Re Mandeville Group Pty Ltd (In Liq)
[2020] VSC 293
•27 May 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2019 05082
| IN THE MATTER OF MANDEVILLE GROUP PTY LTD (IN LIQUIDATION) (ACN 614 322 299) |
| B E T W E E N | |
| BARRY WIGHT in his capacity as liquidator of Mandeville Group Pty Ltd (IN LIQUIDATION) (ACN 614 322 299) | |
| First Plaintiff | |
| AND | |
| MANDEVILLE GROUP PTY LTD (IN LIQUIDATION) (ACN 614 322 299) | |
| Second Plaintiff | |
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JUDGE: | SLOSS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 6 April 2020 (Plaintiffs provided supplementary submissions dated 8 April 2020) |
DATE OF JUDGMENT: | 27 May 2020 |
CASE MAY BE CITED AS: | In Re Mandeville Group Pty Ltd (In Liq) |
MEDIUM NEUTRAL CITATION: | [2020] VSC 293 |
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CORPORATE INSOLVENCY — Directions — Liquidator’s application for orders and directions under Sch 2, ss 90-15, 90-20, and s 1318 of the Corporations Act 2001 (Cth) — Property purchased in corporate name for the purpose of development project — Where unit trust structure adopted — Where property is company’s only substantial asset — Whether property is held by company in own right or as trustee of unit trust — Corporate trustee disqualified from acting as trustee upon entering into liquidation — Liquidator seeking directions empowering sale of property — Whether liquidator entitled to be paid remuneration, costs and expenses under s 556(1) of the Corporations Act 2001 (Cth) — Application granted and directions given.
TRUSTS — Express trusts — Creation — Declaration of unit trust by deed — Numerous versions of unit trust deeds executed — Whether certainty of intention, subject matter and object manifested — Whether failure of express unit trust due to different or conflicting trust deeds — Where trustee seeks judicial advice as to whether it is justified in conducting winding up of the corporate trustee on basis that it holds property in its capacity as trustee of the express unit trust — Rule 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).
TRUSTS — Express trusts — Ipso facto clause — Where corporate trustee in liquidation holds property as bare trustee of unit trust — Where bare trustee sought orders under s 63 of the Trustee Act 1958 Vic for conferral of the necessary powers to carry on the business of the unit trust and preserve, realise and distribute the assets — Where liquidator sought orders permitting him to rely on statutory powers as liquidator of corporate trustee pursuant to s 477 of the Corporations Act 2001 (Cth) to take all necessary steps to sell property — Alternatively, liquidator sought orders appointing the liquidator as receiver over the property — Orders made for conferral on bare trustee of powers sought under s 63 of the Trustee Act 1958 (Vic) and conferral on liquidator of powers under s 477 of the Corporations Act 2001 (Cth).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr C R Brown of counsel (by audio visual link) | Holding Redlich Lawyers |
| As Contradictor appointed by the Court | Ms V Bell of counsel (by audio visual link) | Holding Redlich Lawyers |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
The Court appointed a ‘contradictor’......................................................................................... 3
Hearing of the application........................................................................................................... 4
Background......................................................................................................................................... 5
The purchase of the Property...................................................................................................... 6
Approach to the initial investors in the Mandeville project................................................... 6
Approach to the Sydney investors............................................................................................. 7
The certificate of title for the Property....................................................................................... 8
Mr Dali Cvek................................................................................................................................ 10
Mandeville Group Pty Ltd......................................................................................................... 10
The Mandeville project and the ‘investors’............................................................................. 12
Mr James Ye........................................................................................................................ 12
Petra Gerendasi.................................................................................................................. 19
Xiao Chen............................................................................................................................ 24
Kan Xin Tang...................................................................................................................... 28
Hanxin Qiu......................................................................................................................... 33
Ms Liling Cheng................................................................................................................ 35
Mr Xaiotong Hao............................................................................................................... 36
Investors’ concerns about the Property................................................................................... 36
Jieyun proceeding – freezing order made over the Property................................................... 37
The liquidator’s evidence............................................................................................................... 38
The gist of the rival contentions advanced by the plaintiffs and the contradictor............. 40
The plaintiffs’ position............................................................................................................... 40
The position advanced by the ‘contradictor’.......................................................................... 40
Nature and scope of an application for directions by a liquidator........................................ 41
The Court’s jurisdiction.............................................................................................................. 47
The plaintiffs’ submissions........................................................................................................... 48
The contradictor’s submissions..................................................................................................... 50
Consideration and disposition of the application..................................................................... 51
The documentation and the parties’ dealings support the existence of an express trust essentially in the terms of the 3 October 2016 trust deed................................................................ 65
Unnecessary to deal with alternative constructive trust argument..................................... 66
Resulting trust argument not pursued.................................................................................... 68
‘Ipso facto’ clause enlivened – second plaintiff holds the Property as a bare trustee....... 69
Powers sought under s 63 of the Trustee Act......................................................................... 69
The trustee’s right of indemnity and accompanying lien..................................................... 70
Powers sought under s 477 of the Corporations Act............................................................. 71
The liquidator’s remuneration, costs and expenses............................................................... 73
Surplus funds to be held on trust............................................................................................. 74
Conclusion......................................................................................................................................... 74
Proposed orders.......................................................................................................................... 74
HER HONOUR:
Introduction
The first plaintiff, Mr Barry Wight, is a registered liquidator. Mr Wight was appointed as liquidator of the second plaintiff, Mandeville Group Pty Ltd, on 15 October 2019, when a creditors’ voluntary liquidation of the company was initiated by resolution of its sole director and sole shareholder, Mr Adrian Mihailescu.[1]
[1]Fifth affidavit of Mitchell Kenneth Bascomb Waters affirmed on 3 April 2020.
At the time of Mr Wight’s appointment as liquidator, Mandeville Group Pty Ltd was the registered proprietor of a property located at 3 Mandeville Crescent, Toorak, Victoria (the Property). It was also the trustee of the Mandeville Group Trust No 1.
The liquidator has taken possession of the Property and he now seeks orders from the Court for a power of sale.[2]
[2]First affidavit of Barry Wight affirmed on 7 November 2019 (first Wight affidavit) at [27].
The liquidator deposes that the Property is the only asset of the company, and the sole purpose of the Mandeville Group Trust No 1 was purchasing and developing the Property.[3] However, there is some inconsistency in the books and records of the company as to whether the Property was purchased by Mandeville Group Pty Ltd in its own right or in its capacity as trustee for the Mandeville Group Trust No 1. The liquidator’s investigations have also revealed there is a lack of clarity as to the identity of the current unitholders of the trust and, in the course of his appointment, the liquidator has been provided with three alternative trust deeds (each of which contain different unitholders), and two competing trust deeds for an earlier trust pertaining to the Property.
[3]First Wight affidavit at [26], [6].
In those circumstances, the plaintiffs commenced this proceeding by a RedCrest (Corporations) Originating Process filed on 11 November 2019.[4] In the Originating Process, the plaintiffs sought orders in relation to obtaining the necessary powers to preserve, realise and distribute the assets of the Mandeville Group Trust No 1 and for payment of the liquidator’s remuneration and expenses therefrom; alternatively, orders appointing the liquidator as receiver over the property of the Mandeville Group Trust No 1.
[4]The first Wight affidavit was filed in support of the application.
The initiating documents were served on the Australian Securities and Investments Commission (ASIC). In addition, the plaintiffs’ solicitor gave notice of the filing of the Originating Process to:
(a) the secured and unsecured creditors of the Mandeville Group Trust No 1 according to its books and records; and
(b) the Unitholders of the Trust; and
(c) the (sole) director of the company.
At that time, the only interested person who had indicated an intention to be heard on the plaintiffs’ application was Jieyun Investments Pty Ltd (Jieyun), who had informed the plaintiffs’ solicitor that it proposed to intervene only to seek orders for the payment of $608,047 into Court from the proceeds of sale.[5] (Jieyun’s position is discussed further below.)
[5]Exhibit KCM-10 to the first MacKay affidavit; second MacKay affidavit at [7].
Given that the (ongoing) investigations and enquiries undertaken by the liquidator have identified inconsistencies in the company’s books and records and raised doubts as to the capacity in which the Property is held − whether the Property is owned by Mandeville Group Pty Ltd in its own right or on trust for the Mandeville Group Trust No 1 (and if so, which trust deed is the applicable trust deed) or for the persons who sought to subscribe for units in it − the liquidator’s focus is in ‘ensuring he has power of sale (whether on behalf of the company as its liquidator or on behalf of the trust pursuant to a Court order).’[6]
[6]Plaintiffs’ submissions re ownership of the property, at [31].
Relevantly, the position is that if the Property is held by Mandeville Group Pty Ltd in its own capacity, the liquidator has power to sell or otherwise dispose of the Property pursuant to s 477 of the Corporations Act 2001 (Cth). But in the event that the Property is held by Mandeville Group Pty Ltd in its capacity as trustee of the Mandeville Group Trust No 1 or on constructive trust for the persons who sought to subscribe for units in that trust, s 477 does not empower the liquidator to sell the trust property,[7] and he cannot proceed to effect a sale without obtaining an order of the Court or by appointment of a receiver over the trust assets.[8]
[7]Re Stansfield DIY Wealth Pty Limited (in liq) (2014) 291 FLR 17 at 25 [30], 26 [33] (Re Stansfield).
[8]Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) (2018) 260 FCR 310 at 323 [44], 333 [89] (Allsop CJ) (Re Killarnee); Re Stansfield (2014) 291 FLR 17 at 20-1 [10].
Accordingly, in order to avoid any uncertainty as to whether the liquidator has the power to sell the Property, the plaintiffs seek directions from the Court, which are framed in the Second Further Amended Originating Process filed on 14 April 2020, in the following terms:[9]
1.A direction that the first plaintiff is justified in conducting the winding up of the second plaintiff on the basis that the property located at 3 Mandeville Crescent, Toorak VIC 3142, referred to in the certificate of title Volume 07436 and Folio 131 (the Property), is held by the Second Plaintiff in its capacity as trustee of the Mandeville Group Trust No 1 (Trust) or in the alternative on constructive trust for the benefit of persons who sought to subscribe for units in the Mandeville Group Trust No 1 (alternatively, Trust) or
2.In the alternative to 1 above, a direction that the first plaintiff is justified in conducting the winding up of the second plaintiff on the basis that the Property is held by the second plaintiff in its own right.
[9]Second Further Amended Originating Process dated 14 April 2020, [1]-[2].
The Court appointed a ‘contradictor’
In the plaintiffs’ (earlier) Amended Originating Process filed on 24 January 2020, they also sought declaratory relief as to the ownership of the Property. By order of the Court, the Amended Originating Process was served on the following interested persons in or about late January 2020:[10]
[10]See generally, third affidavit of Mitchell Waters affirmed 30 January 2020.
(a) Westpac Banking Corporation (the registered mortgagee of the Property);
(b) the ‘initial unitholders’ in the Mandeville Group Trust No 1, namely:
(i) 88 North Pty Ltd (ACN 169 495 952);
(ii) Petra Gerendasi; and
(iii) James Jia Ye; and
(c) the ‘further initial unitholders’ in the Mandeville Group Trust No 1 who are represented by Mr Xaio Chen, namely:
(i) Hanxin Qiu;
(ii) Xiaotong Hao;
(iii) Kan Xin Tang;
(iv) Liling Cheng; and
(v) Xiao Chen.
However, as none of those interested persons filed an appearance in the proceeding (or sought to appear), the Court subsequently ordered, inter alia, that a contradictor be appointed in relation to the declaratory relief sought by the plaintiffs in respect of the ownership of the Property, and that the matter be listed for hearing on Monday, 6 April 2020 in respect of the declaratory relief sought.[11]
[11]See Orders made by Lyons J on 27 February 2020.
Hearing of the application
Although the nature of the substantive relief sought by the liquidator has now changed from declaratory relief to one of seeking directions from the Court, the hearing nevertheless proceeded on 6 April 2020 with assistance from a contradictor. Written outlines of submissions were filed by the plaintiffs[12] and by the contradictor,[13] along with an agreed chronology, in advance of the hearing. The matter was heard by an audio-visual link and Mr Christopher Brown of counsel appeared on behalf of the plaintiffs and Ms Vicki Bell of counsel appeared as the contradictor.[14] Neither ASIC, Jieyun, nor any of the persons who sought to subscribe for units in the Mandeville Group Trust No 1 appeared at the hearing.
