Rofe Way Pty Ltd v Ronald in her capacity as administrator of the estate of the late Anthony Charles Ronald

[2023] NSWSC 1086

Supreme Court

New South Wales

Medium Neutral Citation:

Rofe Way Pty Ltd v Ronald in her capacity as administrator of the estate of the late Anthony Charles Ronald [2023] NSWSC 1086

Hearing dates:

16 and 17 August 2023

Date of orders:

08 September 2023

Decision date:

08 September 2023

Jurisdiction:

Equity - Duty List

Before:

Robb J

Decision:

The Court:

(1) Orders pursuant to s 74MA of the Real Property Act 1900 (NSW) that the defendant remove the caveat No AS190309 within 24 hours of the making of this order.

(2) Stands the balance of the summons over for directions to a date to be fixed by arrangement with the Associate to Robb J.

(3) Grants leave to the plaintiff to renew its application for the making of an order in terms of prayer 4 of the summons in accordance with the reasons for judgment.

(4) Reserves costs.

Catchwords:

LAND LAW — caveats — application for withdrawal of caveat lodged by defendant over plaintiff’s property — where caveat prevents registration of a mortgage that the plaintiff proposes to grant to a bank — whether the proposed mortgage would be an improper exercise of powers granted to the plaintiff as trustee under a trust deed — whether the proposed mortgage would constitute a breach of the plaintiff’s duties as trustee under a trust deed — held that the proposed mortgage does not breach the duties of the plaintiff as trustee — no basis for finding that the mortgage transaction would be an improper exercise of the plaintiff’s powers as trustee — order made pursuant to s 74MA of the Real Property Act 1900 (NSW) for the removal of the caveat by the defendant

EQUITY — equitable remedies — injunctions —mandatory injunctions — where plaintiff seeks a mandatory injunction compelling the defendant to provide personal identification documents to a bank to satisfy the bank’s “Know Your Customer” (KYC) requirements — whether the Court has the power to issue the injunction sought — consideration of nature of the KYC obligations prescribed by the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006 (Cth) and the Anti‑Money Laundering and Counter‑Terrorism Financing Rules Instrument 2007 (No. 1) (Cth) — whether the injunction sought will be in aid of a legal or equitable right that the plaintiff has to require the defendant to satisfy the bank’s KYC requirements — not established that the bank’s KYC requirements are non-negotiable — entitlement to the mandatory injunction sought by the plaintiff not established — order made granting leave to the plaintiff to renew its application for the mandatory injunction sought if an alternative method of satisfying the bank’s KYC requirements not involving the defendant’s cooperation cannot be negotiated with the bank

Legislation Cited:

Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), Pt 7, ss 6, 32(1), 84(3)(b), 92, 229

Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (Cth), Pts 1.2, 4.3, 4.9, 4.10, 4.12

Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2014 (No. 3) (Cth)

Corporations Act 2001 (Cth), ss 286(1), 1305

Family Law Act 1975 (Cth), s 79

Income Tax Assessment Act 1936 (Cth)

Real Property Act 1900 (NSW), ss 74F, 74MA, 74O

Supreme Court Act 1970 (NSW), ss 23, 66

Transfer of Land Act 1893 (WA), s 137

Cases Cited:

Ananda Marga Pracaraka Samgha Ltd v Tomas (No 6) [2013] FCA 284; (2013) 300 ALR 492

Angliss & Angliss (No 2) [2016] FamCA 823

Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 63

Binningup Nominees Pty Ltd (as trustee for the Lakewood Shores Unit Trust) v Brogue Tableau Pty Ltd [2004] WASC 14

Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18

Costa & Duppe Properties Pty Ltd v Duppe [1986] VR 90

Equitable Life Assurance Society v Hyman [2002] 1 AC 408

Jubilee Properties v Parkview Farm [2013] NSWSC 2011; (2013) 17 BPR 33,271

KPE Superannuation Fund Pty Limited v Two Tempe Holdings Pty Ltd; KPE Superannuation Fund Pty Limited v QRM Holdings Pty Ltd [2022] NSWSC 1708

Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1; [2006] FCAFC 144

Mackay v Dick (1881) 6 App Cas 251

Quancorp Pty Ltd v Macdonald [1999] WASCA 33; (1999) 32 ACSR 50

St George Soccer Football Association Inc v Soccer NSW Ltd [2005] NSWSC 1288

Category:

Principal judgment

Parties:

Rofe Way Pty Ltd (ACN 639 517 650) (Plaintiff)
Melinda Anne Ronald in her capacity as Administrator of the Estate of the Late Anthony Charles Ronald (Defendant)

Representation:

Counsel:
FG Di Lizia (Plaintiff)
J Burnett (Defendant)

Solicitors:
Kekatos Lawyers (Plaintiff)
McCullough Robertson (Defendant)

File Number(s):

2023/00254676

Publication restriction:

Nil

JUDGMENT

1. These proceedings were commenced by summons filed in the Duty List on 10 August 2023 and heard by me in that list on 16 and 17 August 2023.

2. The oral submissions made on behalf of the parties at the hearing were supplemented by further written submissions made on behalf of the defendant dated 21 August 2023 and a reply on behalf of the plaintiff on 22 August 2023.

Background

3. The plaintiff is Rofe Way Pty Limited. The plaintiff owns land at Milperra in this State (the Property), in its capacity as trustee of the Ronacost Unit Trust (the Trust). The Property apparently has a value in the range of $11.5 million to $14.2 million.

4. Salvatore Costanzo is now the sole director of the plaintiff. Until his death at a time between 11 and 17 March 2021, Anthony Charles Ronald (the Deceased) was also a director of the plaintiff. The Deceased was recorded by ASIC as having ceased to be a director of the plaintiff on 9 August 2022.

5. There are 100 ordinary shares issued in the share capital of the plaintiff. 50 shares are held by Mr Costanzo and 50 shares remain registered in the name of the Deceased.

6. The Trust was created by a trust deed dated 5 September 2013 (the Trust Deed). Each of Mr Costanzo and the Deceased held 50 units in the Trust.

7. Ronacost Pty Ltd was the original trustee of the Trust. It was replaced as trustee by the plaintiff on 3 March 2020 and has since been deregistered.

8. As the Deceased died intestate, on 12 January 2022 this Court granted letters of administration of the Deceased's estate to his sister, Melinda Anne Ronald. Ms Ronald is the defendant. Ms Ronald is now entitled in her capacity as administrator to be registered as the holder of the Deceased's 50 shares in the plaintiff and 50 units in the Trust. The Court was informed that this has not yet happened.

The Landbridge lease

9. The Property is subject to a lease in favour of Landbridge Transport Pty Ltd (Landbridge). Mr Costanzo is the sole director and shareholder in Landbridge. Landbridge operates its business from the Property.

The Westpac mortgage

10. The Property is subject to a mortgage in favour of Westpac Banking Corporation (Westpac) to secure a loan made by St George Bank (St George), a division of Westpac, to the plaintiff of $4 million. The $4 million is comprised of separate facilities in the amounts of $2.5 million and $1.5 million. St George has declined to renew the loans when they fell due. The final repayment date has been extended a number of times, but the loans were required to be refinanced by 23 August 2023.

11. On 29 August 2023, by email to my Associate, the plaintiff’s solicitors informed the Court that Westpac had provided a further extension of time, and that the refinancing is now required to occur by 23 October 2023.

The Landbridge loan

12. The plaintiff claims that it is indebted to Landbridge for the total amount of about $740,000 in respect of monies borrowed to fund the construction costs of improvements to the Property and the costs of winding up the prior trustee.

13. The plaintiff and Landbridge entered into a loan agreement dated 8 April 2022. The loan agreement was apparently professionally prepared by solicitors and accountants. It recited that Landbridge had previously made loans to the plaintiff. It appears from the terms of the loan agreement that it was entered into to conform to the requirements of Division 7A of the Income Tax Assessment Act 1936 (Cth). By clause 2, the plaintiff is required to pay interest on the outstanding amount of the loan at the “Benchmark Interest Rate” as defined in the Income Tax Assessment Act 1936. Clause 3 requires the plaintiff to make annual repayments by 30 June each year that are at least the minimum yearly repayments as defined in s 109E(5) of the Income Tax Assessment Act 1936. Clause 4 requires the plaintiff to repay the loan, plus all interest that remains unpaid, no later than seven years from the date when the loan was made. Under clause 8, Landbridge may require that the loan be repaid immediately on a number of grounds, including if any security granted over the property of the plaintiff becomes enforceable.

