Pram Enterprises Limited (in liquidation) v Mansfield
[2016] NZHC 230
•22 February 2016
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2015-485-488 [2015] NZHC 230
BETWEEN PRAM ENTERPRISES LIMITED (IN
LIQUIDATION) Plaintiff
AND
PAUL STEPHEN MANSFIELD Defendant
Hearing: 7 December 2015 Counsel:
D Kerr for the Plaintiff
E Collins for the DefendantJudgment:
22 February 2016
JUDGMENT OF ASSOCIATE JUDGE SMITH
[1] The plaintiff (Pram) applies for summary judgment against Mr Mansfield for the sum of $390,855.18 plus interest and costs. The amount claimed is alleged to have been a loan made by Pram to Mr Mansfield in his capacity as a trustee of a trust known as the TCF Trust. Mr Mansfield denies that there was any such loan. He says that the payment made by Pram was made to him in his capacity as trustee of another trust, the BBC Trust, in satisfaction of advances earlier made by the BBC Trust to Pram.
[2] It is common ground that the $390,855.18 was applied by Mr Mansfield and his co-trustee Mr Bradnock (whether as trustees of the TCF Trust or the BBC Trust) in the purchase of a property at Whitemans Valley (the property).
[3] Pram contends that Mr Mansfield, as trustee of the TCF Trust, has a right to be indemnified out of the TCF Trust’s assets, including the property. It says that that
right of indemnity confers on Mr Mansfield an equitable lien over the TCF Trust
PRAM ENTERPRISES LIMITED (IN LIQUIDATION) v PAUL STEPHEN MANSFIELD [2015] NZHC 230 [22 February 2016]
assets, including the property, and that it is entitled to be subrogated to Mr
Mansfield’s right to enforce that equitable lien.
[4] In addition to judgment for the sum of money claimed and interest, Pram seeks to enforce its alleged right of subrogation. It applies for an order for the sale of the property by the registrar of this Court, with the net proceeds of sale (after payment of the costs of sale and settlement of the amount owing to the mortgagee) to be paid to Pram in satisfaction of the judgment, interest and costs.
Background
[5] For some years, Pram operated a drycleaning business in Petone and Wellington. The shares in Pram were owned by Mr Mansfield and Mr Warren Bradnock. Mr Mansfield was the sole director.
[6] While Pram operated the drycleaning business, the assets and equipment were owned by the company MARP Holdings Limited (MARP). Mr Mansfield was also a director of MARP.
[7] In September 2011 Mr Mansfield entered into an agreement to purchase the property for $390,000. The purchaser was shown in the agreement as Mr Mansfield or nominee. The agreement was conditional upon Mr Mansfield entering into a satisfactory agreement for the sale of the drycleaning business.
[8] The drycleaning business was sold later in the same month, and Pram’s solicitors received a net amount of $1,023,000 on settlement on 1 November 2011. A solicitors’ trust account statement shows that $390,855.18 from the settlement was credited to Messrs Mansfield and Bradnock “for purchase of [the property]”. It is this $390,855.18 which Pram now seeks to recover as a debt repayable by Messrs Mansfield and Bradnock.
[9] On 28 October 2011 a resolution was signed by Mr Mansfield (as director and shareholder) and by Mr Bradnock and Ms Raewyn Mansfield as shareholders of Pram. The resolution approved the sale of the drycleaning business, and then recorded that Pram proposed to advance the sum of $390,855.18 to Mr Mansfield
and Mr Bradnock from the sale funds for the purchase of the property, “to be held in trust in accordance with the directions of the TCF Trust Deed”.
[10] Mr Mansfield and Mr Bradnock settled the purchase of the property at about the same time as the settlement of the sale of the drycleaning business. They were registered as proprietors of the property on 2 November 2011.
[11] By early 2012, Pram had unpaid tax liabilities of approximately $228,000, dating back to May 2008. It was put into liquidation on 16 April 2012. The Official Assignee was appointed liquidator.
[12] Mr Mansfield says that his ex-wife was a trustee of the TCF Trust, and that when he and his ex-wife separated in or about 2002, “we combined the two trusts [the TCF Trust and the BBC Trust] for the purposes of dividing our assets.” It is not clear what the “combining” of the two trusts entailed; however, it appears from other documents produced that a partnership of some sort existed, with the trustees of the two trusts as partners.