[12]See plaintiffs’ outline of submissions filed on 3 December 2019, and plaintiffs’ submissions re ownership of the property filed on 29 March 2020. In advance of the hearing, the plaintiffs’ solicitors also sent an email to the Court dated 3 April 2020, concerning the amendments they proposed making to the Amended Originating Process so as to seek ‘directions’ rather than declaratory relief. Following the hearing, the plaintiffs provided supplementary submissions dated 8 April 2020.
[13]Contradictor’s written outline of submissions filed on 3 April 2020.
[14]Orders made by Lyons J on 31 January 2020 at [4]; transcript 31/01/20 pp 4-5 (Lyons J): The plaintiffs’ solicitors, Holding Redlich Lawyers, were appointed as the solicitor for the contradictor.
At the outset of the hearing, counsel for the plaintiffs informed the Court that, having been in contact with many of the unitholders, and the director of Mandeville Group Pty Ltd, the position is that ‘[n]o one is disputing that the property should be sold and so there is no party out there that we are aware of that says, no, this property shouldn’t be sold’;[15] rather, ‘everybody, in fact, wants the property sold and the best price got for the property’.[16] He continued, to acknowledge the potential for there to be ‘a dispute down the track about who gets what from the proceeds’ but said that ‘at this stage, the main objective for the liquidator is to have, or to ensure that he has, the power to sell the property and get in those proceeds’. Counsel also informed the Court that while the liquidator has no interest in one outcome or another, the liquidator ‘has formed a view via legal advice that it is more likely that [the Property] is held on trust’,[17] rather than by the company in its own right.
[15]Transcript 06/04/20, at p 5 (Mr Brown).
[16]Ibid.
[17]Ibid.
For the reasons which follow, I am satisfied that it is appropriate for the Court to give the directions and make orders in, or substantially in, the terms of the ‘principal position’ sought by the liquidator.
Background
The factual background giving rise to the plaintiffs’ application is set out in the thirteen supporting affidavits upon which they rely, namely:
(a) Affidavit of Mr Barry Wight affirmed 7 November 2019;
(b) Affidavit of Mr Barry Wight affirmed 18 December 2019;
(c) Affidavit of Ms Kimberley MacKay sworn 26 November 2019;
(d) Affidavit of Ms Kimberley MacKay sworn 3 December 2019;
(e) Affidavit of Mr Mitchell Waters affirmed 19 December 2019;
(f) Affidavit of Mr Mitchell Waters affirmed 30 January 2020;
(g) Affidavit of Mr Mitchell Waters affirmed 3 April 2020;
(h) Affidavit of Ms Petra Gerendasi affirmed 17 February 2020;
(i) Affidavit of Mr Adrian Mihailescu sworn 17 February 2020;
(j) Affidavit of Mr James Jia Ye sworn 17 February 2020;
(k) Affidavit of Mr Xiao Chen affirmed 19 February 2020;
(l) Affidavit of Mr Hanxin Qiu affirmed 21 February 2020; and
(m) Affidavit of Mr Kan Xin Tang affirmed 21 February 2020.
In summary, the key background facts are as follows.
The purchase of the Property
On or about 18 May 2016, Mr Dali Cvek entered into a Contract of Sale of Real Estate with Ms Rita Klapanis, the registered proprietor of the Property.[18] The contract of sale stated the purchase price as being $4,438,000, of which $350,000 was payable by way of deposit by 1 June 2016, of which $100,000 was acknowledged as paid. The balance of $4,088,000 was payable at settlement, which was due on or before 18 September 2016.[19]
[18]Affidavit of Adrian Mihailescu sworn 17 February 2020 at [5] (Mihailescu affidavit).
[19]Contract of Sale, exhibit BW-8 to the first Wight affidavit.
Approach to the initial investors in the Mandeville project
Following entry into the contract of sale, and prior to settlement taking place, Mr Cvek approached each of Mr Ye and Ms Gerendasi separately and sought funds from each of them to enable the deposit to be paid.[20] Subsequently, each of them agreed to invest in the ‘Mandeville project’, and Mr Cvek in consultation with his colleague, Mr Mihailescu, arranged for each of them to execute loan agreements and trust deeds recording their ‘investment’.
[20]Affidavit of James Jia Ye sworn on 17 February 2020 at [12]-[13] (Ye affidavit); affidavit of Petra Gerendasi affirmed on 17 February 2020 at [8] (Gerendasi affidavit).
At or about that time, Mr Cvek had nominated ‘Rothmann Piper Investment Group Pty Ltd (A.C.N. 603 943 317) atf Rothman Piper Trust No 2’ as the ‘substitute purchaser’ of the Property.[21] But subsequently, in around August 2016, Mr Cvek apparently decided that a new company should be formed to undertake the purchase, following which he instructed Mr Mihailescu, to form a new company and appoint himself as director, and establish a trust (being the Mandeville Group Trust No 1), for the purpose of purchasing the Property.[22] The new company, Mandeville Group Pty Ltd, was incorporated on 18 August 2016.
[21]Real Estate Nomination Form at end of exhibit PG-2 to the Gerendasi affidavit; Mihailescu affidavit at [6].
[22]Mihailescu affidavit at [8]-[10].
On 6 September 2016, prior to settlement of the purchase of the Property, Mr Cvek instructed Mr Mihailescu to execute a (further) nomination form nominating the newly-formed company, Mandeville Group Pty Ltd, as purchaser of the Property.[23] The nomination form made no mention of the ‘Mandeville Trust’.[24]
[23]Ibid at [10]; exhibit KCM-16 to the second MacKay affidavit.
[24]Exhibit KCM-16 to the second MacKay affidavit.
On 3 October 2016, settlement took place and the Property was transferred to Mandeville Group Pty Ltd.[25]
[25]Gerendasi affidavit at [19].
Approach to the Sydney investors
Following settlement, later in October 2016, Mr Cvek approached Mr Chen and offered him the opportunity to invest in the Property and its development.[26] Mr Cvek provided Mr Chen with a feasibility report and drawings in relation to the Property.[27] Mr Chen accepted that invitation and subsequently invited several other investors known to him, including Mr Hanxin Qui and Mr Kan Xin Tang to invest also.[28]
[26]Affidavit of Xiao Chen affirmed on 19 February 2020 at [8]-[15] (Chen affidavit).
[27]Ibid at [11], exhibits XC-1 and XC-2.
[28]Chen affidavit at [8]-[15].
In October 2016, Mr Chen introduced Messrs Cvek and Mihailescu to Mr Qiu, Mr Tang, Mr Xiatong Hao and Ms Liling Cheng (who together with Mr Chen are referred to as the Sydney investors) and they met to discuss the proposal. Mr Chen’s evidence is that Messrs Cvek and Mihailescu informed him and the Sydney investors that the investment would be via units in the trust and loan agreements.[29] It appears that subsequently each of the Sydney investors agreed to invest in the Property and its development on that basis, and Mr Chen arranged for each of them to execute loan agreements and trust deeds for the Trust.[30]
[29]Ibid at [15].
[30]See eg. ibid at [19], [25].
In late 2016, Mr Cvek moved to Spain.[31]
[31]Ye affidavit at [17].
The certificate of title for the Property
The certificate of title records that Mandeville Group Pty Ltd became registered as the sole proprietor of an estate in fee simple in the Property on 13 October 2016 and that the title is encumbered by a registered mortgage No AN175285R in favour of Westpac Banking Corporation which was registered on the same date.[32] The relevant mortgage documentation is a ‘RAMS Low Rate Home Loan Agreement Details’ (showing Westpac Banking Corporation as credit provider for loans originated by RAMS Financial Group Pty Limited (Westpac)) which was executed by the directors of Mandeville Group Pty Ltd on 7 September 2016.[33] Therein, the original loan amount was stated as being $3,328,000, made up of fees and charges of $821.10 and the balance of $3,327,178.90. The liquidator deposes that when the proceeding was commenced, the amount outstanding pursuant to the mortgage was approximately $3,400,000.[34]
[32]Certificate of title vol. 07436 folio 131, exhibit BW-3 to the first Wight affidavit.
[33]Exhibit BW-9 to the first Wight affidavit.
[34]First Wight affidavit at [13].
In addition to Westpac’s mortgage, there are several caveats registered on the title to the Property, as follows:[35]
[35]Ibid at [14]-[15], exhibit BW-3.
Caveator
Stated basis for claim
Date caveat registered
South East Water Corporation
Interest as chargee pursuant to a statutory charge arising under the Water Act 1989.
8 July 2019
Petra Gerendasi
Interest as chargee pursuant to a loan agreement between Petra Gerendasi (lender) and the company as trustee for the Trust (borrower) for the sum of $800,000 dated 8 June 2016.
31 July 2019
James Jia Ye
Interest as chargee pursuant to a loan agreement between James Jia Ye (lender) and the company as trustee for the Trust (borrower) for the sum of $200,000 dated 18 August 2016.[36]
31 July 2019
Petra Gerendasi
Interest as chargee pursuant to a loan agreement between Petra Gerendasi (lender) and the company as trustee for the Trust (borrower) for the sum of $270,000 dated 3 October 2016.[37]
31 July 2019
Dali Cvek
Interest as chargee pursuant to a declaration of trust made with the registered proprietor dated 25 October 2016.
24 September 2019
Barry Wight
Interest as chargee pursuant to a statutory charge arising under the Corporations Act 2001 (Cth).
4 November 2019
[36]Exhibit BW-11 to the first Wight affidavit.
[37]Exhibit BW-12 to the first Wight affidavit.
During the hearing, counsel for the plaintiffs informed the Court that all of the caveat holders, including Mr Cvek, have agreed to release their caveats so to enable any sale of the Property to proceed, but on the understanding that they will have an opportunity to make an argument about their entitlement to the proceeds at a later date.[38]
[38]Transcript 06/04/20, at p 20 (Mr Brown).
Mr Dali Cvek
As noted in the summary of caveats above, Mr Cvek claims an interest in the Property as chargee pursuant to a declaration of trust made with the registered proprietor dated 25 October 2016. The relevant trust deed has not been produced by him on the hearing of this application. However, following the hearing, the plaintiffs’ counsel provided to the Court a copy of a letter from Mr Cvek’s (then) solicitor to the plaintiffs’ solicitor dated 5 December 2019, wherein Mr Cvek’s solicitor states:[39]
In case it was not clear to you, 88 North Pty Ltd held its units in the Mandeville Group Trust No 1 (Mandeville Trust) as trustee of the Cvek Family Trust (CFT). Dali Cvek subsequently replaced 88 North Pty Ltd as the trustee of the CFT.
The Company was the trustee of the Mandeville Trust and owned the real property in that capacity.
Upon our instructions, the CFT was a unitholder of the Mandeville Trust from the date of its establishment. Subsequent versions of the unit trust deed continued to record the CFT as holding units in the Mandeville Trust.
A unitholder is entitled to register a caveat in respect of its interest.[40]
[39]A copy of this letter from Rigby Cooke Lawyers dated 5 December 2019 appears as annexure ‘A’ to the plaintiffs’ supplementary submissions (Rigby Cooke Letter).
[40]Costa and Duppe Properties Pty Ltd v Duppe [1986] VR 90.
Mandeville Group Pty Ltd
Mandeville Group Pty Ltd was incorporated on 18 August 2016. At the time of incorporation, its directors were Mr Adrian Mihailescu and Mr Ernest Balint. Mr Mihailescu has known Mr Cvek for approximately 25 years. From 2015, Mr Cvek employed Mr Mihailescu as an assistant and office manager for his various property developments.[41]
[41]Mihailescu Affidavit at [4].
Upon incorporation, Mr Mihailescu and Mr Balint each held 50 of the 100 issued ordinary shares in the company. Neither Mr Mihailescu nor Mr Balint owned the shares beneficially.[42]
[42]ASIC search, exhibit KCM-1 to the first MacKay affidavit.