The proposed NAB facility

14. The plaintiff has negotiated a replacement loan facility in principle with the National Australia Bank (NAB) under a Business Lending Proposal dated 2 August 2023. The amount that the plaintiff intends to borrow is $4.7 million, which will enable it to refinance the St George loan and also repay most of the $700,000 loan that the plaintiff claims is owed to Landbridge. The term of the advance, if made, would be three years on an interest only basis. Guarantees will be required by Mr Costanzo and Landbridge.

15. The present loan from St George is guaranteed by Mr Costanzo, the Deceased and Landbridge. The defendant in her capacity as executor of the deceased's estate will not be required to guarantee the repayment of the NAB loan.

The Trust Deed

16. Under clauses 5.2 and 8.2.19 of the Trust Deed, the plaintiff has power to borrow on the security of the assets of the Trust. Clause 7.1 of the Trust Deed empowers the plaintiff to manage the trust fund. Clause 7.3 empowers the plaintiff to manage the Trust despite conflicts of interest. The plaintiff's powers as trustee are contained in clause 8. Clause 8.2 describes the plaintiff's powers and discretions as being "absolute". Clause 8.2.33 empowers the plaintiff to "do all such other act matters or things as the Trustee thinks fit."

The caveat

17. The defendant lodged a caveat against the title to the Property on 3 June 2022. The caveat prohibits the recording in the Register of any dealings, with limited and presently irrelevant exceptions. The caveat will prevent the registration of the mortgage that the plaintiff proposes to grant to NAB. The caveat claims that the defendant has an estate in fee simple in the Property by virtue of her appointment as administrator of the estate of the Deceased on 12 January 2022. The “Details Supporting The Claim” are stated as: "The registered proprietor holds the property as trustee of the Ronacost Unit Trust. Pursuant to a grant of letters of administration dated 12 January 2022, the caveator was appointed administrator of the estate of the deceased unit holder with a one-half beneficial interest in the trust."

The NAB KYC Requirements

18. On 28 July 2023, a manager of NAB sent an email to the plaintiff's finance broker, which included:

…

We are almost complete with satisfaction of the banks Know Your Customer Requirements.

To confirm, we are attempting to finalise onboarding of ROFE WAY PTY LTD ATF RONACOST UNIT TRUST as a NAB Customer.

As part of this process, the bank is required to satisfy AUSTRAC requirements for all beneficial shareholders.

This requires that the shareholders either: –

Visit a branch and provide 100 points of ID to a branch staff member so that they can be provided a unique customer identifier.

Provide to me (via email) copy of 100 points of ID (either driver’s license or passport). On receipt, a relationship associate will call Melinda Anne Ronald to obtain verbal consent to be onboarded (AUSTRAC).

….

19. By email dated 14 August 2023, the NAB manager confirmed that NAB would accept the caveator’s consent to the registration of its mortgage: Exhibit D1.

Correspondence between solicitors

20. By letter dated 2 August 2023, the plaintiff's solicitors informed the defendant's solicitors of the proposed refinancing and that it was necessary for the refinancing to take place by 23 August 2023. The defendant was requested to withdraw the caveat on the basis that she would be permitted to re-lodge a caveat after the registration of the mortgage to be granted by the plaintiff over the Property to NAB. The defendant was also requested to comply with NAB's Know Your Customer Requirements (KYC Requirements). The letter only gave the defendant until 5pm on 4 August 2023 to comply.

21. In subsequent correspondence, the defendant's solicitors expressed concern about the validity of the claimed loan from Landbridge to the plaintiff, and complained that the defendant had not been given adequate information to confirm the loan. The solicitors also contested the time limit imposed by the plaintiff. They advised that the defendant would cooperate in the registration of a mortgage in favour of NAB to secure a loan of $4 million to refinance the St George Bank loan, but she would not do so in respect of the additional amount of $700,000 to refinance the Landbridge loan. The defendant's solicitors explicitly stated that it was the defendant's preference that the Property be sold. They declined on behalf of the defendant to comply with the NAB's KYC Requirements, and contested the plaintiff's solicitors' claim that the defendant had an obligation as a beneficial unitholder in the Trust to do so.

Relief claimed in summons

22. Consequently, the plaintiff commenced these proceedings by filing the summons on 10 August 2023. The proceedings were therefore commenced 13 days after the plaintiff’s finance broker received the NAB email concerning the satisfaction of its KYC Requirements and 13 days before the then final due date for refinancing the St George loan. The summons seeks the following relief:

4.   Order pursuant to the inherent jurisdiction of this Honourable Court that the defendant do all things necessary to satisfy the Know Your Client ("KYC") requirements of the National Australia Bank Ltd ("NAB") and Australian Transaction Reports and Analysis Centre ("AUSTRAC"), including:

(a)   attend a NAB branch;

(i)    provide 100 points of identification documents to our NAB branch staff member; and

(ii)    receive a unique customer identifier; or alternatively,

(b)    provide to [name of NAB manager], Senior Business Banking Manager CommBroker of NAB the following:

(i)   an email sent to [email address of manager] containing a copy of 100 points of identification of the defendant;

(iii)    the defendant's contact details, including email address and mobile phone number; and

(iii)    respond to the telephone call of our NAB Relationship Associate and provide verbal consent to be onboarded pursuant to AUSTRAC requirements.

5. Order pursuant to s 74MA of the Real Property Act 1900 (NSW) that the defendant remove caveat number AS190309 on or before 6:00 pm on 16 August 2023.

6. Order that after registration on title to [the Property] of a mortgage to NAB, the defendant have leave pursuant to s 74O of the Real Property Act 1900 (NSW) to lodge a second caveat claiming the same estate, interest or right and purporting to be based on the same facts as caveat number AS190309.

7.    Costs.

23. It is to be noted that prayer 4(a) and (b) would provide alternative means for the defendant to satisfy NAB's KYC Requirements.

Entitlement of defendant to lodge a caveat

24. The hearing was conducted on the basis that, while the plaintiff challenged the defendant's entitlement to maintain the caveat in a way that interfered with the registration on the title to the Property of the proposed mortgage to the NAB, the plaintiff accepted that the defendant had a caveateable interest. Accordingly, the plaintiff volunteered that the Court should make the order in prayer 6. As a matter of law, the interest of the defendant as a party entitled to be the holder of 50 units in the Unit Trust is a proprietary interest in the Property that is capable of protection by the lodgement of a caveat against the title to the Property: Costa & Duppe Properties Pty Ltd v Duppe [1986] VR 90 (Brooking J). Section 74F(1) of the Real Property Act 1900 (NSW) authorised the defendant to lodge her caveat as a “person who, by virtue of…devolution of law…claims to be entitled to…[an] equitable estate or interest in land” to prohibit “the recording of any dealing affecting the estate or interest to which the person claims to be entitled.” Thus, the defendant’s caveat was validly lodged even though it will prevent the registration of dealings entered into by the plaintiff, such as the proposed mortgage to NAB, which the plaintiff is entitled under the Trust Deed to enter into even though the dealing will affect the defendant’s interest in the property and even in the absence of the defendant’s consent. (The defendant would not have been authorised to lodge a caveat that absolutely prevented the registration of all dealings under the equivalent legislation of other jurisdictions that distinguish between caveats that absolutely prevent the registration of dealings, caveats that require notice to be given to the caveator before dealings can be registered, and caveats that permit the registration of dealings that are expressed to be subject to the caveator’s interest: see for example s 137 of the Transfer of Land Act 1893 (WA) and Binningup Nominees Pty Ltd (as trustee for the Lakewood Shores Unit Trust) v Brogue Tableau Pty Ltd [2004] WASC 14 (Pullin J)).

Defendant’s claim

25. It is the conventional practice of the Court, when a caveator commences proceedings for an order extending a caveat following the service of a lapsing notice, to require not only that the caveator seek an interlocutory order extending the caveat, but that they also claim final relief to establish the estate or interest claimed in the caveat. That is an aspect of the general procedural requirement that, when a plaintiff seeks an interlocutory injunction, it must also claim as final relief the interest that is sought to be protected by the interlocutory injunction.

26. The present case is not, however, an application for the extension of a caveat, but is an application by the registered proprietor for an order under s 74MA of the Real Property Act that the caveat lodged by the defendant be removed. Consequently, the defendant has not been required to make a formal claim for final relief to establish the estate or interest in the Property that she has sought to protect by the caveat. That may not be surprising, because the only interest claimed by the defendant is a beneficial interest in the capacity of the administrator of the Deceased's estate in his 50 units in the Trust. That is not in issue, and there is no doubt that in due course the defendant will be entitled to be registered as the holder of those 50 units.

