s appointment as liquidator, Kukuy’s then-solicitors, Lander & Rogers, contacted Holden and his solicitors about approximately $430,000 held in the Company’s Commonwealth Bank Mortgage Interest Saver Account (“the Saver Account”). By her solicitors, Kukuy asserted that the funds were not the property of the Trust and were instead held strictly on trust for Kukuy’s parents, Bella and Leon.
On 20 December 2019, Kukuy contacted Holden by telephone and requested access to the funds held in the Saver Account.[4] Soon after this conversation, Holden requested documents to support Kukuy’s claim in respect of the funds in the Saver Account, including copies of financial statements and evidence of the source of the funds. Despite repeated requests, Holden did not receive any documentary evidence in support of this claim.
[4]As shown in fn 17 below, funds in the Saver Account had already been transferred into Kukuy’s personal Commonwealth Bank account by 20 December 2019.
On 16 March 2020, Kukuy then asserted that the funds in the Saver Account were the property of JF Global Consulting Pty Ltd (“JF Global Consulting”), a now deregistered company of which Kukuy was the sole director. JF Global Consulting was trustee for the JF Management Consulting Trust. Kukuy’s solicitors provided Holden with JF Global Consulting’s Westpac Banking Corporation Business Flexi account statement for the period from 30 November 2015 to 31 December 2015, which showed $450,000 being debited from that account on 15 December 2015. A receipt was also provided showing $450,000 being credited into the Saver Account on the same date. In subsequent correspondence, Kukuy referred to the moneys as “over $400,000 of my parents’ retirement funds” and as “private Julia Kukuy” savings.
In early 2020, solicitors for Holden and Kukuy corresponded about the possibility of Kukuy making an application to terminate the winding up or to set aside the Winding Up Orders. On 6 March 2020, Holden’s solicitors, Baker Jones, wrote to Lander & Rogers and highlighted the potential need to bring an application before this court for Holden to be appointed receiver of the assets of the Trust with the power to sell the trust property. Baker Jones suggested the following practical alternative course:
Having regard for the substantial costs of bringing a Court application (as against the value of the trust liabilities), our client considers that the more commercial approach would be for your client to bring an application to have the liquidation terminated pursuant to [s]ection 482 of the [Corporations Act]. Such an application would need to provide for approximately $20,000 in creditor claims, and approximately $40,000 for the costs of the liquidation to date. More precise details of these approximations can be provided on request, should your client be prepared to take that path.
On 17 March 2020, Lander & Rogers confirmed that Kukuy intended to make such an application or, alternatively, an application to set aside the Winding Up Orders, and that they were collating the requisite information and documents to prepare the application. It was also noted that Kukuy was “very unwell” and required medical attention. Holden’s patience in the matter was requested.
Kukuy’s foreshadowed application to terminate the winding up or set aside the Winding Up Orders did not eventuate. In an affidavit prepared for the purpose of this proceeding, Holden deposed that he and his solicitors did not receive any further correspondence from Lander & Rogers after April 2020. Lander & Rogers ceased acting for Kukuy prior to the commencement of this proceeding.
B.4 Procedural history
On 9 November 2020, approximately 6 months after communications between Holden’s and Kukuy’s solicitors ceased, this proceeding was commenced by originating process.
Self-evidently, more than 2 years have passed since the originating process was filed. As has been explained elsewhere,[5] the interlocutory history of this proceeding has been protracted and numerous opportunities have been afforded to Kukuy to file and serve her evidence which, ultimately, have not been acted upon.[6] It is necessary to revisit some of those matters presently.
[5]Holden v Kukuy; Re Jay Invest Property Pty Ltd (in liq) [2022] VSC 796.
[6]Ibid, [12]-[21].
On 22 December 2021, Bella Kukuy made an application in a related proceeding (S ECI 2021 0487) to terminate the winding up of the Company (“the Termination Application”). This was made in the context where some of the Company’s debts had been paid. Bella Kukuy’s then-solicitors, Efron & Associates, informed the court that Holden’s remuneration and disbursements would also be paid into a joint trust account within 7 days of that account being opened, and an application to review Holden’s remuneration would be made shortly thereafter. However, payment of Holden’s remuneration and disbursements did not occur.
At a directions hearing in October 2022, the court was informed that the Termination Application was not presently being pursued by Bella Kukuy. The plaintiffs submitted that the Termination Application was one of many “false starts” that contributed to the delay of this proceeding and the increase in Holden’s costs as liquidator. Kukuy’s changes in legal representation and applications to the Victorian Civil and Administrative Tribunal were referred to by the plaintiffs’ counsel as other examples of “false starts” or causes of delay in the proceeding.
For approximately 10 months between August 2021 and June 2022, and again for a short period between September and October 2022, Kukuy was legally represented in this proceeding.[7] From 5 April 2022 until 24 November 2022, Kukuy was the subject of guardianship and administration orders issued by the Victorian Civil and Administrative Tribunal, which required her guardian and administrator (first her mother, then her father) to appear on her behalf in this proceeding.[8] However, pursuant to an application made by Kukuy and supported by her father, from 24 November 2022, Kukuy’s capacity to act for herself was reinstated.[9]
[7]Ibid, [19].
[8]Ibid, [20].
[9]On the same date, pursuant to s 159(1)(a), (c) of the Guardianship and Administration Act 2019 (Vic), Leon Kukuy was appointed supportive guardian and administrator for Kukuy.
At trial, Kukuy was self-represented. She did not file any evidence in the proceeding in support of her case. On the first day of trial,[10] she made an application to stay the proceeding for an indefinite period of time to seek leave to appeal the Winding Up Orders made by Gardiner AsJ in September 2019. That application was refused and the trial continued that same day.[11]
[10]Being the second occasion on which the trial was scheduled to commence. The trial was adjourned on 29 November 2022 because the court received an email from Kukuy attaching a medical certificate stating that she had contracted COVID-19.
[11]Holden v Kukuy; Re Jay Invest Property Pty Ltd (in liq) [2022] VSC 796, [27].