Mr Balint ceased to be a director of the company on 1 January 2017.[43] On 15 November 2017, Mr Balint ceased being a shareholder of the company and thereafter all of the 100 issued ordinary shares were held by Mr Mihailescu.[44]
[43]Ibid.
[44]Ibid.
On 17 September 2019, Ms Gerendasi and a company associated with Mr Ye, JY Investments Group Pty Ltd (JY Investments), became shareholders of the company, each of them holding 48 of the issued ordinary shares.[45] There is no evidence as to the circumstances in which each of Ms Gerendasi and JY Investments became shareholders of the company. The ASIC search records that in the case of Ms Gerendasi, the shares were beneficially owned, but that JY Investments did not own the shares beneficially.[46] The sole shareholder of JY Investments is Mr Ye.[47] Each of Ms Gerendasi and Mr Ye claim an interest as unitholders in the Mandeville Group Trust No 1.
[45]Ibid.
[46]Ibid.
[47]A company search for JY Investments obtained from ASIC is attached to the contradictor’s submissions and marked as Annexure A. Mr Ye is recorded as being the sole director, secretary and shareholder of JY Investments.
On 15 October 2019, Ms Gerendasi and JY Investments ceased being shareholders, whereupon all 100 of the issued ordinary shares in the company were held by Mr Mihailescu, and recorded as being beneficially owned by him.[48] Here again, there is no evidence as to the circumstances in which each of Ms Gerendasi and JY Investments ceased to be shareholders of the company.
[48]ASIC search, exhibit KCM-1 to the first MacKay affidavit.
Also on 15 October 2019, Mr Wight was appointed as liquidator of Mandeville Group Pty Ltd pursuant to a resolution of the sole director and (then) sole shareholder, Mr Mihailescu.[49]
[49]First Wight affidavit at [4].
The Mandeville project and the ‘investors’
As noted earlier, Mandeville Group Pty Ltd was incorporated three months after Mr Cvek had entered into the contract for the purchase of the Property. By that point in time, Mr Cvek had sought and obtained money from each of Mr Ye ($200,000) and Ms Gerendasi ($800,000) which was paid variously to the real estate agent, to an entity named Rothmann Piper Investment Group Pty Ltd (discussed further below), and to the vendor’s solicitor’s trust account by way of payment of the balance of the purchase price.
The evidence suggests that Mandeville Group Pty Ltd was incorporated for the purposes of the Mandeville project, but what that project entailed, and the precise legal structure of the proposed development, in respect of both ownership of the key asset (being the Property) and the structure of third-party investment, is unclear.
The substance of the evidence filed on behalf of the initial investors, Mr Ye and Ms Gerendasi, and the Sydney investors who invested following the purchase of the Property, is summarised below.
Mr James Ye
Mr Ye is an accountant. He first met Mr Cvek in late 2014. Mr Cvek had attended a seminar Mr Ye presented on investment in Australia and Mr Cvek contacted Mr Ye following the meeting. Later they met in person and struck up a friendship and thereafter they continued meeting on a weekly basis.[50] During their catch ups, Mr Cvek would tell Mr Ye about his various property ventures in Toorak and South Yarra, and by June 2016, Mr Ye regarded Mr Cvek as a close friend.[51] Over this period of time, Mr Ye also met Mr Mihailescu through Mr Cvek.
[50]Ye affidavit at [4]-[5].
[51]Ibid at [5].
In about late May or early June 2016, Mr Cvek told Mr Ye that he had just put in an offer of around $4.438 million to purchase the Property, which had been accepted verbally. He added that, in order to proceed with the purchase of the Property, he needed funds urgently to pay the deposit as all of his own funds were tied up at the time.[52] Mr Ye told him that he had approximately $200,000 available but that it could only be a short term loan as he would need to be able to access the funds in 12 months' time for other personal reasons.[53] Mr Cvek said he only needed the funds for a short term, and he then outlined details of the proposed loan agreement. Relevantly, Mr Cvek said that the funds would be lent by Mr Ye to the entity which owned the Property pursuant to a loan agreement, the loan would be secured against the Mandeville Property as a second ranking mortgage behind any bank who ultimately lent the rest of the purchase price taking a first ranking security, and the loan would accrue interest from the repayment date.[54]
[52]Ibid at [7].
[53]Ibid at [8].
[54]Ibid at [9].
Mr Ye said that Mr Cvek also told him that the added benefit to lending the funds was that he would obtain an investment in the Property and would benefit from any profit earned on the development. In this regard, Mr Cvek said the Property would be held on trust and Mr Ye would be offered units in the trust for $1 per unit; the trust would be a closed trust between the two of them and another investor (later identified as Ms Gerendasi) who was a close friend of Mr Cvek, any profits realized from the development of the Property would be paid into the trust, and they, as unitholders, would share in that profit.[55]
[55]Ibid at [10(a)].
Mr Ye told Mr Cvek he was willing to lend and invest in the Property by lending $200,000 on that basis. Shortly thereafter, Mr Cvek provided Mr Ye with documentation.
On 3 June 2016, Mr Ye executed a loan agreement, whereby he agreed to lend $200,000 to Rothmann Piper Investment Group Pty Ltd (Rothmann Piper) as trustee for the Rothmann Piper Trust No 2 (Rothmann Piper Trust), and a unit trust deed for the Rothmann Piper Trust. Clause 8 of the loan agreement provided that ‘[t]he Borrower must only use Loan for the purposes of purchase or expenses associated with the acquisition or purchase of the Property’ and in clause 9 the Borrower ‘agrees that it will use the principal amount for contribution towards the purchase of the Property.’[56] The ‘Repayment Date’ was defined in clause 1 to mean ‘the earlier of Completion Date[57] of the Property or 24 Months from the Drawdown Date[58] or earlier at the Borrower’s election.’[59] The loan agreement also provided that the loan was to be secured by the trustee granting him a second ranking mortgage over the Property.[60]
[56]Exhibit JY-1 to the Ye affidavit.
[57]‘Completion Date’ was defined in cl 1.1 to mean ‘5 business days after the Property has been fully settled and all outstanding financial obligations of the Borrower associated with the property have been paid and concluded.’
[58]‘Drawdown Date’ was defined in cl 1.1 to mean 3 June 2016.
[59]Exhibit JY-1 to the Ye affidavit.
[60]Clause 5 and the definition of ‘Security’ in cl 1.1 which provides:
Security means a second ranking mortgage over the Property and any other mortgage, pledge, lien, hypothecation, security interest or other encumbrance or charge and any guarantee or indemnity now or in the future given by the Borrower or any other person in favour of the Lender to secure the obligations of the Borrower under the agreement.
Mr Ye and the trustee for the Rothmann Piper Trust also entered into a ‘Minimum Guarantee Agreement’ dated 3 June 2016[61] whereby the trustee agreed to provide Mr Ye (as unitholder) a minimum guarantee of 20% on the initial sum invested (being $200,000) upon completion of the project, and where the project is sold prior to completion, the trustee agreed to provide an annualised minimum guarantee of 20%.
[61]Exhibit JY-3 to the Ye affidavit.
The trust deed establishing the Rothmann Piper Trust is denoted as a ‘Unit Trust – Fixed Deed’ dated 3 June 2016.[62] The parties are described as the three ‘Initial Unitholders’ being 88 North Pty Ltd (an entity associated with Mr Cvek), a second (as yet unnamed) unitholder, and Mr Ye. The deed was executed by Mr Cvek on behalf of Rothmann Piper, Mr Mihailescu on behalf of 88 North Pty Ltd, and by Mr Ye. The unnamed second unitholder has not signed the deed. Mr Ye was aware that the deed included an unnamed ‘Second Initial Unitholder’ that had not executed the deed and he said he understood Mr Cvek was still in discussions with that person.[63]
[62]Exhibit JY-2 to the Ye affidavit.
[63]Ye affidavit at [13].
Recital B of the Rothmann Piper trust deed states that ‘[t]he initial Unitholders have paid the initial sum[64] to the Trustee [Rothmann Piper] to establish the [Rothmann Piper Trust] which is to be governed in accordance with this deed.’[65] Recital D describes the trust as ‘a fixed trust consist[ing] of 100 units.’[66]
[64]‘Initial Sum’ is defined in cl 1.1 to mean ‘the sum paid by the Initial Unitholders on commencement of the Trust being $1.00 AUD per unit’.
[65]Exhibit JY-2 to the Ye affidavit.
[66]Ibid.
Clause 2.3 of the Rothmann Piper trust deed provides for assets to vest in the trustee as follows:
2.3 Assets vest in Trustee
Any Assets held by the Trustee in its capacity as trustee of the Trust, must be clearly identified as property of the Trust and held separately from the assets held by the Trustee for itself or as the trustee of any other trust.
The trust deed makes no separate reference to the Property being an asset of the trust. However, clause 2.5 of the trust deed states the purpose of the trust as follows:
2.5 Purpose of Trust
The primary purpose of the Trust is to carry on the business of Real Estate development of the property located at 3 Mandeville Crescent, Toorak, Victoria, Australia.
Further, clause 9.6, which is headed ‘Distribution Date’, states:[67]
(a)The trustee must distribute the income of the trust (income – expenses and obligations) within 30 days once full and final settlement of the final and last remaining units/townhouses/apartments of the property located at 3 Mandeville Crescent Toorak Vic 3142 and upon satisfactory payment of all expenses and debt obligations of the trust.
[67]Ibid.
The schedule to the trust deed specifies the number of units held by each of the initial unitholders as follows:
First Initial Unitholder
88 North Pty Ltd ATF Cvek Family Trust
87 fully paid units of $1.00 each
Second Initial Unitholder
[left blank]
10 fully paid units of $1.00 each
Third Initial Unitholder
James Jia Ye
3 fully paid units of $1.00 each
On 3 June 2016, at Mr Cvek’s direction, Mr Ye paid a bank cheque for the sum of $200,000 into the RT Edgar Sales Trust Account.[68] RT Edgar was the real estate agency acting for the vendor of the Property and the payment was made by way of part payment of the deposit due for the purchase of the Property.[69]
[68]Exhibit JY-4 to the Ye affidavit.
[69]Ye affidavit at [14].
In November 2017, Mr Ye discovered that the Property was owned by Mandeville Group Pty Ltd and not Rothmann Piper. He raised his concern about this with Mr Cvek (who by then was living in Spain) by email and was later told that this had occurred by error.[70] Mr Cvek then asked him to execute a new loan agreement and trust deed to address the problem.[71]
[70]Ibid at [19], exhibit JY-5.
[71]Ye affidavit at [18], [21], exhibits JY-6, JY-7.
In or around early February 2018, Mr Ye met with Mr Cvek and Mr Mihailescu to execute the fresh set of transaction documents.[72] He executed a loan agreement with Mandeville Group Pty Ltd as trustee for the Mandeville Group Trust No 1 named as the borrower (Mandeville loan agreement). He said the key terms of the Mandeville loan agreement appeared to be similar to the loan agreement with Rothmann Piper, save for the change in the name of the borrower and the term of the loan.[73]
[72]Ye affidavit at [21].
[73]Ibid at [21(a)].
Although executed in February 2018,[74] the Mandeville loan agreement is dated 18 August 2016. The Borrower is described as Mandeville Group Pty Ltd as trustee for the Mandeville Group Trust No 1 (Mandeville Trust). The Mandeville loan agreement contains the following relevant terms:[75]
[74]Ibid at [21].
[75]Exhibit JY-6 to the Ye affidavit.
(a) Clause 8 provides that ‘[t]he Borrower must only use Loan for the purposes of purchase or expenses associated with the acquisition or purchase of the Property’.
(b) In clause 9 ‘[t]he Borrower agrees that it will use the principal amount for contribution towards the purchase of the Property.’
(c) The ‘Repayment Date’ was defined in clause 1.1 to mean ‘the earlier of Completion Date of the Property or 12 Months from the Drawdown Date.
(d) The ‘Completion Date’ was defined in clause 1.1 to mean ‘5 business days after the Property has been fully settled and all outstanding financial obligations of the Borrower associated with the property have been paid and concluded.