27. That leads to the enquiry as to exactly what it is that the defendant claims as a legitimate basis for the maintenance of the caveat, if that will have the effect of preventing the registration of the proposed mortgage to be granted by the plaintiff to NAB, which would have the consequential effect that NAB will necessarily decline to refinance the St George loan, which in turn will have the consequence that Westpac, as the registered mortgagee, will be required to exercise its security rights in respect of the Property to recover the loan.

28. The defendant has not in any formal way specified the basis of her claim to maintain the caveat (noting her indication that she will cooperate with the plaintiff borrowing only $4 million from NAB to refinance the St George loan).

Plaintiff’s authority under Trust Deed

29. It is clear that the powers given to the plaintiff by the Trust Deed to manage the affairs of the Trust and to borrow money on the security of the property of the Trust are sufficiently extensive to empower the plaintiff to borrow $4.7 million from NAB on the security of a mortgage over the Property and to repay St George: see Jubilee Properties v Parkview Farm [2013] NSWSC 2011; (2013) 17 BPR 33,271 per McDougall J at [17]-[20]. In principle, as a matter of the plaintiff’s powers as trustee, it is a matter within the absolute discretion of the plaintiff to decide to replace the loan agreement with Landbridge by a conventional borrowing from a commercial lender. The Trust Deed clearly vests power in the plaintiff to affect the defendant’s interest in the Property by entering into a transaction that overreaches that interest.

29. In the circumstances of this case, the defendant could only resist an order for the withdrawal of the caveat by alleging and establishing to the interlocutory standard of proof a claim that the proposed exercise of its power by the plaintiff would be improper to a degree that would be considered to be equitable fraud, so that the Court would make an order restraining the exercise of the power. It would not be sufficient for the defendant to challenge the commercial judgment of the plaintiff in the decision to exercise the power in the way that is proposed.

Legal principles

31. There was no issue between the parties as to the principles to be applied by the Court in determining whether it should make an order for the withdrawal of a caveat. It will be convenient to repeat the following proposition as stated by McDougall J in Jubilee Properties v Parkview Farm at [12]-[13]:

[12] In Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd (2011) 15 BPR 29,055, Campbell JA (with whom Tobias and Macfarlan JJA agreed), stated the applicable principle as follows at [20]:

[20] The primary judge correctly proceeded on the basis that on an application for an order to remove a caveat it is not necessary for the court to make a final determination as to the interest claimed by the caveator, or a final determination as to the priority that the caveator may or may not have over competing interests. Rather, the court should enquire whether the caveator would have been granted an interlocutory injunction to protect the interest that the caveator claimed in the caveat. If no such interlocutory injunction would have been granted, the caveat should be ordered to be withdrawn: Martyn v Glennan [1979] 2 NSWLR 234 at 239; Kerabee Park Pty Ltd v Daley [1978] 2 NSWLR 222; Gay v Gooden (1989) NSW ConvR 55-445; BC8801324. Under currently applied principles, an interlocutory injunction is granted if the court is satisfied that there is a serious question to be tried, and that the balance of convenience favours the granting of an interlocutory injunction: Murphy v Lush (1986) 65 ALR 651 at 652; BC8601434; Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1 at 24; [1998] HCA 30; BC9801511. Those principles have not been challenged on the present application.

[13] If I may say so, his Honour’s approach did not herald any sudden shift in the way in which applications under s 74MA are approached. On the contrary, as the authorities cited by his Honour show, that approach was well established.

32. See for an equivalent statement of principle the judgment of Richmond J in KPE Superannuation Fund Pty Limited v Two Tempe Holdings Pty Ltd; KPE Superannuation Fund Pty Limited v QRM Holdings Pty Ltd [2022] NSWSC 1708 at [41]-[46].

33. McDougall J added at [32]:

[32] ...As Young J has said (Australian Property Management Pty Ltd v Devefi Pty Ltd (1997) 7 BPR 15,255):

The Court does not live in some commercial vacuum. The Court knows that the mere presence of a caveat may prevent a whole series of bona fide commercial transactions taking place and if a case gets into that sort of area the Court will be extremely careful as to whether the caveat should be retained.

Should an order for the withdrawal of the caveat be made?

34. As already noted, the defendant did not formulate in any clear way a claim of right to prevent the plaintiff from entering into a loan agreement to borrow $4.7 million from NAB and to grant a mortgage over the Property to NAB. The defendant complained that the plaintiff had failed over a relatively lengthy period to provide to the defendant information that she had requested concerning the affairs of the Trust. That has led to other proceedings between the parties. The defendant's solicitors' correspondence referred to above makes it clear that the defendant would prefer for the Property to be sold. At the hearing, counsel for the defendant referred the Court to evidence that the rent paid by Landbridge to the plaintiff under the lease is apparently considerably below market rent, and that, over a period of three years, the amount of rent paid annually by Landbridge has substantially decreased. That is indeed a curious circumstance. It is possible that those matters, if not properly explained, would be significant in other proceedings instituted by the defendant against the plaintiff in respect of the manner in which the plaintiff has performed its duty as trustee of the Trust. Not only are they not directly relevant to the claims now made by the plaintiff, but at this stage they are vague and they have not been properly formulated.

35. Much of the hearing was directed at an examination of the question whether the evidence before the Court was sufficient to demonstrate that the plaintiff was validly indebted to Landbridge for $700,000, whether the conduct of the plaintiff in borrowing that sum from Landbridge was in the interests of the Trust, and whether it was a proper exercise of the plaintiff's power as trustee to decide to borrow $700,000 from the NAB on commercial terms to repay the amount due under the loan agreement between the plaintiff and Landbridge. In particular, the defendants submitted: first, that there was no evidence that the payments made by Landbridge to the plaintiff were treated as loans at the time they were made; second, there was no evidence that the payments provided any benefit to the plaintiff; third, there was no evidence of when the financial accounts relied upon by the plaintiff were actually prepared; fourth, the financial accounts for the plaintiff and Landbridge treated the payments differently; and finally, there was no explanation of why it is in the interests of the plaintiff to refinance any loan from Landbridge in the manner proposed.

36. These submissions wrongly treat the issue as being whether the plaintiff has proved that it is indebted to Landbridge for the $700,000 as claimed, whether it has proved that the borrowing was for the benefit of the plaintiff, and whether it has proved that it is in the commercial interests of the plaintiff to refinance the loan. This approach, in my view, wrongly reverses the onus of proof. The conduct of the plaintiff in borrowing money from Landbridge for what it considered were purposes beneficial to the plaintiff, the treating of those payments as loans, and the decision to refinance the aggregate loan, were matters within the plaintiff’s authority as trustee under the Trust Deed to manage the assets of the Trust in the manner chosen by the plaintiff within its absolute discretion. Consequently, the plaintiff will be entitled to an order for the withdrawal of the caveat unless the defendant establishes a claim to the interlocutory standard that there is a prima facie case that the plaintiff’s conduct, whether undertaken or threatened, has or will involve a breach of the plaintiff’s duties as trustee of a seriousness that would justify the Court in restraining the plaintiff on an interlocutory basis from borrowing the additional $700,000 from NAB and paying that amount to Landbridge. The defendant cannot establish that case by relying upon the failure of the plaintiff to produce evidence to respond to doubts as to the propriety of the plaintiff’s conduct raised by the defendant. As explained, the defendant did not respond to the plaintiff’s application for an order for the withdrawal of the caveat by seeking an interlocutory injunction to restrain the plaintiff from acting in the manner that the defendant has sought to resist. I consider that it would not be procedurally fair for the Court to permit the defendant to neutralise the exercise by the plaintiff of the power and authority granted to it by the Trust Deed in this indirect way.

37. In any event, for the purposes of this interlocutory application, I am satisfied that the evidence does not establish that the plaintiff has prima facie breached, or that its proposed refinancing of the Landbridge loan will breach, its duties as trustee under the Trust Deed.

38. The issue that received the most focus at the hearing was the possibility that the payments that were made by Landbridge to the plaintiff that were ultimately reflected in the $700,000 debt the subject of the loan agreement were not actually treated as loans as between the plaintiff and Landbridge at the times the payments were made. I am satisfied that it has sufficiently been established by the plaintiff for the purpose of these proceedings that the payments were treated as loans when they were made. That appears from the detailed general ledger for Landbridge for the period July 2020 to June 2021, which I infer records transactions as at the date they were made, and in any event no later than 30 June 2021. All of the individual payments are described as “Loan To Rofe Way” or “Rofe Way Pty Ltd”.