Kukuy did not attend court on the second day of the trial.[12] By way of explanation, at approximately 10.32 am her father, Leon Kukuy, in his capacity as her supportive guardian, emailed the court and the plaintiffs’ legal representatives. The email stated that Kukuy was dealing with a “life crisis emergency situation” and that the police and life crisis services had been contacted. The email was read out by counsel for the plaintiffs in open court and the trial proceeded. Holden and his solicitor, David Baker (“Baker”) were sworn and examined in chief but were not the subject of any cross-examination.
[12]Kukuy also did not attend some parts of the trial the afternoon before, as she chose to leave the court room and then later returned. Her father remained present at the bar table on that day.
Kukuy did not raise any objections in respect of the plaintiffs’ evidence as ultimately relied upon.[13] Detailed written submissions were also filed on behalf of the plaintiffs.
[13]The plaintiffs initially sought to rely on a further affidavit of Baker sworn 29 November 2022, however, reliance on this affidavit was ultimately withdrawn following an objection made by Kukuy at trial.
B.5 Holden’s investigations
Based on his investigations, including reviewing the Company’s records, Holden concluded that prior to its purported removal as trustee, the Company had at all times acted solely as trustee for the Trust. He relied on the following evidence in support of this conclusion:
(1)The resolutions passed by Kukuy as the sole director of the Company on 28 October 2015,[14] which confirm that the Company was established with the sole purpose of acting as trustee for the Trust.
(2)Confirmation from Kukuy’s then-solicitors, Lander & Rogers, by letter dated 5 December 2019 that the Company “only ever acted as trustee for the [Trust] between 29 October 2015 and 18 January 2018”.
(3)Confirmation from Kukuy that the Company only ever acted as trustee for the Trust, as stated in her report to the Commission on company activities and property.
(4)The loan secured by Kukuy[15] was secured by the Company expressly in its capacity as trustee for the Trust.
(5)The 3 Commonwealth Bank accounts[16] were expressly held in the name of the Company in its capacity as trustee.
(6)The absence of any evidence of the Company acting in its own capacity.
[14]See par 5 above.
[15]See par 11 above.
[16]Ibid.
As at 21 November 2022, Holden estimated the total realisable value of the assets of the Trust to be $1,174,910.60, comprising:
Brighton Property
$743,000.00
The Saver Account[17]
$401,868.43
Commonwealth Bank company account
$29,862.57
Commonwealth Bank cheque account
$179.60
Total
$1,174,910.60
[17]Prior to the commencement of this proceeding, Kukuy disputed that the funds in this account were the property of the Trust. On 15 November 2019, funds in the Saver Account were transferred by Kukuy into her personal Commonwealth Bank account. Those funds were subsequently frozen by the Commonwealth Bank and will remain frozen until the dispute over the ownership of the funds is resolved by agreement between Kukuy and Holden or by the court. See also par 53 below.
(Collectively, “the Trust Assets”.)
As at 21 November 2022, Holden estimated the known debts of the Company in its capacity as trustee to be $554,577.52, comprising:
Commonwealth Bank home loan (balance)
$531,377.06
Commonwealth Bank home loan (arrears)
$17,494.10
Owners Corporation 1
$4,019.33
Owners Corporation 2
$738.04
Bayside City Council
$948.99
Total
$554,577.52
In addition to the known debts the Company has incurred as trustee for the Trust, Holden has incurred the following costs and expenses in the course of the liquidation:
Remuneration
$56,422
Disbursements
$4,972
Legal costs and disbursements
$233,772
Total
$295,166 (excluding goods and services tax)
On 25 October 2019, Holden’s remuneration as liquidator was approved by the creditors up to a total of $99,908.10 for the period from 6 September 2019 to the conclusion of the liquidation. Holden provided a breakdown of the costs of the liquidation. In March 2020, prior to the commencement of this proceeding, the liquidator’s remuneration and disbursements totalled approximately $28,000 and the legal costs were approximately $9,300 (excluding goods and services). At the end of 2021, his remuneration and disbursements totalled approximately $66,000 and the legal costs totalled approximately $135,000 (excluding goods and services tax).
At trial, counsel for the plaintiffs submitted that the amount of the legal costs and disbursements incurred were directly attributable to the way in which Kukuy had conducted her case to date.
Issues for determinationC.
C.1 Was Kukuy validly appointed as trustee for the Trust in January 2018?
Central to this application is the question of whether Kukuy was validly appointed as trustee for the Trust by the Deed of Appointment and Removal on 18 January 2018.
C.1.1 Submissions
The plaintiffs submitted that clause 84 of the Trust Deed was “clear and unequivocal”; the settlor of the Trust was ineligible to be the appointor. Counsel for the plaintiffs argued that because Bella Kukuy was ineligible to be both settlor and appointor under the terms of the Trust Deed her exercise of the powers under the Trust Deed, to remove the Company as trustee (clause 35(12)) and appoint Kukuy as the new trustee of the Trust (clause 36), was invalid. In doing so, the plaintiffs relied on the principles relating to the construction of business agreements, which were distilled by the Victorian Court of Appeal in Adaz Nominees Pty Ltd v Castleway Pty Ltd.[18] The plaintiffs contended that these principles are applicable to the construction of deeds.[19]
[18][2020] VSCA 201, [70] (Whelan JA and Riordan AJA, with whom McLeish JA relevantly agreed).
[19]See, for example, Re Tran; Tran v Hoang [2021] VSC 318, [117] (McMillan J).
The plaintiffs submitted that, in respect of the patent inconsistency between the terms of clause 84 of the Trust Deed and item 9 of the second schedule, clause 84 should be preferred. The plaintiffs further submitted that the second schedule simply identifies the individuals purportedly nominated to hold certain offices under the terms of the Trust Deed. The instrument to which the second schedule is attached takes precedence, and its terms prohibit the settlor from being made appointor of the trust.
The plaintiffs submitted in the alternative that if Kukuy had been validly appointed as trustee of the Trust, she ceased to be trustee pursuant to clause 35(3) of the Trust Deed, either at some point after 18 January 2018 or certainly by 5 April 2022 when her mother was appointed as her administrator and guardian by virtue of her mental incapacity.