(e) The ‘Drawdown Date’ was defined in clause 1.1 to mean 18 August 2016.
(f) Under clause 3.2, interest at a rate of 10% per annum (the ‘Default Interest Rate’ as defined in clause 1.1) is payable from the earlier of the Completion Date and 12 months from the Drawdown Date.
(g) Under clause 5, the loan was to be secured by the trustee granting Mr Ye a second ranking mortgage over the Property (see ‘Security’ as defined in clause 1.1).[76]
[76]The definition of ‘Security’ remained the same as it was under the loan agreement with the Rothmann Piper trustee.
In similar fashion to the Rothmann Trust, the trust deed establishing the Mandeville Group Trust No 1 is styled as a ‘Unit Trust – Fixed Deed’.[77] The deed is dated 18 August 2016 but it was executed in February 2018. The parties are described as two (not three) ‘Initial Unitholders’ being Mr Ye and 88 North Pty Ltd. (That is, Ms Gerendasi is not named as a party even though she has separately executed a trust deed.) The trust deed was executed by Mr Mihailescu as director and Mr Cvek (purportedly) as a director of Mandeville Group Pty Ltd, Mr Cvek as the sole director of 88 North Pty Ltd, and by Mr Ye.
[77]Exhibit JY-7 to the Ye affidavit.
The deed recites that ‘[t]he initial Unitholders have paid the initial sum[78] to the Trustee [Mandeville Group Pty Ltd] to establish the [Mandeville Trust] which is to be governed in accordance with this deed.[79] Recital D describes the trust as ‘a fixed trust consist[ing] of 100 units.’
[78]Initial sum is defined in cl 1.1 to mean ‘the sum paid by the Initial Unitholders on commencement of the Trust being $1.00 AUD per unit.’
[79]Recital B.
Clauses 2.3, 2.5 and 9.6 of the trust deed establishing the Mandeville Trust are expressed in the same terms as the counterpart provisions of the Rothmann Piper trust deed (set out above).
The schedule to the deed specifies the number of units held by each of the initial unitholders as follows:[80]
[80]Exhibit JY-7 to the Ye affidavit.
First Initial Unitholder
88 North Pty Ltd ATF Cvek Family Trust
80 fully paid units of $1.00 each
Second Initial Unitholder
James Jia Ye
20 fully paid units of $1.00 each
Mr Ye continued to chase Mr Cvek for updates on when he would return the loan funds.[81] To date, despite Mr Cvek telling him that he was making arrangements to do so, none of the loan funds have been repaid to Mr Ye.[82]
[81]Ye affidavit at [22].
[82]Ibid.
Petra Gerendasi
Petra Gerendasi first met Mr Cvek in about February 2016. Each of them had sons who were attending the same kindergarten. Shortly after they met, Mr Cvek mentioned to Ms Gerendasi that he was a property developer. When Ms Gerendasi and Mr Cvek were dropping off or collecting their respective sons at the kindergarten, they would talk regularly, and often discussed the projects that Mr Cvek was working on.[83]
[83]Gerendasi affidavit at [5].
In around late May 2016, Mr Cvek approached Ms Gerendasi about investing in the Property. He said he was looking for investors in the project and asked her to invest $800,000.[84] He provided her with a one page feasibility study and told her the profit on it would be about $2 million. Mr Cvek proposed that the funds would be treated as a loan and secured against the Property by a second ranking mortgage after the bank's first ranking mortgage.[85] Ms Gerendasi’s evidence is that Mr Cvek told her that a new entity would be incorporated and would hold the Property on trust and she would obtain units in the trust, along with two others who had lent money to it being a company controlled by Mr Cvek, and a friend of Mr Cvek named James Ye.[86]
[84]Ibid at [6]-[7].
[85]Ibid at [7(a)].
[86]Ibid at [7(b)],[7(c)].
On or around 8 June 2016, Ms Gerendasi agreed to invest $800,000. She did this by executing a loan agreement for the sum of $800,000 with Rothmann Piper as trustee for the Rothmann Piper Trust (as Borrower) (first Gerendasi loan agreement) and also a unit trust deed for the Rothmann Piper Trust.[87] Ms Gerendasi’s evidence is that she paid the sum of $800,000 as directed by Mr Cvek, namely by paying a sum of $200,000 on 8 June 2016 (comprised of the sum of $50,000 to the vendor’s real estate agent RT Edgar (Toorak) Pty Ltd and $150,000 to Rothmann Piper), and the sum of $600,000 on 15 July 2016 to the Toorak Law Trust Account (towards payment of the balance of the purchase price due in October 2016).[88]
[87]Ibid at [8], exhibits PG-1, PG-2.
[88]Gerendasi affidavit at [10], exhibit PG-3.
The first Gerendasi loan agreement was dated 8 June 2016 and was in similar (but not the same) terms as Mr Ye’s loan agreement with the trustee of the Rothmann Piper Trust. The first Gerendasi loan agreement provided that Ms Gerendasi’s loan of $800,000 would be secured by the trustee granting her a security interest over the Property.[89]
[89]Note that the definition of ‘Security’ in clause 1.1 differs from that contained in Mr Ye’s loan agreement, and provides:
Security means granting of a security interest over the Property and any other mortgage, pledge, lien, hypothecation, security interest or other encumbrance or charge and any guarantee or indemnity now or in the future given by the Borrower or any other person in favour of the Lender to secure the obligations of the Borrower under the agreement unless such granting of security will negatively impact the operation of the Trustee and or the development of the Property as advised by the Trustee.
The deed for the Rothmann Piper Trust is a ‘Unit Trust – Fixed Deed’ dated 3 June 2016.[90] The trustee is Rothmann Piper and the named parties are Mr Ye, 88 North Pty Ltd and Ms Gerendasi. The deed is expressed to be ‘signed sealed and delivered’ by Rothmann Piper in accordance with s 127 of the Corporations Act 2001 (Cth), but is signed only by Mr Cvek. Each of Ms Gerendasi and Mr Ye has also executed the deed.
[90]Exhibit PG-2 to the Gerendasi affidavit.
Clauses 2.3, 2.5 and 9.6 of the trust deed establishing the Rothmann Piper Trust No 2 are expressed in the same terms as the counterpart provisions of the Rothmann Piper trust deed (set out above). The schedule to the trust deed specifies the number of units held by each of the initial unitholders. The respective unitholdings accord with those set out in the schedule to Mr Ye’s Rothmann Piper trust deed (above).
A few months later, in late September or early October 2016, Mr Cvek told Ms Gerendasi that he had managed to secure a bank loan for most, but not all, of the balance of the purchase price for the Property and that he urgently required an additional $270,000 to complete the purchase. Ms Gerendasi’s evidence is that at that time, Mr Cvek also told her that, in addition to entering into a further loan agreement, he would transfer to her three units in the trust that were held by his company, 88 North Pty Ltd.[91]
[91]Gerendasi affidavit at [11].
Ms Gerendasi told Mr Cvek that she would lend the additional funds.[92] When he provided her with a draft loan agreement on or about 3 October 2016, she noticed that the borrower in the draft loan agreement was ‘Mandeville Group Pty Ltd’, and not Rothmann Piper. She asked Mr Cvek why this was the case and he told her that they had had to change the nominated purchaser of the Property at the last minute. When she asked Mr Cvek whether there was also a new trust entity, he confirmed that there was a new trust called the Mandeville Group Trust No 1 and that the Property would be owned by Mandeville Group Pty Ltd on trust for the Mandeville Group Trust No 1.[93]
[92]Ibid at [12].
[93]Ibid at [13].
Given the change in identity of the purchaser, Ms Gerendasi told Mr Cvek that the first Gerendasi loan agreement should be novated to Mandeville Group Pty Ltd. Ms Gerendasi also told Mr Cvek that she thought it would be necessary to execute a new trust deed for the Mandeville Group Trust No 1 in place of the Rothmann Piper Trust, and he agreed that that was appropriate.[94] Mr Cvek told her that there was no issue with novating the first Gerendasi loan agreement and that it could be achieved by simply hand amending that document to replace the references to ‘Rothmann Piper Investment Group’ and ‘Rothmann Piper Trust No 2’ with ’Mandeville Group’ and ‘Mandeville Group Trust No 1’ as required and signing each change.[95]
[94]Ibid at [15].
[95]Ibid at [14].
Accordingly, on or about 3 October 2016, Ms Gerendasi executed:[96]
[96]Ibid at [16].
(a) the handwritten amendments to the first loan agreement to novate the first Gerendasi loan agreement from Rothmann Piper (as trustee Rothmann Piper Trust) to Mandeville Group Pty Ltd as trustee for the Mandeville Group Trust No 1 (novated first loan agreement);[97]
[97]Exhibit PG-4 to the Gerendasi affidavit.
(b) a loan agreement between Ms Gerendasi as lender and the company as borrower for the loan of $270,000 (second loan agreement);[98] and
[98]Exhibit PG-5 to the Gerendasi affidavit.
(c) a trust deed for the Mandeville Group Trust No 1 (Mandeville trust deed)[99] pursuant to which the unit holdings were distributed as follows:
[99]Exhibit PG-6 to the Gerendasi affidavit.
(i) First Initial Unitholder: 88 North Pty Ltd ATF Cvek Family Trust - 84 units;
(ii) Second Initial Unitholder: Petra Gerendasi - 13 units; and
(iii) Third Initial Unitholder: James Jia Ye - 3 units.
The provisions of the second loan agreement reflected those of the novated first loan agreement. Relevantly, the definition of ‘Security’ in clause 1.1 and the terms in which clause 5 (dealing with Security) was expressed remained the same. Similarly, save that the identity of the ‘Borrower’ had now changed, from Rothmann Piper as trustee for the Rothmann Piper Trust to Mandeville Group Pty Ltd (in its own right, rather than ‘as trustee for the Mandeville Group Trust No 1’ under the novated first loan agreement), clauses 8 and 9 of the second loan agreement, dealing with ‘Use of the Loan’ and ‘Undertakings of the Borrower’ respectively, continued to be framed in the same terms as before, namely:
8. Use of the Loan
The Borrower must only use Loan for the purposes as it deems necessary.
9. Undertakings of the Borrower
The Borrower agrees that it will use the funds as it deems necessary.
The Mandeville trust deed is styled as a ‘Unit Trust – Fixed Deed’ dated 3 October 2016.[100] The trustee is recorded as ‘Mandeville Group Group Pty Ltd’ (obviously a typographical error) and the parties are named as being Mr Ye, 88 North Pty Ltd and Ms Gerendasi.
[100]Ibid.
Clauses 2.3, 2.5 and 9.6 of the trust deed establishing the Mandeville trust are expressed in the same terms as the counterpart provisions of the Rothmann Piper trust deed (set out above).
The schedule to the Mandeville trust deed specifies the number of units held by each of the initial unitholders as follows:
First Initial Unitholder
88 North Pty Ltd ATF Cvek Family Trust
84 fully paid units of $1.00 each
Second Initial Unitholder
Petra Gerendasi
13 fully paid units of $1.00 each
Third Initial Unitholder
James Jia Ye
3 fully paid units of $1.00 each
In accordance with directions given by Mr Cvek, Ms Gerendasi paid the sum of $270,000 as follows:[101]
(a) the sum of $240,000 immediately by bank cheque to ELG Pty Ltd, an entity associated with the vendor of the Property; and
(b) the sum of $30,000 immediately into a bank account which she was informed belonged to Mr Mihailescu, whom she understood provided administrative assistance to Mr Cvek on his developments.
[101]Gerendasi affidavit at [17], exhibit PG-7.
Later that same day, Mr Cvek emailed Ms Gerendasi to let her know that the Property had settled.[102] On 18 October 2016, she received a further email from him enclosing a copy of the transfer of land for the Property, which recorded Mandeville Group Pty Ltd as the owner.[103]
[102]Gerendasi affidavit at [19], exhibit PG-8.
[103]Gerendasi affidavit at [20], exhibit PG-9.
Xiao Chen
Mr Xiao Chen, also known as ‘Chris Chen’, is a lawyer who resides in New South Wales. He has known Mr Cvek since 2010 when they were at university together.[104]
[104]Chen affidavit at [5].