[13] Mr Bradnock has since retired as trustee of the TCF Trust. He was replaced as trustee by a company called Seven Five Four Ltd, and that company was registered as proprietor of the property with Mr Mansfield. Seven Five Four Ltd remains on the title to the property as a registered proprietor with Mr Mansfield, although it has now been struck off the Companies Register.
[14] In April 2014, Mr Mansfield provided the Official Assignee with a statutory declaration of his financial means, showing modest income and total assets of only
$10,900. The statement concluded:
8 My sole liability is a claim from the Official Assignee in the amount of
$390,000.
The parties’ arguments
Pram
[15] Pram says that the position is simple. There was a loan to Mr Mansfield and Mr Bradnock in their capacities as trustees of the TCF Trust, as recorded in the shareholders’ resolution of 28 October 2011. No repayment date was agreed, and in those circumstances the loan was repayable upon demand, or upon giving reasonable notice.
[16] The Official Assignee wrote to Messrs Mansfield and Bradnock on
15 January 2013, demanding payment of the $390,855.18 by 31 January 2013. No payment has been received.
Mr Mansfield
[17] Mr Mansfield has filed a statement of defence. He admits the majority of Pram’s allegations, including the allegation that, on or about 2 November 2011, Pram advanced to Mr Mansfield and Mr Bradnock the sum of $390,855.18 from the proceeds of sale of its drycleaning business. He further admits that he and Mr Bradnock applied the money in payment of the purchase price of the property, and that he and Mr Bradnock purchased the property on trust for the beneficiaries of the TCF Trust.
[18] Mr Mansfield does not take issue with Pram’s contentions relating to a trustee’s right of indemnity out of trust assets for liabilities incurred by a trustee while acting in that capacity. Nor does he dispute Pram’s claims that his right to indemnity as trustee is protected by an equitable lien over the trust’s assets, and that if Pram is held to be a creditor it will be entitled to be subrogated to Mr Mansfield’s right to enforce that lien. Where Mr Mansfield takes issue with Pram is over the nature of the payment of the $390,855.18 received by him and Mr Bradnock on
2 November 2011.
[19] Mr Mansfield says that the intention at the time this payment was made was that he and Mr Bradnock were to receive the money in their capacities as trustees of
the BBC Trust, who would become the proprietors of the property. He denies that the payment was an advance, saying that Pram owed the BBC Trust substantial sums of money (going back to certain arrangements made in 2009). He says that the
$390,855.18 was paid by Pram in settlement or reduction of that debt.
[20] Mr Mansfield explains the 2009 arrangements as follows. During 2009 the drycleaning business was experiencing cashflow problems. On 13 August 2009, the company’s accountant sent a letter to the Bank of New Zealand setting out certain proposals designed to reduce the level of debt. The proposals included the sale of Mr Mansfield’s family home at Hill Road, Belmont (the Hill Road property), which was then owned by the trustees of the BBC Trust.
[21] Pram’s accountants were working on a sale figure for the Hill Road property of a little over $600,000. They proposed that two loans from the bank to the BBC Trust would be repaid from the sale proceeds (approximately $406,770), while a further $89,230 would be applied to reduce a loan owing by MARP to the bank. Most of the balance (approximately $104,000) would be used to make a lump sum payment of $90,000 to the Inland Revenue Department on account of Pram’s tax arrears.
[22] Mr Mansfield says that the accountants’ proposals were largely accepted by the bank. Subject to certain conditions, the bank agreed to the application of the net proceeds of sale of the Hill Road property as follows:
(1)first, in reduction of the BBC Trust and TCF Trust partnership indebtedness (the intention was said to be to reduce the partnership indebtedness to $156,000);
(2)secondly, to clear a temporary overdraft facility of $50,000 in the name of MARP;
(3) thirdly, to reduce Prams’ tax debt by approximately $90,000;
(4)the balance would be available to Pram for working capital or further debt reduction.
[23] In the meantime, the bank advised that it would make further funds available on various conditions. The bank’s letter went on to set out details of further facilities it would make available to the Pram/MARP group. One of those facilities was a new asset finance agreement in the sum of $388,000, to be advanced to MARP. The purpose of this facility was said to be to re-finance existing term loan facilities held by MARP.