C.1.2 Principles
It is well established that the rules of construction of contracts apply to trusts.[20] The role of the court in interpreting trust deeds is to give effect to the intention of the parties.[21] As with contracts, the parties’ intentions are to be determined objectively with reference to the instrument they have executed in the context of the surrounding circumstances.[22] In the case of a trust, “[t]he court’s primary task in construction is to discover the intention of, relevantly, the settlor from the words used in the instrument, read as a whole”.[23] In summary, unless the words used in the trust deed have a special or technical meaning, they are to be given their ordinary and natural meaning, read in the context of the trust deed as a whole and (to the extent necessary to understand the objective intent) the surrounding circumstances.
[20]Re Owies Family Trust [2020] VSC 716, [67] (Moore J); The Trust Company (Nominees) Ltd v Banksia Securities Ltd (recs and mgrs apptd) (in liq) [2016] VSCA 324, [35] (Ashley, Beach and McLeish JJA); Schreuders v Grandiflora Nominees Pty Ltd [2016] VSCA 93, [12]-[15], [21]-[22] (Kyrou, Ferguson and McLeish JJA); Byrnes v Kendle (2011) 243 CLR 253, 274-275 [57]-[59] (Gummow and Hayne JJ), 286 [102] (Heydon and Crennan JJ).
[21]Re Tran; Tran v Hoang [2021] VSC 318, [117], [121]; The Trust Company (Nominees) Ltd v Banksia Securities Ltd (recs and mgrs apptd) (in liq) [2016] VSCA 324, [36]-[37], citing Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99, 109.4 (Gibbs J, dissenting).
[22]Byrnes v Kendle (2011) 243 CLR 253, 284-285 [98]-[99] (Heydon and Crennan JJ).
[23]Scaffidi v Montevento Holdings Pty Ltd (2011) 6 ASTLR 446, 471-472 [154] (Murphy JA and Hall J).
C.1.3 Consideration
Leaving aside the appropriateness or otherwise of the settlor of a trust also being the appointor of that trust,[24] I accept the plaintiffs’ submission that the words of clause 84 are clear and unequivocal. Having had regard to the Trust Deed as a whole, the purpose of the Trust (being a discretionary family trust), and the ordinary meaning of the words in clause 84 of the Trust Deed, it is clear that the settlor of the Trust was ineligible to also be the appointor of the Trust. Although it might be said the second schedule was also clear and unequivocal, the body of the Trust Deed itself was plainly intended to govern the terms of the Trust.[25]
[24]Income Tax Assessment Act 1936 (Cth), s 102(1)(a).
[25]No application has been made to seek to rectify the Trust Deed.
Axiomatically, as Bella Kukuy was not validly made the appointor, her conduct in that purported capacity, including the removal of the Company as trustee and appointment of Kukuy as the new trustee, was invalid.
Counsel for the plaintiffs provided detailed submissions in the alternative. The submissions addressed the Company’s right of indemnity and any proprietary interest it may have in the Trust Assets in the event that Kukuy was found to be validly appointed as trustee of the Trust. Counsel also canvassed the conflicting authorities on whether the right of indemnity and supporting lien entitles a former trustee to retain possession of trust property as against a new trustee.[26] Having determined that Kukuy was not validly appointed as trustee of the Trust, it is not necessary to determine whether the Company would have been entitled to retain possession of the Trust Assets as against Kukuy.
[26]See, for example, Break Fast Investments Pty Ltd v Sclavenitis [2022] VSC 288, [49] (Riordan J); Re Mali Nominees Pty Ltd (in liq) [2022] VSC 28, [32] (Button J); Pitard Consortium Pty Ltd v Les Denny Pty Ltd (2019) 58 VR 524, 527-534 [10]-[38] (McDonald J).
It is also not necessary to determine (based on an assumption she was validly appointed) whether, based on any incapacity, Kukuy would have ceased to be trustee in any event pursuant to clause 35(3) of the Trust Deed.
C.2 In what capacity does the Company hold the Trust Assets, and what is the position regarding moneys improperly withdrawn from the Company’s bank account?
Having found that Kukuy was not validly appointed as trustee for the Trust, the question then arises: in what capacity does the Company hold the Trust Assets?
C.2.1 Submissions
The plaintiffs submitted that the Company holds legal title to the Brighton Property as bare trustee for the Trust. It was argued that pursuant to clause 35(11) of the Trust Deed, the Company was removed as trustee and became a bare trustee of the Trust on 6 September 2019 when the Winding Up Orders were made. Counsel for the plaintiffs submitted that it is generally accepted that where a trustee is left holding trust property after it ceases to be trustee of a trust, it holds that property as a bare trustee.[27] Moreover, the plaintiffs relied upon the fact that, in the present circumstances, the Company did not trade and its only purpose was to hold the Trust Assets for the Trust.
C.2.1.1 The Saver Account
[27]Re Mali Nominees Pty Ltd (in liq) [2022] VSC 28, [32] (Button J); Re Glenvine Pty Ltd (in liq) [2020] NSWSC 866, [42] (Black J).
In respect of the funds in the Saver Account, and Kukuy’s first assertion that the funds were held on trust for her parents,[28] counsel for the plaintiffs relied upon the fact that no documentary evidence in support of this claim had been provided to Holden or the court.
[28]See pars 19-21 above for Kukuy’s previous assertions.
In respect of the second assertion that the funds were held on trust for JF Global Consulting, counsel for the plaintiffs noted that evidence suggestive of the source of the funds had been provided to Holden but it did not establish the capacity in which the funds were paid to, and held by, the Company. In other words, the relevant documents did not demonstrate or even suggest that the funds were impressed with a trust in favour of JF Global Consulting.
