Octavius Securities & Investments Pty Ltd (ACN 138 228 243) v Garry John Zerbe
[2020] VSCA 279
•11 November 2020
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S EAPCI 2019 0128
| OCTAVIUS SECURITIES & INVESTMENTS PTY LTD (ACN 138 228 243) | Applicant |
| v | |
| GARRY JOHN ZERBE | Respondent |
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| JUDGES: | TATE, SIFRIS and OSBORN JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 16 September 2020 |
| DATE OF JUDGMENT: | 11 November 2020 |
| MEDIUM NEUTRAL CITATION: | [2020] VSCA 279 |
| JUDGMENT APPEALED FROM: | [2019] VCC 1752 (Judge A Ryan) |
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PRACTICE AND PROCEDURE – Charging order – Whether shares held by judgment debtor in company acting as trustee of discretionary trust have any value beyond their nominal value and are amenable to a charging order if judgment debtor is also a beneficiary of discretionary trust.
PRACTICE AND PROCEDURE – Nature and scope of charging order – Summary procedure directed to realisation of shares to satisfy a judgment debt – Charging order has no application where shares have no more than a nominal value and are proposed to be used to take control of trustee company – County Court Civil Procedure Rules 2018, Order 73.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr J Ribbands | T F Grundy Lawyer |
| For the Respondent | Mr S Buchanan | S V Winter & Co |
TATE JA
SIFRIS JA
OSBORN JA:
The County Court Civil Procedure Rules 2018 (‘County Court Rules’)[1] permit a judgment creditor to apply to the court for an order imposing a charge on the beneficial interest of the judgment debtor in any securities (‘charging order’). The critical issue in this application for leave to appeal is whether the rule should be applied to shares in a trustee company with an agreed nominal value of $9.
[1]Rule 73.02.
On 11 June 2019, a judicial registrar of the County Court declined to make a charging order. On 14 November 2019, a judge of the County Court dismissed the applicant’s application for review.[2] The applicant seeks leave to appeal from this decision.
[2]Reasons were published on 6 November 2019, Octavius Securities & Investments Pty Ltd v Zerbe [2019] VCC 1752 (‘Reasons’).
Relevant facts
The relevant facts are not in dispute.
On 12 March 2019, and following the trial of the proceeding, the applicant obtained judgment against the respondent in the County Court of Victoria in the sum of $6,609,130.27 (‘the Judgment Debt’).[3] The respondent did not appear or oppose the relief sought. The Judgment Debt arose as a result of the respondent’s liability as guarantor of a loan between the applicant and two borrowing companies.
[3]Order of Judge Marks dated 12 March 2019. The order does not record any appearance for the defendant.
The respondent holds nine of the 10 issued shares in Turguse Pty Ltd (‘Turguse’ or ‘the Trustee’). Turguse is the Trustee of the L H Zerbe Family Trust (‘the Trust’). The remaining share is held by the respondent’s wife, Karen Lea Zerbe. By letter sent to the respondent and his wife by the applicant’s solicitors on 24 July 2018, the applicant’s solicitors gave notice that legal action would be taken if the respondent sought to transfer his shares in Turguse.
Following the letter, and on 26 July 2018, the respondent resigned as a director of Turguse. The respondent remains the secretary of Turguse and his wife is currently the sole director.
The paid up share capital of Turguse is $10. Beyond a moderate amount of assets such as plant and equipment,[4] the company holds property in its capacity as Trustee of the Trust. The main asset of the Trust is an unencumbered property, a vineyard, in Bittern, in the State of Victoria.
[4]The Financial Reports for Turguse for the years ending 30 June 2017 and 30 June 2018 are exhibits GJZ 5 and 6 respectively to the affidavit of Garry John Zerbe sworn 24 May 2019. They each disclose negative equity in the sum of $773.
