Lilex Pty Limited (receiver and manager appointed) and Bred & Chees Pty Limited (receiver and manager appointed) v Smallseeds Pty Limited

[2011] NSWSC 1426

Supreme Court

New South Wales

Medium Neutral Citation:	Lilex Pty Limited (receiver and manager appointed) and Bred & Chees Pty Limited (receiver and manager appointed) v Smallseeds Pty Limited [2011] NSWSC 1426
Hearing dates:	22 November 2011
Decision date:	24 November 2011
Jurisdiction:	Equity Division
Before:	Black J
Decision:	Order that caveat be withdrawn forthwith
Catchwords:	REAL PROPERTY - Caveats - Serious question to be tried - Balance of convenience
Legislation Cited:	- Corporations Act 2001 (Cth) s 9 - Real Property Act 1900 (NSW) s 74MA - Trustee Act 1925 (NSW) s 12(4)
Cases Cited:	- Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd [2011] NSWCA 39 - Beames v Leader [2000] 1 Qd R 347 - Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 - Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd [1969] 2 NSWR 782 - Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 - Mahony v Hosken (1912) 14 CLR 379 - Martyn v Glennan [1979] 2 NSWLR 234 - Morkaya v Parkinson [2010] NSWSC 596 - Perpetual Executors and Trustees Association of Australia Ltd v Hosken (Registrar of Titles) (1912) 14 CLR 286 - Police & Nurses Credit Society Ltd v Weber [2003] WASC 45 - Re Gulbenkian's Settlement Trusts [1970] AC 508 - Re Lehrer and the Real Property Act 1900 [1961] SR (NSW) 365 - Re Creditors' Trust of Jackgreen (International) Pty Ltd [2011] NSWSC 748 - Re Pile's Caveats [1981] Qd R 81 - Re Seduce Group Australia Pty Ltd [2011] NSWSC 290 - Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672 - Venios v Machon (1986) 3 BCL 171 - Western Australian Real Estate Custodian Pty Ltd (receiver and manager appointed) & Ors v Chesson & Ors [2005] WASC 33
Texts Cited:	- P Young, A Cahill and G Newton, Annotated Conveyancing and Real Property Legislation 2010 - 2011
Category:	Interlocutory applications
Parties:	Lilex Pty Limited (receiver and manager appointed) and Bred & Chees Pty Limited (receiver and manager appointed) (Plaintiff) Smallseeds Pty Limited (Defendant)
Representation:	Counsel: J. Hynes (Plaintiffs) D.R. Pritchard SC/S. Shepherd (Defendant) Solicitors: Henry Davis York (Plaintiffs) Court Solicitors & Barristers (Defendant)
File Number(s):	11/365137

Judgment

1. These proceedings are brought by Lilex Pty Limited (receiver and manager appointed) ("Lilex") and Bred & Chees Pty Limited (receiver and manager appointed) ("B&C") and seek the removal of a caveat lodged by the Defendant, Smallseeds Pty Limited ("Smallseeds") under s 74MA of the Real Property Act 1900 (NSW). The proceedings also seek an order for the withdrawal of a document headed "Application to Record New Registered Proprietor" lodged by Smallseeds with the Office of Land and Property Information ("LPI") on 19 October 2011. The substantive argument is between B&C on the one hand and Smallseeds on the other in respect of the part of the relevant property owned by B&C.

1. The directors of Lilex and B&C are Mr Brad Wrightson and Ms Chelsey Wrightson and Ms Wrightson is the secretary of both companies. Ms Chelsey Wrightson is also the sole director and secretary of and holds the single issued share in Smallseeds.

Chronology of events

1. I should first set out a chronology of relevant events, which emerge from the documents and are largely undisputed.

1. A trust deed dated 11 September 2003 ("Trust Deed") titled "The B&C Wrightson Family Trust" (not lodged with LPI until 18 October 2011) provided for the appointment of B&C as trustee of that trust ("Trust").

1. Westpac Banking Corporation ("Westpac") advanced financial accommodation under a Business Finance Agreement for the purpose of funding the purchase of the part of the property owned by B&C, another part of the property owned by Lilex and the construction of a block of units on that property, secured by a mortgage and fixed and floating charges dated 29 March 2007 over the assets and undertakings of the companies.