The plaintiffs submitted that, in absence of evidence to the contrary, voluntary payment of money gives rise to a presumption that a gift was intended.[29] In the current case, the $450,000 sourced from JF Global Consulting was used by the Company to offset interest payable to the bank on its loan. The plaintiffs submitted that, in the absence of any evidence of an intention by the payer to retain an ownership interest in the funds provided to the Company, it cannot be concluded that a separate trust in favour of JF Global Consulting arose. Instead, the payment of moneys into the Company’s bank account must be presumed to be a gift of capital to the Trust, forming part of the Trust Assets.
[29]Relying on Heydon v The Perpetual Executors, Trustees and Agency Company (WA) Ltd (1930) 45 CLR 111, and the numerous later cases in which it has been applied.
As outlined above,[30] approximately 2 months after Holden’s appointment as liquidator, Kukuy caused the funds in the Saver Account to be transferred into her personal Commonwealth Bank account. The plaintiffs contended that because Kukuy was never validly appointed as trustee of the Trust, the funds were removed from the Company’s bank account without authority and must be returned to the Company. The plaintiffs submitted that the Company has a priority beneficial interest in the funds pursuant to its right of indemnity and supporting lien.
[30]See fn 17 above.
C.2.2 Principles
Generally speaking, where a corporate trustee is removed from office, it serves as a bare trustee until the appointment of a new trustee.[31] As a bare trustee, the liquidator’s powers are limited to preserving and protecting the trust assets.[32] In other words, a bare trustee has a “duty to maintain and protect the trust property and to refrain from active management that does not fall within this duty”.[33] Accordingly, a bare trustee does not have the power to sell trust assets and must seek court approval to do so.[34]
[31]Re Mali Nominees Pty Ltd (in liq) [2022] VSC 28, [32] (Button J); Re Glenvine Pty Ltd (in liq) [2020] NSWSC 866, [42] (Black J); Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677, [22]-[28] (Gordon J); Federal Commissioner of Taxation v Bruton Holdings Pty Ltd (in liq) (2008) 173 FCR 472, 498 [79] (Ryan, Mansfield and Dowsett JJ).
[32]Re Mali Nominees Pty Ltd (in liq) [2022] VSC 28, [32]; Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677, [22]-[28].
[33]Bruton Holdings Pty Ltd (in liq) v Federal Commissioner of Taxation (2011) 193 FCR 442, 447-448 [21] (Stone, Jacobson and Edmonds JJ).
[34]Break Fast Investments Pty Ltd v Sclavenitis [2022] VSC 288, [51]-[52] (Riordan J); Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) (2018) 260 FCR 310, 323 [44], 334 [95] (Allsop CJ), 343 [138], 344 [142] (Siopis J).
Determining whether, as a matter of fact, a company trades in its own capacity or as trustee of a trust, requires careful consideration of the facts. In Re Amerind Pty Ltd (in liq),[35] Robson J identified the following matters that have been taken into account by courts when determining whether a company trades in its own right or as trustee of the trust:[36]
[35](2017) 320 FLR 118.
[36]Ibid, 128 [46], cited in Re Waratah Group Pty Ltd (in liq) [2020] VSC 523, [32] (Delany J).
(a)the existence of constituent trust documents which establish a trust, including any draft trust documents which cross-reference one another;
(b)whether accounts were maintained separately to the company’s operational expenditure accounts and/or the company’s own property;
(c)whether the company’s name in its capacity as trustee was noted on key employment documents, such as letters of employment and tax file declarations;
(d)whether invoices rendered by the company in question were issued by the company in its capacity as trustee of the trust;
(e)whether company meeting minutes disclosed the existence of a trust, or disclosed that the company was operating as a trust;
(f)whether expenses were accounted as receipts of the company as trustee; and
(g)whether records, contained in the general ledger of the company, recorded activity consistent with the operation of a trust, such as the issue of units.
(Citations omitted.)
C.2.3 Consideration
Having regard to the matters identified immediately above and the outcome of Holden’s investigations,[37] all the relevant evidence indicates that the Company acted solely as trustee for the Trust. Without being exhaustive, there are some key factors that lead to this conclusion.
[37]See pars 33-36 above.
First, the resolutions passed by Kukuy on 28 October 2015 confirm that the Company was established for the sole purpose of acting as trustee of the Trust. Secondly, the evidence shows that the Commonwealth Bank loan was secured expressly by the Company in its capacity as trustee. Thirdly, the 3 Commonwealth Bank accounts in the Company’s name were also held by it in its capacity as trustee. Fourthly, there is no evidence before the court that the Company has acted in its own capacity at any time since its incorporation.
It was beyond controversy that by operation of clause 35(11) of the Trust Deed, when the Company was wound up on 6 September 2019, it ceased to hold the position of trustee and instead became a bare trustee of the Trust. The language of clause 35(11) is clear.[38]
[38]See par 7 above.
In respect of the funds withdrawn from the Saver Account, there is no probative evidence to establish that they were held on trust for Kukuy’s parents or JF Global Consulting. The onus of proving that the giving of money was a loan or something other than a gift falls on the party making the assertion.[39] Proof of payment of the funds by JF Global Consulting in the Company’s bank account does not discharge the onus.[40]
[39]Heydon v The Perpetual Executors, Trustees and Agency Company (WA) Ltd (1930) 45 CLR 111, 113.4 (Gavan Duffy CJ with whom Rich, Starke and Dixon JJ agreed), 113.9 (Dixon J). See also Kordovoulos v Dixon-Hughes [2021] NSWSC 722, [36]–[40] (Sackar J); Calokerinos, executor of the estate of the late George Sclavos v Yesilhat; Yesilhat v Calokerinos, executor of the estate of late George Sclavos [2017] NSWSC 666, [788]-[791] (Slattery J).
[40]Re St George Development Company; Re Eliana Construction and Developing Group [2022] VSC 295, [23] (Nichols J); Calokerinos, executor of the late George Sclavos v Yesilhat; Yesilhat v Calokerinos, executor of the late George Sclavos [2017] NSWSC 666, [791]; Shot One Pty Ltd (in liq) v Day [2017] VSC 741, [270] (Sloss J).
