Transtate Property Group Pty Ltd (in Liquidation) v Chad Parham as Trustee for C J Parham Family Trust

[2018] WADC 143

JURISDICTION     :   DISTRICT COURT OF WESTERN AUSTRALIA

IN CHAMBERS

LOCATION:   PERTH

CITATION:   TRANSTATE PROPERTY GROUP PTY LTD (IN LIQUIDATION) -v-  CHAD PARHAM as Trustee for C J PARHAM FAMILY TRUST [2018] WADC 143

CORAM:   PRINCIPAL REGISTRAR MELVILLE

HEARD:   5 OCTOBER 2018

DELIVERED          :   1 NOVEMBER 2018

FILE NO/S:   CIV 1303 of 2018

BETWEEN:   TRANSTATE PROPERTY GROUP PTY LTD (IN LIQUIDATION)

Plaintiff

AND

CHAD PARHAM as Trustee for C J PARHAM FAMILY TRUST

Defendant

Catchwords:

Trust - Disqualified trustee - Standing to sue - Disqualified trustee as bare trustee of constructive trust - duties of bare trustee

Legislation:

Nil

Result:

Judgment of plaintiff

Representation:

Counsel:

Plaintiff	:	Mr J P Cook
Defendant	:	Mr D J Morris

Solicitors:

Plaintiff	:	Mendelawitz Morton Commercial Lawyers
Defendant	:	HHG Legal Group

Case(s) referred to in decision(s):

CGU Insurance Ltd v One.Tel Ltd (in liq) [2010] HCA 26

Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd (1997) 143 FLR 18

Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87

Prior v Simeon [2010] WASC 382

Re Mad Canoe Advertising Pty Ltd (in liq) [2009] FCA 625

Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) NSWSC 1484

Webster v Lampard (1993) 177 CLR 598

White v Johnston (1886) 8 ALT 53

PRINCIPAL REGISTRAR MELVILLE:

1. The plaintiff lent to the defendant the sum of $207,042 over the period 30 June 2014 to 30 June 2016.  At the time the defendant was also the sole director of the plaintiff. 

2. There is no dispute that at the time of the loan the plaintiff was the trustee of the Transtate Property Group Unit Trust (Unit Trust).  There is no dispute that at the time of the loan the defendant was trustee for the C J Parham Family Trust which held units in the Unit Trust.  The trust deed annexed to the affidavit of the defendant shows that he is one of several beneficiaries of the Unit Trust.

3. The defendant in his affidavit states that he, as director of the plaintiff, made the decision the plaintiff would lend the money out of the funds it held on trust for the benefit of the unit holders.

4. It appears that on 22 September 2016 the plaintiff went into liquidation. On or about 30 March 2017 the plaintiff demanded in writing that the defendant repay the loan of $207,042.

5. By cl 40 of the Deed establishing the Unit Trust, it is provided that a trustee shall be disqualified from holding office if being a company it goes into liquidation or if a receiver manager or official manager of any of its assets or undertakings is appointed.

6. The defendant has taken the view that the plaintiff having gone into liquidation, it is no longer the trustee of the Unit Trust and as such has no power or standing to take proceedings for the recovery of the debt. The defendant swears that no further or new trustee has been appointed in place of the plaintiff.  As the result of the defendant's refusal to repay the money, the plaintiff issued a writ and has now brought an application for summary judgment.

Principles relating to summary judgment applications

1. It has been said that the parties showing cause against an application for summary judgment assume an evidentiary burden by that process but that the overall legal burden of persuasion remains on the applicant: Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd (1997) 143 FLR 18, 23.

2. The power will not be exercised unless it is clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, 99.

3. It was never intended that when the facts are in dispute, actions should be disposed of summarily.  If a version of the facts is put forward by the defendant which is not inherently credible, then in the absence of any opportunity to cross examine, it is incumbent on the court to proceed on the basis that it will ultimately be accepted at the trial of the action: White v Johnston (1886) 8 ALT 53; Webster v Lampard (1993) 177 CLR 598, 608.

4. However, even if there is some dispute as to the facts it does not follow there needs to be a trial if on the facts as asserted by the defendant the plaintiff would be entitled to judgement on the claim as brought in the Writ in any event. In light of those principles I proceed to deal with this application on the basis of the facts as deposed to by the defendant.

The defendant's position

1. In essence, the defendant's position firstly is that because the plaintiff is by reason of being placed into liquidation now disqualified from being trustee of the Unit Trust, it is in fact no longer the trustee of the Unit Trust and has no standing to bring these proceedings.  Secondly, the beneficiaries of the Unit Trust have an equitable interest in the assets of the trust which the defendant describes as 'the account receivable that was created by the loan'.  The defendant goes on to contend that whilst the plaintiff may have an equitable lien over that asset, that lien does not give rise to the right to commence these proceedings.  The defendant hypothesizes that any equitable lien the plaintiff has over the trust assets may be subrogated to the creditors of the plaintiff but, if so, this has not been pleaded and the pleadings are defective such as to be incapable of supporting summary disposition of the action.

Does the plaintiff remain as trustee of the Unit Trust?