1. On 18 June 2009, a receiver and manager, Mr Tolcher, was appointed to the assets and undertakings of Lilex and of B&C following an alleged default by Lilex and B&C. Mr Tolcher gives evidence on information and belief that the amount currently owing by Lilex and B&C to Westpac exceeds $17.3m and the property is the only remaining asset of the companies.

1. Mr Tolcher has sought to market the property since February 2011 and entered a contract for sale of the property on 30 June 2011 ("Sale Contract") which was due to be completed on 31 October 2011.

1. On 19 October 2011, by Deed of Appointment of New Trustee ("Deed of Appointment"), Mr Wrightson appointed Smallseeds as trustee of the Trust under clause 19(b) of the Trust Deed and Smallseeds consented to that appointment. An Application to Record New Registered Proprietor ("Application") was lodged with LPI on behalf of Smallseeds which recorded B&C as the current registered proprietor and Smallseeds as the proposed new registered proprietor of the relevant part of the property.

1. While there was reference in argument before me to the possibility that Smallseeds might have been appointed as trustee of the Trust in addition to B&C, the Application indicates such an appointment was not intended, referring to:

"The vesting in Smallseeds (appointed by Deed dated 19 October ... in place of retired trustee Bred & Chees Pty Limited by deed dated 19 October) as trustee of the B&C Wrightson Family Trust ... pursuant to the execution and registration of the said Deed." (emphasis added)

1. Smallseeds lodged a caveat dated 26 October 2011 ("Caveat") over the part of the property owned by B&C which claims an interest being the right to be registered as registered proprietor of the land owned by B&C in the capacity of trustee of the B&C Wrightson Family Trust by reason of the Deed of Appointment.

1. The receiver's solicitors wrote to Ms Wrightson requesting the removal of the Caveat and she responded by letter dated 9 November 2011 to the effect that:

"By operation of the Trust Deed, a copy of which has been previously provided to Westpac, Smallseeds Pty Ltd is now the trustee for the B&C Wrightson Family Trust. As such we have recently received legal advice to say that [B&C] and hence the Receiver does not have a power of sale over the Celsius Apartments. On that basis we have been advised that Smallseeds Pty Ltd has a caveatable interest in the Property which resulted in the caveat being lodged. Smallseeds Pty Ltd will not remove the Caveat unless and until your client is prepared to resolve all outstanding issues."

That letter in turn refers to issues including allegations that the receiver conducted the company's affairs in an improper manner and has sacrificed the property of the mortgagor.

1. There is evidence that a transfer of the property executed by the receiver would not have priority over the presently unregistered Caveat and Application and the continued existence of those unregistered dealings will prevent the completion of the Sale Contract. Completion of the Sale Contract has now been deferred for 90 days. Under the terms of the Sale Contract, the purchaser will be entitled to rescind the contract if completion does not occur in that period.

Whether the Caveat should be removed

1. Mr Pritchard SC, who appears with Mr Shepherd for Smallseeds, accepts that, on an application by B&C as registered proprietor for removal of the Caveat, the Court will adopt the same approach as it would adopt in an application by Smallseeds for an order extending the operation of the Caveat, and Smallseeds bears the onus of showing that it has a seriously arguable case for final relief in the nature of the caveatable interest claimed and that the balance of convenience favours retention over removal of the Caveat: Martyn v Glennan [1979] 2 NSWLR 234; Morkaya v Parkinson [2010] NSWSC 596 at [2]. The Caveat should be ordered to be withdrawn unless an interlocutory injunction would be granted to protect the interest claimed in it: Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd [2011] NSWCA 39 at [20].

1. Smallseeds seeks to support the Caveat on the basis that:

• the appointment of Mr Tolcher as receiver by Westpac constituted B&C going "into ... administration" for the purposes of s 16(e) of the Trust Deed with the consequence that B&C was deemed to have retired as trustee of the Family Trust and Mr Wrightson, as the Appointor under the Family Trust, became the trustee of the Family Trust until he appointed another person to be the trustee;
• B&C was therefore not the trustee of the Trust and had no power to sell the property when it entered the Sale Contract on 30 June 2011; and
• on 19 October 2011, Mr Wrightson appointed Smallseeds as trustee of the family trust under clause 19(b) of the Trust Deed and Smallseeds consented to that appointment.