In or around 2014, Mr Cvek introduced him to Mr Mihailescu and the three of them developed a close friendship.[105] Through that friendship, Mr Chen was introduced to various investment opportunities in South Yarra and Toorak. Mr Chen was aware from his conversations with Mr Cvek over the years that he had had success in buying and developing land.[106] Prior to him investing in the Property, Mr Chen had invested approximately $300,000 with Mr Cvek through various investments.[107]
[105]Ibid at [6].
[106]Ibid at [7].
[107]Ibid.
In or around early October 2016, Mr Cvek and Mr Mihailescu told Mr Chen that they had purchased a property at 3 Mandeville Crescent, Toorak. Mr Chen’s evidence was that, at that time, he understood Mr Cvek had purchased the Property in his own name, started the planning process with his project management company, priced the investment and searched for co-investors, of whom he had found two: Ms Gerendasi (whom Mr Chen had not met previously) and Mr Ye (whom Mr Chen knew well from previous investments since December 2014).[108]
[108]Ibid at [8]-[9].
In or around October 2016, Mr Chen had several phone conferences with Mr Mihailescu and Mr Cvek to discuss investment in the Property and its development. Mr Chen said he understood that Mr Mihailescu was the director/trustee of the company responsible for all administrative and financial functions and activities aside from development management, marketing, certain project management functions which was overseen by Mr Cvek.[109] Mr Mihailescu informed him that the Property had already been purchased and he needed to raise approximately $500,000 to cover among other things, project/development management and other expenses, payout of existing loans, obligations, unitholding transaction costs, working capital and project management expenses for the Mandeville Property, with the intention to develop the Property into apartments (Mandeville project).[110] Mr Mihailescu also provided him with several ‘Mandeville Feasibility Reports’, for different stages of the Mandeville project, and the ‘Drawings’ for the Property.[111]
[109]Ibid at [11].
[110]Ibid.
[111]Ibid, exhibit XC-1 (Mandeville Feasibility Report), exhibit XC-2 (Drawings).
Mr Chen said he was very interested in investing in the Mandeville project but as he did not have enough funds to invest $500,000 himself, he approached some people he knew who might find it of interest.[112] He then introduced Mr Cvek and Mr Mihailescu to some of his close friends, being Mr Hanxin Qiu, Mr Xiatong Hao, Mr Kan Xin Tang and Ms Liling Cheng.
[112]Chen affidavit at [12].
Mr Chen said the Sydney investors met several times to discuss whether or not to invest in the Mandeville project. They understood that it was the trust that held the Property through the company, and a key issue that was raised in these discussions was what would happen in the event that the Mandeville project failed and how they could potentially secure their investment.[113] He said that Mr Mihailescu, who had 10 years working experience with the taxation office, had offered them an arrangement whereby they could execute secured loan agreements along with unit trust deeds for ownerships of units in the trust by acquiring units from Mr Cvek (thereby diluting his interest only), and this arrangement effectively dealt with their concerns.[114]
[113]Ibid at [14].
[114]Ibid at [15].
Mr Chen said that the agreed price for each unit in the trust was $108,000.[115] While this evidence is at odds with what is stated in the trust deeds, it reflects what is stated in the Mandeville Feasibility Report provided by Mr Mihailescu, where the ‘investment offer’ is described in the following terms and the ‘offer price’ is stated as being $108,000 per unit:[116]
[115]Ibid at [23], exhibit XC-1 (Mandeville Feasibility Report).
[116]Chen affidavit at [11], exhibit XC-1; transcript 06/04/20, at pp 47-48 (Mr Brown).
INVESTMENT OFFER A. 3 UNITS (3%) ($324,000 TOTAL INVESTMENT)
AVERAGE ANNUALISED RETURN 25-30%
MINIMUM INVESTMENT 3 UNITS
OFFER FOR SUBSCRIPTION FOR
3 UNITS ($324,000)SCENARIO 1 SCENARIO 2 SCENARIO 3 CASH REQUIRED TO COMPLETE PROJECT 50% $7,336,139 TOTAL INVESTMENT REQUIRED $7,336,139 UNITS ON ISSUE 100 UNITS ON OFFER 3 OFFER PRICE PER UNIT $108,000 CASH RETURN PER UNIT $45,677.22 $43,030.72 $50,621.62 TOTAL ROI % 42.29% 39.84% 46.87% ANNUALISED RETURN PER UNIT
PER MONTH (OVER 19 MONTHS)
2.226%
2.097%
2.467%ANNUALISED ROI PER UNIT
PER ANNUM (OVER 19 MONTHS)
26.71%
25.16%
29.60%
SCENARIO 1 Total Cash invested $324,000 Profit $137,032 Total Cash Returned $461,032 Total ROI over Life of Project (19 months) 42.29% Annualised Average (assuming 100% cash at T1) 26.71%
Mr Chen deposed that on 22 October 2016, which was after the settlement of the Property, Mr Mihailescu organised for him to fly to Melbourne for a short overnight visit. Both Mr Milhailescu and Mr Cvek picked him up from the airport, and later they met with Xiaotong Hao (one of the Sydney investors) at a cafe in Armadale and discussed the details of the Mandeville project. Mr Chen said that during this meeting, amongst other things both he and Mr Hao were assured by Mr Mihailescu that the Property was held under trust and that Mandeville Group Pty Ltd was the trustee of the trust of which Mr Mihailescu was the sole director and sole shareholder.[117] As per the Mandeville Feasibility Report, they were also aware that Mr Cvek maintained the project management functions of the Mandeville project and understood that his company received project management fees for its services and that the Cvek family trust held over 80% of the investment.[118]
[117]Chen affidavit at [17].
[118]Ibid.
Following the meeting, Mr Chen shared the details of those discussions with the other Sydney investors. They all agreed that they would go ahead with investing in the Mandeville project, and on the same day Mr Chen informed Mr Cvek and Mr Mihailescu of their decision.[119] Later that evening, Mr Mihaeilescu provided Mr Chen with a loan agreement for signing that he had prepared following their meeting at the cafe.[120] The loan agreement was between Mr Chen (Lender) and Mandeville Group Pty Ltd ATF the trust (Borrower).[121] Mr Chen signed the document and left the document with Mr Mihailescu to countersign and send a soft copy to him. However, he did not receive a soft copy of the executed loan agreement.[122]
[119]Ibid at [19].
[120]Ibid at [22].
[121]Ibid.
[122]Ibid; exhibit BW-14 to the first Wight affidavit; transcript 06/04/20, at p 35 (Mr Brown): During the hearing, counsel for the plaintiffs referred to the fact that the liquidator has provided a copy of a loan agreement dated 3 May 2015 that Mr Chen entered into with Mr Cvek (as Borrower) for a principal sum of $200,000. It is unclear whether this loan agreement has any relevance to the Mandeville project.
On 26 October 2016, Mr Chen received an email from Mr Mihailescu providing Mr Cvek's bank details for payment of funds for the investment and acquisition of units in the Mandeville project.[123] Mr Chen subsequently provided the payment as instructed by Mr Mihailescu for his one unit and Mr Cvek diluted his unitholding to reflect this acquisition.[124] While Mr Chen does not expressly mention having executed the trust deed, it seems clear that he did so. A copy of his execution page (taken from the trust deed) appears as part of the conformed copy of (what the liquidator refers to as) the third deed dated 25 October 2016.[125]
[123]Chen affidavit at [24], exhibit XC-3.
[124]Chen affidavit at [23].
[125]Exhibit BW-6 to the first Wight affidavit.
On 27 October 2016, Mr Chen facilitated the execution and exchange of the loan agreements entered into by the Sydney investors to provide funds for the development of the Mandeville project,[126] and also the execution and exchange of trust deeds by which the Sydney investors would purchase units in the Trust.[127] On 2 November 2016, he flew to Melbourne urgently because the funds invested by the Sydney investors needed to be cleared by 2 November 2016 so that the next stage of the Mandeville project could proceed.[128] Mr Chen’s evidence is that because of difficulties and delays with the transfers of funds he made payments totalling $155,000.[129]
[126]Chen affidavit at [25]; exhibit XC-4.
[127]Chen affidavit at [26], exhibit XC-5.
[128]Chen affidavit at [27].
[129]Ibid at [28]-[29].
Following execution of the documents, Mr Chen received updates from Mr Cvek from time to time. From December 2016 Mr Cvek was living in Madrid, and Mr Chen went to Spain to visit him on two occasions.[130] Mr Chen said he was satisfied from these visits that the Mandeville project was progressing.[131]
[130]Ibid at [31].
[131]Ibid.
Kan Xin Tang
Mr Kan Xin Tang was one of the Sydney investors. He is a draftsperson and is a close friend of Mr Chen. He said that he did not know much about trusts but Mr Chen explained the structure to him, to the effect that Mandeville Group Pty Ltd owned the Property for the benefit of the Mandeville Group Trust No 1 so that the true owners of the Property were the unit holders of the trust rather than the shareholders of the company.[132]
[132]Affidavit of Mr Kan Xin Tang affirmed on 21 February 2020 at [5] (Tang affidavit).
Mr Tang purchased 0.5 units in the trust for a consideration of $54,000. On or around 26 October 2016, he executed a trust deed and a loan agreement and emailed them to Mr Chen, who uploaded them to Dropbox for Mr Mihailescu and Mr Cvek to download directly.[133] On 28 October 2016, the sum of $54,028, being the amount due to the company under the loan agreement, including a transaction fee for electronic transfer, was debited from his account.[134] The money was paid into Mr Cvek’s account, as instructed by Mr Mihailescu. When he asked what the funds were to be used for, Mr Mihailescu said that it was for a variety of purposes deemed necessary by the trust including paying down any outstanding loans the trust owed and needed to pay and some other bills which included paying out existing loans and payments.[135]
[133]Ibid at [8].
[134]Ibid at [9], exhibit KT-2.
[135]Tang affidavit at [12].
The loan agreement referable to Mr Tang is exhibited to Mr Chen’s affidavit.[136] The loan agreement, which is dated 26 October 2016, records Mr Tang as ‘Lender’ and Mandeville Group Pty Ltd as ‘Borrower’. The recitals to the loan agreement state:
…
B.The loan will be secured by the Trustee[137] granting the Lender a security interest in the property[138] in the event of a default by the Borrower.
C.The loan can be recalled at any time by the Lender prior to construction or unless otherwise agreed to in writing between the parties by the Lender providing 90 days written notice to the Borrower.
D.In the event that this loan is recalled by the Lender, the Lender will be entitled to a fixed interest return of 10% per annum calculated daily over the duration of the loan being calculated from the drawdown date up to and until the date the loan is repaid by the Borrower.
E.In the event that the loan is recalled by the Lender, the Lender will transfer its rights to its Unit Holdings (as classified by the Unit Trust Deed) in 3 Mandeville Group Trust No 1 to 88 North Pty Ltd.
[136]Exhibit XC-4 to the Chen affidavit.
[137]The term ‘Trustee’ is not defined in the loan agreement.
[138]The term ‘Property’ is defined in cl 1.1 of the loan agreement to mean ‘the property located at 3 Mandeville Crescent, Toorak, VIC 3142.’
As foreshadowed by recital E, clause 3 of the loan agreement, which is headed ‘Interest’, provides in clause 3.4:
3.4Upon full payment of any loan recalled by the Lender, the Lender shall transfer all and any rights and ownership of its units in the Mandeville Group unit trust back to 88 North Pty Ltd upon date of payment by the Borrower.
Further, under clause 6, which deals with ‘Events of Default’, clause 6.2(b) states that it will be an event of default on the part of the Lender ‘if the Lender fails to revert any units in the Mandeville Group Unit Trust and/or revocation of any Security interest held by the Lender as per clause 3 of this Loan Agreement.’
Clause 4 of the loan agreement is headed ‘Repayment of Principal and Interest’. Clause 4.1 provides that the ‘Borrower’ must repay the ‘Principal Sum’, which is defined to mean ‘$54,000 AUD’, and all accrued interest on the ‘Repayment Date’.[139]
[139]The expression ‘Repayment Date’ as defined in cl 1.1 of the loan agreement means ‘the earlier of Completion Date of the Property or earlier at the Borrowers election.’ The expression ‘Completion Date’ means ‘5 business days after the Property has been fully settled and all outstanding financial obligations of the Borrower associated with the property have been paid and concluded.’