1. I accept that upon going into liquidation the company was disqualified from being the trustee of the Unit Trust and any powers and authorities it had under the Trust Deed could no longer be exercised.  However, contrary to the proposition advanced by the defendant, it is my view that the plaintiff continued on as the trustee of a constructive bare trust. This view is based on the decision of the High Court in CGU Insurance Ltd v One.Tel Ltd (in liq) [2010] HCA 26. In that case the court said at [35] – [37]:

   Even if the termination of the Deed is assumed to have deprived the Trustee of any power in the Deed or the Act to continue the Trustee proceedings, it does not follow that there was not some other power to do so.

   The primary judge described the trust on which the Trustee held the rights under the Policy which Mr Greaves assigned to it as a 'bare trust' after the termination of the Deed.  Let that be assumed.  The trustee of a bare trust has no interests in the trust assets other than those which exist by reason of the office of trustee and the holding of legal title. Further, the trustee of a bare trust has no active duties to perform other than those which exist by virtue of the office of the trustee, with the result that the property awaits transfer to the beneficiaries or awaits some other disposition at their direction.  One obligation of a trustee which exists by virtue of the very office is the obligation to get the trust property in, protect it, and vindicate the rights attaching to it.  That obligation exists even if no provision of any statute or trust instrument creates it.  It exists unless it is negated by a provision of any statute or trust instrument.  Here no provision of the Act or the Deed negates it.  Mr Greaves's equitable assignment of his right to sue CGU under the Policy gave the Trustee the duty to vindicate that right.  After the Deed terminated, the Trustee continued to comply with the duty to vindicate that right by prosecuting the Trustee proceedings against CGU in order to crystallise its advantages by reducing them to a judgment in damages.  Even assuming in favour of CGU that, after termination of the Deed, the Trustee no longer held the chose in action on the trusts of the Deed, the Trustee did remain a trustee, and did have an obligation to continue the process of complying with the duty to vindicate the rights associated with the trust property.

   It does not follow from CGU's contention that the Trustee had no entitlement to continue the proceedings which could be derived from the Deed once it had terminated that the Trustee did not have an entitlement to continue the proceedings after the Deed terminated which derives from a source other than the Deed.  The latter entitlement derives from the duty and power of trusteeship.  The Deed created a trusteeship with express duties.  The termination of the Deed caused the Trustee to have duties and powers outside the Deed.  Here the duty of the Trustee to vindicate the rights connected with the trust property related to a chose in action being enforced in the Trustee proceedings.  The hoped-for fruits of those proceedings lay in an order for damages.  Discontinuance by the Trustee with a view to letting some other person enforce the chose in action by starting a new action may have run the risk that the new action might be statute-barred, and would certainly have involved a waste of costs.  In these circumstances the only way of protecting the chose in action, vindicating the rights attached to it and getting in its fruits was for the Trustee to continue the proceedings.

2. The High Court has answered the unanswered questions posed by Lindgren J in Re Mad Canoe Advertising Pty Ltd (in liq) [2009] FCA 625 at [34 - 36] as to whether a disqualified trustee continues on as trustee upon a constructive trust and what the terms of such a trust may be.

3. The defendant cited a number of cases in support of its position.  In particular, reference was made to Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) NSWSC 1484. However, in my opinion, that case is not to the point. That case and a number of cases from various jurisdictions around Australia to which reference was made involved a discussion as to whether a trustee in liquidation, as the holder of an equitable lien over the assets of the trust (which secured the trustee's right to reimbursement or exoneration of liabilities incurred in its capacity as trustee), could sell the assets of the trust. It was made clear that the equitable lien did not give a right of sale of trust assets and should a trustee, (or the creditors standing behind a trustee who might have an interest in the equitable lien by way of subrogation of the trustee's rights), wish to sell trust property it would need to apply to the court for a judicial order for sale or the appointment of a receiver.

4. The court in Re Stansfield also considered whether a liquidator's power of sale conferred under the Corporations Act 2001 applied to the sale of property that the trust company held on trust and, in that case, concluded it did not.

5. However in this case the question of sale does not arise.  This asset of the trust, whilst described by the defendant as 'accounts receivable', is in fact a chose in action.  The plaintiff is not seeking to sell the chose in action.  What the plaintiff is seeking to do is to use it.  These are very different concepts. The only property the plaintiff can sell is its interest in the charge, not the assets charged (the cause of action), which as I have stated it is not seeking to do. See Re Stansfield at [19].

6. In my opinion, the plaintiff is a bare trustee of the assets of the trust which is or includes this chose in action, more particularly described as the right to recover monies it has loaned to the defendant.  As such it has an obligation to perform of the duty described in CGU Insurance Ltd v One.Tel Ltd (in liq) at [37], being to vindicate the rights connected with the trust property in relation to a chose in action.

7. In so doing, the plaintiff will create a fund from which it may be entitled to be indemnified against any liabilities it has incurred in dealing with the trust assets, assuming it has any right to indemnification or exoneration.  However what it is not doing is seeking to create a fund by the sale of trust property from which it may be indemnified, something it could not have power to do in the absence of an order for judicial sale or the appointment of a receiver: Prior v Simeon [2010] WASC 382 [21(d)].

8. In my opinion there is no issue to be tried and it is clear that the defendant does not have a defence. Accordingly, there should be judgment for the plaintiff in the sum of $207,042 with interest thereon pursuant to s 32 of the Supreme Court Act 1935 (WA) from the date of issue of the writ.

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.

AC
COURT OFFICER

30 OCTOBER 2018