Application of Richard Albarran; Harb v Harb

(NSW) Conveyancing Act 1919 s 66G, s 66H LEGISLATION CITED : (NSW) Landlord and Tenant (Amendment) Act 1948 (NSW) Trustee Act 1925 s 63

Abbott v Pegler (1980) 1 BPR 9267 Cain v Cain [2007] NSWSC 623 Dixon v Roy (1991) 5 BPR 11,655 Goldberg v Goldberg [2000] NSW SC 399 CASES CITED : Hughes v Egger (No 2) [2005] NSW SC 323 Kater v Kater (No 2) [1962] NSWR 1245 MacDiarmid v MacDiarmid [1957] 74 WN (NSW) 170 Re Brockbank (deceased); Ward v Bates [1948] Ch 206 Wharton & Warwick v Masterman [1895] AC 186

TEXTS CITED : Cole, Law and Practice in Ejectment (1857) JD Heydon and MJ Leeming, Jacobs' Law of Trusts, 7th ed (2006) LexisNexis Butterworths

Richard Albarran (trustee) PARTIES : Geoffrey Mark Roberson (trustee) George Antonios Harb (plaintiff) Raymond Harb (defendant)

Mr P Folino-Gallo (trustee) COUNSEL : Mr G A Harb (in person) Mr R Harb (in person)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST

2010/151664 Application of Richard Albarran; George Antonios Harb v Raymond Harb JUDGMENT (ex tempore)

1 HIS HONOUR: The applicant Mr Richard Albarran is the trustee for sale appointed pursuant to (NSW) Conveyancing Act 1919, s 66G, by order made by Rein J on 23 June 2010 of a parcel of land situate at and known as xxx xxx Cedar Road, Prestons, being the land comprised in Folio Identifier 60/105XXXX, and seeks the advice of the Court pursuant to (NSW) Trustee Act 1925, s 63, as to whether he should complete a contract for the sale of the land between him as vendor and Borvac Pty Ltd as purchaser, in circumstances where the persons beneficially entitled, namely the plaintiff George Antonios Harb and the defendant Raymond Harb ("the Harbs") now unanimously request that he terminate the contract and refund the deposit. Notice of the application has been served on the Harbs, both of whom have appeared in person and made submissions.

2 The plaintiff George Antonios Harb in his own right as to one share, and in his capacity as executor of the Estate of his late son Joseph Georges Harb as to a second share, and his son the defendant Raymond Harb as to a third share were the registered proprietors of the property, and both are currently in occupation of the property.

3 The trustee was appointed on the application of George Harb, opposed by Raymond Harb, in circumstances where the property had been on the market for several years, the selling agent had secured an offer from a prospective purchaser and a contract for sale to Borvac had been executed by both the Harbs. Borvac subsequently requested that, in the draft contract, the time for completion be extended from 42 to 90 days, but Raymond Harb would not agree to this amendment, while George Harb wished to preserve the sale so that the interests of all parties - including the beneficiaries of the Estate of Joseph Harb - could be realised and distributed.

4 Raymond Harb's reasons for not wishing to proceed were unclear in the proceedings before Rein J, although there was some suggestion that he might wish to develop the property himself. His Honour accepted that the sale might otherwise be lost, and acceded to George Harb's application.

5 Thereafter, on 29 June 2010, the trustee obtained a valuation of the property from F R V Valuations & Consultancy, who attributed to the property a market value of $2.8 million and a forced sale value of $2.3 million. He also obtained opinions from two real estate agents - Curtis Field of Colliers Jardine, who thought that the offer of $3.2 million was at the high end of the range, and Peter McDonagh of McDonagh Blake, who expressed the view it was an appropriate price. On 5 July 2010, satisfied that the price of $3.2 million was a good one, the trustee exchanged contracts with Borvac, with a completion date of 5 October 2010.

6 On 27 July, the trustee lodged a request to become registered as proprietor, and a new Certificate of Title showing him as registered proprietor issued on 26 August 2010. On 2 September, the trustee caused to issue a lapsing notice in respect of a caveat lodged by the beneficiaries of the Estate of the late Joseph Harb. That caveat has since lapsed, although it appears that a further caveat AF 775151 by an as yet identified caveator, has subsequently been lodged and still affects the title.

7 On 19 August, George Harb requested the trustee in writing to terminate the contract. He asserted that the purchaser's signature not having been witnessed, it was not a binding contract. Some time after 26 August, the Harbs together requested in writing to the trustee that the trustee be withdrawn and the contract terminated. The Harbs have been advised to obtain independent legal advice as to the legal ramifications of such a course, but do not appear to have done so.