Clause 5 of the loan agreement is headed ‘Security’. Clauses 5.1 and 5.2 provide that:[140]
5.1The Lender has the right under this Agreement to take a registrable security interest over the asset of the Company including any land held by the Company and this Agreement shall serve as notice of the Borrowers granting of such rights to the Lender provided that any such Security Interest does not cause detriment to the development or any management actions as is required by the Borrower to complete the Development in accordance with this deed. An example of this would include during the planning or approvals process or where the company requires the plan of subdivision to be lodged and approved in order to complete the development and its obligations to Unit Holders in its performance of its duties as Trustee.
5.2The Lender has the right under this Agreement to take a registrable security interest in the event of default by the Borrower.
[140]Emphasis in bold added.
Clauses 8 and 9 deal with ‘Use of the Loan’ and ‘Undertakings of the Borrower’ respectively, and provide as follows:
8. Use of the Loan
The Borrower must only use Loan for the purposes as it deems necessary.
9. Undertakings of the Borrower
The Borrower agrees that it will use the funds as it deems necessary.
The loan agreement was expressed to be ‘signed sealed and delivered’ by Mandeville Group Pty Ltd in accordance with s 127 of the Corporations Act 2001 (Cth) by each of Mr Mihailescu and Mr Cvek. However, as at 26 October 2016, the directors of the company were Mr Mihailescu and Mr Balint. That said, however, the evidence strongly suggests that Mr Cvek had either express or ostensible authority to act on behalf of Mandeville and to bind it to the loan agreement.[141]
[141]In this regard, counsel for the contradictor observes (contradictor’s outline of submissions, p 9 fn 37) that:
Mr Mihailescu has deposed that he incorporated Mandeville at the direction of Mr Cvek (Mihailescu Affidavit at [8]-[9]), Mr Cvek told Mr Mihailescu that it would be more efficient for Mr Balint and Mr Mihailescu to be directors so they could execute paperwork in Mr Cvek’s absence (Mihailescu Affidavit at [8]-[9]), Mr Cvek directed Mr Mihailescu to execute a Sale of Real Estate Nomination Form on behalf of Mandeville and Mr Mihailescu complied with that instruction (Mihailescu Affidavit at [12]-[13]) and that Mr Mihailescu executed various loan agreements and trust deeds on Mr Cvek’s instruction (Mihailescu Affidavit at [12]-[19]).
The trust deed that was executed by Mr Tang (and each of the other Sydney investors) is exhibited to Mr Chen’s affidavit.[142] The trust deed is styled as a ‘Unit Trust – Fixed Deed establishing the Mandeville Group Trust No 1’ and is dated 25 October 2016. The parties to the trust deed are listed as being Mr Ye, 88 North Pty Ltd, Ms Gerendasi, Mr Qiu, Mr Hao, Mr Tang, Ms Cheng and Mr Chen. The recitals to the trust deed record the relevant ‘Background’ as follows:
A.The Initial Unitholders are: 88 North Pty Ltd, Petra Gerendasi, James Jia Ye, Hanxin Qiu, Xiaotong Hao, Kan Xiu Tang, Liling Cheng and Xiao Chen.
B.The Initial Unitholders have paid the initial sum [being $1.00 AUD per unit[143]] to the Trustee MANDEVILLE GROUP PTY LTD ACN 614 322 299, to establish the Mandeville Group Trust No 1 which is to be governed in accordance with this deed.
C.MANDEVILLE GROUP PTY LTD ACN 614 322 299 has agreed to be the initial trustee of the trust and hold all moneys and investments on the terms of this deed.
D.The trust is a fixed trust consists of 100 units.
E.The provisions of this Deed both binds and benefits all Unitholders.
[142]Exhibit XC-5 to the Chen affidavit.
[143]Initial sum is defined in cl 1.1 to mean ‘the sum paid by the Initial Unitholders on commencement of the Trust being $1.00 AUD per unit.’
The Schedule to the Trust Deed records the unitholders as being:
Description
Name of unitholder
No. of units held
First Initial Unitholder
88 NORTH PTY LTD, ATF CVEK FAMILY TRUST
80 units of $1.00 each
Second Initial Unitholder
PETRA GERENDASI
13 units of $1.00 each
Third Initial Unitholder
JAMES JIA YE
3 units of $1.00 each
Initial Unitholder
HANXIN QIU
1 unit of $1.00 each
Initial Unitholder
XIAOTONG HAO
1 unit of $1.00 each
Initial Unitholder
KAN XIN TANG
0.5 units of $.50 each
Initial Unitholder
LILING CHENG
0.5 units of $.50 each
Initial Unitholder
XIAO CHEN
1 unit of $1.00 each
The trust deed was executed by Mandeville Group Pty Ltd in the same manner as the loan agreement (described above), purportedly in accordance with s 127 of the Corporations Act 2001 (Cth), and by each of the Sydney investors separately executing a copy. Mr Tang’s evidence is that he executed it on or around 26 October 2016. The terms of the trust deed that was executed by Mr Tang are the same as those of the trust deeds that were executed Mr Qiu, Mr Hao and Ms Cheng respectively. While no copy of the trust deed signed by Mr Chen is in evidence, his execution page appears as part of the conformed copy produced by the liquidator.[144] There is no evidence of the 25 October 2016 trust deed having been executed by either Mr Ye, Ms Gerendasi or 88 North Pty Ltd.
[144]Exhibit BW-6 to the first Wight affidavit.
Clause 2.3 of the trust deed provides for assets to vest in the trustee as follows:[145]
[145]Ibid at p 14.
2.3 Assets vest in Trustee
Any Assets held by the Trustee in its capacity as trustee of the Trust, must be clearly identified as property of the Trust and held separately from the assets held by the Trustee for itself or as the trustee of any other trust.
The trust deed makes no specific reference to the Property being an asset of the trust. However, clause 2.5 of the trust deed states the purpose of the trust as follows:[146]
[146]Ibid.
2.5 Purpose of Trust
The primary purpose of the Trust is to carry on the business of Real Estate development of the property located at 3 Mandeville Crescent, Toorak, Victoria, Australia.
Further, clause 9.6, which is headed ‘Distribution Date’, states:[147]
(a)The trustee must distribute the income of the trust (income – expenses and obligations) within 30 days once full and final settlement of the final and last remaining units/townhouses/apartments of the property located at 3 Mandeville Crescent Toorak Vic 3142 and upon satisfactory payment of all expenses and debt obligations of the trust.
[147]Ibid at p 22.
Mr Tang said that in or around August 2019, he had a face-to-face meeting with Mr Mihailescu in Melbourne, which Mr Chen also attended, to understand what happened to the money they transferred to Mr Cvek’s account.[148] Mr Mihailescu told them that the money was used for the Mandeville Property.
[148]Tang affidavit at [14].
Hanxin Qiu
Mr Hanxin Qiu, who is an IT Business Analyst, was another one of the Sydney investors. He is a friend of Mr Chen. Mr Qiu was approached by Mr Chen in or about early October 2016 about a potential investment opportunity in Melbourne initiated by both Mr Mihailescu and Mr Cvek.[149] In essence, he was told by Mr Chen that the investment opportunity was to purchase a property at 3 Mandeville Crescent, Toorak, Victoria that was to be converted into a development. After considering the matter, on 25 October 2016 he informed Mr Chen that he had decided to invest in the Mandeville project.[150]
[149]Affidavit of Mr Hanxin Qiu affirmed on 21 February 2020 at [4] (Qiu affidavit).
[150]Ibid at [5].
On 26 October 2016 Mr Qiu received an email from Mr Chen forwarding an email from Mr Mihailescu and Mr Cvek attaching a copy of an unexecuted loan agreement with Mandeville Group Pty Ltd for a loan amount of $108,000. He signed the loan agreement the same day.[151] The next day, Mr Chen forwarded him an email from Mr Cvek attaching the executed version of the loan agreement.[152] Later that same day (27 October 2016), in accordance with instructions from Mr Mihailescu, Mr Qiu transferred a total of $108,000 to Mr Cvek’s account.[153]
[151]Ibid at [7], exhibit HQ-2.
[152]Qiu affidavit at [8], exhibit HQ-3.
[153]Qiu affidavit at [9], exhibit HQ-4.
The loan agreement pertaining to Mr Qui, which is exhibited to Mr Chen’s affidavit,[154] is dated 26 October 2016, and records Mr Qui as ‘Lender’ and Mandeville Group Pty Ltd as ‘Borrower’. The loan agreement contains the same terms and conditions as Mr Tang’s loan agreement (set out above), save that the ‘Principal Sum’ is defined to mean ‘$108,000 AUD.’
[154]Exhibit XC-4 to the Chen affidavit.
On 26 October 2016, Mr Qiu also received a copy of an unexecuted trust deed from Mr Cvek, that had been forwarded to him by email from Mr Chen.[155] Pursuant to the trust deed, the unit holdings in the Mandeville Trust were distributed as follows:
[155]Qiu affidavit at [10], exhibit HQ-5.
(a) First Initial Unit Holder: 88 North Pty Ltd ACN 169 495 952 ATF Cvek Family Trust - 84 units.
(b) Second Initial Unitholder: Petra Gerendasi - 13 units.
(c) Third Initial Unitholder: James Jia Ye - 3 units.
(d) Initial Unitholder: Hanxin Qiu - 1 unit.
(e) Initial Unitholder: Xiaotong Hao - 1 unit.
(f) Initial Unitholder: Kan Xin Tang - 0.5 units.
(g) Initial Unitholder: Lileng Cheng - 0.5 units.
(h) Initial Unitholder: Xiao Chen - 1 unit.
Mr Qiu signed the trust deed the same day.[156] The next day (27 October 2016), he received an email from Mr Chen forwarding an email from Mr Cvek attaching a copy of the trust deed executed by Mandeville Group Pty Ltd.[157] A copy of the trust deed that was executed by Mr Qui is exhibited to his affidavit.[158] As noted above, the trust deed that was executed by Mr Qiu contained the same terms as that which was executed by Mr Tang.
[156]Qiu affidavit at [12].
[157]Ibid at [13], exhibit HQ-6.
[158]Exhibit HQ-6 to the Qiu affidavit; exhibit XC-5 to the Chen affidavit.
Mr Qiu’s evidence was that at the time of executing the loan agreement, he was of the understanding that the funds he had provided through his loan agreement would be used for various requirements such as for any activity the company/trust deemed necessary and as stipulated by Mr Mihailescu relating to the Mandeville project[159] and its associated cash flow and other expense requirements.[160] He also understood that each unitholder of the Mandeville trust would be entitled to profits following the completion of the Mandeville project proportionate to their unitholding in the Mandeville Group Trust No 1.[161]
[159]Qiu affidavit at [4]: a reference to the purchase of the Property and its conversion into a development.
[160]Ibid at [14].
[161]Ibid at [16].
Ms Liling Cheng
Ms Liling Cheng was another of the Sydney investors. She filed no affidavit evidence. However, the loan agreement pertaining to Ms Cheng is exhibited to Mr Chen’s affidavit.[162] It is dated 26 October 2016, and records Ms Cheng as ‘Lender’ and Mandeville Group Pty Ltd as ‘Borrower’. The loan agreement contains the same terms and conditions as Mr Tang’s loan agreement (set out above), including that the ‘Principal Sum’ is defined to mean ‘$54,000 AUD.’
[162]Exhibit XC-4 to the Chen affidavit.
A copy of the trust deed that was executed by Ms Cheng is also exhibited to Mr Chen’s affidavit.[163] The trust deed contained the same terms as that which was executed by Mr Tang.
[163]Exhibit XC-5 to the Chen affidavit.
Mr Xaiotong Hao
Mr Xiaotong Hao was also one of the Sydney investors that was introduced by Mr Chen. He filed no affidavit evidence.
