Collie v Merlaw Nominees Pty Ltd

Supreme Court of Victoria|2001-03-09|Before: Warren J

RECEIVER - appointment of receiver of trust assets - trustee in liquidation. LIQUIDATOR - whether liquidator would carry out the terms of the trust - whether liquidator should be the receiver. COSTS - costs sought on a solicitor client basis. INTEREST - statutory interest. MORTGAGE - mortgagee in possession of trust asset - whether creditor of trust can seek appointment of a receiver - notice to mortgagee in possession.

The matter returns for the making of those orders. The plaintiff seeks in essence orders in the nature of declaratory relief, the appointment of a receiver of the Prudent Trust, statutory interest on the order for judgment of Byrne J from 24 November 1999 onwards and costs on a solicitor client basis. The proposed orders are opposed by the second defendant who was represented on this occasion by Mr C. Harrison of counsel. It was urged for the second defendant that it was appropriate for declaratory orders to be made largely as proposed by the plaintiff but that otherwise there should be an order for judgment for the plaintiff without the appointment of a receiver. Whilst costs on a party/party basis were not consented to, no opposition was articulated by Mr Harrison on behalf of the second defendant.

The first defendant was represented by Mr R. Randall with Ms Bird of counsel. The position of the liquidator was that he was prepared to administer the Prudent Trust in accordance with the reasons for judgment of 28 February 2001 and, of course, with any final orders that may be made. Hence, it was said by Mr Randall that the appointment of a receiver so far as his client was concerned was considered unnecessary. Alternatively, it was urged for the liquidator that he was prepared to be appointed receiver of the Prudent Trust if in fact the court was disposed to appoint a receiver.

I turn to consider each of the three aspects of the orders urged for the plaintiff.

In the prayer for relief to the statement of claim the plaintiff always sought the appointment of a receiver of the Prudent Trust. Such appointment was urged by Mr G. Ritter QC who appeared with Mr M.D. Murphy for the plaintiff on the basis that it was relief consequential upon my reasons for judgment. The liquidator, in turn, urged that a receiver is an unnecessary appointment as he stands ready willing and able to carry out the orders reflective of my reasons. Mr Harrison urged on behalf of the second defendant that the appointment of a receiver is relief of last resort being of a drastic nature (see National Australia Bank Limited and Ors v Bond Brewing Holdings Limited [1991] VicRp 31; (1991) 1 VR 386). It was argued on behalf of the second defendant that there was no evidence before the court to support drastic relief in the nature of the appointment of a receiver. I was informed by Mr Harrison from the Bar table that orders were made on 15 December 2000 for judgment in possession for the Kew property against Mr Nolan in favour of the first mortgagee, MBF Investments Pty Ltd ("MBF") in Supreme Court proceeding No. 7348 of 2000 there being approximately $640,000 owing in support of that first mortgage. I was further informed that there is a debt owed to the Australia and New Zealand Banking Group Limited ("ANZ") in the order of $220,000 and other debts owed by the trust including a sum of approximately $200,000 to Terranol being connected or associated with the interests of Mr Nolan. In addition, Mr Harrison informed me that there was an amount owed by way of land tax and there was, also, the matter of the costs of the liquidator in the winding up of Merlaw. I was informed that the Kew property is valued at present in the order of $1.5-2 million. Hence it was said that it could be reasonably anticipated that the first mortgagee would sell the Kew property and pay out the mortgages and thereafter the liquidator could have available to him the funds to meet the trust creditors. None of these matters were deposed to on affidavit. I was further informed from the Bar table that Mr Nolan and his wife continue to occupy the Kew property notwithstanding the order for possession made on 15 December 2000.

On one view there are a number of compelling reasons why it is appropriate for the appointment of a receiver in this matter. First, at all times the defendants were aware that the plaintiff claimed consequential relief in the nature of the appointment of a receiver. Thus, during the course of the trial of the proceeding it was open to the defendants to lead evidence as to the matter of the appointment of a receiver, alternatively, at the very least from the time of the publication of my reasons on 28 February 2001 the defendants were on notice that any evidence concerning the appointment of a receiver ought properly be before the court. Both defendants have not availed themselves of the opportunity of putting evidence before the court. I find myself, therefore, restricted by the evidence at trial and the history of the present proceeding and the first proceeding before Byrne J. In the absence of other circumstances it might be said that the evidence at trial and the prevailing history support the appointment of a receiver.

A second factor supporting receivership is that , notwithstanding the orders made by Byrne J on 24 November 1999 and the primary judgment having been delivered on 22 December 1998, Mr Nolan in his capacity as trustee of the Prudent Trust has not taken any steps to comply with the orders for judgment of Byrne J. I have little confidence, therefore, that Mr Nolan will take any steps to comply with orders that I may make in the present proceeding. It was said on his behalf that he was unable to take any steps in relation to the Kew property in any event because of the injunction ordered previously by Beach J. I observe that no application was made or indeed foreshadowed to vary or dissolve the injunction ordered by Beach J to enable the Kew property to be sold to meet trust creditors. It might be said that if Mr Nolan ever had the intention of fulfilling his obligations as trustee in relation to trust creditors he has not demonstrated any preparedness to do so for relevant purposes.

A third matter to be argued in favour of receivership is the past conduct of the liquidator and his future role. Mr Rambaldi was not ready willing and able to carry out the terms of the Prudent Trust. So much was demonstrated by the fact that he did not bring the present proceeding on behalf of the trust. Rather, the plaintiff, Mr Collie, had to resort to self help because of the inability of the liquidator to pursue the matter. Notwithstanding that the present position of the liquidator is that he would comply with the reasons for judgment and any consequential orders I have limited confidence in the overall circumstances of this matter that the liquidator would be able to do so. That is not to say that I am critical of the liquidator personally. Rather, it is a reflection of the difficulties that prevail in this matter and, in particular, the ongoing dispute between the Nolan interests and the Collie interests.