1. The critical steps in Smallseeds' argument depend on clauses 16(e) and 16(f) of the Trust Deed which provide that:

(e) A Trustee is deemed to have retired if the Trustee, in the case of an individual Trustee, commits an act of bankruptcy, comes under legal disability or, in the case of a corporate trustee, goes into liquidation or administration.

(f) If a Trustee is deemed to have retired under sub-clause(e), and if otherwise there would be no Trustee other than a court appointed trustee, the Appointor shall be the Trustee until the Appointor appoints another Person to be the Trustee.

1. Smallseeds contends that the term "administration" in clause 16(e) is not a defined term in the Trust Deed and should be read as referring to a corporation being "administered" by a third party to the effective exclusion of the existing decision-makers of the corporate trustee. Smallseeds contends that there is no reason why the word "administration" should be read down to mean only a voluntary administrator appointed to a corporation under the Corporations Act 2001 (Cth) and that term is better directed to the more general concept of an "external administrator of the type of a receiver". Smallseeds supports this construction on the basis that the trust is styled a "family trust" and a "discretionary trust"; the three primary beneficiaries of the trust are intermediate members of the Wrightson family and the general beneficiaries are extended members of the Wrightson family; the trustee was a company under the control of Mr and Mrs Wrightson and the trustee has broad powers under clause 8 of the Trust Deed; and clause 16(e) of the Trust Deed is directed to circumstances where, effectively, a third person takes control of the corporate trustee so as to be able to exercise the powers of trustee under the Trust Deed or the Wrightsons lose control of the corporate trustee. Smallseeds contends that the purpose of clause 16(e) of the Trust Deed is to ensure that there is an automatic deemed retirement if the control of a corporate trustee involuntarily passes to a third person who may not exercise the powers as trustee in accordance with the spirit and intent of the family trust arrangements and for the benefit of the Wrightsons and their extended family.

1. The matter raised by Smallseeds is a question of construction of the Trust Deed and has been fully argued before me. I consider that this is a proper matter in which to resolve that question of construction in order to determine whether a seriously arguable case to support the Caveat is established. The Court adopts a similar approach on applications for an interlocutory injunction which raise questions of law: Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 at 549. In Venios v Machon (1986) 3 BCL 171 at 175, Young J observed that an application for an order for withdrawal of a caveat was in the nature of an application for an interlocutory injunction, and in such applications the Court will ordinarily determine any questions of law arising between the parties provided that the factual matrix for the determination is present and there has been sufficient time for the parties to make proper submissions as to the question. In Police & Nurses Credit Society Ltd v Weber [2003] WASC 45 at [54], the Court similarly observed that, in an application to remove a caveat, a Court can and should determine questions of law between the parties, provided the factual matrix is established. The Courts have been adopted a similar approach in respect of statutory demands: Delnorth Pty Ltd v State Bank of New South Wales (1995) 17 ACSR 379 at [384]; Re Seduce Group Australia Pty Ltd [2011] NSWSC 290 at [27]ff.

1. The principles applicable to construction of a trust deed require that the Court apply the usual canons of construction, so that words must be given their usual meaning and a clause should be read literally and in accordance with the usual rules of grammar. Where language is obscure or ambiguous, the Court must give a reasonable meaning to that language, by the exercise of its judicial knowledge and experience in the relevant matter and innate common sense: Re Gulbekian's Settlement Trusts [1970] AC 508 at 522; Re Creditors' Trust of Jackgreen (International) Pty Ltd [2011] NSWSC 748.