The loan agreement referable to Mr Hao is exhibited to Mr Chen’s affidavit.[164] It is dated 26 October 2016, and records Mr Hao as ‘Lender’ and Mandeville Group Pty Ltd as ‘Borrower’. The loan agreement contains the same terms and conditions as Mr Tang’s loan agreement (set out above), save that the ‘Principal Sum’ is defined to mean ‘$108,000 AUD.’
[164]Exhibit XC-4 to the Chen affidavit.
A copy of the trust deed that was executed by Mr Hao is exhibited to Mr Chen’s affidavit.[165] The trust deed contained the same terms as that which was executed by Mr Tang.
[165]Exhibit XC-5 to the Chen affidavit.
Investors’ concerns about the Property
Following Mr Cvek’s re-location to Spain in December 2016, Ms Gerendasi said he was difficult to contact and rarely responded to requests. She said that when Mr Cvek did respond, the updates he gave were usually vague and conflicted with other information he had given previously, and she began to worry about her investment in the Property.[166]
[166]Gerendasi affidavit at [21].
In 2019, she contacted Mr Mihailescu to try to get some answers. Mr Mihailescu informed Ms Gerendasi that the company owed approximately $3.3 million to RAMS under the first ranking mortgage.[167] He also told her that the company had numerous other debts and that an investor in another scheme of Mr Cvek's had obtained a freezing order against the company.[168] In 2019, Ms Gerendasi also became aware of the sale by Mr Cvek of some of his units in the Mandeville Group Trust No 1 to the Sydney investors and that Mr Cvek had sought to set up a new trust with the Sydney investors to facilitate their participation in the Mandeville project. All of this information was a cause of concern to Ms Gerendasi, and as a result, in July 2019, she lodged a caveat on the title to the Property pursuant to each of the novated first loan agreement and the second loan agreement.[169]
[167]Ibid at [22].
[168]Ibid at [23].
[169]Ibid at [24].
[22](iii) The requirement that there be certainty as to the beneficiaries of a trust is tied to the supervision and control that courts exercise over trusts: a court might be called upon to administer a trust or to direct the distribution of it to some person or persons. For present purposes it is sufficient to note that, if a trust was declared in the memorandum, it was a fixed trust and, in consequence, the beneficiaries of it must be ascertained or else ascertainable when their interests are to vest: see Kinsela v Caldwell (1975) 132 CLR 458 at 461.
[257](2008) 250 ALR 24 (Pascoe v Boensch).
[258]Ibid at 29 [19]-[22] (Finn, Dowsett and Edmonds JJ).
More recently, in Korda v Australian Executor Trustees (SA) Limited,[259] where the High Court held that documents constituting a pine plantation investment scheme, considered separately or together, did not support the existence of a trust or trusts of the tree and land sales proceeds in the hands of the two companies, French CJ addressed the requirements for an ‘express trust’, stating:[260]
[259](2015) 255 CLR 62 (Korda).
[260]Ibid at 69-70 [3],[5].
[3]The question whether an express trust exists must always be answered by reference to intention.[261] An express trust cannot be created unless the person or persons creating it can be taken to have intended to do so.[262] Absent, as in this case, an explicit declaration of such an intention, the court must determine whether intention is to be imputed. It does so by reference to the language of the documents or oral dealings[263] having regard to the nature of the transactions and the circumstances attending the relationship between the parties.[264]
. . .
Finding an express trust
[5]It has rightly been observed that "many express trusts are not express at all. They are implied, or inferred, or perhaps imputed to people on the basis of their assumed intent."[265] . . .
The seventh edition of Jacobs' Law of Trusts in Australia offers the usefully succinct observation that the creator of an express or declared trust will have used language which expresses an intention to create a trust[266]:
"The author of the trust has meant to create a trust, and has used language which explicitly or impliedly expresses that intention, either orally or in writing. The fact that a trust was intended may even be deduced from the conduct of the parties concerned but if there is any uncertainty as to intention, there will be no trust." (footnote omitted)
[261]Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 at 502 per Gummow J.
[262]Garrett v L'Estrange (1911) 13 CLR 430 at 434 per Griffith CJ, Barton and O'Connor JJ agreeing at 435; [1911] HCA 67.
[263]Byrnes v Kendle (2011) 243 CLR 253 at 286 [103] per Heydon and Crennan JJ; [2011] HCA 26.
[264]Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In liq) (2000) 202 CLR 588 at 605 [34] per Gaudron, McHugh, Gummow and Hayne JJ citing Walker v Corboy (1990) 19 NSWLR 382.
[265]Parkinson, "Chaos in the Law of Trusts", (1991) 13 Sydney Law Review 227 at 231; see also Costigan, "The Classification of Trusts as Express, Resulting, and Constructive", (1914) 27 Harvard Law Review 437 at 438–439; Cope, Constructive Trusts, (1992) at 5–6.
[266]Jacobs' Law of Trusts in Australia, 7th ed (2006) at 44 [306].
Further, French CJ noted that ‘[i]n each case it is a question of fact for the courts to determine whether an intention to create a trust is sufficiently evinced’,[267] and he said ‘[t]he process of ascertaining whether the necessary intention to create a trust should be imputed is one of construction of the relevant text or oral dealings in their context.’[268]
The documentation and the parties’ dealings support the existence of an express trust essentially in the terms of the 3 October 2016 trust deed
[267](2015) 255 CLR 62, at 73 [10] citing Bloch v Bloch (1981) 180 CLR 390 at 396 per Wilson J, Gibbs CJ, Murphy and Aickin JJ agreeing at 392.
[268](2015) 255 CLR 62 at 73 [11].
In the present case, having reviewed and considered at some length all of the relevant documentation and the parties dealings in the context in which they took place, I am satisfied that each of the initial investors and the Sydney investors contributed funds to the Mandeville project on the understanding that they would become unit holders under a unit trust deed, and that the Property would be owned by the trust. In my view, essentially for the reasons advanced by counsel for the plaintiffs, the documentation and the parties’ dealings support the existence of an express trust essentially in the terms of the 3 October 2016 trust deed. That deed establishes a fixed trust consisting of 100 units. The primary purpose of the trust is ‘to carry on the business of Real Estate development of the property located at 3 Mandeville Crescent, Toorak’.[269] Further, the deed binds Mandeville Group Pty Ltd as trustee and each of the initial investors, being 88 North Pty Ltd (ATF the Cvek Family Trust), Ms Gerendasi and Mr Ye, and any persons claiming through them such as the Sydney investors (who have taken a transfer of their units from Mr Cvek).
[269]Exhibit PG-6 to the Gerendasi affidavit: cl 2.5.
Accordingly, I am satisfied that the liquidator is justified in conducting the winding up of Mandeville Group Pty Ltd on the basis that the Property is held by the company in its capacity as trustee for the Mandeville Group Trust No 1.
Unnecessary to deal with alternative constructive trust argument
In those circumstances, it is unnecessary for the Court to deal with the alternative argument advanced by the plaintiffs, to the effect that if the Court were not satisfied that there was a properly constituted express trust, in the form of the Mandeville Group Trust No 1, it would nevertheless be open to the Court to find that the Property is held on constructive trust by Mandeville Group Pty Ltd for the benefit of persons who sought to subscribe for units in the Mandeville Group Trust No 1.[270]
[270]Transcript 06/04/20, at pp 117, 120-2 (Mr Brown).
In supplementary submissions provided following the conclusion of the hearing, the plaintiffs submit that the manner in which the investors’ investment in the Mandeville project was structured, do not differ greatly from the facts under consideration in Re Wollumbin.[271]
[271](2019) 138 ACSR 231.
In Re Wollumbin, the liquidator of the company applied to the court pursuant to s 90‑15 of Sch 2 of the Corporations Act for orders or directions in relation to land in northern New South Wales held by the company, following the failure of a scheme or venture seeking to establish a form of commune called the ‘Bhula Bhula Community’ or ‘Bhula Bhula Community Village’ on the land. Each of the subscribers had contributed funds to the scheme on the understanding that they would become unit holders under a unit trust deed, and that the property would be owned by the trust.
Justice Derrington held that the liquidator was justified in treating the deed of trust purporting to establish the unit trust as ineffective and in treating the relevant property as held by the company as bare trustee pursuant to a constructive trust for those parties who made monetary contributions for the purpose of becoming members of the commune. In so doing, his Honour expressed a preference for a ‘failed joint endeavour’ constructive trust rather than a ‘common intention’ constructive trust, stating:[272]
[178]Whilst some not unreasonable arguments exist in support of the conclusion that a common intention constructive trust existed in relation to the interests of the Community members from time to time, the circumstances do not sit comfortably with the underlying rationale for trusts of that nature. The circumstances of this matter, particularly at that point in time when the last member joined the Community, more accurately indicate the existence of that form of constructive trust which arises upon the failure of a joint endeavour.
[272]Ibid, at 279 [178].
His Honour explained the circumstances giving rise to a joint endeavour constructive trust, stating:
[149]Where people have made contributions on the basis and for the purpose of furthering a joint endeavour, the substratum of the joint endeavour is removed prematurely without attributable blame, and the benefit of the contributions by one party would otherwise be enjoyed by another where that was not specifically intended or specially provided, equity will not permit that other party to assert or retain the title to the extent it would be unconscionable for them to do so: Baumgartner v Baumgartner (1987) 164 CLR 137 at 147-8 adopting Muschinski v Dodds (1985) 160 CLR 583 per Deane J.
In the present case, as counsel for the plaintiffs observed, the investors in the Mandeville project were not merely lending money to the company or the trust. Rather, from the outset, each of them was investing in a Property that had been purchased for development, and they expected ownership and return of profits for that investment —which was to be derived largely from their ownership of units in the trust. Counsel submitted that ‘[t]he monies invested via loans appear to merely enable the investors to have additional security against the property (per clause 5 of the loan agreements)’ and ‘[w]hilst that element was not present in Wollumbin, the underlying intention and expectation that each investor would hold ownership in the property by way of units in the trust, is the same.’[273]
[273]Plaintiffs’ supplementary submissions at [6].
Counsel for the plaintiffs submitted that here, it would be open to the investors to argue in support of a constructive trust along similar lines to the failed joint endeavour constructive trust found in Re Wollumbin, on the basis that:[274]
(a)they agreed to invest in the purchase and development of the property (and providing those funds by way of loan) in return for a share of the ownership of the property and its profit (by way of their units in the Trust);
(b)the substratum of that joint endeavour has failed without fault of the investors because the trustee (the Company) failed to recognise the beneficial owner of the property as the Trust (pursuant to the Purchase Documents) and failed to properly establish the unit trust as was promised to the investors and pursuant to the expectations and intentions; and
(c)as a result (assuming that the express trust has failed and the Property is not held for the benefit of the Trust) the Company holds legal and beneficial title to the Property — which would be unconscionable in the circumstances.
[274]Ibid at [11].
In my view, for the reasons outlined by counsel for the plaintiffs, there is some force in the plaintiffs’ alternative argument. However, as the Court is satisfied that there was relevantly a properly constituted express trust, in the form of the Mandeville Group Trust No 1, no occasion arises to further consider whether the Property was held on a ‘failed joint endeavour’ constructive trust for the benefit of the persons who sought to subscribe for units in the Mandeville Group Trust No 1.
Resulting trust argument not pursued
For completeness, I note that at the hearing, the plaintiffs did not pursue their argument for a resulting trust. Counsel for the plaintiffs acknowledged that the resulting trust argument they raised in their written outline has difficulties, as was highlighted by counsel for the contradictor, and they accepted that it is probably not open to the Court to find a resulting trust in circumstances where some of the investors came on board after the Property was purchased.[275]
[275]Transcript 06/04/20, at p 117 (Mr Brown).