39. The defendant relied upon the fact that the Landbridge general ledgers upon which the plaintiff relied contained the endorsements: “Created: 5/4/2022 1:28 PM” and “Created: 25/03/2022 10:37 AM” to support a submission that the Court should infer that the general ledger was created by Landbridge, while under the control of Mr Costanzo, after the 8 April 2022 date of the loan agreement. Both printouts from the general ledger are endorsed with the dates referred to above slightly before the date of the loan agreement. One of them contains the handwritten note: “To do Div 7 Loan”. It is probable that the endorsements upon which the defendant has relied specify the dates upon which each of the printouts from the general ledger was created, rather than the dates when the contents of the general ledger were created. This conclusion as to the significance of the endorsements is supported by an examination of the equivalent endorsements on the plaintiff’s general ledger, to which the defendant referred in par 24(b) of her written submissions. Each page of this general ledger bears the endorsement 11/03/2022, but the first two pages bear the time 9:29:07 AM and the remaining pages bear the time 9:29:08 AM. That satisfies me that the dates and times identify the time the general ledgers were printed out, and in the plaintiff’s case, the printing of the full ledger commenced at 9:29:07 AM and finished one second later.

40. The defendant made a submission based upon the fact that in the plaintiff’s general ledger for the period 1 July 2020 to 30 June 2021, the payments that comprise the loan from Landbridge that were made during that period are described in the Directors Loan account as “Landbridge Tra”. The defendant said that this raises a question as to whether the counterparty to the loan was Mr Costanzo and not Landbridge. As, plainly, Landbridge was not a director of the plaintiff, this treatment of the payments is consistent with an accounting approach that treated Mr Costanzo and his wholly-owned company, Landbridge, as being equivalent for the purpose of recording loans from directors. The evidence is clear that the payments were made by Landbridge, not Mr Costanzo. The payments were recorded as loans. It is immaterial for present purposes whether the plaintiff was indebted to Mr Costanzo or Landbridge, as Mr Costanzo and Landbridge have elected to treat the latter as the creditor.

41. The plaintiff relies upon s 1305 of the Corporations Act 2001 (Cth) to establish that Landbridge's detailed general ledger, as a book kept by a body corporate under a requirement of the Act, is prima facie evidence of the matters recorded in the book. I am satisfied that Landbridge's detailed general ledger is a financial record required to be kept by s 286(1) of the Corporations Act.

42. It is clear that the loan agreement was entered into between the plaintiff and Landbridge after Landbridge had made numerous payments to the plaintiff. It is clear enough that the formal loan agreement was subsequently made for reasons arising out of Division 7A of the Income Tax Assessment Act. Counsel for the defendant made a brief suggestion that, if the improvements to the Property that were funded by the payments were in fact for the benefit and enjoyment of Landbridge, then it might not have been proper for the plaintiff as trustee to borrow the amounts from Landbridge. That suggestion raises complicated issues that cannot properly be determined in the absence of some precision as to the basis of the defendant's case. In any event, there is no basis for the Court to infer that the amounts borrowed were not used for improvements to the Property. If the Property was improved, then that would ordinarily be a legitimate expense of the plaintiff. If the party gaining the real benefit was in fact Landbridge, that would go to the question of whether, the plaintiff, having made the expenditures to improve the Property, is charging an adequate rent from Landbridge. Of the total loan from Landbridge to the plaintiff, $350,000 is described as being the cost incurred by the plaintiff in winding up the prior trustee. The Court cannot properly infer that it was improper for the plaintiff to incur that cost or to borrow the amount necessary to pay the cost from Landbridge. There was simply no evidence relevant to that issue, except for the bare fact that the debt had been incurred. The Court is not in a position on the available evidence to draw any conclusions on those issues. The prima facie position has not been disturbed that it was a matter within the discretion of the plaintiff as to how it should manage the affairs of the Trust.

43. Equally, the Court has no basis for finding that it arguably would not be a proper exercise of the plaintiff's powers as trustee for it to decide that it would be preferable in the interests of the Trust to replace the obligations of the plaintiff under the loan agreement with Landbridge by a commercial loan from NAB on the security of a mortgage over the Property. Too many relevant factors are simply unknown. It would be material for the plaintiff to take into consideration that only Mr Costanzo and Landbridge will be guaranteeing the loan to be made by NAB. The Court has no evidence concerning any differences in the interest rates between the two loan facilities, although it knows the interest rate that NAB has proposed. A party in the position of the plaintiff might well decide that a loan on commercial terms is preferable to a loan agreement that may attract the interest of the Australian Taxation Office. The Court has no basis for doubting that it is within the power of the trustee under the Trust Deed to decide to borrow the extra $700,000 from NAB to repay Landbridge.

44. I am therefore satisfied that the plaintiff is entitled to the orders sought in prayer 5 of its summons.

Satisfaction of NAB’s KYC Requirements

45. That ruling leads to the need for the Court to determine whether the plaintiff is also entitled to the order sought in prayer 4 of the summons, which would have the effect of obliging the defendant to satisfy the KYC Requirements of NAB by one of the two alternative methods specified.

46. The defendant has taken the position that the Court does not have power to make the orders sought by the plaintiff, because a company has no legal right to compel its members to take action that is necessary to enable the company to enter into a transaction that the directors of the company have resolved that it should. She submits that there is simply no legal obligation, such as one that might arise out of the contract constituted by the company's constitution, that is enforceable against the member.

47. It is not clear what the defendant will do if the Court orders her to withdraw the caveat, and the plaintiff persists with its objective to borrow $4.7 million from NAB. If the defendant is not obliged to satisfy the KYC Requirements of NAB, and NAB insists upon satisfaction, then NAB will not make the loan to the plaintiff, and it will be in jeopardy of the consequences of not being able to repay the St George Bank on the date for repayment.

48. I infer from the fact that the defendant has offered to withdraw the caveat to enable the plaintiff to borrow $4 million from NAB to refinance the St George loan, provided the additional $700,000 is not borrowed to repay Landbridge, that, in that circumstance, the defendant would satisfy the KYC Requirements of NAB. Otherwise, the offer would be illusory.

49. If that is the case, the position is that, in the absence of the Court making an order that obliges the defendant to satisfy the KYC Requirements of NAB, the outcome will depend upon a battle of wills between the plaintiff and the defendant. Even if, as between the plaintiff and the defendant, the plaintiff has under its constitution and the Trust Deed a clear right to borrow the $4.7 million from NAB, the defendant may have practical power to prevent the plaintiff from implementing its lawful intention, because the defendant has a right to subvert that implementation by exercising opportunistically a right to refuse to satisfy the KYC Requirements.

50. It is important to the determination of this Duty List matter that there is no evidence that the plaintiff has approached NAB to seek its agreement to being prepared to be satisfied of its KYC Requirements in respect of the defendant by some other means that do not require the cooperation of the defendant. The plaintiff has approached the issue as if NAB’s request in its 28 July 2023 email is immutable, with the consequence that the plaintiff will not be able to borrow the additional $700,000 if the Court permits the defendant to maintain her refusal to comply with the request made by NAB. For reasons that will be explained below, the evidence does not yet clearly establish that the existing NAB request is the final statement of NAB’s position, so that the only way that the plaintiff will be able to proceed to borrow the whole $4.7 million is if the Court makes order 4 sought by the plaintiff. I will return to a consideration of the significance of this position below.

51. It is necessary to consider the regulatory regime that imposes the obligation on NAB to require the defendant to satisfy its KYC Requirements before it accepts the plaintiff as a new customer of the bank. I preface this consideration with the observation that the regime is complex and cannot be dealt with comprehensively in these reasons. Moreover, as will be seen, the regime is not entirely prescriptive, in the sense that it does not specify precisely how NAB is to fulfil its KYC Requirements. The regime is an amalgam of regulatory prescriptions and a compliance program which NAB is required to create, maintain and implement. NAB is allowed a degree of latitude as to the content of its KYC Requirements, in the sense of alternative approaches being permitted. As NAB is the author of its own compliance program, the Court’s consideration of the regulatory regime cannot be conclusive, and only NAB knows what is acceptable in a particular case to satisfy its KYC Requirements.

Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth)

52. The obligations imposed on the NAB arise under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the AML/CTF Act) and the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1) (Cth) (the AML/CTF Rules). NAB is a “reporting entity” for the purposes of the AML/CTF regime.

53. Section 81 of the AML/CTF Act prohibits NAB, as a reporting entity, from commencing to provide a designated service to a customer if it has not adopted and does not maintain an anti-money laundering and counter-terrorism financing program that applies to it.

54. Section 32(1) provides: "A reporting entity must not commence to provide a designated service to a customer unless the reporting entity has carried out the applicable customer identification procedure in respect of the customer”.

55. By Item 6 in Table 1 in s 6 of the AML/CTF Act, the making of a loan in the course of carrying on a loans business is a designated service, and the borrower is the customer of the designated service.

Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No. 1)

56. Section 229 of the AML/CTF Act empowers the AUSTRAC CEO to make rules that govern how reporting entities must implement their obligations under the Act.