8 On 15 September, the trustee's solicitors sent a letter to the solicitors for Borvac, Lewarne & Goldsmith Solicitors, requesting that Borvac enter into a deed of mutual rescission and that the deposit be refunded. Borvac's solicitors replied, on 17 September, declining that request and advising that their client wished to proceed to completion on 5 October in accordance with the contract. On 20 September, Borvac's solicitors confirmed that settlement was booked for 5 October. On 21 September, they submitted the stamped draft transfer for execution. Lewarne & Goldsmith have apparently since foreshadowed that, if the contract is not completed on 5 October 2010, they will be instructed to issue a Notice to Complete and upon expiry of the Notice to apply for specific performance and alternatively damages for breach of contract.

9 The trustee considers that it is in the best interests of the trust that he proceed with the sale, for the reasons that; first, the sale is above market value; secondly, failure to complete is likely to result in legal action by the purchaser; and, thirdly, to the best of the trustee's knowledge, neither Raymond Harb nor George Harb have adequate liquid assets to fund any ensuing litigation and it is likely if the sale does not go ahead and damages are awarded the that property would need to be sold in any event. However, the trustee is concerned, first, that he is unable to reconcile the duties imposed by Conveyancing Act, ss 66G and 66H, with his general duties under the Trustee Act; secondly, that if the sale is terminated he will likely require indemnification from the trust for the costs incurred in defending proceedings for breach of contract; and, thirdly, that if the sale is completed, he apprehends that the Harbs may refuse to give vacant possession of the property. The trustee therefore wishes to be advised whether he should continue to treat the property as trust property vested in the trustee and proceed with the sale of the property notwithstanding the contrary wishes of the beneficiaries, or whether he should terminate the sale as requested by the Harbs, even though that course would probably result in losses being incurred by the trust.

10 As the trustee was appointed pursuant to Conveyancing Act, s 66G, it is pertinent to observe the s 66H relevantly provides as follows: So far as practicable trustees on the statutory trust for sale, or on the statutory trust for partition, shall consult the persons of the age of eighteen years or upwards and not subject to disability for the time being beneficially entitled to the income of the property until sale or partition, and shall, so far as consistent with the general interest of the trust, give effect to the wishes of such persons, or, in the case of dispute, of the majority (according to the value of their combined interests) of such persons, but a purchaser shall not be concerned to see that the provisions of this section have been complied with.

11 In Dixon v Roy (1991) 5 BPR 11,655, Young J, as his Honour then was, held that trustees for sale appointed under Conveyancing Act, s 66G, had all the ordinary duties and obligations of trustees, including to get the best price, to make appropriate inquiries and to take expert advice and to act on it if they consider that appropriate [see also Goldberg v Goldberg [2000] NSW SC 399 (Young CJ in Eq)].

12 The essential issue confronting the trustee, as he perceives it, is whether not only the requirements of s 66H, but more significantly the general law of trusts - which permits beneficiaries who are sui juris, absolutely entitled and unanimous to direct a trustee to depart from the strict terms of the trust [see Wharton & Warwick v Masterman [1895] AC 186] - has the consequence in this case that he should give effect to the unanimous request of the Harbs and, notwithstanding that the trust may incur liabilities as a result, terminate the contract.

13 First, the authorities favour the view that a trustee is not bound to follow the directions of beneficiaries to depart from the strict terms of the trust, at least unless he is the agent of as well as trustee for the beneficiaries [see Re Brockbank (deceased); Ward v Bates [1948] Ch 206; JD Heydon and MJ Leeming, Jacobs' Law of Trusts, 7th ed (2006) LexisNexis Butterworths, [1705]]. Thus, even if it were right to regard the Harbs as beneficial owners of the property after the s 66G order was made, this line of authority would suggest that the trustee - who plainly is not also agent for the beneficiaries but only trustee - would not be bound to follow their directions, although he might be entitled to do so.

14 Secondly, s 66H specifically provides for the circumstances in which the wishes of beneficiaries are to be given effect in the context of the statutory trust for sale and statutory trust for partition under s 66G. The requirement that it imposes is one to give effect to the wishes of the beneficiaries or the majority of them by value "so far as consistent with the general interests of the trust". Thus, if the wishes of the beneficiaries are inconsistent with the general interests of the trust, the trustee is not obliged to give effect to those wishes. In many cases under s 66G, at least a minority, if not a majority of the beneficial interest, will be opposed to a sale. This is because it is commonplace for s 66G to be engaged on behalf of a minority co-owner, in order to realise that co-owner's interest when the majority will not do so. There is therefore, nothing peculiar about a s 66G trustee conducting a sale contrary to the wishes of majority of the beneficiaries. That the beneficiaries are opposed unanimously, as opposed to by majority, to the sale, as in the present case, would only be relevant if the beneficiaries would unanimously direct (as opposed to permit) a departure from the strict terms of the trust were applicable - which, for the reasons I have already given, I do not think is the case.