As Kukuy was never validly appointed as trustee of the Trust, the transfer of the trust funds from the Saver Account to her personal Commonwealth Bank account was done without authority. Accordingly, the Company, in its capacity as bare trustee, is entitled to have the funds returned to it.[41]
[41]Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524, 565-566 [92] (Bell, Gageler and Nettle JJ), citing Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) (2018) 260 FCR 310, 335-337 [100]-[101] (Allsop CJ). See also JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis, 8th ed, 2016), 337 [17.02] regarding the trustee’s duty to get in the assets of the trust.
For completeness, the Company’s deregistration in 2018 did not alter the capacity in which it currently holds the Trust Assets as bare trustee. Ordinarily, pursuant to section 601AD(1A) of the Corporations Act, on deregistration all property that a company holds on trust immediately before deregistration will vest in the Commonwealth. However, pursuant to section 601AH(5), if a company is reinstated, that company is taken to have continued in existence as if it had not been deregistered and any property that vested in the Commonwealth revests in the company.
C.3 Should Holden be appointed as receiver and manager of the Trust Assets?
The plaintiffs seek orders pursuant to section 37 of the Supreme Court Act and rule 39.02 of the Rules. They request that Holden be appointed as receiver and manager, without security, of the assets and undertakings of the Trust, including the proceeds of any such property.[42]
[42]Orders were not sought pursuant to the Trustee Act 1958 (Vic), s 63. See Re Waratah Group Pty Ltd (in liq) [2020] VSC 523 at [37]-[49], where Delany J discusses the alternate avenues for the conferral of powers on liquidators under the Trustee Act and the Supreme Court Act.
C.3.1 Submissions
The plaintiffs contend that the court’s power to make orders under section 37(1) of the Supreme Court Act is engaged and ought to be exercised. The reasons put forward may be summarised as follows:
(1)It is necessary to ensure that Holden is able to carry out his duties; namely to liquidate the Company, realise and deal with the Trust Assets (including the sale of the Brighton Property), and distribute the proceeds to the Company’s creditors.
(2)It is in the interests of the creditors that there be no further delay and steps be taken to enable the Trust Assets to be dealt with so that their debts may be paid, thereby facilitating the proper winding up of the Company.
(3)The Trust property cannot be handed over to a new trustee as there is none in office.
(4)No application is currently being pursued to bring the winding up to an end. Meanwhile, the Company’s indebtedness to creditors continues to accrue.
(5)Appointing Holden as receiver of the Trust property will enable him to carry out his duties as liquidator.[43] The Company’s right of exoneration over the Trust Assets in its capacity as trustee of the Trust can be enforced through the appointment of Holden as receiver of the Trust Assets with the power to possess and sell.[44]
[43]Corporations Act, s 474.
[44]Connelly v 320 Nominees Pty Ltd; Re Gregorski Investments Pty Ltd (in liq) [2019] FCA 1400, [30], [54]-[56] (Derrington J).
C.3.2 Principles
Section 37 of the Supreme Court Act relevantly states:[45]
Injunctions and receivers
(1)The Court may by order, whether interlocutory or final, grant an injunction or appoint a receiver if it is just and convenient to do so.
(2)An order made under subsection (1) may be made either unconditionally or on such terms and conditions as the Court thinks just.
…
[45]See also rule 39.02 of the Rules which states that the court may also appoint a receiver at any stage of a proceeding.
The circumstances in which it may be considered “just and convenient” for the court to appoint a receiver of trust property include where it is necessary for the protection or preservation of trust property for the benefit of persons who have an interest in that property.[46] Recent authorities demonstrate that it is not uncommon for a liquidator of a former corporate trustee to be appointed by the court as receiver to enable it to sell trust assets. As observed in Cremin, Re Brimson Pty Ltd (in liq):[47]
… It is now settled that the liquidator of an insolvent (former) corporate trustee cannot sell the trust’s property without order of the Court, or by appointment of a receiver over the trust assets … The rationale for this position is that, on a proper understanding, the trust assets are not the “property of the company”, but are instead trust property in which the corporate trustee has a proprietary interest by way of lien or charge to secure its right of exoneration … Thus, to the extent that the subject of a sale is the whole of a trust asset, rather than merely the company’s lien or charge in respect of that asset, it is not authorised by the power of sale in s 477(2)(c).
The courts are generally willing, upon an appropriate application, to make orders permitting the liquidator of a (former) corporate trustee to sell trust assets. In situations where the property of the trust will be exhausted following its sale and subsequent distribution to creditors, it may be appropriate merely to give the liquidator a power of sale ... The more common course is, however, for the liquidator of the insolvent (former) corporate trustee to apply to be appointed a receiver for the purpose of selling the trust assets and distributing the proceeds among trust creditors ... Orders appointing a liquidator as a receiver for this purpose may be made nunc pro tunc [now for then] to authorise sales of trust assets that have already occurred ...
(Citations omitted.)
[46]Yunghanns v Candoora No 19 Pty Ltd (No 2) (2000) 35 ACSR 34, 46-50 [64]-[76] (Warren J).
[47](2019) 136 ACSR 649, 655-656 [49]-[50] (Moshinsky J).
Section 418 of the Corporations Act stipulates that certain persons must not act as receivers, including persons who are not registered liquidators and those who have an interest in the company in question, such as directors, employees and secured creditors.
Rule 39.05 of the Rules provides that unless a court otherwise orders, a receiver must give security in the form of a guarantee. However, absent any conflict, the courts often appoint the liquidator of a corporate trustee as receiver without security and dispense with any requirement to file a guarantee.[48]
[48]Re Mali Nominees Pty Ltd (in liq) [2022] VSC 28, [36] (Button J); Re Waratah Group Pty Ltd (in liq) [2020] VSC 523, [59] (Delany J); Re KPD Knight Pty Ltd and KPD Portogallo Pty Ltd [2020] VSC 253, [31(g)], [46] (Connock J).
C.3.3 Consideration
Holden, as a registered liquidator is eligible to be appointed as receiver and manager of the Company under the statutory regime. Further, there is no evidence before the court to suggest that any actual or potential conflict of interest exists.
