The Trust Company (Australia Limited v Perry
[2012] NSWSC 604
•06 June 2012
Supreme Court
New South Wales
Medium Neutral Citation: The Trust Company (Australia Limited v Perry [2012] NSWSC 604 Hearing dates: 17 May 2012 Decision date: 06 June 2012 Jurisdiction: Common Law Before: Schmidt J Decision: The plaintiff bear Mr Hartnett's costs of the proceedings, as agreed or assessed, up to and including the hearing and in the case of Mr Perry, the plaintiff bear his costs thrown away as the result of the amendment of the statement of claim, as well as his costs of the motions, his pursuit of the standing issue and the hearing, as agreed or assessed.
Catchwords: PROCEDURE - notices of motion - application for joinder - order seeking proceedings to be transferred to Queensland - question of standing - agreement reached - costs Legislation Cited: Civil Procedure Act 2005
Corporations Act 2001 (Cth)
Jurisdiction of Courts (Cross-Vesting ) Act 1987
Property Law Act 1974 (QLD)
Uniform Civil Procedure Rules 2005Category: Procedural and other rulings Parties: The Trust Company (Australia) Limited ACN 000 000 993 (Plaintiff)
Craig Andrew Perry (First Defendant)
Beau Timothy John Hartnett (Second Defendant)Representation: Counsel:
Mr A Coleman SC with Mr A Izzo (Plaintiffs)
Mr MW Young SC (Defendants)
Solicitors:
Piper Alderman (Plaintiff)
Hartnett Lawyers (Defendants)
File Number(s): 2010/408475 Publication restriction: None
Judgment
By statement of claim filed on 8 December 2010, the plaintiff sought orders that the defendants pay it two sums, which total in excess of $20M, claimed to be due under a loan facility and a mortgage held over property located at Broadbeach in Queensland, which is owned by Bullish Bear Holdings Pty Ltd. It is claimed that the defendants have provided certain guarantees in respect of the loan and that moneys due under the loan were not repaid when they fell due.
The first defendant, Mr Perry, filed a defence in August 2011. The second defendant, Mr Hartnett, filed no defence, he having pursued with the plaintiff the question of its standing to bring the proceedings.
On 16 March 2012, the Registrar made a consent order as to the separate determination of the question of the plaintiff's standing to bring the proceedings, and/or that of Trilogy Funds Management Ltd ('Trilogy'). It was Trilogy who had appointed the plaintiff to act as custodian of the assets of the Pacific First Mortgage Fund, a managed investment scheme registered under Part 5C of the Corporations Act 2001.
On the written submissions there was a question raised as to whether the Registrar had delegated power to make such an order under the applicable Rule (see Rule 28.2 of the Uniform Civil Procedure Rules 2005). The parties were agreed, however, that the standing question was appropriate to be determined at this stage of the proceedings, given that if this discrete question was decided adversely to the plaintiff, the proceedings would be brought to an end.
There were also two motions filed. The first, a motion filed by the plaintiff in March 2012, seeking to have Trilogy joined as a plaintiff in the proceedings. The second, a motion filed by the defendants in May 2012, seeking to have the proceedings transferred to the Supreme Court of Queensland pursuant to the Jurisdiction of Courts (Cross-Vesting ) Act 1987.
When the hearing commenced, the plaintiff announced that various steps had recently been taken to address matters raised in the defendants' submissions, including the service of amended notices, the service of various new notices and the entry of a deed of assignment. These steps had also necessitated the service of a proposed amended statement of claim. I urged the parties to discuss whether these developments might lead to the resolution of any of the matters lying between them. They did. The parties agreed as to further steps to be taken to cure the standing issue.
In the final result the parties were agreed as to the orders to be made as to all of the matters then before the Court, other than as to certain costs. The orders agreed were:
"1. The Plaintiff has leave to file an amended Statement of Claim within 14 days.
2. Upon the filing of an Amended Statement Claim in accordance with Order 1 the proceedings be transferred to the Supreme Court of Queensland pursuant to s 5(2) of the Jurisdiction of Courts (Cross-vesting) Act 1987."