57. Part 4.3 of the AML/CTF Rules contains the applicable customer identification procedures with respect to companies, which is the procedure that will apply to the plaintiff. Rule 4.3.2 provides:

Part 4.3 Applicable customer identification procedure with respect to companies

…

4.3.2   An AML/CTF program must include appropriate risk‑based systems and controls that are designed to enable the reporting entity to be reasonably satisfied, where a customer is a company, that:

(1)   the company exists; and

(2)   in respect to beneficial owners, the reporting entity has complied with the requirements specified in Part 4.12 of these Rules.

…

58. Rule 4.3.3(1) contains the minimum information about a domestic company that a reporting entity is required to include in its applicable customer identification procedure under Part B of its program. This part of the AML/CTF Rules does not deal in detail with the identification of beneficial owners of the company, and would not require the cooperation of the defendant.

59. Collection and verification of information on beneficial owners

60. However, r 4.3.2(2) requires that NAB complies with the requirements of Part 4.12 of the AML/CTF Rules “in respect to beneficial owners”.

61. “Beneficial owner” is defined in Part 1.2 of the Rules:

beneficial owner:

…

(2)   of a person who is a customer of a reporting entity, means an individual who ultimately owns or controls (directly or indirectly) the customer;

(3)   In this definition: control includes control as a result of, or by means of, trusts, agreements, arrangements, understandings and practices, whether or not having legal or equitable force and whether or not based on legal or equitable rights, and includes exercising control through the capacity to determine decisions about financial and operating policies; and

(4)   In this definition: owns means ownership (either directly or indirectly) of 25% or more of a person.

62. Part 4.12 of the Rules deals with the collection and verification of beneficial owner information:

Part 4.12 Collection and Verification of Beneficial Owner information

4.12.1   An AML/CTF program must include appropriate systems and controls for the reporting entity to determine the beneficial owner of each customer and carry out the following, either before the provision of a designated service to the customer or as soon as practicable after the designated service has been provided:

(1)   collect, (including from the customer, where applicable) and take reasonable measures to verify:

(a)   each beneficial owner’s full name, and

(b)   the beneficial owner’s date of birth; or

(c)   the beneficial owner’s full residential address.

…

4.12.3   An AML/CTF program must include appropriate risk-based systems and controls for the reporting entity to determine whether, in addition to the information referred to in paragraph 4.12.1 above, any other information will be collected and verified about any beneficial owner.

63. That is, at a minimum, a reporting entity must collect and “take reasonable measures to verify” a beneficial owner’s full name and either date of birth or full residential address; however, it is open to a reporting entity to determine that additional beneficial owner information should be collected/verified in respect of customers.

64. The mandatory requirements of verification in respect of beneficial owners are dealt with in r 4.12.4:

Verification

4.12.4   An AML/CTF program must require that the verification of information collected about each beneficial owner of a customer be based on:

(1)          reliable and independent documentation;

(2)          reliable and independent electronic data; or

(3)          a combination of (1) and (2) above.

65. Reliable and independent documentation is (non-exhaustively) defined in the Rules:

reliable and independent documentation includes but is not limited to:

(1)     an original primary photographic identification document;

(2)     an original primary non‑photographic identification document; and

(3)     an original secondary identification document

Note:   This is not an exhaustive definition. A reporting entity may rely upon other documents not listed in paragraphs (1) to (3) above as reliable and independent documents, where that is appropriate having regard to ML/TF risk.

66. There is a further definition of secondary identification document:

secondary identification document includes:

(1)     a notice that:

(a)   was issued to an individual by the Commonwealth, a State or Territory within the preceding twelve months;

(b)   contains the name of the individual and his or her residential address; and

(c)   records the provision of financial benefits to the individual under a law of the Commonwealth, State or Territory (as the case may be);

(2)     a notice that:

(a)   was issued to an individual by the Australian Taxation Office within the preceding 12 months;

(b)   contains the name of the individual and his or her residential address; and

(c)   records a debt payable to or by the individual by or to (respectively) the Commonwealth under a Commonwealth law relating to taxation;

(3)     a notice that:

(a)   was issued to an individual by a local government body or utilities provider within the preceding three months;

(b)   contains the name of the individual and his or her residential address; and

(c)   records the provision of services by that local government body or utilities provider to that address or to that person.

…

67. To the extent that a reporting entity verifies the information based on “reliable and independent documentation”, it must comply with Part 4.9:

Part 4.9 Verification from documentation

Verification with respect to individuals

4.9.1   In so far as an AML/CTF program provides for the verification of KYC information about an individual by means of reliable and independent documentation, an AML/CTF program must comply with the requirements specified in paragraphs 4.9.2 and 4.9.3.

4.9.2   An AML/CTF program must require that the reporting entity be satisfied that any document from which the reporting entity verifies KYC information about an individual has not expired (other than in the case of a passport issued by the Commonwealth that expired within the preceding two years).

4.9.3   An AML/CTF program must include appropriate risk‑based systems and controls for the reporting entity to determine:

(1)   what reliable and independent documentation the reporting entity will require for the purpose of verifying the individual’s name and date of birth and/or residential address (as the case may be);

(2)   if any other KYC information about an individual is to be verified – what reliable and independent documentation may be used to verify that information;

(3)   whether, and in what circumstances, the reporting entity is prepared to rely upon a copy of a reliable and independent document;

(4)   in what circumstances a reporting entity will take steps to determine whether a document produced about an individual may have been forged, tampered with, cancelled or stolen and, if so, what steps the reporting entity will take to establish whether or not the document has been forged, tampered with, cancelled or stolen;

(5)   whether the reporting entity will use any authentication service that may be available in respect of a document; and

(6)   whether, and how, to confirm KYC information about an individual by independently initiating contact with the person that the individual claims to be.

68. To the extent that a reporting entity verifies the information based on “reliable and independent electronic data”, it must comply with Part 4.10:

Part 4.10 Verification from reliable and independent electronic data

4.10.1   In so far as an AML/CTF program provides for the verification of KYC information collected about a customer by means of reliable and independent electronic data, an AML/CTF program must comply with the requirements specified in paragraph 4.10.2.

4.10.2   An AML/CTF program must include appropriate risk‑based systems and controls for the reporting entity to determine:

(1)   whether the electronic data is reliable and independent, taking into account the following factors:

(a)   the accuracy of the data;

(b)   how secure the data is;

(c)   how the data is kept up‑to‑date;

(d)   how comprehensive the data is (for example, by reference to the range of persons included in the data and the period over which the data has been collected);

(e)   whether the data has been verified from a reliable and independent source;

(f)   whether the data is maintained by a government body or pursuant to legislation; and

(g)   whether the electronic data can be additionally authenticated; and

(2)   what reliable and independent electronic data the reporting entity will use for the purpose of verification;

(3)   the reporting entity’s pre‑defined tolerance levels for matches and errors; and

(4)   whether, and how, to confirm KYC information collected about a customer by independently initiating contact with the person that the customer claims to be.

69. Unlike “reliable and independent documentation”, there is no definition in the Rules of “reliable and independent electronic data”. As extracted above, a reporting entity is required to consider the factors referred to in r 4.10.2(1) in determining whether electronic data is reliable and independent.

70. There is a “safe harbour” procedure that a reporting entity may apply where the money laundering or terrorism financing risk of the beneficial owner is medium or lower:

Safe harbour procedure where ML/TF risk of the beneficial owner is medium or lower

4.12.5   Paragraph 4.12.7 sets out one procedure for documentation‑based verification (subparagraphs 4.12.7(2) and (3)) and electronic verification (subparagraph 4.12.7(4)) which a reporting entity may include in its AML/CTF program to comply with its obligations under paragraph 4.12.1 of these Rules where the customer and the beneficial owner of the customer is of medium or lower ML/TF risk. Paragraph 4.12.7 does not preclude a reporting entity from meeting the verification requirements of paragraph 4.12.1 of these Rules in another way where the beneficial owners of the customer are of medium or lower ML/TF risk.

…

4.12.7   An AML/CTF program that requires the reporting entity to do the following will be taken to meet the requirements of paragraph 4.12.1 of these Rules in respect of the beneficial owners of a customer, where a reporting entity determines that the relationship with that customer and the beneficial owner is of medium or lower risk:

(1)   collect the information described in paragraph 4.12.1 in regard to each beneficial owner;

Documentation-based safe harbour procedure

(2)   verify each beneficial owner’s full name and either the beneficial owner’s full residential address or date of birth, or both, from:

(a)   an original or certified copy of a primary photographic identification document; or

(b)   both:

(i)   an original or certified copy of a primary non‑photographic identification document; and

(ii)   an original or certified copy of a secondary identification document; and

(3)   verify the document produced by the customer in regard to each beneficial owner has not expired (other than in the case of a passport issued by the Commonwealth that expired within the preceding two years);

Electronic-based safe harbour procedure

(4)   verify each beneficial owner’s full name and either the beneficial owner’s full residential address or date of birth, or both, using reliable and independent electronic data from at least two separate data sources.