The second stage of enquiry is to determine whether it is just and convenient for the appointment to be made. The plaintiffs’ submission that it is in the interests of the creditors for steps to be taken to enable the Trust Assets to be dealt with must be accepted. As the plaintiffs rightly point out, appointing Holden as receiver and manager will ensure that creditors’ debts may be paid, thereby facilitating the proper winding up of the Company.
The Company has been in liquidation for more than 3 years and during this time the Company’s debts have continued to accrue. Further, Holden, in his capacity as liquidator, has unavoidably continued to incur significant costs and expenses in the liquidation. The appointment of Holden as receiver and manager would enable him to sell the Brighton Property,[49] retrieve the funds improperly transferred out of the Saver Account and fulfill his obligations as liquidator.[50] Obviously, the interests of the trust creditors and beneficiaries of the Trust will be best served if the Company is wound up and the further depletion of the Trust Assets is curtailed. It is therefore just and convenient that Holden be appointed receiver and manager of the Trust Assets and that he be entitled to do all things necessary or convenient to effect the sale or realisation of the Trust Assets, with the powers that a liquidator has in respect of company property pursuant to section 477(2)(c) of the Corporations Act.
[49]The question of any tenancy or occupancy rights in relation to the Brighton Property was not an issue for determination in this proceeding.
[50]Commissioner of Taxation v Iannuzzi (No 2) (2019) 140 ACSR 497, 527 [201] (Stewart J).
For completeness, all creditors have been notified of the plaintiffs’ application and none have opposed the appointment of Holden as receiver of the Trust Assets.[51]
[51]Re KPD Knight Pty Ltd and KPD Portogallo Pty Ltd [2020] VSC 253, [38] (Connock J). The following interested parties were given notice that the proceeding had been set down for trial on 29 November 2022 (being the original date of the commencement of the trial): Bella Kukuy on behalf of Zarah Feldman, Priback Body Corporate Services, HWL Ebsworth Lawyers, solicitors for the Commonwealth Bank, the Commission and Bayside City Council. These interested parties were also provided with copies of the amended originating process, the plaintiffs’ outline of submissions, and affidavit evidence of Holden and Baker upon which the plaintiffs intended to rely at trial.
Accordingly, it will be “otherwise ordered” that Holden is not required to give security pursuant to rule 39.05 of the Rules either by way of guarantee or otherwise.
C.4 Other orders and directions sought
As set out above,[52] the plaintiffs have made an application for orders and directions pursuant to sections 90-15 and 90-20 of Schedule 2. As a current officer of the Company, Holden has standing to bring such an application.[53]
[52]See par 2 above.
[53]Schedule 2, s 90-20(1)(d).
Section 90-15(1) provides that the court “may make such orders as it thinks fit in relation to the external administration of a company”.[54] The powers conferred by sections 90-15 and 90-20 are informed by the principles applicable to their predecessor provisions, sections 479(3) and 511 of the Corporations Act.[55] Further, as noted in Re Ansett Australia Ltd (No 3),[56] courts generally refrain from making directions relating to a liquidator’s commercial decisions.[57]
C.4.1 Is Holden entitled to apply the proceeds of the sale or realisation of the Trust Assets to discharge the liabilities of the Company (which were incurred by it in its capacity as trustee)?
[54]See also Schedule 2, s 90-15(3)-(4).
[55]Re Mandeville Group Pty Ltd (in liq) [2020] VSC 293, [140] (Sloss J). See also Insolvency Law Reform Act 2016 (Cth), ss 151, 170.
[56](2002) 115 FCR 409.
[57]Ibid, 428 [65] (Goldberg J).
Courts are “generally willing”, upon an appropriate application, to make orders permitting the liquidator of a former trustee to sell trust assets.[58] Where a corporate trustee incurs liability in its capacity as trustee, it has a right of indemnity (which includes both recoupment and exoneration) out of the trust assets.[59] The right of indemnity is limited to circumstances where the trustee is properly acting in its capacity as trustee and is not guilty of any gross negligence or breach of trust.[60]
[58]See par 65 above.
[59]Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524, 542-543 [29]-[30] (Kiefel CJ, Keane and Edelman JJ); Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677, [14], [19] (Gordon J), citing Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99, 109.2 (King CJ, with whom Jacobs and Matheson JJ agreed).
[60]Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677, [14].
In Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd, Gordon J explained that the right of indemnity is not automatically lost when a corporate trustee is wound up in insolvency; it extends to providing an entitlement to the liquidator to claim the costs and expenses incurred, provided that the costs relate to the performance of trust duties.[61] Accordingly, her Honour found that the court had the power to authorise the liquidators of the insolvent (bare) trustee to deal with trust assets and apply them to meet claims in accordance with the priority regime under section 556(1) of the Corporations Act.[62]
[61]Ibid, [16]-[17].
[62]Ibid, [30]. See also Re Pako Supermarkets Pty Ltd (in liq) [2020] VSC 487, [58] (Connock J) and the cases there cited.
Having regard to the authorities, the direction sought by the plaintiffs is appropriate in circumstances where the liabilities incurred are trust liabilities.[63] Further, as already noted, such an order will facilitate the performance of Holden’s functions and duties as liquidator.
C.4.2 Is Holden entitled to be paid his remuneration, costs and expenses from the proceeds of the sale or realisation of the Trust Assets?
C.4.2.1 Submissions
[63]Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524, 545-546 [34]-[35] (Kiefel CJ, Keane and Edelman JJ), 564-566 [91]-[92] (Bell, Gageler and Nettle JJ), 584-585 [149]-[158] (Gordon J).
Liquidators are entitled to recover remuneration, costs and expenses for work undertaken in relation to the administration of a trust.[64] As already noted, entitlement is regulated by the priority regime established under section 556(1) of the Corporations Act.[65]
[64]Re Mandeville Group Pty Ltd (in liq) [2020] VSC 293, [209] (Sloss J); Re Matthew Forbes Pty Ltd (in liq) [2018] VSC 331, [27]-[30] (Riordan J); Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) 291 FLR 17, 20 [7] (Brereton J).
