Wright v Paxton (WA) Pty Ltd (Receiver and Manager Appointed) - [2021] WASC 305

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   WRIGHT -v- PAXTON (WA) PTY LTD (RECEIVER AND MANAGER APPOINTED) [2021] WASC 305
CORAM:   MASTER SANDERSON
HEARD:   25‑26 AUGUST 2021
DELIVERED          :   6 SEPTEMBER 2021
FILE NO/S:   CIV 1787 of 2020
BETWEEN:   ADAM DAVID WRIGHT
Plaintiff
AND
PAXTON (WA) PTY LTD (RECEIVER AND MANAGER APPOINTED)
First Defendant
HAMPTON DEVELOPMENTS (WA) PTY LTD (RECEIVER AND MANAGER APPOINTED)
Second Defendant
JASON WRIGHT
Third Defendant
TERESA FAIRCHILD
Fourth Defendant
PLATINUM MORTGAGE SECURITIES PTY LTD
Fifth Defendant
MELANIE GROHOVAZ
Sixth Defendant
PLATINUM MORTGAGE SECURITIES PTY LTD
Plaintiff by counterclaim
PAXTON (WA) PTY LTD (RECEIVER AND MANAGER APPOINTED)
ADAM DAVID WRIGHT
Defendant by counterclaim

Catchwords:

Trust - application by beneficiary of trust to be declared holder of certain property - Turns on own facts

Legislation:

Nil

Result:

Claim fails - Counterclaim succeeds

Representation:

Counsel:

Plaintiff	:	C Silver
First Defendant	:	No appearance
Second Defendant	:	No appearance
Third Defendant	:	In person
Fourth Defendant	:	In person
Fifth Defendant	:	E Hensler
Sixth Defendant	:	No appearance
Plaintiff by counterclaim	:	E Hensler
Defendant by counterclaim	:	C Silver

Solicitors:

Plaintiff	:	C Silver & Associates
First Defendant	:	No appearance
Second Defendant	:	No appearance
Third Defendant	:	In person
Fourth Defendant	:	In person
Fifth Defendant	:	Bransgroves Lawyers
Sixth Defendant	:	Bransgroves Lawyers
Plaintiff by counterclaim	:	Bransgroves Lawyers
Defendant by counterclaim	:	C Silver & Associates

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

Nil

MASTER SANDERSON:

Gary Wright, Simon Wright and Adam Wright are brothers. Adam Wright is the plaintiff in these proceedings. Jason Wright (the third defendant) and Teresa Fairchild (the fourth defendant) are brother and sister and are the children of Simon Wright. Without intending any disrespect I will refer to all parties by their Christian names.
Edward Wright was the father of the three brothers. He established a building and development business and the three brothers became part of, and eventually took over, that business. Simon was responsible for sales, office and administration. Adam and Gary were responsible for building and construction. In particular, Gary was responsible for the overall administration of any project. Adam was in control of the day to day building - acting more or less as a construction manager.
Although the brothers worked together for many years they did not always enjoy a harmonious relationship. In particular Adam and Simon clashed. When that happened Gary would act as a mediator. The disagreements between the brothers did not prevent projects being undertaken profitably and completed on time. However, they did not enjoy a warm and close interpersonal relationships.
The Wright family construction development enterprise (to use Adam's expression) conducted numerous small and large scale building developments in Perth and surrounding areas. These projects, included but were not limited to, the Statton on Murray and a $70 million development known as Ellement 996 opposite the QV1 building. The most recent development was the Equus Development on Hay Street. This development has led, at least indirectly, to this dispute.
In 1984 the Wright Family Property Trust was established. The trustees of the trust were Gary, Simon and Adam. It was a conventional discretionary trust. It is unnecessary to detail the terms of the trust because they play no part in this present dispute. However, it is worth noting that the use of a discretionary trust is consistent with standard business practice. It seems each development project was undertaken by what the witnesses described as a 'special purpose vehicle' (SPV). The shares in the SPV would be owned by the trust. There may or may not have been a separate building company which actually let the building contract and undertook physical development of the project. If there was such a company its shares were owned by the trust. When the development came to an end and a profit was made it would pass to the trust and be distributed to its beneficiaries at the discretion of the trustees.
In or about 1995 Gary, Simon and Adam in their capacities as trustees of the trust became the registered proprietors of three properties - 75 Haig Road, 7A Crewe Street and 9B Nairn Street. There was agreement between the three brothers that Adam would reside in 75 Haig Road, Simon would reside in 7A Crewe Street and Gary would live on a farm that was also owned by the trust. Nena Wright, the mother of all of the brothers, resided in 9B Nairn Road. The terms of this agreement are central to this dispute and I will return to the issue in some detail later. It is sufficient to say for present purposes the agreement was never documented and none of the properties were transferred from the trust into the names of the parties who resided in them.
As mentioned above the Wright family developed the Equus Development. The development was undertaken by Birchwood Consolidated Pty Ltd. The project was a financial disaster. To make matters worse, Gary passed away in December of 2009. Without his calming influence, Adam and Simon found themselves continually at odds. Both became concerned that the fall out from the Equus Development could threaten their personal assets. They sought advice from a solicitor, Mr John Park. Mr Park advised Simon and Adam to resign as the trustees of the trust. This they did, and Jason and Teresa were appointed as trustees. This was done by a deed made in June 2016 (June 2016 Deed).
In December 2016 Jason and Teresa purported to resign as trustees of the Wright Family Trust and to appoint Paxton (WA) Pty Ltd (Paxton) as trustee (December 2016 Deed). In a separate proceeding, I determined that for reasons not presently relevant that deed was of no force and effect. Furthermore, in or about 2018 Simon Wright and Paxton made a deed which purported to rectify any defects in the December 2016 Deed. Again, in the proceedings I referred to above, I determined that deed was of no force and effect. Thus, at all material times Jason and Teresa remained the trustees of the Wright Family Trust. But all parties - including Adam, insofar as he turned his mind to the issue - believed Paxton was the trustee of the trust and they acted accordingly.
In particular the three properties I have referred to above were transferred into the name of Paxton. Although nowhere in the evidence is it made clear, it would appear that Adam acquiesced in that transfer. Indeed he must have signed the transfer which allowed the property to be registered in the name of Paxton. I would accept he did so without really understanding the nature of the transaction. Adam makes it plain in his evidence that he had no real knowledge of how a trust operates and indeed he had very little involvement with the administration of the business. Nonetheless, he did not object when the transfer to Paxton took place.
In late 2018, the business was looking to undertake a development in Mirrabooka. The fifth defendant (which I will refer to as 'Platinum') was approached to provide finance. A feasibility study was provided. Platinum was provided with a copy of the Wright Family Trust deed, the June 2016 Deed and the December 2016 Deed. It was after copies of these documents had been provided to Platinum that the 2018 Deed was entered into. It seems Platinum's solicitors had concerns about the office of appointor under the trust deed. How these concerns arose is not presently relevant. It is, however, relevant to note two things. First, Platinum believed Paxton was the trustee of the Wright Family Trust. Nothing in the evidence suggests at any time they were aware that Jason and Teresa were the trustees of the trust, and Paxton was not validly appointed. Second, Platinum knew Paxton was the registered proprietor of the land in Mirrabooka and the three residential properties.
At all material times, Jason Wright was the sole director of Paxton. When finance was obtained, it was secured in conventional fashion. Platinum took a mortgage over the Mirrabooka land and over the three residential lots owned by the trust. A personal guarantee was given by Jason Wright. The transaction was not in any respect unusual.
Regrettably, the Mirrabooka project failed. Receivers were appointed to Paxton and to Hampton Developments (WA) Pty Ltd, the second defendant in these proceedings, and the SPV that developed the Mirrabooka project. Platinum sought to enforce the mortgage over 75 Haig Road. Adam maintained it was not entitled to enforce that mortgage. In these proceedings, he sought relief against various parties. Platinum issued a counterclaim, seeking possession of 75 Haig Road.
This is one of those cases where the pleadings do not crystallise the issues. The plaintiff's amended statement of claim is a confused and confusing mixture of material facts, particulars, evidence and wholly irrelevant material. It would be liable to be struck out in its entirety. Given that the defendants are self‑represented, the fact no strike‑out application was brought cannot be held against them. So far as Platinum is concerned, it regarded most of the material in the statement of claim as irrelevant to the issues it confronted and therefore made no strike‑out application. Platinum attempted to plead to allegations made against them and did so reasonably successfully. The counterclaim is simple and straightforward.
By way of illustrating the problems of the amended statement of claim, pars 31 and 32 read as follows:
31.By oral agreement and conduct, it was agreed between the Joint Appointors/Trustees, namely Adam, Simon and Gary Wright, that each individual would have full possession of their respective houses in which they resided.