‘Ipso facto’ clause enlivened – second plaintiff holds the Property as a bare trustee
If, as appears to be the case, the 3 October 2016 trust deed is the relevant trust deed constituting the Mandeville Group Trust No 1, it seems clear that with the appointment of the liquidator to Mandeville Group Pty Ltd on 15 October 2019, the ‘ipso facto’ clause, clause 12.2 (dealing with ‘Compulsory retirement’), was enlivened so as to effect a compulsory retirement of Mandeville Group Pty Ltd as trustee of the Mandeville Group Trust No 1 at that date.[276] In those circumstances, Mandeville Group Pty Ltd (and consequently, Mr Wight) is left holding the trust assets as a bare trustee. As such, only limited powers are available, and these do not include a power of sale.[277]
[276]Relevantly, cl 12.2 provides that:
(b)The Trustee is removed:
(ii)where the Trustee is a company, if:
(a)the Trustee enters into liquidation, whether compulsory or voluntary (not being a voluntary liquidation for the purposes of amalgamation or reconstruction), or has an administrator, receiver or official manager or receiver and manager appointed or makes or enters into any composition or scheme of arrangement with its creditors/is subject to an Insolvency Event; …
Each of the other trust deeds contains an ‘ipso facto’ clause expressed in the same or similar terms.
[277]See, eg, Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677 [26] (Gordon J).
Powers sought under s 63 of the Trustee Act
Against that background, the plaintiffs have sought an order pursuant to s 63 of the Trustee Act, conferring on Mandeville Group Pty Ltd nunc pro tunc the necessary powers to enable the second plaintiff to wind up the Mandeville Group Trust No 1, including to:
(a) carry on the business of the Trust;
(b) sell the assets of the Trust, including the Property;
(c) pay the creditors of the Trust from the proceeds of the assets, pursuant to the priorities prescribed under the provisions of the Corporations Act 2001 (Cth);
(d) compromise any claim made against the second plaintiff in its capacity as trustee of the Trust or against any of the Trust property on any terms the second plaintiff sees fit;
(e) bring any claim against any party on behalf of the Trust; and
(f) execute any tax returns, financial statements or other documents relating to the Trust.
At the hearing, the focus was on the Property (which Mr Wight has deposed is ‘[t]he only asset of the company’[278]) and ensuring that in the context of the winding up of the Mandeville Group Trust No 1, Mandeville Group Pty Ltd would have the requisite power to sell the Property. However, in my view, it is appropriate, for the avoidance of doubt, to authorise Mandeville Group Pty Ltd to carry on the business of the Mandeville Group Trust No 1. It is also in the interests of the Mandeville Group Trust No 1 and its creditors that the Mandeville Group Pty Ltd, under the control of the liquidator, have the power to sell the assets of the Trust, including the Property, for the purpose of maximising the return to creditors. It is also desirable that Mandeville Group Pty Ltd (and necessarily, Mr Wight) have the related powers he sought to compromise claims, bring claims on behalf of the Trust, and to execute tax returns and financial documentation relating to the Trust. Accordingly, I propose to make an order under s 63 of the Trustee Act conferring on the second plaintiff the powers necessary to enable the second plaintiff to wind up the Mandeville Group Trust No 1, and to make that order ‘nunc pro tunc’, thereby rendering it unnecessary for the Court to make any associated ‘relieving’ order under s 1318 of the Corporations Act or s 67 of the Trustee Act.
[278]First Wight affidavit at [26].
The trustee’s right of indemnity and accompanying lien
The 3 October 2016 trust deed confers on the trustee an express right to be indemnified out of the assets of the Mandeville Group Trust No 1 ‘for any liability incurred by it in properly performing or exercising any of its powers or duties in relation to the Trust’.[279] Further, this indemnity is expressed to be ‘in addition to any indemnity allowed by law’ and ‘[i]t continues to apply after the Trustee retires or is removed as trustee of the Trust.’[280]
[279]Exhibit PG-6 to the Gerendasi affidavit, cl 14.2(a).
[280]Ibid cl 14.2(c).
Where, as here, a company that is the trustee of a trust goes into liquidation, and the company in liquidation has incurred liabilities in carrying out trust business, the trustee’s right of indemnity and accompanying equitable lien over the assets of the trust will enure in favour of the company in liquidation, notwithstanding that the company has been removed as trustee and only holds the assets as a bare trustee.[281]
[281]Re Killarnee (2018) 260 FCR 310 at 344 [142] (Siopis J).
Powers sought under s 477 of the Corporations Act
Counsel for the plaintiffs submitted that in circumstances where it appears to be very unlikely that the sale of the Property will result in a surplus and where it is more likely that the Property is owned by the Trust, it is more appropriate that the Court make orders giving powers to the liquidator under s 477 of the Corporations Act, rather than for the appointment of the liquidator as receiver over the trust property (which may cause unnecessary confusion as to which capacity the liquidator is acting when selling the Property).[282]
[282]Plaintiffs’ outline of submissions at [28].
Counsel for the plaintiff referred the Court to Re Brimson Pty Ltd (in liq),[283] where Moshinsky J observed:
[49]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: see [Re Killarnee] at [44] per Allsop CJ (Farrell J agreeing at [196]); Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) 291 FLR 17 at [10]; Apostolou v VA Corporation of Aust Pty Ltd [2011] FCAFC 103 at [45]. 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: see [Re Killarnee] at [89]. 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).
[50]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: see [Re Killarnee] at [91]. 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: see [Re Killarnee] at [142] per Siopis J; Amirbeaggi, in the matter of Simpkiss Pty Ltd (in liq) [2018] FCA 2121 (Amirbeaggi); Taylor v CJ & KL Bond Super Pty Ltd, in the matter of CJ & KL Bond Pty Ltd (in liq) [2018] FCA 1430 (Taylor v CJ & KL Bond Super Pty Ltd); [Re Wollumbin (2019) 138 ACSR 231]. Orders appointing a liquidator as a receiver for this purpose may be made nunc pro tunc to authorise sales of trust assets that have already occurred: Jones & Matrix at [91], [152], [198].
[283](2019) 136 ACSR 649 at 655-6 [49].
In my view, the evidence before the Court favours the Court making orders giving powers to the liquidator under s 477 of the Corporations Act rather than appointing the liquidator as a receiver.
In the second Wight affidavit, the liquidator deposed that four real estate agencies had undertaken an appraisal of the Property and provided an estimated value range for the sale of the Property. The estimates ranged from (the lowest) of $4.3 to $4.7 million to (the highest) of $5 to $5.5 million[284] and the standard sales commission quoted by the agents was in the range of 1.1% to 1.43%.[285] (I note that the respective real estate agents provided their estimates several months before the COVID-19 pandemic resulted in stage 3 restrictions being imposed in Victoria.)
[284]Second Wight affidavit at [4].
[285]Ibid at [5].
The liquidator also referred to the fact he had earlier deposed there appeared to be secured debts of at least $4,670,000 and unsecured debts of $399,921.74.[286] In addition to this amount, there is a further $324,000 referable to the loan agreements made between the company and (four of) the Sydney investors and there is the claim made by Jieyun in the related proceeding for $608,047.[287] The liquidator deposes that ‘[i]n the event all of these claims are accepted, the claims total $6,001,338.74.’[288] In addition, he estimates that the costs of bringing this application for directions will be ‘approximately $60,000 in remuneration and legal costs.’[289] I note that this estimate was given prior to the appointment of the contradictor by the Court.
[286]Ibid at [6].
[287]Ibid at [7].
[288]Ibid at [8].
[289]Ibid at [11].
In his first affidavit, the liquidator observed that given the quantum of the secured and unsecured debts, if the value of the Property is the same or slightly higher than the purchase price (being $4,438,000), ‘there will be no net proceeds of sale after payment of sale costs, payment to secured and unsecured creditors and payment of the liquidation costs for distribution to unitholders.’[290]
[290]First Wight affidavit at [29].
In those circumstances, I am satisfied that it is appropriate for the Court to make orders giving the liquidator the statutory powers under s 477 of the Corporations Act.
The liquidator’s remuneration, costs and expenses
When addressing the liquidator’s claim for remuneration and recovery of costs and expenses, counsel for the plaintiffs referred the Court to the decisions of Brereton J in Re Stansfield[291] and of Riordan J in Re Matthew Forbes Pty Ltd (in liq),[292] and the later observations made by Gordon J in Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth[293] as confirming that a liquidator’s entitlement to recover remuneration, costs and expenses in cases of this kind are regulated by the priority regime established by s 556(1) of the Corporations Act. Counsel submitted that orders for the liquidator’s costs and remuneration are now routinely made pursuant to s 556(1) even though the relevant property is trust property.[294]
[291](2014) 291 FLR 17 at 20 [7].
[292][2018] VSC 331 at [27]-[30].
[293](2019) 368 ALR 390 at 437 [169]
[294]Transcript 06/04/20, at p 136 (Mr Brown), citing the decisions of Kennedy J in Re Mackie Group Pty Ltd (in liq) (2017) 122 ACSR 537 at [50]-[64] and Re St George’s Development Company Pty Ltd (in liq) [2018] VSC 595.
In the circumstances, I am satisfied that it is appropriate to order that the liquidator is entitled to be paid his remuneration, costs and expenses properly incurred in preserving, realising or getting in the assets of the Trust, including the Property, and of and incidental to this application (including the costs of the contradictor), and that such remuneration, costs and expenses are to be paid in accordance with the priority specified in s 556(1) of the Corporations Act.
Surplus funds to be held on trust
As noted earlier, the liquidator has reached an accommodation with the plaintiff in the Jieyun proceeding and also with the caveators (mentioned above) that will permit the Property to be sold in an orderly way, and provides that any surplus remaining after the sale and payment of realisation and other costs not be distributed by the liquidator and be held on trust in order that they may agitate their respective claims.
Accordingly, having regard to those arrangements, I am satisfied that it is appropriate to make an order to the effect that if, following the sale of the Property, there are any surplus funds following (a) the payment or discharge of Westpac’s first registered mortgage and (b) the payment of the liquidator’s remuneration, costs and expenses, the liquidator is to hold the surplus funds on trust pending further order of this Court.
Conclusion
As the Court is satisfied that it is appropriate to make orders and directions to the effect that the liquidator would be justified in conducting the winding up of the Mandeville Group Pty Ltd on the basis that it holds the Property on trust for the Mandeville Group Trust No 1 being an express trust, I propose to make orders and directions along the following lines.
Proposed orders
The orders proposed are as follows:
1.Pursuant to section 90‑15 of Schedule 2 of the Corporations Act 2001 (Cth), the first plaintiff is justified in conducting the winding up of the second plaintiff on the basis that:
(a)The property located at 3 Mandeville Crescent, Toorak VIC 3142, being the whole of the land comprised in certificate of title Volume 07436 Folio 131 (the Property), is held by the second plaintiff in its capacity as trustee of the Mandeville Group Trust No 1 (Trust).
(b)The first plaintiff is entitled to be paid his remuneration, costs and expenses properly incurred in preserving, realising or getting in assets of the Trust, including the Property (Remuneration and Expenses).
(c)The Remuneration and Expenses include the remuneration, costs and expenses of and incidental to this application (including the costs of the contradictor) and are to be paid in accordance with the priority specified in section 556(1) of the Corporations Act 2001 (Cth).
2.Pursuant to section 63 of the Trustee Act 1958 (Vic), the following powers necessary to enable the second plaintiff to wind up the Trust, are conferred nunc pro tunc on the second plaintiff:
(a)the power to carry on the business of the Trust;
(b)the power to sell the Property (including paying out or otherwise discharging Westpac Banking Corporation’s first registered mortgage);
(c)the power to compromise any claim made against the second plaintiff in its capacity as trustee of the Trust or against the Property on any terms the second plaintiff sees fit;
(d)the power to bring any claim against any party on behalf of the Trust; and
(e)the power to execute any tax returns, financial statements or other documents relating to the Trust.
3.Pursuant to section 90‑15 of Schedule 2 of the Corporations Act 2001 (Cth), the first plaintiff is able to rely on his statutory powers as liquidator of the second plaintiff pursuant to section 477 of the Corporations Act 2001 (Cth) to take all necessary steps to wind up the Trust pursuant to paragraph 2 above.
4.If, following the sale of the Property, there are any surplus funds following:
(a)payment or discharge of Westpac’s first registered mortgage; and
(b)payment of the Remuneration and Expenses referred to in paragraphs 1(b) and (c) of these orders,
the first plaintiff is to hold the surplus funds on trust pending further order of this Court.
As the form of orders proposed differs from the orders the plaintiffs submitted following the hearing as reflecting their ‘principal position’, I will hear from the parties on the precise form of the orders to be made.
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