1. In my view, clause 16(e) of the Trust Deed should not be given the construction for which Smallseeds contends. That clause provides for the retirement of an individual trustee who commits an act of bankruptcy or comes under another legal disability or, in the case of a corporate trustee, goes into liquidation or administration. Where the trustee is bankrupt, under a legal disability or in liquidation, the former decision-maker (that is the trustee personally or its directors) is necessarily excluded from the relevant decision-making. A similar result follows if the term "administration" is read as having the meaning given under s 9 of the Corporations Act . By contrast, a receiver is appointed to assets of a company rather than to the company itself, may be appointed only to some of those assets or with limited powers, and the extent to which appointment of a receiver limits the directors' continued exercise of their powers depends on the scope of the receivership: Hawkesbury Development Co Ltd v Landmark Finance Pty Ltd [1969] 2 NSWR 782. In my view, it is unlikely that the settlor would have intended the clause to have the effect that the office of trustee would automatically be vacated without regard to whether the receiver had only been appointed to a single asset of the trust or with limited powers, leaving the directors wholly or substantially in control of the trustee. The operation of the clause in that manner is not necessary to achieve its objects, even if those objects were as Smallseeds contends.

1. Moreover, the construction for which Smallseeds contends would, as a matter of common sense, have made it more difficult for the trustee to raise funds by borrowings, since it would have meant that any lender contemplating a loan to the trustee would face the significant difficulty that the common step of appointing a receiver and manager to part or all of the property of the trust in the event of a default would have led to the retirement of the trustee and (subject to the matters to which I refer below) potentially deprived the lender of access to the trust assets. In my view, it is unlikely that the settlor would have intended this result where the powers conferred on the trustee expressly included the power to borrow money or obtain any other form of financial accommodation from a bank or other financial institution upon such terms as the trustee may think fit; the power to secure any liability in respect of any money borrowed or any financial accommodation obtained by mortgage, charge or other security over the whole or any part of the trust fund; and the power to create or give any mortgage, charge or other security over the whole or any part of the trust fund for any purpose and upon such terms and conditions as the trustee saw fit.

1. If the reference to "administration" in clause 16(e) of the Trust Deed is, as I read it, to that term as defined in s 9 of the Corporations Act , it follows that B&C was not deemed to have retired as trustee of the Trust on the appointment of Mr Tolcher as receiver; Mr Wrightson did not then become trustee of the Family Trust by reason of any such retirement under clause 16(f) of the Trust Deed; and B&C was still trustee of the family trust at the date it entered the Sale Contract and had power to sell the property. I should add, for completeness, that clause 17(b) of the Trust Deed provides that the Appointor may at any time give a written notice to a trustee that the trustee's appointment as trustee is terminated. Smallseeds conceded that no such notice was given to B&C.

1. On the present facts, the question whether B&C's removal as trustee of the Trust after the date of the Sale Contract would have affected its obligations under the Sale Contract does not arise since, if (contrary to my view) B&C was removed, that had occurred prior to its entry into the Sale Contract. It is therefore not necessary to consider the analysis of that question in Western Australian Real Estate Custodian Pty Ltd (receiver and manager appointed) & Ors v Chesson & Ors [2005] WASC 33. I note, for completeness, that Mr Pritchard SC, who appears with Mr Shepherd for Smallseeds, sought to distinguish that decision on the basis that Commissioner Siopis SC referred to the exercise of the mortgagee's powers of sale and the present case involves a sale by the mortgagor acting through a receiver appointed by the mortgagee. However, that decision itself involved a sale made by receivers and is not distinguishable on that basis.

1. If (contrary to the terms of the Application) Smallseeds had been appointed as trustee of the Trust in addition to B&C, rather than purportedly in place of it, its right in future to become registered as registered proprietor would not, in my view, be a present interest in the land so as to support the Caveat: Re Pile's Caveats [1981] Qd R 81 at 83; Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672 at 681-682.

1. Further, even if I had found that Smallseeds had established a seriously arguable case for final relief in the nature of the caveatable interest claimed, I would have held that the balance of convenience did not favour the retention of the Caveat over its removal. The retention of the Caveat would, on any view, delay the sale of the property, deferring the reduction in the balance of Westpac's loan which would result from a sale of the property. If the matter could not be determined within the 90 day deferral under the Sale Contract, then B&C (and Westpac as mortgagee) would be exposed to the risk that the Sale Contract would be rescinded by the purchaser. The risk of such loss is mitigated but not excluded by the undertaking as to damages offered by Smallseeds. On the other hand, so far as Smallseeds contends that B&C or the receiver does not have power to sell the property or that there are issues which found a claim in respect of the conduct of Westpac or the receiver, its rights to pursue an action in respect of an improper sale of trust property or such conduct are not lost by the sale of the property.