32.By implication, at some point in time, each of Adam, Simon and Gary would have their respective property transferred solely into their name.
Insofar as these paragraphs plead anything at all, they plead an oral agreement in relation to land. Clearly, such an agreement would not be enforceable if it was not reduced to writing. It would have been open to the plaintiff to allege part performance of the contract or some other basis that might have allowed the 'agreement' to be enforced if it was not in writing. On one view then, the plaintiff's claim really should fail as a matter of pleading. That is not the way that I have approached the matter.
It is clear from the pleadings and from the way the case was conducted, there are three issues between the parties. These are:
1.is there an enforceable agreement that would justify an order that the Haig Road property be transferred to Adam and, in the process, Platinum's mortgage be expunged;
2.was there a breach of trust on the part of Jason and Teresa and, if so, what are the consequences of that breach of trust; and
3.is Platinum's mortgage over the Haig Road property enforceable.
Adam gave evidence by tendering his witness statement and answering a few additional questions asked of him by his counsel. That approach does not accord with current accepted practice. However, Adam has a significant hearing disability and his counsel took the view this approach was, in the circumstances, to be preferred. Neither Jason nor Teresa raised any question and nor did counsel for Platinum. Adam deals with the alleged agreement in relation to the Haig Road property at par 25 of his statement. That par reads as follows:
25. Prior to 2007, it was recognised and agreed that each person, Gary, Simon and Myself, (GE SJ AW) would have their own house where they would reside for their lifetime and that each person would be the owner of the house.
a.I would live in 75 Haig Road in Attadale.
b.Simon would live in 7A Crewe St in Bicton.
c.My Mother, Nena would live in 9B Nairn Rd in Applecross.
d.Gary would live on the farm.
The statement makes no attempt to set out the circumstances in which this alleged agreement was reached. There is no evidence as to the time, date and place where the agreement was allegedly reached. Nor is there any detail as to who was present at the time and what was said by the relevant parties. What is pleaded and what is found in this statement is a conclusion which really takes the matter nowhere at all. Taken at its highest, this evidence could not establish any agreement. Moreover, Simon, in his evidence, says simply no such agreement was reached. I accept that evidence. Accordingly, the plaintiff's case in relation to ownership of the Haig Road property fails.
Even were I to accept what Adam says, and find some form of agreement had been reached, there is no evidence the agreement was in writing nor that it was in any way partly performed. It may be that Adam's continued residence in the Haig Road property is consistent with the agreement. Yet, it is also consistent with the parties simply allowing one or other of the brothers to live rent free in the trust property. In other words, it is consistent with there being some form of licence. The evidence is not consistent with part performance of the contract. Nor is there any evidence which could lead to finding some form of estoppel arose. Adam does say in his evidence that he contributed some $25,000 to the development of the Haig Road property. He does not say he did that in reliance upon any representation. Accepting the payment was made, it does not establish any equity which would advance Adam's position.
Turning then to the second question, it is clear there was a breach of trust by the transfer of property into the name of Paxton. I accept the transfer was undertaken bona fide and after taking advice from a solicitor. Nonetheless, the trustees of the Wright Family Trust were Jason and Teresa, not Paxton. It follows the transfer of the properties to Paxton was a breach of trust. The question is what remedy should flow from that breach. Specifically, would equitable compensation be payable.
In Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (5th ed), the learned authors look at the issue of equitable compensation by asking what would have happened had there been no breach. They put the position as follows:[1]
The object of awarding equitable compensation for breach of trust or fiduciary duty depends on a hypothetical inquiry, no matter the type of breach. What would the circumstances have been had the trustee adhered to the trust terms and to the trustee's duties? In particular, what would the value of the trust fund now have been had the trustee committed no breach? Corresponding inquiries apply to fiduciaries. The answer to those inquiries leads the court to a hypothesis as to what would have happened had there been no breach. But the decision as to what would have happened had there been no breach is not a simple question of fact or of hypothetical fact. The decision is reached by means of a structured exercise. The structure derives from principles, some of which have counterparts in other areas of law - as where, say, damages for breach of contract are to be assessed - but which are peculiarly adapted to the purposes of the remedy of equitable compensation as a remedy, and to the obligations the breach of which is to be remedied by an award of compensation in equity.
[1] Meagher R P, Heydon J D and Leeming M J, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (5th ed) [23‑395].
The answer in this case is that the transfer of the properties to Paxton made no difference at all to the way in which the application for finance to Platinum was made. The business had been in the habit of borrowing money and pledging as security the available assets of the trust. There is no evidence to suggest that would not have been done in this case. It may have been the case that Teresa would not have provided a personal guarantee. She retired as a director of Paxton rather than provide a personal guarantee as required by Platinum. That left Jason as the sole director of Paxton and, in all probability, Jason would have wound up as the sole trustee of the Wright Family Trust. The Haig Road property would have been pledged and when the development at Mirrabooka failed, the outcome would have been no different - Platinum would have been entitled to possession of Haig Road either way.
Accordingly, while I am satisfied there was a breach of trust by Jason and Teresa, it was a breach which does not sound in equitable compensation. Nor is any other remedy available. It may be the case that Adam could obtain an order for the transfer of Haig Road back to the trustees. However, such an order would be subject to Platinum's mortgage and unless and until that mortgage was discharged, the transfer could not be effected.
That leads to the final question of whether or not Platinum has the right to enforce its mortgage. Clearly, it does. It is the holder of a registered mortgage, granted by the registered proprietor of the relevant property. That mortgage could only be vitiated if fraud was established. Fraud was not pleaded and there are no facts which would justify such a conclusion. It is the case Platinum was provided with various deeds which, on their face, appeared to establish Paxton was entitled to hold the Haig Road property as trustee. It is also true Platinum was mistaken in circumstances where it had access to the documents. But it was clearly an honest mistake. There was no fraud, equitable or otherwise. Nor was it in any way knowingly concerned in a breach of trust. But even if it were so involved, no damages could flow as a result. It loaned money, it took security, and the obligations undertaken by the borrowers were not met. No equitable relief could flow in the circumstances. There simply has been no unconscionable conduct on the part of Platinum.
Adam's claim fails. Platinum's counterclaim succeeds. On publication of these reasons, the parties should bring in a minute or orders giving effect to this decision. Costs will follow the event.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
MM
Court Officer
6 SEPTEMBER 2021