On 9 November 1959, Leslie Herman Zerbe, and Gladys Ellen Zerbe, became the registered proprietors of a vineyard situated at Bittern (‘the Vineyard’). Leslie and Gladys Zerbe had two sons: Garry Zerbe (the respondent) and Ross Zerbe.
By a Deed of Settlement made 22 November 1974 (‘the Trust Deed’), the Trust was created. The original trustee was L H Nominees Pty Ltd. The beneficiaries of the Trust were the descendants of Leslie Zerbe and the spouses of any such descendants who are alive. Clause 2 of the Trust Deed provides that:
Subject to clause 7 hereof, the Trustee shall during the income period hold the Trust Fund UPON TRUST as follows:-
(a) To apply the whole or such part as the Trustee thinks fit of the income arising during the income period between the beneficiaries in such proportions (including the giving of all or none of such income to any of them) in all respects as the Trustee thinks fit as follows…
The primary beneficiaries of the Trust are the respondent and his brother, Ross Zerbe.
Clause 6 of the Trust Deed relevantly gives the Trustee power to make capital distributions to or for the benefit of any beneficiary or for a charitable purpose ‘if it thinks fit’. The Trustee’s discretion to so distribute ‘as the Trustee thinks fit’ is defined in cl 1(d) of the Trust Deed:
the expression ‘as the Trustee thinks fit’ shall give the Trustee the widest and most absolute and unexaminable discretion permitted by the laws relating to trusts … PROVIDED ALWAYS THAT whereas the Father has two sons GARRY JOHN ZERBE and ROSS LESLIE ZERBE, at all times the aggregate total of all distributions of the Trust Fund and/or the income thereof (as the case may be) made to either son … shall be equal to the aggregate total of all distributions from the Trust Fund and/or the income thereof (as the case may be) made to the other son …
Clause 10 of the Trust Deed gave Leslie Zerbe (and after his death, his personal representative) a discretionary power to remove and replace the Trustee.
By Deed of Appointment dated 14 December 1974, Leslie Zerbe removed L H Nominees Ltd and appointed Turguse as the Trustee of the Trust. Turguse was registered on 3 December 1974.
On 24 December 1974, Turguse made a Declaration of Trust stating, amongst other things, that in its capacity as Trustee of the Trust it intended to purchase the Vineyard from Leslie and Gladys Zerbe, and to borrow an amount equal to the purchase price, stamp duty and other ancillary expenses from Leslie and Gladys Zerbe.
Turguse, in its capacity as trustee of the Trust, became the registered proprietor of the Vineyard on 28 May 1975.
The original day of distribution in the Trust Deed was the 80th anniversary of the execution of the Trust Deed. The day of distribution was subsequently altered by a Deed of Nomination made on 21 April 1992 to the date of death of the respondent.
The loan facility agreement, which was guaranteed by the respondent and which led to the Judgment Debt, was entered into in October 2009.
On 27 March 2019, a judicial registrar of the County Court made an order in chambers giving the applicant leave to file and serve a charging summons on the respondent. The applicant then filed a charging summons on 5 April 2019 under r 73.05 of the County Court Rules seeking to charge the respondent’s shares in Turguse with payment of the Judgment Debt. The charging summons sought an order ‘that certain securities in which the Defendant has a beneficial interest namely 90% of the shares [in Turguse] stand charged to the extent of the value of the entire beneficial interest of the Defendant in the securities or of so much of that value as may be sufficient to satisfy [the Judgment Debt]’.
Order 73 – Charging orders
Order 73 of the County Court Rules is headed ‘Charging orders and stop orders and notices’. The relevant rules are as follows:
73.02 Order charging securities
For the purpose of securing the payment of a judgment debt the Court may by order impose a charge on the beneficial interest of the judgment debtor in any securities.
73.03 Filing and service of charging summons
(1) The Court may, on the application of a judgment creditor, order that a charging summons be filed and served.
(2) A judgment creditor may apply for an order under paragraph (1) without notice to any person.