[65]Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524, 588 [169] (Gordon J).
Counsel for the plaintiffs placed reliance on the recent decision of Lawrence re Ozifin Tech Pty Ltd (in liq) v AGM Markets Pty Ltd (in liq)[66] in support of the proposition that where a company has only ever acted as trustee, all of the liquidation costs are chargeable against the trust assets.[67]
[66][2022] FCA 1478.
[67]Ibid, [198], [235] (Beach J), and the cases there cited.
It was also noted that pursuant to clauses 63 and 66 of the Trust Deed, the trustee has rights of reimbursement, indemnity, recoupment and exoneration out of the Trust Assets against liabilities properly incurred by it or arising from administering the Trust, and may retain and pay its costs and expenses.
The plaintiffs further submitted that the court was not being asked to approve the quantum of Holden’s remuneration. Holden deposed that his remuneration had already been approved by the creditors.[68]
C.4.2.2 Consideration
[68]See par 37 above.
The Company has only ever operated as trustee of the Trust and in no other capacity. Further, all assets owned by the Company are held by it as a bare trustee of the Trust. As the Company cannot perform its obligation as trustee to pay the debts incurred in carrying out the Trust unless the liquidation proceeds,[69] it is appropriate to order that Holden is entitled to be paid his remuneration, costs and expenses properly incurred in identifying, preserving, realising and distributing the Trust Assets and that such remuneration, costs and expenses are to be paid in accordance with the priorities specified in section 556(1) of the Corporations Act.
[69]Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth (2019) 268 CLR 524, 588-589 [169]-[171] (Gordon J).
C.5 Should a new trustee be appointed?
Having found that Holden is entitled to apply the proceeds of the sale or realisation of the Trust Assets to discharge the liabilities of the Company and that he is entitled to be paid his remuneration, costs and expenses from the proceeds of the sale or realisation of the Trust Assets, the following question arises: what should be done with the anticipated surplus of funds?
C.5.1 Submissions
The plaintiffs acknowledged that they have no interest in the surplus of the Trust Assets (estimated to be $325,167.08 as at 21 November 2022). However, in order to assist the court, counsel for the plaintiffs made submissions concerning the appropriate way to allocate the surplus.
The plaintiffs submitted, and it has been found,[70] that there is currently no trustee of the Trust, and there has not been since the Company’s winding up was ordered by this court on 6 September 2019.
[70]See pars 44-45, 58 above.
There is no application presently before the court for the appointment of a new trustee. The plaintiffs argued it was unlikely any such application would be made pursuant to section 48 of the Trustee Act, given that section 64(1) of the Trustee Act stipulates that only persons beneficially interested in the trust property have standing to apply for orders appointing a new trustee. It would appear no person or entity has standing in the present circumstances. Once the Company’s right of indemnity is satisfied, it will no longer have a beneficial interest in the Trust Assets. Further, it has never had (and never will have) a beneficial interest in the surplus. Furthermore, as the Trust is a discretionary trust, the beneficiaries are mere objects and have no beneficial interest in the trust property. The rights that they enjoy are as to the due administration of the Trust.[71]
[71]Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226, 242-243 [37]-[39] (Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ).
The plaintiffs submitted that the alternative path is for the court to exercise its supervisory jurisdiction to ensure that the Trust is properly exercised, protected and governed. The plaintiffs contended that it may be appropriate for the court to defer this decision and order that Holden pay any surplus into court to ensure the funds are maintained. Those with an interest in the funds can then either seek to appoint a trustee or otherwise make a claim.
C.5.2 Principles
It is the equitable duty of the court to ensure that a trust is properly exercised.[72] The inherent jurisdiction to appoint trustees, arising from the court’s general supervisory jurisdiction, has been said to give effect to the maxim “a trust will not fail for want of a trustee”.[73] However, the court’s inherent jurisdiction to appoint a new trustee must be exercised with caution.[74]
[72]Re Cooper Street Property Trust [2016] VSC 756, [101] (McMillan J).
[73]Re Cooper Street Property Trust (No 2) [2017] VSC 291, [17] (McMillan J), and the cases there cited.
[74]Ibid, [39], citing Smith v Smith [2006] WASC 166, [4] (Murray J).
In Re Cooper Street Property Trust (No 2),[75] McMillan J declined to exercise the court’s inherent jurisdiction and appoint a new trustee based on the following:[76]
(1)There was a lack of evidence before the court as to the opinion of any beneficiaries with a proprietary interest in the trust.
(2)There was a lack of any allegation of misconduct that would threaten the security of the trust funds.
(3)The funds were securely held in a law firm’s trust account.
(4)The possibility that the funds could be paid into court and claims or applications could be made by interested parties in the future.
(5)The risk that, should a trustee be appointed, any recouped trust funds would be depleted to the detriment of the discretionary beneficiaries of the trust.
[75][2017] VSC 291.
[76]Ibid, [39].
Her Honour determined that, in the circumstances, the most appropriate and beneficial course was for the relevant sum to be paid into court.[77]
[77]Ibid, [37].
C.5.3 Consideration
Similar to the circumstances of Re Cooper Street Property Trust (No 2), in this case the attitudes of any persons with a potential interest in the Trust are unknown. Further, both Kukuy and the settlor of the Trust, Bella Kukuy, are self-represented and do not have the benefit of legal advice regarding the proposed management of the Trust.
There is no evidence of any misconduct by Holden.[78] Holden’s statutory duties as liquidator require him to act honestly in facilitating the winding up of the Company. Further, there is a risk that if a new trustee is appointed presently, the trust funds may be depleted to the detriment of 1 or both of the discretionary beneficiaries of the Trust. Thus, it is not appropriate that a new trustee be appointed at this juncture.
[78]For the avoidance of doubt, the fact that the costs, expenses and remuneration claimed far exceed the amount of the initial debt that was relied upon to make the Winding Up Orders have been the direct result of the many interruptions and delays in this proceeding caused by the manner in which Kukuy has responded.