15 Thirdly, an order under s 66G converts the entitlement of the beneficiaries from an interest in the property into an interest in the proceeds. Section 66G(7) provides as follows: Where property becomes subject to such statutory trust for sale: (a) in the case of joint tenancy, a sale under the trust shall not of itself effect a severance of that tenancy, (b) in any case land shall be deemed to be converted upon the appointment of trustees for sale unless the court otherwise directs.

16 One consequence of this is that, from the appointment of a trustee for sale pursuant to an order under s 66G, the beneficiary no longer has an interest in the reality but only in the proceeds of sale. A number of cases illustrate this proposition. First, in MacDiarmid v MacDiarmid [1957] 74 WN (NSW) 170, Brereton J said (at 171): It seems to me that the entire object of s 66G is to enable the whole fee simple to be dealt with by the trustee for sale subject only to encumbrances affecting the whole and I, therefore, lean strongly to the view that the position brought about by the making of a vesting order is the same as where a trustee appointed by will is therein directed to sell the testator's real estate. The beneficiary has no interest in the realty but only in the proceeds of sale. Accordingly, I construe s 66G(7)(b) as meaning that any proprietary rights the defendant may have had other than rights, if any, as a tenant under the (NSW) Landlord and Tenant (Amendment) Act 1948 were converted in a right to receive his share of the proceeds.

17 Next, in Abbott v Pegler (1980) 1 BPR 9267, Powell J made observations to similar effect, as follows: As to the first, it is, in my view, clear that, upon the trustees becoming registered as the proprietors of the subject land, they took title free from any estate, interest or right which might thitherto have entitled Mr Abbott to occupy or remain in possession of the land ... and the rights of Mr Abbott became, instead, a right to have the trustees execute the statutory trust and, if the property was sold, a right to receive his rightful share in the proceeds - indeed, the more correct view may be that, since the order itself operated as a conversion as from the date of the order ... Mr Abbott thereafter had no estate, interest or right to occupy or remain in possession of the subject land ... even though the title to the subject land did not vest in the trustees until registration of the order.

18 Then, in Hughes v Egger (No 2) [2005] NSWSC 323, the Court said (at [15]): At least from the time the order appointing trustees for sale under s 66G of the Conveyancing Act is registered, the land is vested in the trustees, and the rights of the parties are converted into a right to compel due performance of the trust and to share in the proceeds of sale in accordance with their beneficial interests.

19 These cases demonstrate that, after trustees have been appointed pursuant to s 66G for sale of the property, the rights of the beneficial owners of the property become a right to have the trust for sale performed and to share in the proceeds of sale in accordance with their beneficial interests. They no longer have a beneficial interest in the real property itself.

20 The trust upon which a s 66G trustee holds land is one to sell the land. The trustee is bound to give effect to that trust, unless removed by the Court. It may well be that, had the Harbs sought termination of the appointment of the trustee prior to his effecting a sale, the Court would have acceded to their application. However, a sale having been effected, the interests of a third party, namely the purchaser, Borvac, have now intervened. Borvac has itself incurred liabilities and expended funds - including on stamp duty in connection with its proposed purchase. As a result of the contract, Borvac is now the beneficial owner, and is a bona fide purchaser for value of the property. No basis upon which the trustee, as vendor, would be entitled to rescind or terminate the contract without Borvac's consent - which has been obtained - is apparent.

21 It was suggested that the trustee might be able to rescind the contract pursuant to Special Condition 17, which in the draft contract had provided for rescission by the vendor if it was restrained or prevented from completing by injunction or caveat, or if it were unable to obtain vacant possession by the completion date. However, while Special Condition 17 appeared in a version of the contract which had been signed before exchange, it was deleted from the contract prior to exchange at the request of the purchaser. It therefore does not form part of the contract between the parties, and does not provide a means by which the trustee can rescind the contract in accordance with its terms.

22 The suggestion, advanced at one stage in correspondence, that because the purchaser's signature of the contract was not attested by a witness the contract was not binding is, of course, not correct. The exchanged contracts are binding, regardless of whether or not the purchaser's or the vendor's signature has been witnessed.