Costs
The parties agreed that the plaintiff would bear the defendants' costs thrown away as the result of the amendment of the statement of claim, as well as the costs of the joinder motion. The disagreement as to costs related to whether the costs of the defendants' transfer motion should be costs in the cause, or born by the plaintiff and whether otherwise, there should be an order for costs in favour of the defendants, as to the costs otherwise incurred in the proceedings, to this point.
The defendants' case was that the steps belatedly taken by the plaintiff prior to the hearing, to address the difficulties as to its standing, which had long been identified and the further steps which the parties had that day agreed should be taken, reflected an acceptance of the strength of the defendants' case on standing. Consistently with their obligations under the Civil Procedure Act 2005, the defendants had consented to the amendment of the statement of claim and the plaintiff had agreed to the transfer of the proceedings to the Supreme Court of Queensland, which would save costs, including further filing fees.
The circumstances were such, however, that the proceedings should always have been brought in Queensland and that the result of the belated steps taken by the plaintiff to respond to the matters pursued in respect of the plaintiff's lack of standing, was that the costs incurred by the defendants to this point had been wasted, with the result that there should be a costs order in their favour. The steps which the plaintiff had taken only after consideration of the written submissions advanced by the defendants on the question of standing, ought to have been taken long before. The issue of standing had long been pressed by the defendants, in the face of obvious deficiencies of the original statement of claim.
The plaintiff's position was that not all of the matters on which the defendants had relied in relation to the question of standing had been raised prior to the written submissions, that some of those matters went to defences, rather than standing and that as the result of the agreements reached, it was not necessary for the Court to resolve the basis upon which the plaintiff had always alleged it had standing, which rested on questions of agency. As to transfer, while raised by the defendants, that had not been a matter earlier pressed prior to the filing of the motion. The agreement reached should not result in a costs order in favour of the defendants in the circumstances.
In determining the dispute over costs, something needs to be said about the complex issues lying between the parties and how the dispute as to standing came to be resolved.
Standing and the joinder motion
Prior to the hearing the defendants resisted the joinder application and contended that neither the plaintiff, nor Trilogy, had standing to bring these proceedings.
It was not in issue that these proceedings resulted from an August 2007 loan facility pursuant to which the Public Trustee of Queensland ('Public Trustee'), then the custodian of the Pacific First Mortgage Fund, agreed to lend certain sums to Bullish Bear Holdings Pty Ltd. A guarantee and indemnity were provided by the defendants under that facility. They each executed a guarantee in favour of the Public Trustee in September 2007, to a maximum amount in excess of $46M.
At inception in 1999, the responsible entity of the Fund was City Pacific Ltd. It appointed the Public Trustee to act as custodian of the Fund in 1999. In 2006, City Pacific and the Public Trustee executed a further custody agreement, which replaced the earlier agreement. The 2006 agreement was amended in June 2008, to permit the agreement to be terminated on 30 days' notice. A deed of termination was executed by the Public Trustee and City Pacific on 30 September 2008, which contemplated that certain assignment deeds would be executed in respect of the Fund.
The Deed of assignment executed on 30 September by the Public Trustee provided that the Public Trustee assigned its right, title and interest in certain identified mortgages, charges, documents and other assets which it held as custodian of the Fund, to City Pacific. They included the guarantees given by the defendants.
In July 2009 Trilogy replaced City Pacific as the responsible entity of the Fund and appointed the plaintiff as the Fund's custodian under an amending deed, which added the Fund to a schedule of Trusts in respect of which the plaintiff already acted as custodian under an existing Custody agreement between Trilogy and the plaintiff of November 2004.
It was not until 1 December 2011, however, that the Public Trustee gave the defendants notice of the assignment of their guarantees to City Pacific. The notice given Mr Perry was accepted at the hearing to have been defective.
The statement of claim alleged that the Public Trustee, as custodian for the trust, had made loan advances to Bullish Bear Holdings Pty Ltd in accordance with the loan facility; that the loan facility expired; that Bullish Bear Holdings Pty Ltd failed to repay the loan; and that the defendants failed to repay the outstanding amount. It did not plead how it was that the plaintiff was entitled to sue on the guarantee. Nor did it refer to Trilogy.
The inadequate state of this pleading and the defendants' view as to plaintiff's lack of standing, was the subject of ongoing correspondence, in which the plaintiff resisted the difficulties raised.