71. That is, while it is open to NAB to request documentation in order to verify the minimum beneficial owner information, it is equally open to NAB to verify the minimum beneficial owner information from “reliable and independent electronic data from at least two separate data sources”. However, as the AML/CTF Rules make clear, it is up to the reporting entity to determine the particular customer verification procedure that it wishes to rely on, having regard to the level of money laundering and terrorism financing risk that it believes it faces.

Disclosure Certificates

72. The Note at Part 4.12 states:

Note:   In addition to the verification procedures set out in Part 4.12, a reporting entity may be able to use a disclosure certificate. Details regarding disclosure certificates are set out in Chapter 30 of the AML/CTF Rules.

73. Rule 30.1 specifically states that disclosure certificates may be used for the purposes of s 84(3)(b) of the AML/CTF Act, which states that Part B (customer identification) of a reporting entity’s standard AML/CTF program must comply with the requirements of the Rules. That is, a disclosure certificate may be used for the purposes of Part B of a reporting entity’s program, including to identity beneficial owners.

74. Rule 30.2 provides as follows:

30.2   Part B of a standard, joint or special anti-money laundering and counter-terrorism financing program, may provide that a reporting entity may request that a customer of the type specified in paragraphs 30.6 to 30.12 provide a disclosure certificate, but only in the following circumstances:

(1)   the reporting entity has determined that the information cannot otherwise be reasonably obtained or verified;

(2)   the information to be provided or verified is reasonably required under the AML/CTF program applying to the reporting entity;

(3)   the reporting entity has applied the relevant procedures and requirements in its AML/CTF program, but has been unable to obtain or verify the information; and

(4)   the information is one or more of the items of information specified in paragraphs 30.6 to 30.12.

30.3   Reporting entities may accept disclosure certificates that are certified by an appropriate officer of the customer for the purposes of paragraphs 30.6 to 30.12.

30.4   An ‘appropriate officer’ in regard to the customer is determined by the reporting entity in accordance with its risk-based systems and controls.

75. The plaintiff is “a customer of the type specified in paragraphs 30.6 to 30.12” for the purposes of r 30.2, as it is a domestic company:

Domestic Companies

30.6   For paragraph 4.3.11, a disclosure certificate for a domestic company must contain:

(1)   the full name and full residential address of each beneficial owner of the company;

(2)   the full name of the appropriate officer;

(3)   a certification by the appropriate officer that the information contained in the disclosure certificate is true, accurate and complete; to the best of their knowledge and belief; and

(4)   the date of certification by the appropriate officer.

76. It appears that, when the AML/CTF Rules were originally enacted, disclosure certificates were used to confirm information about the company, rather than the beneficial owners. In 2014, the AML/CTF Rules in relation to beneficial owners and disclosure certificates were amended by the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2014 (No. 3) (Cth), with the Explanatory Statement to that instrument providing:

Chapter 30

Item 1

This item repeals Chapter 30 in its entirety.

Item 2. This item inserts a new version of Chapter 30 which has been amended to allow the use of disclosure certificates for the identification of beneficial owners.

…

Paragraph 30.2 – circumstances when a disclosure certificate may be used

Paragraph 30.2 specifies the circumstances in which a reporting entity may request that a customer provide a disclosure certificate. The Disclosure Certificate must contain the full name and full residential address of each beneficial owner. Requirements in respect to companies are clarified by the new distinction between ‘Domestic companies’ and ‘Foreign companies’.

77. That is, it is now open to NAB to request a disclosure certificate from the “appropriate officer” of the plaintiff, provided that all of the circumstances in r 30.2 apply, but NAB is not necessarily required to accept a disclosure certificate.

Liability

78. The sections of the AML/CTF Act dealing with requests for information from customers are found in Division 4 of Part 7 of the Act (being the Part dealing with AML/CTF Programs). Section 92(2) empowers the reporting entity to request information from the customer by written notice, and s 92(4) empowers the reporting entity to discontinue, restrict or limit provision of a designated service until such information is provided. There is a specific protection from liability provided to a reporting entity by s 92(5), meaning that the plaintiff cannot bring proceedings against NAB to, for example, compel it to provide a designated service in circumstances where the plaintiff is unable to provide the beneficial owner information, provided NAB is acting in good faith:

92  Request to obtain information from a customer

Scope

(1)   This section applies to a reporting entity if:

(a)   the reporting entity has adopted:

(i)   a standard anti‑money laundering and counter‑terrorism financing program; or

(ii)   a joint anti‑money laundering and counter‑terrorism financing program;

that applies to the reporting entity; and

(b)   the reporting entity is providing, or has provided, a designated service to a particular customer; and

(c)   the reporting entity has reasonable grounds to believe that the customer has information that is likely to assist the reporting entity to comply with:

(i)   Part A of the program; or

(ii)   if the program has been varied on one or more occasions—Part A of the program as varied.

Request to give information

(2)   The reporting entity may, by written notice given to the customer, request the customer to give the reporting entity, within the period and in the manner specified in the notice, any such information.

(3)   The notice must set out the effect of subsection (4).

Power to discontinue, restrict or limit provision of designated services

(4)   If the customer does not comply with the request, the reporting entity may do any or all of following:

(a)   refuse to continue to provide a designated service to the customer;

(b)   refuse to commence to provide a designated service to the customer;

(c)   restrict or limit the provision of a designated service to the customer;

until the customer provides the information covered by the request.

Protection from liability

(5)   An action, suit or proceeding (whether criminal or civil) does not lie against:

(a)   the reporting entity; or

(b)   an officer, employee or agent of the reporting entity acting in the course of his or her office, employment or agency;

in relation to anything done, or omitted to be done, in good faith by the reporting entity, officer, employee or agent in the exercise, or purported exercise, of the power conferred by subsection (4).

Plaintiff’s submissions

79. The plaintiff’s submissions proceeded on the premise that the KYC Requirements specified by NAB in its 28 July 2023 email were an essential condition to NAB being prepared to grant the plaintiff’s application for finance to repay St George and Landbridge. On that basis, the plaintiff asks the Court to make the order in prayer 4 obliging the defendant to comply with the request made by NAB to avoid the outcome where the defendant can unilaterally obstruct the plaintiff from implementing the transaction that the Court has found the plaintiff has authority under the Trust Deed to engage in.

80. If it is the case that the combined effect of the AML/CTF Act, the AML/CTF Rules, the program developed by NAB to satisfy its regulatory obligations, and the choices available to NAB in the implementation of the program, is that the plaintiff must be able to satisfy the KYC Requirements specified in the 28 July 2023 email, then the introduction of the AML/CTF regulatory scheme would have a potentially serious, and presumably unintended, consequence. In short, in practical conflict with long established legal principle, whereby the actions of corporations are controlled by their directors, subject to their constitutions and the requirement that powers be exercised properly, lawful actions could be obstructed by the unilateral refusal of parties deemed to be beneficial owners under the AML/CTF regulatory scheme to cooperate to enable the corporations to satisfy the KYC Requirements of reporting entities. The definitive power reposed by the law in directors could be neutralised by practical powers of obstruction by beneficial owners of at least 25% of the corporations. The AML/CTF regulatory regime would be seen to have made an assumption that not only the corporations, but also the shareholders, would cooperate to satisfy KYC Requirements in order to facilitate the corporations enjoying the advantages of becoming new customers of reporting entities. But in reality, in cases of internal dissension between multiple beneficial owners, dissentients would acquire a blocking power unavailable to them under settled principles for the governance of corporations. I will return to the significance of these observations to the determination of the present dispute below.

79. The plaintiff's submissions provided limited assistance to the Court in determining whether there is any orthodox escape from this conundrum, assuming it to be real. The plaintiff did not assist the Court with a detailed analysis of the AML/CTF Act or the AML/CTF Rules, but as noted, merely assumed that NAB’s proposed KYC Requirements were mandatory.

80. The plaintiff started by simply asking the Court to make the orders sought under two sections of the Supreme Court Act 1970 (NSW). The first is s 23, which provides:

23 Jurisdiction generally

The Court shall have all jurisdiction which may be necessary for the administration of justice in New South Wales.