73.04 Evidence on application for charging summons
(1) An application for an order under Rule 73.03(1) shall be supported by an affidavit—
(a) stating that the judgment is unsatisfied, either wholly or to a stated extent;
(b) identifying the securities in respect of which the order is sought and stating in whose name they stand; and
(c) stating that the judgment debtor has a beneficial interest in the securities and describing that interest.
(2) An affidavit under this Rule may contain statements of fact based on information and belief if the grounds are set out.
73.05 Charging summons
(1) A charging summons shall identify the securities in respect of which it is filed and state that—
(a) upon service of the summons on the government or corporation to which it is addressed, the government or corporation, as the case may be, shall not, except by order of the court—
(i) cause or permit any transfer of any of the securities to be made; or
(ii) pay to any person any dividend or interest thereon;
(b)upon service of the summons on the judgment debtor, unless the Court otherwise orders, no disposition by the judgment debtor of the judgment debtor's interest in any of the securities made before the application for the charging order is heard by the Court shall be valid as against the judgment creditor.
(2) A charging summons shall be in Form 73A.
73.08 Order on summons hearing
(1) On the hearing of a charging summons the Court may make a charging order with respect to securities to which the summons relates.
(2) If the judgment debtor does not attend on the hearing of the charging summons or, if attending, does not dispute the evidence in support of the application under Rule 73.03(1), the Court may make a charging order upon that evidence.
73.09 Effect and enforcement of charge
A charge imposed by a charging order shall have the same effect and give the judgment creditor the same remedies for enforcing it as if it were a valid charge effectively made by the judgment debtor.
Securities is defined in r 73.01 as follows:
securities means—
(a) any stock—
(i) issued by or any funds of or annuity granted by the Commonwealth of Australia or by any State or Territory of the Commonwealth; and
(ii) of any corporation registered or formed under any general Act of the Commonwealth of Australia or under any general Act of any State or Territory of the Commonwealth; and
(b) any dividend or interest payable on such stock;
stock includes shares, and any debenture, debenture stock, bond, note or other security.
Judge’s reasons
The judge’s Reasons are clear, concise and compelling.
The application proceeded on the agreed basis that the shares did not have ‘any monetary value … over and above their paid up value’.[5] The paid up value was $9. The judge did not accept the applicant’s submission to the effect that the shares had value because a majority shareholder, the applicant, would have the power to appoint directors and consequently, being in control of the Trustee, make decisions regarding distributions from the Trust.
[5]Reasons [43].
In rejecting this submission, the judge said:
The plaintiff does not ascribe any monetary value to the shares over and above their paid up value. Instead the ‘value’ ascribed by the plaintiff is intangible, namely, the defendant’s ability as the majority shareholder to exercise the way in which the trustee can make distributions. It was put by the plaintiff that this must be of some value.
…
I accept the defendant’s submission that the plaintiff’s ultimate goal must be to take over control of the Trust with a view to applying trust funds to satisfy the plaintiff’s judgment debt. Such a goal is clearly impermissible and would be in breach of trust law. It is artificial for the plaintiff to argue that a charging order can be made in isolation without considering the purpose for making such an order and to do so, ignores the express wording of r 73.02. I am not satisfied that a charging order should be made in circumstances where the plaintiff has not established it would secure payment of a judgment debt. A charging order, if made in this case, would not bear fruit.[6]
[6]Ibid [43], [50].
In dealing with the purpose for making a charging order and the express wording of r 73.02 the judge said:
Even if the ability to direct the trustee how to make distributions has some intangible value, it begs the question should a charging order be made in those circumstances? As r 73.02 provides, the purpose of making a charging order is to secure the payment of a judgment debt. For example, a charging order could be made over shares and then a judgment creditor could make an application to compel the sale of those shares as a means of recovering the debt. Here, the plaintiff says a charging order could be made and then the plaintiff can decide at a later stage what steps it will take, if any, to seek payment pursuant to the charge. But there is no utility in making such an order where the plaintiff would be unable to enforce the charge in order to secure payment of the judgment debt by any legitimate means.