[24] The Hill Road property was sold, with settlement on 22 October 2009. A solicitors’ settlement statement produced by Mr Mansfield shows that $90,000 from the proceeds was paid to the Inland Revenue Department, and that $3,701.91 was paid to Pram’s accountants in settlement or reduction of a debt owed to them. Mr Mansfield says that both of these payments were made for debts owed by Pram, and therefore created a debt owing by Pram to the BBC Trust.
[25] The balance from the sale of the Hill Road property ($505,103.19) was paid to the bank. If the bank’s requirements were being followed, this payment was presumably made to reduce the existing indebtedness of the two trusts, and to clear MARP’s $50,000 overdraft facility (in accordance with the bank’s requirements (1) and (2) referred to at para [22] of this judgment).
[26] However, Mr Mansfield’s position is that $388,000 was transferred from the proceeds of sale of the Hill Road property into MARP’s bank account. He produced a copy of a summary of bank statements for MARP for the year ended
31 March 2010, prepared by the group accountants, showing the receipt of that amount into MARP’s account. His contention is that the payment of the $388,000 was a loan made by the BBC Trust to MARP.
[27] Mr Mansfield says that MARP’s assets were transferred to Pram in about
2010, so that the business would be run solely by Pram and both entities could eventually be sold together. While it is not entirely clear from his evidence,
Mr Mansfield appears to be inviting the Court to infer that Pram also assumed
MARP’s liabilities, including the claimed debt owed by MARP to the BBC Trust.
[28] Addressing the September 2011 purchase of the property, and the shareholders’ resolution of 28 October 2011, Mr Mansfield says that the reference in the resolution to the money being advanced to the trustees of the TCF Trust was an error. He says that he has been unable to verify which Trust the property was in fact transferred into, one of the reasons for that being that his previous solicitor has said that he would be unable to provide Trust documentation before the date by which Mr Mansfield was required to file his statement of defence in this proceeding.
[29] While he is unclear on which of the two trusts received the $388,855.18, and which of them became the owner of the property, Mr Mansfield says that that does not matter, as the purchase of the property was made “using funds from the sale of the business which were owing to me”.
Pram’s arguments in reply
[30] In a reply affidavit, the Official Assignee at Wellington produced copies of
Pram’s financial statements for each of the years ended 31 March 2009,
31 March 2010 and 31 March 2011. No financial statements were prepared for Pram for the year ended 31 March 2012. While the statements show that there were shareholders’ current accounts in the names of both P S and R Mansfield (they owed Pram $172,273 as at 31 March 2011) and the BBC Trust (it owed Pram $91 at that date), the financial statements do not appear to show any substantial sums owing by Pram to either the TCF Trust or the BBC Trust as at 31 March 2011. Pram’s statement of financial position as at 31 March 2011 does show (as a current liability) advances from MARP of $124,886.
Plaintiffs’ applications for summary judgment – legal principles
[31] The principles to be applied in considering an application for summary judgment have been clearly established through decisions of the Court of Appeal
such as Pemberton v Chappell 1, Grant v NZMC Ltd 2 and Westpac Banking Corporation v M M Kembla New Zealand Ltd.3 The following broad principles are to be applied:
(a) The plaintiff must satisfy the Court that the defendant has no arguable defence to the claim brought against it. The issue is whether there is a real question to be tried.
(b)It is generally not possible to determine disputed issues of fact based on affidavit evidence alone, particularly when issues of credibility arise. Issues of law, even though they may be complex, can, however, be determined in an application for summary judgment.
(c) Although the Court should adopt a robust approach, summary judgment may be inappropriate where the ultimate determination turns on a judgment that can only properly be reached after a full hearing of all the evidence.
[32] In Pemberton v Chappell, the Court of Appeal held:4
Where the defence raises questions of fact upon which the outcome of the case may turn it will not often be right to enter summary judgment. There may however be cases in which the Court can be confident – that is to say satisfied – that the defendant’s statements as to matters of fact are baseless. The need to scrutinise affidavits, to see that they pass the threshold of credibility, is referred to in Eng Mee Yong v Letchumanan.