83. The second is s 66, which is the source of this Court's statutory jurisdiction to grant injunctions, as opposed to its inherent jurisdiction, and provides:

66 Injunction

(1)   The Court may, at any stage of proceedings, by interlocutory or other injunction, restrain any threatened or apprehended breach of contract or other injury.

(2)   Subsection (1) applies as well in a case where an injury is not actionable unless it causes damage as in other cases.

(3)   The Court may restrain any threatened or apprehended waste or trespass pursuant to this section—

(a)   whether the person against whom the injunction is sought is or is not in possession under any claim of title or otherwise, or (if out of possession) does or does not claim a right to do the act sought to be restrained under any colour of title, and

(b)   whether the estate claimed by any party is legal or equitable.

(4)   The Court may, at any stage of proceedings, on terms, grant an interlocutory injunction in any case in which it appears to the Court to be just or convenient so to do.

84. The plaintiff also relied upon the judgment of Forrest J in the Family Court of Australia in Angliss & Angliss (No 2) [2016] FamCA 823 (Angliss). That was a claim for a property settlement between the former parties to a marriage under s 79 of the Family Law Act 1975 (Cth). The husband sought a mandatory injunction ordering the wife to show her driver's licence and Medicare card to Westpac, to enable a company in which both parties were shareholders to obtain a bank guarantee with respect to six months’ rent for a lease that the husband wished to cause the company to enter into for the purpose of conducting its business. Forrest J made the order sought. The order was materially equivalent to the order sought by the plaintiff in this case in prayer 4 of the summons. Forrest J said at [16]-[20]:

[16] There is no disagreement that the Court has the power to make an order of the nature sought by the husband. The Full Court said in Waugh and Waugh (2000) FLC 93-052 at [32] when discussing a submission made by counsel that interlocutory injunctions were “truly akin to a Mareva injunction”, amongst other things, that it is important to bear in mind that the jurisdiction to grant interlocutory injunctions under the Family Law Act 1975 (Cth) (“the Act”) derived from s 34(1) and or s 114(3) of the Act. Section 34(1) of the Act provides:

The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds … as the court considers appropriate.

[17] Section 114(3) provides:

A court … may grant an injunction, by interlocutory order or otherwise … in any case in which it appears to the court to be just or convenient to do so and either unconditionally or upon such terms and conditions as the court considers appropriate.

[18] The Full Court in that case also expressed the view (at [31]) that it is important to bear in mind the difference between the type of proceedings at law in which Mareva injunctions are sought and proceedings under s 79 of the Act. The Full Court stressed the essential connection between the substantive proceedings and the relevant property about which the interim injunction is sought in s 79 proceedings that does not exist in proceedings in which Mareva injunctions are generally sought.

[19] Notably, in my judgment, the Full Court in Mullen and De Bry (2006) FLC 93-293 at [43(b)] said, after discussing that which the Full Court had said in Waugh:

If anything, these remarks imply a more liberal approach in applications in the Family Court for preservation of property than at general law…

and went on to highlight (at [46]–[47]) that it is “helpful to recognise that the essential power being exercised” is “simply described in s 114(3)” requiring each case to be determined by “overall assessment of a number of factors” in arriving at the “just or convenient result”.

[20] The facts of this case are somewhat different from the case where a party to property adjustment proceedings pursuant to s 79 of the Act seeks an interim injunction to restrain the other party from disposing of property pending the final determination of the proceedings. In this case, a party to proceedings pursuant to s 79 seeks a mandatory injunction on an interim basis to compel the other party to do something required to avoid potential loss of substantial amounts of money by one of the parties’ business entities, but which she does not want to do. The subject matter is, though, still essentially asset preservation pending final determination of the s 79 proceedings.

85. His Honour concluded at [27]:

[27] Ultimately, I consider it is in the interests of both of the parties to preserve the value of the business entities they own, particularly as those entities make up such a large portion of the value of their total net assets, pending the finalisation of property adjustment between them. Without the bank guarantee being provided soon, the current value of those business entities is at real risk of being reduced by a substantial amount. In my determination, the balance of convenience and absence of prejudice to the wife favours the granting of the injunction sought by the husband. I consider it both just and convenient, in the circumstances of this particular case, to make the order sought.

Defendant’s submissions

86. The defendant responded with the submission that, notwithstanding the broad language of s 23 and s 66 of the Supreme Court Act, authority binding the Court establishes that the Court will not grant an injunction unless the person seeking the injunction can point to a legal or equitable right which the injunction protects. She relied upon a number of decisions of the High Court. First, in Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; [1999] HCA 18, the plurality said at [31] (footnotes omitted):

[31] However, in England, it is now settled by several decisions of the House of Lords that the power stated in Judicature legislation — that the court may grant an injunction in all cases in which it appears to the court to be just and convenient to do so — does not confer an unlimited power to grant injunctive relief. Regard must still be had to the existence of a legal or equitable right which the injunction protects against invasion or threatened invasion, or other unconscientious conduct or exercise of legal or equitable rights. The situation thus confirmed by these authorities reflects the point made by Ashburner that “the power of the court to grant an injunction is limited by the nature of the act which it is sought to restrain”.

87. Further, this principle was endorsed by the High Court in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 63, where Gleeson CJ said:

[8] When a plaintiff applies to a court for an interlocutory injunction, the first question counsel may be asked is: what is your equity? If a plaintiff, who has commenced an action seeking a permanent injunction, cannot demonstrate that, if the facts alleged are shown to be true, there will be a sufficiently plausible ground for the granting of final relief, then that may mean there is no basis for interlocutory relief. That is what happened here. Underwood J looked at the allegations in the statement of claim, supported as they were by the evidence of Mr Kelly, and, after hearing argument, concluded that, even if those allegations were true, they could not justify the final injunctive relief sought by the respondent. On that ground, he refused interlocutory relief. That approach was in accordance with practice and principle. Of course, if Underwood J made an error in concluding that the respondent had no equity, then his decision was flawed. But, having regard to the way the case was conducted by the parties, he asked the right question. The central issue in this appeal is, or ought to be, whether he gave the right answer.

88. A concise explanation of the reason for this principle was given by Gaudron J (footnotes omitted):

[59] It is beyond controversy that the role of Australian courts is to do justice according to law — not to do justice according to idiosyncratic notions as to what is just in the circumstances. Hence, the rule of law and not the rule of judges. Necessarily, that basic proposition informs and controls the power conferred on the Supreme Court of Tasmania by s 11(12) of the Supreme Court Civil Procedure Act 1932 (Tas) to grant an interlocutory injunction “in all cases in which it shall appear to the Court or judge to be just and convenient that such order should be made”.

[60] In recent times, the word “injunction” has come to be used to mean any order by which a court commands a person to do or refrain from doing some particular act. Thus, it has come to be used in connection with orders of that kind that are specifically authorised by statute. It has also been used to describe orders which a court makes to protect its own processes such as an asset preservation order (sometimes called a “Mareva injunction”) and some anti-suit injunctions. Leaving those matters to one side, however, an injunction is a curial remedy. Because it is a remedy, it is axiomatic that it can only issue to protect an equitable or legal right or, which is often the same thing, to prevent an equitable or legal wrong. So to say, is simply to emphasise that the function of courts is to do justice according to law.

89. Finally, the defendant relied upon the following observations made by Gummow and Hayne JJ (footnotes omitted):

[90] Further, as was pointed out in Cardile v LED Builders Pty Ltd, the injunctive remedy is still the subject of development in courts exercising equitable jurisdiction. This is true in public law, as Enfield City Corporation v Development Assessment Commission illustrates. The treatment of the requirement for a legal right that is proprietary in nature, and of negative stipulations, referred to in Cardile, are other examples. In addition, as the general law develops in such fields as the economic torts and the protection of confidential information, there is an increase in the scope of the legal and equitable rights for which an injunctive remedy may be available. Similar development of equity is to be observed in England. Lord Millett has said that in England equity is not only “now fully awake” and “on the march again”, but “[i]ndeed it is rampant”. However, his Lordship also emphasised that “the essential basis for principled advance” lies in “analytical exposition of traditional doctrine”.

[91] The basic proposition remains that where interlocutory injunctive relief is sought in a Judicature system court, it is necessary to identify the legal (which may be statutory) or equitable rights which are to be determined at trial and in respect of which there is sought final relief which may or may not be injunctive in nature. In Muschinski v Dodds, Deane J said that an equitable remedy “is available only when warranted by established equitable principles or by the legitimate processes of legal reasoning, by analogy, induction and deduction, from the starting point of a proper understanding of the conceptual foundation of such principles”.

90. The defendant made the simple submission that the plaintiff had not sought to demonstrate any legal or equitable right in the plaintiff to require the defendant, as a shareholder, to satisfy the NAB KYC Requirements, and there was in fact no such right established in law.