While it is less than ideal that the Trust is continued without an active trustee, in the circumstances the most appropriate course is that an order is made requiring Holden to pay any surplus of trust funds into court.[79] This will allow the Company to be wound up, the debts of trust creditors to be paid, and time for any interested persons to make a claim or otherwise over the anticipated surplus of the Trust funds.
Other mattersD.
[79]Trustee Act, s 69.
D.1 Plaintiffs’ application to further amend the originating process
On the second day of the trial, the plaintiffs sought leave to further amend their originating process. The changes were limited to:
(1)Removal of the words “as Trustee for the Jay Invest Property Trust” from the name of the defendant, given the plaintiffs’ position that Kukuy is not the trustee of the Trust.
(2)Correction of the name of the Jay Property Trust by removing the word “Invest” in the final paragraph appearing on page 1 of the document.
On 20 December 2022, Kukuy objected to the proposed amendment by email. She asserted, amongst other things, that she was the trustee of the Trust.
Rule 36.01(1) of the Rules provides that the court may at any stage of a proceeding order that any document in the proceeding be amended or that any party have leave to amend a document. The amendment may be made for a range of purposes, including correcting any defect or error in any proceeding.[80] Rule 36.01(4) provides that a mistake in the name of the party may be corrected under rule 36.01(1). Rule 36.01(4) is considered a remedial rule which should be interpreted beneficially, giving it the widest interpretation that its language will permit.[81]
[80]Rule 36.01(1)(b).
[81]BKA Practice Co Pty Ltd v Viking Group Holdings Pty Ltd (2015) 47 VR 383, 389 [25] (Hargrave J), citing Bridge Shipping Pty Ltd v Grand Shipping SA (1991) 173 CLR 231, 260.9-261.1 (McHugh J, with whom Brennan and Deane JJ agreed).
However, even in a case of a misnomer, the court has the discretion to decide whether to allow the mistake to be corrected. The court must be satisfied that other parties to the proceeding will not be prejudiced by the amendment.[82]
[82]Vulcan Hart Corporation v Vulcan Australia Ltd (1994) 30 IPR 441, 445.3 (Olney J).
The further amendments sought by the plaintiffs are of form rather than substance. There is no prejudice to Kukuy in correcting the name of the Trust in the originating process. Nor is there prejudice to Kukuy in correctly identifying the capacity in which she is sued. On the contrary, the proposed amendments ensure that the focus remains on the real questions of controversy in this proceeding. Accordingly, leave will be granted for the plaintiffs to file and serve a further amended originating process in the form provided to the court on 14 December 2022.
D.2 Liberty to apply
The orders sought by the plaintiffs include an order of the kind made in Cremin, Re Brimson Pty Ltd (in liq),[83] granting liberty to apply to modify the orders and directions made to any person who can demonstrate sufficient interest on not less than 72 hours’ notice to Holden. Liberty to apply will be granted to allow for an additional safeguard to the interest of any person affected by these orders. Orders will also be made requiring Holden to give any interested person notice of further steps in the proceeding.
[83](2019) 136 ACSR 649.
For the avoidance of doubt, although liberty to apply is being granted, it is not being granted because the court is currently on notice of circumstances where it ought to be utilised or because of concerns about the course that has been adopted.
ConclusionE.
Accordingly, orders will be made substantially in the following form:
(1)The plaintiffs have leave to file and serve a further amended originating process substantially in the form provided to the court on 14 December 2022, by 4.00 pm on 28 February 2023.
(2)The 1st plaintiff, Timothy Mark Shuttleworth Holden (official liquidator) (“Holden”), is appointed, without security,[84] as receiver and manager of the assets and undertakings of the Jay Property Trust (“the Trust”), including the proceeds of any such property.
[84]When the final orders are made, it will be noted in “Other matters” that Holden is not required to provide security by way of guarantee as provided under r 39.05(b) of the Rules or otherwise.
(3)Holden, as receiver and manager, is authorised to have possession of, call in, preserve, maintain and sell the assets of the Trust, including all funds held by the Commonwealth Bank of Australia which, as at the date of liquidation of the 2nd plaintiff, Jay Invest Property Pty Ltd (in liquidation) (“the Company”), on 6 September 2019, were held in a Mortgage Interest Saver Account [details to be inserted in final order] (or their traceable proceeds).
(4)Holden, in his capacity as receiver and manager, has the power to:
(1)Do all things necessary or convenient to effect the sale or realisation of the assets of the Trust, with the powers that a liquidator has in respect of property of a company pursuant to section 477(2) of the Corporations Act.
(2)Apply the proceeds from the sale or realisation of such assets to discharge the liabilities of the Company (all of which were incurred in its capacity as trustee) in accordance with the priorities set out in section 556 of the Corporations Act.
(2)Within 5 business days of discharging all liabilities of the Company, the plaintiffs must file and serve on the defendant, Julia Kukuy, proposed orders for the payment of the surplus funds (if any) into court, specifying the total amount to be paid and the time for payment.
(3)Within 3 business days of making any payment into court, the plaintiffs must notify the following persons of the payment into court and the amount paid:
(1)Julia Kukuy.
(2)Bella Kukuy.
(3)Leon Kukuy.
(4)Zarah Feldman.
(4)The costs, expenses and remuneration incurred by Holden in his capacity as receiver and manager, and the costs of and incidental to this application, be costs and expenses in the liquidation of the Company and paid in priority from the assets of the Trust.
(5)There is liberty to apply to any person who can demonstrate sufficient interest to modify these orders and directions on not less than 72 hours’ notice to the plaintiffs.
(6)By 4.00 pm on [date to be inserted] 2023, the plaintiffs must serve a copy of these reasons on the following:
(1)Bella Kukuy, on behalf of Zarah Feldman.
(2)Priback Body Corporate Services.
(3)HWL Ebsworth Lawyers, the solicitors for the Commonwealth Bank.
(4)The Australian Securities and Investments Commission.
(5)Bayside City Council.
(7)Subject to further order, this proceeding be listed for further directions on [date to be inserted].
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