[33] In Eng Mee Yong, the Privy Council said:5
Although in the normal way it is not appropriate for a Judge to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically as raising a dispute of fact which calls for further investigation, every statement on an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements made by the same deponent, or inherently improbable in itself it may be.
1 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.
2 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA).
3 Westpac Banking Corporation v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).
4 Pemberton v Chappell, above n 1 at 4.
5 Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC).
[34] With those principles in mind I turn to consider the issues in this case.
Issues
[35] The following issues fall to be determined:
(1)Was the payment of $390,855.18 made by Pram to Mr Mansfield and Mr Bradnock on 2 November 2011 an advance to them in their capacities as trustees of the TCF Trust, or was it a payment made in satisfaction of advances earlier made by Mr Mansfield and Mr Bradnock in their capacities as trustees of the BBC Trust?
(2)If the payment was an advance (which Mr Mansfield has not repaid), so that Pram is entitled to summary judgment as claimed, what orders should be made in respect of Pram’s claim that it is entitled to be subrogated to Mr Mansfield’s rights as lien-holder over the property, and to have the property sold?
[36] The ultimate question on those issues will be whether Pram has satisfied the Court that Mr Mansfield has no arguable defence, and that there is no real issue to be tried.
Issue 1: Was the payment of $390,855.18 made by Pram to Mr Mansfield and Mr Bradnock on 2 November 2011 an advance to them in their capacities as trustees of the TCF Trust, or was it a payment made in satisfaction of advances earlier made by Mr Mansfield and Mr Bradnock in their capacities as trustees of the BBC Trust?
[37] I am satisfied that Mr Mansfield has no reasonably arguable defence on this issue.
[38] The starting point is that payment of a sum of money from one person to another prima facie imports an obligation to repay it (at least if the payment was not made by one close family member to another, or in one of a small number of other
circumstances where the law will presume, until the contrary is shown, that the payment was a gift).6
[39] While the overall onus of proof remains on Pram as plaintiff to demonstrate that Mr Mansfield has no defence, I consider it was incumbent on Mr Mansfield, as one of the recipients of the payment in this case, to put forward at least a plausible account of the circumstances surrounding the payment, sufficient to show that it is at least arguable that the payment was not made as a loan which would have to be repaid. In my view he has failed to put forward any such explanation.
[40] The shareholders’ resolution dated 28 October 2011, only three days before the purchase of the property was settled with funds made available from the proceeds of the sale of Pram’s business, quite clearly records that the payment was an advance to Mr Mansfield and Mr Bradnock, that it was for the purchase of the property, and that the property was “to be held in trust in accordance with the directions of the TCF Trust Deed”. This document was signed not only by Mr Mansfield, but also by Mr Bradnock and Ms Raewyn Mansfield. It is implausible that all three would have mistakenly described the payment as an advance if it were really the repayment of an earlier debt owed by Pram to the trustees of the BBC Trust.
[41] The claim that the payment was made in satisfaction (or partial satisfaction) of Pram’s claimed indebtedness to the BBC Trust is also inconsistent with Mr Mansfield’s April 2014 statutory declaration, in which he said that his sole liability was a claim by the Official Assignee in the sum of $390,000. If the payment by Pram had been a payment in satisfaction or partial satisfaction of debts owed by it, Mr Mansfield would presumably not have acknowledged Pram’s claim against him as a liability.
[42] The next point is that Pram’s allegation in its statement of claim that Mr Mansfield and Mr Bradnock purchased the property on trust for the beneficiaries of the TCF Trust (rather than for the BBC Trust) is admitted by Mr Mansfield in his
statement of defence.
6 Seldon v Davidson [1968] 1 WLR 1083 (CA).
[43] I accept Mr Mansfield’s evidence that a substantial part of the proceeds of sale of the Hill Road property in 2009 were applied in reduction of debts owed by the two trusts, or by Pram or MARP. To that extent, the BBC Trust may be said to have advanced funds to those entities. It appears that approximately $407,000 from the proceeds of sale of the Hill Road property may have been used to pay off debts owed to the bank by one or both of the trusts, with another $89,000 being used to reduce a debt owed by MARP to the bank. A further $90,000 was to be paid direct to the Inland Revenue Department in reduction of Pram’s tax debt.