91. The defendant also submitted that Angliss, properly understood, did not provide persuasive authority for the existence of the right necessary to support the injunction sought by the plaintiff in this case. She pointed out that the parties in Angliss accepted that the Court had the power to make the orders sought, at [16]. The Court in Angliss was exercising the power to order an interlocutory injunction to preserve property in aid of the Court’s statutory jurisdiction to adjust property interests, rather than any general power to compel a party to do something if “just or convenient”. As Forrest J said at [20]: “[t]he subject matter is…still essentially asset preservation pending final determination of the s 79 proceedings”.

Consideration

92. The High Court authority considered above binds this Court to decline to issue the injunction sought by the plaintiff unless it can be shown that the injunction will be in aid of some legal or equitable right that the plaintiff has to require the defendant to satisfy NAB’s KYC Requirements. It is not sufficient that the Court may be satisfied that the issue of the injunction is necessary to restrain the defendant from causing injury to the plaintiff within the meaning of s 66(1) of the Supreme Court Act, or that it is just or convenient to issue the injunction within s 66(4). There is no basis for a finding that the issue of the injunction is necessary for the administration of justice within s 23. The defendant is correct in her submission that the plaintiff has not attempted to identify and establish an existing legal or equitable right to require the defendant to satisfy NAB’s KYC Requirements. Furthermore, I accept the defendant’s submissions that there is no established right that a corporation has to require a member to take action in this context to cooperate to facilitate the corporation, in a practical way, being able to implement a transaction that is within the authority of the directors of the corporation.

93. That may not have ended the matter, if the plaintiff had shouldered the burden involved in submitting that there was some legitimate basis for extending existing principle to impose upon the defendant, as a member of the plaintiff, some relevant duty of cooperation. That the plaintiff has not attempted to do so has deprived the defendant of the opportunity to which she was entitled to respond to the submission.

94. If, indeed, the true effect of the AML/CTF regulatory regime were to create a novel situation, where the effect of federal statutory law was to vest in members of corporations, who were the beneficial owners for the purposes of the regime of 25% or more of the corporation, a unilateral right to block transactions resolved upon by the directors of the corporation within power, there may be a basis for the Court to consider whether the situation justifies a relatively small extension to existing legal principle to require cooperation by an unwilling member of the corporation, perhaps limited to being required to provide evidence necessary to establish the member’s identity to relevant third parties, so that fundamental principles of corporate governance will remain effective. I should add the caveat that the fact that the defendant is apparently not yet a member of the plaintiff may add a barrier to the ability of the Court to grant any remedy in this case.

95. If that effect had been established in this case, it may have been necessary for the Court to grapple with this challenging question, even though it is not desirable for such an issue to be determined on an interlocutory application, and in particular one, in the Duty List. However, the determinative reason why it is not appropriate for the Court to determine the issue on the present application is that, as I have explained above, the premise upon which the plaintiff’s case has proceeded has not been demonstrated on the evidence. That is, the plaintiff has made no attempt to persuade NAB to satisfy itself of its KYC Requirements in respect of the defendant by some means that does not depend upon her cooperation. The plaintiff has not demonstrated that the KYC Requirements in NAB’s 28 July 2023 email are non-negotiable.

96. It is disturbing to think that the AML/CTF regulatory regime established by the Federal Government might have had the unintended consequences considered above, or that reporting entities in the position of NAB may have no scope to adjust their response to the obligations imposed upon them in a manner capable of facilitating transactions lawfully proposed by new corporate customers. However, on the evidence before the Court, the reality is a matter for speculation.

97. In these circumstances, it is not necessary for the Court to respond in detail to the plaintiff’s reliance upon Angliss. It is true that Forrest J expressly treated the issue as an interlocutory one, although, with respect, it is difficult to see why the mandatory order made in that case did not have final effect. When the wife had satisfied the bank’s KYC Requirements in that case, the bank will have issued the bank guarantee that would have permitted the company to enter into the new lease. That would have determined that issue once and for all. Whenever the Court came to consider the application of s 79 of the Family Law Act, the relevant lease would be property within the available matrimonial pool of assets.

98. I am not, however, satisfied that the present case is as remote from the situation the subject of Angliss as the defendant has submitted. A court that is engaged in applying general principles of law should resist treating family law decisions as being foreign and irrelevant. Forrest J said, at [20], that the husband had sought a mandatory injunction on an interim basis to compel the wife to do something required to avoid potential loss of substantial amounts of money by one of the parties’ business entities, but which she did not want to do. His Honour said that the subject matter of the application was “still essentially asset preservation pending final determination of the s 79 proceedings”.

99. The principal reason why the present application appears to differ in substance from that considered by Forrest J is that, as I have explained above, this is an application by a registered proprietor against a caveator for the withdrawal of a caveat. It is a quirk of procedure that the caveator has not yet been required to identify and seek final relief that would have the effect that the ultimate objective of the proceedings would be the determination of the respective rights of the parties in respect of the Property.

100. Nonetheless, these considerations do not affect my determination that, as matters stand, the plaintiff has not demonstrated an entitlement to the mandatory order sought in prayer 4 of the summons.

Conclusion

101. For these reasons, I will make the order sought by the plaintiff in prayer 5 of the summons.

102. I will not at this stage issue a mandatory injunction against the defendant as sought in prayer 4 of the summons. As that may, as a practical matter, enable the defendant to thwart the effect of the Court’s order for the withdrawal of the caveat, I will not at this stage dismiss the plaintiff’s summons insofar as prayer 4 is concerned. I will grant leave to the plaintiff to apply if, following negotiations with NAB, the plaintiff is able to establish that it has made a reasonable attempt to persuade NAB to satisfy its KYC Requirements by some means that do not require the cooperation of the defendant, but that the position adopted by NAB is that the defendant’s cooperation is essential. I appreciate that, if that leave is successfully exercised by the plaintiff, it would be necessary for the Court to address the novel question of whether, in the circumstances of this case, there is in fact the legal basis for the Court to order the defendant to cooperate.

101. A limited, implied duty to cooperate is well-established in ordinary commercial contracts: see Mackay v Dick (1881) 6 App Cas 251. The reluctance of the courts to imply terms in corporate constitutions is also well established: see, for example, St George Soccer Football Association Inc v Soccer NSW Ltd [2005] NSWSC 1288 (Barrett J, as his Honour then was); Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1; [2006] FCAFC 144; and Ananda Marga Pracaraka Samgha Ltd v Tomas (No 6) [2013] FCA 284; (2013) 300 ALR 492 (Dodds-Streeton J). There have, however, been cases where terms have been found to be implied in corporate constitutions: see, for example, Equitable Life Assurance Society v Hyman [2002] 1 AC 408 (per Lord Steyn at 459) and Quancorp Pty Ltd v Macdonald [1999] WASCA 33; (1999) 32 ACSR 50. It may be that third parties who deal with corporations, such as new members, would not be at all surprised to find that there was an implied obligation in a corporation's constitution for members to provide objective evidence of their identities when that was essential to enable the corporation to engage in its lawful business. However, for the reasons given, I think that it is premature for the Court to consider this issue.

102. I will not, at this stage, make an order in terms of prayer 6 of the summons, that would give the defendant a right under s 74O of the Real Property Act to lodge a new caveat against the title to the Property. I infer that the plaintiff only offered to submit to that order as quid pro quo for gaining the benefit of orders in terms of both prayers 4 and 5. The Court has a discretion as to whether or not it will permit a caveator to lodge a new caveat. As I have explained above, in a case such as the present, although the defendant as a beneficial unit holder in the Trust has a proprietary interest in the Property sufficient to support a caveat, that interest does not permit her to block the plaintiff, as the trustee, from entering into any transaction within its power under the Trust Deed, even if that transaction extinguishes or otherwise affects the defendant’s interest in the Property. The defendant merely has a blocking power. The defendant has threatened to exercise that blocking power in a manner that the Court has found not to be defensible. That being the case, if the defendant prevents the plaintiff’s proposed refinancing of its debts by refusing to satisfy the NAB KYC Requirements, the Court ought not reinstate the defendant’s power to impede the plaintiff’s exercise of its powers under the Trust Deed.

Orders

105. The Court:

1. Orders pursuant to s 74MA of the Real Property Act 1900 (NSW) that the defendant remove the caveat No AS190309 within 24 hours of the making of this order.

2. Stands the balance of the summons over for directions to a date to be fixed by arrangement with the Associate to Robb J.

3. Grants leave to the plaintiff to renew its application for the making of an order in terms of prayer 4 of the summons in accordance with the reasons for judgment.

4. Reserves costs.

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Decision last updated: 08 September 2023