If the plaintiff, as chargee of the defendant’s shares, sought to direct the trustee to make a payment to the plaintiff, the trustee would be in breach of its fiduciary obligations if it did so. If the trustee made distributions to the defendant with a view to that sum becoming available for the plaintiff’s benefit at the expense of the other beneficiaries, again such action would be contrary to the trustee’s duties and be liable to challenge. The trustee of the Trust must act in the interests of all the beneficiaries, being the defendant and his brother, and their respective families.[7]
[7]Ibid [44]–[45] (emphasis in original).
Grounds of appeal
The proposed grounds of appeal are as follows:
1.The Court erred in misapplying the test in relation to the granting of a charging order under r 73.02 of the County Court Civil Procedure Rules 2018 (Vic) in concluding at [50] that the applicant had an impermissible or unlawful objective when there was no necessity to ascertain such a conclusion when considering whether a charging order should be made.
2.The Court erred in concluding at [50] that the applicant’s ultimate goal must be to take over control of the Trust so as to apply trust funds to satisfy the applicant’s judgment debt in a manner that would be impermissible and in breach of trust law when there was no evidence to support such a conclusion.
The grounds are interrelated and will be dealt with together as they were on the hearing of the application for leave to appeal. They raise the critical issue as to whether the charging order provisions should be applied to shares in a trustee company with an agreed nominal value of $9.
Applicant’s submissions
The applicant does not seek to charge any interest in the property held by the Trustee ‘be it legal or beneficial’.
The applicant accepts that the power to make a charging order is discretionary. However, the applicant submits that the ‘discretion should be construed broadly’ essentially because the charging order and other provisions provide a mechanism ‘to assist judgment creditors in the enforcement of their court ordered entitlements’. It was submitted that the wide statutory power should not be read down and that ‘the efficacy of a judgment should be ensured.’
The applicant submits that a charging order may be the first step in a ‘multi-step process’ of securing payment of a judgment debt. It might be used to provide a pathway to the judgment debt being satisfied and does not have to directly secure payment of a judgment debt. In this regard, the applicant submits that r 73.09 is concerned with the object of the charge and not the direct consequence of it. In other words, ord 73 does not require a charging order to directly secure the payment of a judgment debt; it must just be made for the purpose of securing the payment.
In other words, the applicant submits that ord 73 does not require the applicant to identify precisely how the judgment debt will be satisfied but only that a pathway exists to enable the judgment creditor to secure payment of the judgment debt. The judge’s consideration of the potential pathways in which the Judgment Debt may be paid was erroneous, it was submitted, on the basis that it was not open to the judge to consider and restrict the steps available to a judgment creditor with a charging order before the charging order is granted. Once a charging order is granted, then any issues concerning the enforcement of the order may be ventilated in further proceedings. In this regard, the applicant submits that the enforcement of the charge ‘must be pursued by way of a separate proceeding’ and that the fact that further proceedings are required ‘cannot preclude the initial granting of the charge’.
In support of the second ground of appeal, the applicant submits that based on the evidence before the primary judge and, more relevantly, the absence of such evidence, the finding as to the applicant’s ultimate goal was unwarranted.
The applicant submits that if the charging order is granted, it is open for the applicant to appoint a director to Turguse and therefore secure the voting rights which attach to the respondent’s shares. The applicant further submits that if a trust distribution is made, which would be subject to the enforcement rights of the applicant, so long as a corresponding distribution is made to the applicant’s brother (which is required under the Trust Deed) it is an entirely permissible pathway to securing the Judgement Debt.
Respondent’s submissions
The respondent submits that in refusing to make the charging order, it was entirely open to the judge to investigate and consider the hypothetical pathways the applicant may undertake in order to satisfy the Judgment Debt.