[44] But there is nothing in any of those figures which could conceivably support the contention that a debt of approximately $390,000 became owing by Pram to the trustees of the BBC Trust. At most, it appears that $90,000 from the proceeds of sale of the Hill Road property was used to reduce Pram’s tax arrears, and $3,701.91 used to clear a debt owed to Pram’s chartered accountants. Apart from those figures, the settlement statement on the sale shows that the proceeds of sale were substantially paid to the bank (which received $505,103.19).
[45] The summary of bank statements showing that MARP received a payment of
$388,000 in the year ended 31 March 2010 does not help Mr Mansfield. The bank’s letter of 9 September 2009 shows that there was a “new asset finance agreement” entered into between the bank and MARP, which provided for an advance of that amount from the bank to MARP. There is nothing to show that that $388,000 received by MARP at about that time came from the proceeds of sale of the Hill Road property; it seems more likely that the payment was the advance referred to by the bank in its 9 September 2009 letter.
[46] To the extent that funds from the proceeds of the sale of the Hill Road property were received by or for the benefit of MARP (arguably creating an indebtedness from MARP to the trustees of the BBC Trust), that could not create any debt owed by Pram to the BBC Trust. The two companies are separate entities. And while Mr Mansfield says in his evidence that the assets of MARP were transferred to Pram in or about 2010, there is no evidence that MARP’s liabilities, including any indebtedness it may have had to the trustees of the BBC Trust, were ever assumed by Pram.
[47] Even if funds received by MARP from the proceeds of sale of the Hill Road property did find their way to Pram (the financial statements of Pram as at 31 March
2011 do show advances by MARP to Pram totalling $124,000), the existence of a debt owed by Pram to MARP is no evidence that there existed any debt owing by Pram to either Mr Mansfield personally or to the trustees of the BBC Trust.
[48] Mr Collins submitted that there is evidence that at least the $90,000 paid from the proceeds of sale of the Hill Road property must have represented an advance from the trustees of the BBC Trust to Pram, because the monies were used to reduced Pram’s liability to the Inland Revenue Department. There are two problems with that submission. First, if any such advance from the trustees of the BBC trust to Pram had been made and had not been repaid by 31 March 2011, one would have expected the advance to be shown in Pram’s financial statements as at that date. The financial statements do not appear to show any indebtedness from Pram to the trustees of the BBC Trust. But more fundamentally, the shareholder’s resolution of 28 October 2011 quite clearly shows that the payment was an advance by Pram, not the discharge or reduction of some existing liability.
[49] Finally, it is simply not plausible for Mr Mansfield to say that the property was or may have been registered to the trustees of the BBC Trust when it was acquired. The property would have represented a sizeable asset for either trust, and it is improbable that there would not have been some documentary evidence establishing which trust became the owner. It is equally improbable that Mr Mansfield could not have obtained evidence of that sort if he had made reasonable efforts to do so.
[50] Weighing all those factors, Pram has satisfied me that Mr Mansfield has no defence to the claim for $390,855.18 plus interest and costs. There will be judgment accordingly for that sum.
Issue 2: If the payment was an advance (which Mr Mansfield has not repaid and cannot repay), so that Pram is entitled to summary judgment as claimed, what orders should be made in respect of Pram’s claim that it is entitled to be subrogated to Mr Mansfield’s rights as lien-holder over the property, and to have the property sold?
[51] As noted above, Mr Mansfield did not take issue with this part of Pram’s application. The only matter raised by Mr Collins was that if the Court was minded to order a sale of the property, the execution of any sale order should be suspended for a period of eight weeks to enable Mr Mansfield and his family to make other arrangements (the property is a lifestyle block, occupied by Mr Mansfield and his family as their home, and there are also animals that will have to be relocated in event of a sale). Mr Kerr did not oppose the application for a suspension of the sale order.
[52] I accept that a trustee who incurs personal liability while acting within his or her powers is normally entitled to be indemnified out of the trust’s assets. That right of indemnity is protected by an equitable lien over the assets of the trust, at least in the absence of any disentitling conduct by the trustee.
[53] The right to indemnity has been acknowledged in equity, but it also has a statutory basis. Under s 38(2) of the Trustee Act 1956, a trustee may reimburse himself or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trust’s powers. In this case the relevant liability (Mr Mansfield’s debt to Pram) arises directly out of the acquisition of a substantial asset by the trustees of the TCF Trust which is still owned by that trust.