Up until the hearing, the plaintiff's case was that it had standing because the Public Trustee, then the custodian of the Fund, executed the defendants' guarantees as agent for City Pacific, the responsible entity. Whether or not the agency was disclosed to the defendants, thereby City Pacific acquired a right to sue on the guarantee. In that event, there was no need for the Public Trustee to assign any rights which it held under the guarantee to City Pacific, when it ceased being custodian. City Pacific had that right from the outset.
In any event, by clause 2.1, when read with schedule 1 of the assignment deed, the Public Trustee expressly assigned the benefit of the defendants' guarantees to City Pacific. It gave notice of that assignment on 1 December 2011.
The appointment of Trilogy as responsible entity then vested in it the right to sue on the guarantee, under a statutory novation, not merely an assignment, of which there was no necessity to give the defendants any notice under cl 13(d) of the guarantee. There was, in the circumstances, no need for Trilogy to be joined in the proceedings which the plaintiff had brought as the appointed custodian of the Fund. Trilogy's joinder would, however, put beyond argument the plaintiff's right to maintain the proceedings. Any failure to give the defendants notice of the plaintiff's appointment to hold the assets of the Fund for Trilogy, would be cured by its joinder as assignor.
It was the defendants' case that there were a number of impediments to the pursuit of the claim, two of which applied to both defendants and one which applied only to Mr Perry.
Their case was that Trilogy had no legal title to the guarantees which they gave in respect of the loan made to Bullish Bear Holdings Pty Ltd, with the result that the plaintiff had no such title and that neither it, nor Trilogy, had standing to bring the proceedings.
Given that while the assignment from the Public Trustee to City Pacific was effected in September 2008, notice of the assignment was not given the defendants until December 2011, the assignment was not effected at law (s 199 of the Property Law Act 1974 (QLD). At best there was an equitable assignment.
Further, City Pacific was replaced by Trilogy as responsible entity in June 2009. As at that date, City Pacific was not entitled at law to the benefit of the defendants' guarantees, although it had the right to compel the Public Trustee to given the defendants notice of the assignment. Its equitable rights were transferred to Trilogy under s 601FS of the Corporations Act 2001 (Cth), but not its legal rights.
Upon Trilogy's appointment in June 2009, the effect of s601FT of the Corporations Act was that City Pacific's name where appearing in the deed of assignment was to be read as if it were that of Trilogy. Had City Pacific given the defendants notice of Trilogy's appointment, that would have had the effect of transferring its legal entitlement to the guarantees to Trilogy.
The difficulty remained however, that neither the 2004 custody deed by which Trilogy appointed the plaintiff as custodian of assets of various trusts, nor the 2009 amending deed, which added the Fund as a trust in respect of which the plaintiff acted as custodian, had a term transferring to the plaintiff the assets which it was to hold on trust as custodian. The defendants' argued that it must have been contemplated that these assets would be separately transferred to the plaintiff, as were other securities associated with the Bullish Bear Holdings Pty Ltd loan in July and August 2009. There was no such transfer in respect of the guarantees.
By virtue of s 601FT of the Corporations Act, the notices sent by the Public Trustee in December 2011 of its assignment of its interest in the guarantee to City Pacific in September 2008, had the effect, as at 1 December 2011, as if all references to City Pacific were references to Trilogy. The defendants submitted that notwithstanding this, correct identification of the assignees in a notice of assignment was an essential matter, failing which the notice would be invalid. In this case in the result the December 2011 notices were invalid.
Further, in the case of Mr Perry, the purported notice of assignment on which reliance was placed, referred to an agreement between the second defendant Mr Hartnett and the Public Trustee of Queensland. In the result there had been no notice ever given to Mr Perry as to the assignment of the guarantee which he had given. In the circumstances, that was fatal to the claim brought against him. The guarantee had never been assigned to Trilogy.
Even if it were found that legal title in the guarantees had been transferred to Trilogy, it had no standing, because the mortgage securing the Bullish Bear Holdings Pty Ltd debt had been transferred to the plaintiff and registered. There was no evidence of assignment of the guarantee from Trilogy to the plaintiff. Even if the notice given the defendants on 1 December 2011 was valid to cause legal title in the guarantee to vest in Trilogy, the result would be that it was the legal holder of the guarantee while the plaintiff was the legal holder of the mortgage and hence neither had standing to bring the present action.