The respondent submits that as the court’s power to grant a charging order is equitable, the court was required to consider all of the relevant circumstances and exercise its discretion accordingly. This included the legal and practical effects of making the charging order including difficulties associated with the enforcement of the remedy. If the court determined that the remedy was too difficult to enforce, the respondent submits that the court would not allow the remedy. The respondent submits further that the court’s consideration of the enforcement of the remedy should occur at the time of deciding whether to make the charging order and not at a later hearing once the charging order has been made.
The respondent submits that when making an order in a civil proceeding a court must take into account the overarching purpose of the Civil Procedure Act2010. The respondent submits that this can be done by the court considering the efficient conduct of the business of the court and the efficient use of judicial and administrative resources. The respondent submits that the judge did not make an error when considering the practical consequences and utility of the charging order.
The respondent submits that it was open to the court to conclude that the applicant intended to appoint a director to Turguse for the purpose of causing a trust distribution. The respondent submits further that the applicant has failed to consider trust law and, in particular, the duties of a trustee when asserting that it is open to the applicant to appoint a director to cause a trust distribution so long as a corresponding distribution is made to the respondent’s brother. The respondent relies on authorities to the effect that the Trustee would be acting for an ulterior purpose if a trust distribution was made for the purpose of satisfying the Judgment Debt because the distribution would be made in the interests of the judgment creditor and not the interests of the respondent or other beneficiaries.
Analysis
We agree with the orders made and the Reasons of the judge.
Orders 66–73 of the County Court Rules all deal with post-judgment enforcement. They are all directed to enabling a judgment creditor to satisfy a judgment debt in whole or in part by executing against a particular asset or property of the judgment debtor. The entire focus is on the particular asset that will provide the security.
The charging order provisions do not and were not intended to permit a judgment creditor to effectively take control of a discretionary trust with a view to then securing distributions to a discretionary beneficiary, being the judgment debtor, with the ultimate intention of achieving payment of a judgment debt.
The charging order provisions are inappropriate and clearly do not readily admit of such a purpose. Such a purpose is very far removed from the ordinary application of the provisions. It is therefore hardly surprising that there are no authorities on point. Most cases relate to the nature and extent of the interest held by the judgment debtor. The question that arises is usually whether a judgment debtor holds a beneficial interest in the shares. There are cases that also deal with shares held by third parties and whether the judgment debtor has a beneficial interest in those shares. There are also cases dealing with enforcement difficulties in particular circumstances. However, all of these cases proceed on the necessary assumption that a beneficial interest has been or will be established in a particular asset, relevantly in this case, shares. It is the asset, its value and realisation that is the critical focus, not what can otherwise be done indirectly with the asset (for example, relying on voting rights attached to the shares to facilitate the appointment of a new director of a trustee corporation).
Charging orders are intended to provide a relatively quick and easy summary procedure to attach the beneficial interest of a judgment debtor in securities which include shares. Following a charging order, steps need to be taken to sell the shares. The precise steps depend on the nature of the shares and the particular process required to realise the security provided by the shares. The judgment creditor is in effect akin to a secured creditor seeking to enforce a security. However, the process is directed to generating funds. In this case the shares have no relevant value. They are unable to be realised and there is no point in selling them. Rather they are to be deployed and used in another way, a very different way that has nothing to do with the realisable value of the shares.
In Galbally v Easton,[8] a case that the applicant relies upon, the plaintiff held a charging order over shares in a public company. In a separate proceeding, the plaintiff made application for an order for the sale of the shares and the appointment of a registered liquidator to undertake such a sale. The critical issue in the case was the mode of sale of the charged shares. Hallen J was not prepared to appoint a liquidator to sell the shares without considering ‘whether there is any alternative way of achieving the sale that might not be as costly’.[9] Earlier, his Honour agreed that ‘judicial sale is the method by which the Plaintiff may take the benefit of a charge arising under a charging order’[10] and that an order for possession of the shares was required.[11]
[8][2016] NSWSC 77 (‘Galbally’).