[54] The claim by Pram against Mr Mansfield is necessarily a claim against Mr Mansfield personally – as Heath J observed in OPC Managed Rehab Ltd (in liquidation) & Others v Ikiua & Others, one cannot separate personal liability as an individual from liability as a trustee. A creditor of the individual is left to sue the human being who acts as trustee, irrespective of the capacity in which the debt was
incurred.7 It is normally then for the defendant trustee to exercise his or her right of
indemnity out of the trust assets.
7 OPC Managed Rehab Ltd (in liquidation) & Others v Ikiua & Others [2010] 1 NZLR 400 (HC), at [111].
[55] However, in certain circumstances a creditor of a trustee is entitled to be subrogated to the trustee’s right to indemnity out of trust assets. As Heath J noted in OPC Managed Rehab Ltd, the purpose of the right of subrogation is to avoid any injustice caused by a beneficiary receiving assets, as a result of credit provided to the trustee that has not been repaid. The right of subrogation is protected through an equitable lien over trust assets, equity regarding the creditor’s claim as having
primacy over that of the beneficiary.8 The concept of subrogation in this situation
involves putting one person (the creditor) in the place of another (the trustee) to ensure that the right of indemnity from trust assets is exercised, so that the creditor’s debt can be paid. Subrogation arises through operation of law, rather than by agreement between the parties.9
[56] The liable trustee’s entitlement to indemnity out of trust assets, the existence of the equitable lien securing that entitlement, and the creditor’s right of subrogation, have been referred to in a number of other cases. For example, in Official Assignee v Menzies & Palmer, Associate Judge Bell said:10
Although the executor’s creditors to whom he has become indebted in the course of carrying on the [estate’s] business have no direct claim upon the [trust] assets, because they deal with [the executor/trustee] on the footing of his personal liability, yet in equity they may be subrogated to his right of indemnity of lien.
[57] Ordinarily, a creditor seeking to enforce a right of subrogation will bring a proceeding seeking a declaration of entitlement to subrogate and the existence of an equitable lien, with consequential relief directed to realisation of that interest to secure payment of the debt.11
[58] It has been suggested that the creditor must proceed to bankrupt the debtor trustee before the creditor can exercise the right of subrogation (by standing in the
trustee’s shoes and enforcing the trustee’s equitable lien against the trust’s assets).
8 At [119].
9 At [120].
10 Official Assignee v Menzies & Palmer HC Auckland CIV-2010-404-005457, 14 February 2011, at [47], citing Dixon J in Vacuum Oil Co Pty Ltd v Wiltshire (1945) 72 CLR 315 at 335-336. See also the judgment of Panckhurst J in Official Assignee v Smith & Ors [2013] NZHC 3217 at [29], where the learned Judge followed the decision of Associate Judge Bell in Official Assignee v Menzies & Palmer.
11 At [123].
For example Ford, in his article “Trading Trusts and Creditors’ Rights”, suggests that a creditor who seeks the benefit of a trustee’s right of indemnity against a beneficiary personally must first make the trustee bankrupt.12 Heath J cited that view in OPC Managed Rehab Ltd, noting that the need to adjudge a person bankrupt, or put a company into liquidation, is required because a creditor’s primary right is to sue the trustee personally. Only if the trustee were not to have sufficient assets to meet the debt would recourse to the trust fund be necessary, through the right of indemnity.13
[59] Mr Kerr submits that in the circumstances of this case it is not necessary to bankrupt Mr Mansfield before recourse is had to the assets of the TCF Trust. He relies principally on the judgment of O’Bryan J in Kerr v Wilson, where the learned Judge said:14
There appears to be no reason in principle why a creditor must pursue his common law rights to judgment before he will be allowed to be subrogated to the trustee’s indemnity against the estate. It is one thing to refuse him an order for administration as a matter of discretion if no more appears than the fact of the debt, but if he has demanded payment from his debtor and has failed to receive payment and the circumstances are such as to lead to the reasonable conclusion that a judgment, if obtained, would be fruitless, it would be a harsh and unnecessary rule that required him first to proceed to judgment.