In order for either Trilogy or the plaintiff to sue on the guarantee, they needed to show legal title to both the principal debt which was being guaranteed, as well as legal title to the guarantee. That could not be established, with the result, in the circumstances, that the proceedings must be dismissed.
The steps taken by the plaintiff shortly prior to the hearing and those which it was agreed would be taken afterwards, were admittedly taken in order to address the various difficulties which the defendants had raised. That they went to standing, rather than a defence of the claims which the plaintfff advanced, was not however, conceded.
Costs
The usual order as to costs is that they should follow the event. A costs order is not designed to punish an unsuccessful party, but rather to compensate the successful party for costs incurred in the proceedings.
The parties finally agreed that the matter should be transferred to the Supreme Court of Queensland. It was not finally in dispute that the defendants, the property and the witnesses are all located there. That is where the relevant dealings occurred. It is the law of Queensland, which governs the transactions in question. The only connection that the matter had with this State, was that the plaintiff is located here. In all of those circumstances, the agreed position finally reached as to transfer ought to have been reached without the necessity of the filing and pursuit to the morning of the hearing, of the transfer motion. In the circumstances, there should be no departure from the usual costs order in respect of this motion. The plaintiff should pay the defendants' costs of the motion.
As to the costs incurred in the proceedings to date, having been taken extensively to the parties'; correspondence, it seems to me that the costs incurred to this point in the proceedings by Mr Hartnett should be born by the plaintiff. He has never filed a defence, having raised at the outset the question of the plaintiff's standing and having pursued the matters which he said went to the plaintiff's standing and sought to have them attended to, before a defence was filed.
The difficulties which he raised were only accepted by the plaintiff, after service of the defendants' written submissions, with the result that belated steps were taken to address some of the matters he had raised, shortly prior to the hearing. It was only at that hearing that it was agreed by the plaintiff that other steps were necessary to be taken. Not only did the basis of the plaintiff's case have the difficulties Mr Hartnett raised and pressed, its statement of claim also had to be revisited. Even if all of these matters did not go to standing, it was accepted that they raised impediments to the case which the plaintiff sought to advance, which required further steps to be taken.
The parties' agreement about these matters means that the view which the plaintiff pressed as to its standing on an agency basis, did not need to be determined. Nevertheless, having in mind the ongoing correspondence between the parties in relation to the matters which Mr Hartnett pursued from the outset; the plaintiff's insistence up until the time of the hearing, that these matters did not need to be addressed; the belated steps taken to address some of the matters raised, once attention was paid to the submissions advanced for the defendants; as well as the further steps which it was accepted needed to be taken, in order to address those matters; and the resulting amendment of the statement of claim to reflect those steps, in my view, consistently with the provisions of the Civil Procedure Act, must result in an order in favour of Mr Hartnett.
It was only as the result of his continued pursuit of the challenge to the plaintiff's standing that necessary steps have been taken by the plaintiff to put its pleadings and the factual matters underpinning those pleadings into proper order. Had timely steps been taken by the plaintiff to identify the real issues lying between the parties, it would have been appreciated much sooner, not only that its case was not adequately pleaded, but also that there were serious deficiencies in the underpinnings of its claim, which needed to be addressed, if its case was to be successfully pursued. Much time and cost would then have been saved. The approach adopted by the plaintiff to that point did not, in my view, accord with its obligations under s 56 of the Act.
The position is not the same in Mr Perry's case. He took a different course, for reasons which were not explained. While initially he raised the standing point, he then filed a defence to the original pleadings, only instructing counsel shortly before the hearing to join in the case pressed by Mr Hartnett as to standing. That was a course open to him, but is not one which should result in the same order as that made in relation to Mr Hartnett. There was no suggestion that the work done in relation to the defence which he filed, would not be relevant to any further defence of the case brought against him.
Orders
In the result, I order that the plaintiff bear Mr Hartnett's costs of the proceedings, as agreed or assessed, up to and including the hearing and in the case of Mr Perry, the plaintiff bear his costs thrown away as the result of the amendment of the statement of claim, as well as his costs of the motions, his pursuit of the standing issue and the hearing, as agreed or assessed.
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Decision last updated: 25 June 2012
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