[9]Ibid [77].
[10]Ibid [74].
[11]Ibid [75].
The applicant relies on Galbally in support of a contention that a multi-step process is often necessary to secure payment of the judgment debt and that the enforcement step following the charging order should be dealt with if and when it arises but not at the stage when the charging order is made. For reasons that follow, we consider that Galbally is distinguishable and we consider that, in respect of the circumstances that arise in this case, the judge was correct to conclude that a charging order ought not be made. Galbally concerned the sale of the charged shares, the very asset charged with payment of the judgment debt. It did not concern the use of those shares in another way, for example by voting at meetings, securing the appointment of new directors or by voting for increased dividend distributions. This is not the purpose of a charging order over shares. The purpose of a charging order is, relevantly, the realisation of shares in payment of the judgment debt in full or in part and the method, absent agreement, is a judicial sale. It is the judicial sale that is the second step or part of a permitted multi-step process referred to by the applicant. This step is directed to the realisation of the shares and not the deployment of the shares in another way.
It is hardly surprising that the judge here felt compelled to examine the very unusual enforcement stages foreshadowed by the applicant. There was nothing hypothetical in such analysis. The applicant contended that such a process was available to secure payment. It was necessary and appropriate for the judge to go beyond this high level broad contention and to analyse the method by which it was suggested enforcement might be achieved, and she exercised her discretion accordingly.
At the risk of repetition, we emphasise two significant observations. First and self-evidently, the proposed procedure that the applicant foreshadowed that it intends to deploy does not involve the attachment and sale of shares to reduce the Judgment Debt, the process that underpins the rule. While the applicant contends, however, that the proposed procedure secures payment and, as mentioned, it submits that this need not be direct but can be through a multi-step process. Second, several significant intermediate steps are required in order to generate funds by way of distributions to the judgment debtor respondent. This procedure as detailed below is far removed from the summary attachment and sale provisions and in our opinion is not contemplated by the charging order rules.
It is relevant to reflect on the several significant intermediate steps which the applicant foreshadows and how they undermine the utility, efficiency and purpose of the charging order rules. First, the judgment creditor will need to be registered as the holder of 9 of the 10 shares in Turguse, the Trustee company. Assuming this is permitted by the constitution of Turguse and the Trust Deed, it should immediately be observed that the purpose of such registration is not to bring about a sale of the shares, the usual position in relation to charging orders, but to facilitate the further intended steps. Secondly, the majority shareholder would appoint directors to Turguse, so that it controlled the board of directors of the Trustee. Again, this is not for the purpose of sale of an asset, but to control the decision-making process of the Trustee. However, Turguse is obliged to act in accordance with the Trust Deed and the applicable law governing trusts. It has primary responsibility for the operation of the Trust, apart from, but of course informed by, the directors of Turguse. Thirdly, Turguse is not obliged to make a distribution to the judgment debtor. It has a broad discretionary power of distribution under cl 6 of the Trust Deed. The fact that the applicant’s process of enforcement depends upon the ‘discretion’ being exercised in a particular way exposes the inherent difficulties in the process not the least of which is the conflict position of Turguse, through its newly appointed directors. All of this serves to undermine the operation of a discretionary trust and is far removed from the real purpose of the charging order rules. Fourthly, if Turguse makes the decision to sell assets and make a distribution to the respondent judgment debtor what is then to occur? Is a separate process required to attach the distribution? How does the distribution move from the account of the judgment debtor to the judgment creditor absent a voluntary payment? Is there to be a separate charging order, or other execution process in relation to the orchestrated distribution, a distribution brought about by what would then be a self-interested Trustee.