23 Accordingly, there is no apparent basis for unilateral rescission or termination of the contract by the vendor and the purchaser has declined to consent to rescission. In those circumstances, any termination would be a wrongful breach of contract, and would expose the trustee to damages for breach of contract or a decree for specific performance. The trustee would be entitled - at least if the trustee had not acted unreasonably - to be indemnified in respect of such damages out of the trust property, but the Harbs are not prepared to offer the trustee a personal indemnity in respect of any liability that he might incur by terminating the contract. The trustee's indemnity might therefore be limited to resorting to the trust property - in which case the land would in any event have to be sold to realise the amount required to indemnify the trustee. Moreover, there seems little reason why the Court would not decree specific performance.

24 In those circumstances, it seems to me that the trustee is bound to complete the contract, there is no basis for the trustee to rescind it, and even if it were accepted that any loss to the trust estate would be incurred at the request of the beneficiaries, the absence of an indemnity would make the course a futile one in any event, because sale would be necessary to receive funds to indemnify the trustee.

25 In opposition to the sale, the Harbs have advanced a number of arguments.

26 The first was that the sale is said to be at an undervalue. I do not think that that proposition is supported by the evidence. All the evidence of current value, to which I have referred, suggests that the price is not only a fair but a good one, probably above market value. The Harbs tendered a valuation by J McArthur Pty Ltd, at $10,155,000, but it was obtained in November 2000 for the purpose of assessing compensation for compulsory acquisition, and the land has been adversely affected by the construction of the M7 freeway since then. It was suggested that the valuer had wrongly assumed that the property was zoned R2; however, the maps extracted by the valuer and included in the valuation indicate that that assumption is correct. There is no acceptable evidence to the contrary.

27 The next proposition or the next objection was that the property had not been properly marketed. It needs to be borne in mind that the trustee was appointed in circumstances where there was a known interested purchaser. The property had been on the market for years and the purpose of the appointment was to secure, if possible, or at least avoid losing, the pending sale. In those circumstances, I do not think it was incumbent on the trustee, once he had taken appropriate steps to satisfy himself as to price, to market the property yet again.

28 The third objection was that George Harb did not understand the consequences of the appointment of a trustee. However, George Harb was the plaintiff on whose application the trustee was appointed. If he has any complaint in this regard, his remedy must lie elsewhere than in respect of restraining or terminating the sale.

29 None of the objections raised, even if established, would provide a basis upon which, as against the purchaser, the trustee could rescind. Even if there were validity in any of those arguments, they would not justify termination of the contract. The Harbs' remedy would be, potentially an action potentially against the trustee for breach of trust.

30 In those circumstances, I am satisfied that the proper course for the trustee is to complete the current contract, and I will advise accordingly.

31 The trustee in its written submissions sought, in the event that the Court were of the view that the trustee would be justified in completing the sale, further orders to give effect thereto and, in particular, first, the appointment of a second trustee; secondly, an order for possession against Mr George Harb and Mr Raymond Harb; and, thirdly, that the matter be restored to the Registrar's list for further orders. Appointment of a second trustee is said to be required to allow for payment on settlement to be effected in accordance with Conveyancing Act, s 66B(2) - a view which accords with what was suggested by Young CJ in Eq, as his Honour then was, in Cain v Cain [2007] NSWSC 623, where only one trustee had been appointed for sale of property under s 66G. Judgment for possession is said to be necessary as vacant possession will be required upon completion, but George and Raymond Harb are in occupation of the property and the trustee is entitled to possession as against them [see MacDiarmid v MacDiarmid, 172 (Brereton J) citing Cole, Law and Practice in Ejectment (1857), 288; Kater v Kater (No 2) [1962] NSWR 1245 (Manning J) and Abbott v Pegler]. The further orders contemplated relate to the apportionment of the proceeds between the co-owners of the property, it having been foreshadowed on 23 June 2010 when the orders were made that there may be a claim for contribution in relation to improvements made by Mr Joseph Harb to the property. The trustee has invited submissions from those beneficially interested as to the distribution of the proceeds, and those claims may have to be dealt with by way of further directions in the absence of agreement between those beneficially interested.

32 Further, although not at this stage raised by the trustee, it may well prove necessary for the recently lodged caveat, to which I have referred, to be removed if settlement is to proceed. However, all these matters were raised for the first time in the trustee's written submissions. They are not included in the motion. They are not appropriate to be dealt with on an application for judicial advice. If pressed, as they may well have to be, they must be raised by motion on notice to the parties affected.

33 My orders are: 1. Advise that the applicant/trustee Richard Albarran would be justified in carrying to completion the contract dated 5 July 2010 for sale of the land situate at and known as xxx Cedar Road, Prestons in the state of New South Wales, being the land comprised in Folio Identifier 60/105XXXX.

2. Order that the costs of the application be paid out of the proceeds of sale.

3. Order that the exhibits be returned. **********

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