1. One other matter also tends against the grant of injunctive relief to Smallseeds, and therefore in favour of the removal rather than the retention of the Caveat. The mortgage dated 29 March 2007 granted to Westpac by B&C relevantly prohibits B&C disposing of the Property or any interest in it or giving anyone any interest in it and requires B&C to remain the sole trustee of the trust. If, contrary to that provision, B&C was replaced or joined as trustee, it was required to ensure that the new trustee became bound to Westpac's satisfaction by the mortgage or charge or documents and arrangements of identical effect. There are corresponding requirements in the fixed and floating charge given by B&C to Westpac also dated 29 March 2007. Although Mr and Mrs Wrightson have general law and statutory duties as directors of B&C, they have taken no steps to seek to ensure that Smallseeds becomes bound to Westpac's satisfaction by the mortgage or charge or corresponding documents, notwithstanding that Mr Wrightson made the appointment of Smallseeds as trustee and Mrs Wrightson as the sole director and secretary of Smallseeds accepted that appointment. B&C's failure to comply with that obligation potentially exposes it to the risk of liability to Westpac.

1. In my view, these matters are reasons why injunctive relief would not be granted on Smallseeds' application and why the Caveat should be removed rather than retained, whether they are characterised as relevant to unclean hands, to the balance of convenience or as otherwise relevant to the exercise of the Court's discretion.

Whether an order should be made that the Application be withdrawn

1. B&C also seeks an order that the Application be withdrawn. The Application was made under s 12(4) of the Trustee Act 1925 (NSW) which relevantly provides that:

"In the case of land subject to the provisions of the Real Property Act 1900, where an appointment or retirement ... is registered, the Registrar-General is hereby authorised and directed to make an entry of the vesting of the trust property or to enter vary and withdraw caveats as may be proper in the circumstances".

1. I have noted above that the Application refers to the appointment of Smallseeds in place of the "retired trustee B&C". Having regard to the findings I have made above, B&C has not retired. However, the basis on which the Court could grant an injunction requiring the removal of the Application was not fully explored in argument before me. The matters to which I have referred in paragraph 25 above raise the possibility that the Court may have jurisdiction to grant such an injunction under s 1324 of the Corporations Act , if these events involve a contravention of duties owed by Mr and Mrs Wrightson as directors of B&C and if Smallseeds (as to which, as noted above, Mrs Wrightson is sole director and secretary and holds the single issued share) is a person involved in that contravention for the purposes of s 79 of the Corporations Act . However, I do not consider that I should reach any findings of that kind or grant an injunction in mandatory terms without giving each party the opportunity to make further submissions as to the basis for such an order.

1. It may be that such an order will ultimately not be necessary, since Smallseeds may choose to withdraw the Application, or the Registrar-General may consider that it is proper to reject the Application having regard to the matters set out above. It is well-established that the Registrar-General may decline to register a dealing in a proper case: Perpetual Executors & Trustees Association of Australia Ltd v Hosken (Registrar of Titles) (1912) 14 CLR 286 at 295; Mahony v Hosken (1912) 14 CLR 379 at 386; Re Lehrer and the Real Property Act 1900 [1961] SR (NSW) 365 at 376; Beames v Leader [2000] 1 Qd R 347; P Young, A Cahill and G Newton, Annotated Conveyancing and Real Property Legislation , 2010 - 2011 at [42820.15]-[42820.20].

1. Accordingly, I order that, pursuant to s 74MA of the Real Property Act 1900 (NSW), caveat No AG581317 lodged on behalf of the Defendant with the Office of Land and Property Information be withdrawn forthwith in respect of the property described in folio identifier 40/1100069.

1. I direct the parties to serve on each other and deliver to my Associate any written submissions as to whether the Court should grant an injunction requiring the withdrawal of the Application and as to costs by 4pm on 1 December 2011.

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Decision last updated: 29 November 2011