Further, given the amount of the Judgment Debt it would presumably be necessary to sell the Vineyard, a family asset since 1959 and a Trust asset for close to half a century. Having been established in 1974, the Trust can hardly be considered the ‘alter ego’ of the judgment debtor.[12] Finally, in reality it is inconceivable that the appointor of the Trust, the person responsible for deciding whether a trustee should remain or be replaced, would not immediately appoint a new trustee in place of Turguse, effectively preventing the judgment creditor from going past the first step. The appointment of new directors to a company that would most likely no longer be the trustee does not achieve anything.
[12]This distinguishes the circumstances of this case from that which arose in ASIC v Carey [No 6] (2006) 153 FCR 509, 520 [36]–[37].
The process referred to is not a multi-step process taken in order to sell the asset the subject of the charging order but rather a multi-step process to secure a payment to the judgment debtor of a distribution, an entirely different asset not subject to any charging order. As we have emphasised earlier, this is far removed from the operation of the rule. We reject the applicant’s submission that the judge fell into error in looking past the first step, although the first step — a charging order over shares worth $9 — does not assist the applicant. Indeed, according to the applicant, it is only by looking past the first step that the suggested intangible value arises, the shares being the vehicle to secure payment. Contrary to the applicant’s submission, the judge was obliged and entirely correct to consider the unusual indirect relationship between the asset and payment or the way in which the asset would be used to secure payment. This is all the more so when dealing with trust assets. The judge was obliged to give proper consideration to these matters which she did.
In our view, the decision of the judge to refuse to make a charging order involved the exercise of a discretion. Having considered all relevant matters, including some of the legal and practical difficulties we have referred to, the judge considered that in the exercise of her discretion a charging order should not be made, essentially because it would have no utility, because the shares have no value and a charging order could not be used in the circumstances. In order to succeed in an application for leave to appeal, the applicant must demonstrate error of the type referred to in House v The King.[13] Such errors include acting upon a wrong principle, allowing extraneous or irrelevant matters to guide or affect the decision, mistaking facts, and failing to take into account a material consideration. We are unable to discern any such error in the reasoning of the judge. For the reasons given, it was entirely open to the judge to make the order she did and, in any event, in our view it was entirely appropriate.
[13](1936) 55 CLR 499.
The post-judgment enforcement process foreshadowed by the applicant is fundamentally and fatally misconceived for the reasons given. If a charging order was made it would ‘give the judgment creditor the same remedies for enforcing it as if it were a valid charge effectively made by the judgment debtor’ (r 73.09). A secured creditor seeking to enforce such a charge — over shares in a trustee company with a nominal value of $9 — would not have any claim, interest or recourse to the trust assets.[14] Indeed, even the trustee, which holds the legal title to the assets (unlike the shareholder in the trustee company that holds no interest at all) only has recourse to the trust assets to satisfy its right of indemnity or exoneration. Secured creditors who desire to take security over trust assets usually take a separate security with suitable warranties, representations, and, if necessary, acknowledgements and undertakings from the trustee and, if necessary, the beneficiaries.
The misconceived process adopted by the applicant appears to have commenced well before the order sought in relation to the Judgment Debt. On 24 July 2018, Sascha James Kenny, a solicitor in the employ of T F Grundy Lawyer, the applicant’s solicitors, sent a letter by express post to Turguse advising that ‘Octavius was pursuing a claim for moneys owed by the Defendant and that Turguse was now on notice that any attempts by the Defendant to transfer his shares in Turguse to Karen Lea Zerbe or any other entity would be viewed and constructed as an endeavor [sic] to defraud creditors contrary to section 172 of the Property Law Act 1958 and will therefore become voidable at the instance of my client’. On that same day, a letter was sent by express post to Karen Lea Zerbe advising her of Octavius’ claim and that ‘any attempt by the Defendant to transfer his shares to her will likewise be seen as an endeavor [sic] to defraud creditors and would result in proceedings being commenced by my client for the unwinding of that transaction.’ We consider the warnings expressed in these letters to be without foundation.
For these reasons, the application for leave to appeal is refused.
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