[60] In this case, demand for repayment of the $390,855.18 was made on
15 January 2013. Mr Mansfield has failed or refused to comply with that demand. Further, there is evidence that, as at April 2014, Mr Mansfield’s total assets were only approximately $10,900. It is clear on the evidence that Mr Mansfield does not have sufficient assets to meet the debt.
[61] There is no serious argument about whether Mr Mansfield is entitled to indemnity out of the assets of the TCF Trust. He admits that at all material times he and Mr Bradnock were the trustees of the TCF Trust,15 and the Pram shareholders’ resolution dated 28 October 2011, signed by both Mr Mansfield and Mr Bradnock, recorded that the $390,855.18 from the sale of the drycleaning business was to be
advanced to Mr Mansfield and Mr Bradnock “for their purchase of [the property] to
12 HAJ Ford “Trading Trusts & Creditors’ Rights” (1982) 13 Melb UL Rev 1 at 19.
13 OPC Managed Rehab Ltd (in liquidation) & Ors v Ikuia & Ors, above n 7, at [121].
14 Kerr v Wilson [1942] VLR 177 at 183.
15 Statement of defence, para 6.
be held in trust in accordance with the directions of the TCF Trust Deed.” There is no suggestion that Mr Mansfield and Mr Bradnock were acting beyond their powers as trustees of the TCF Trust in borrowing the funds and applying them in the acquisition of the property, and the TCF Trust has acquired a substantial asset. In those circumstances I am satisfied that Mr Mansfield is entitled to indemnity out of the TCF Trust assets, whether in equity or under s 38 of the Trustee Act.
[62] In accordance with the authorities discussed above, that right of indemnity is protected by an equitable lien over the assets of the TCF Trust (which will rank behind the registered first mortgage given by the TCF Trust to Mortgage Holding Trust Company Ltd when it acquired the property).
[63] I also accept Mr Kerr’s argument that Pram must have a right to be subrogated to Mr Mansfield’s right of indemnity and equitable lien. There is evidence that Mr Mansfield does not have personal assets sufficient to satisfy the judgment, and in those circumstances the approach adopted by the Court in Kerr v Wilson seems appropriate. I see no need to require Pram to obtain an order adjudicating Mr Mansfield bankrupt before it is entitled to be subrogated to Mr Mansfield’s rights of indemnity and equitable lien.
[64] However, I am not satisfied there is enough evidence at this point to justify an order for sale of the property. Mr Mansfield’s right is to be indemnified out of the TCF Trust’s assets generally, and the equitable lien attaches to all assets. There is no evidence at this stage of the details or extent of the assets of the TCF Trust, and it may be inappropriate for the lien to be discharged solely out of the property.
Orders
[65] I make the following orders:
(1) Entering judgment for Pram against Mr Mansfield in the sum of
$390,855.18, together with interest on that sum at the rate of five per cent per annum under the Judicature Act 1987, running from
15 February 2013 (the date one month after demand was made for payment) to the date of this judgment.
(2)Declaring that Mr Mansfield has a right of indemnity out of the assets of the TCF Trust in respect of that judgment.
(3)Declaring that Mr Mansfield’s right to be indemnified out of the assets of the TCF Trust is secured by an equitable lien over the assets of the TCF Trust, that equitable lien being subject to the rights of Mortgage Holding Trust Company Ltd as holder of a first registered mortgage over the property.
(4)Subject to order (6) below, declaring that Pram is entitled to be subrogated to: (i) Mr Mansfield’s right of indemnity out of the assets of the TCF Trust; and (ii) Mr Mansfield’s rights under the equitable lien over the assets of the TCF Trust (which secures that right of indemnity).
(5)I award costs to Pram on a 2B basis, with disbursements as fixed by the registrar.
(6)Pram’s application for summary judgment on its claim for orders for sale of the property, and for an order that it is entitled to enforce Mr Mansfield’s equitable lien by selling the property, are dismissed. Those claims will need to go forward for trial in the ordinary way, with evidence provided of the extent of the TCF Trust’s assets, and of such other matters as may be relevant to the Court’s exercise of its discretion to make orders and give directions under r 11.22 of the High Court Rules.
(7)A case management conference is to be convened on the first practicable date after 24 March 2016, at which directions will be given for the determination of Pram’s claims for relief which have not been determined on the summary judgment application.
Associate Judge Smith
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