A fifth matter can be argued in support of receivership is the fact that arising from my published reasons I have found that there is an indemnity subrogated to Mr Collie and on the basis of that subrogation it is appropriate that a receiver be appointed.

I considered on another occasion the principles to be applied for the appointment of a receiver to a trust: see Yunghanns v Candoora No. 19 Pty Ltd[1]. Suffice to say for present purposes, a court may appoint a receiver over trust assets where it is necessary for the wellbeing of the trust: see Attorney-General v Schonfield[2].

Furthermore, s.37(1) of the Supreme Court Act 1986 (Vic) empowers the court to appoint a receiver when it is "just and convenient to do so".

A court will appoint a receiver as a means of enforcing a judgment, sometimes called a "receiver by way of equitable execution"[3]. In Re Shepherd[4] Cotton LJ defined this type of receivership as "a taking out of the way a hindrance which prevents execution at common law". In this matter I apprehend that the plaintiff fears that a number of circumstances will lead to the hindrance of his benefiting from the fruits of the judgment. These circumstances include the fact that a mortgagee is in possession of the Kew property, that Mr Nolan and his wife continue to reside there, that ANZ has a second mortgage over the property, that the liquidator of Merlaw was not ready, willing and able to commence these proceedings and that the liquidator has had ongoing difficulties in the winding up of Merlaw. It seems that primarily because Merlaw and Mr Nolan have both failed to satisfy the judgment ordered by Byrne J on 24 November 1999, Mr Collie fears the judgment in the present proceeding will likewise remain unsatisfied.

The difficulty I apprehend in the present matter is that there are said to be a first and second mortgage over the Kew property held by MBF and ANZ respectively. MBF has obtained possession. As a general proposition, if a prior mortgagee is in possession a court will not appoint a receiver on the application of a subsequent mortgagee or other creditor: see Berney v Sewell[5]. Where possession has not been entered by a prior mortgagee then clearly a court has a discretion to appoint a receiver of a subsequent mortgagee or creditor without prejudice to the rights of that prior mortgagee: see Bryan v Cormick[6]. However, that is not the case here.

In light of the authorities in order for a court to appoint a receiver where a prior mortgagee has possession it is necessary for the court to be satisfied of at least two matters. First, that the prior mortgagee has notice of the application by the subsequent mortgagee or creditor for the appointment of a receiver of the property.[7] There is no evidence before me that the mortgagee in possession, MBF, has notice of the application by Mr Collie for the appointment of a receiver over the trust assets including the Kew property of which MBF is the mortgagee in possession. Second, that the court is satisfied that nothing remains due to the prior mortgagee or, alternatively, that the mortgagee has no objection to the appointment of a receiver.[8] Evidence of such fact would usually be in affidavit form. No evidence at all is before the court on this aspect. There is a further general principle. Once an affidavit is sworn by a prior mortgagee as to a definite sum remaining outstanding under the mortgage by which possession was obtained the court will not try the matter on affidavit: see Rowe v Wood[9].

It seems to me, therefore, that whilst much sympathy might lie with the plaintiff in the present proceeding it is inappropriate indeed premature for the appointment of a receiver at this time in the absence of notice to MBF and evidence of the position of the first mortgage. It should be added that in the event that evidence could be put before the court that MBF has conducted itself in such a way as to make it impossible for an assessment to be made as to whether any moneys are due to it under the first mortgage or not the situation might be different. Further, if evidence could be put before the court as to improper conduct on the part of MBF with respect to its role as mortgagee in possession the circumstances may change. However, that is not the position at this point in time. The position remains that the relief is sought by the plaintiff in the nature of the appointment of a receiver where part of the trust assets, the Kew property, is subject to a prior mortgagee's interest and who has entered possession. That mortgagee seemingly has no notice of the present matter. It is apparent from these reasons that it would be entirely inappropriate at this point to accede to the request of the plaintiff.

It follows that as matters stand at this point I refuse to exercise the discretion to appoint a receiver. Before leaving the subject it is appropriate to refer to the frequently stated principle expressed by the Appeal Division of this court in Bond at 539:

"The appointment of a receiver is one of the oldest remedies of the Court of Chancery, and a very useful remedy it is. But its very efficiency means that a corresponding caution must attend its employment. Where a receiver is sought to protect property of which no-one is in actual possession, no-one will be ousted by the appointment and probably no great harm will be done. But where the subject matter is in the defendant's hands he may suffer an irreparable wrong by being dispossessed and of course this danger will weigh with a judge from whom the remedy is sought. The appointment of a receiver which is to be, so to speak, at the expense of the defendant's possession and without his consent is a step never to be taken without proper consideration of the defendant's position."

Extending that principle to the present matter it would be entirely inappropriate to order the appointment of a receiver without notice to MBF or, indeed, any party that may be affected by the appointment of a receiver.

The plaintiff seeks a declaration so that the plaintiff has subrogated to him the entitlement for statutory interest from the date of the judgment of Byrne J on 24 November 1999 in the first proceeding. It was urged that at most bank interest only should be ordered. In my view there is no reason in this matter why the plaintiff should not have the benefit of statutory interest in the ordinary course running from the date of the order for judgment by Byrne J. Furthermore, for the reasons expressed in my published reasons the former trustee, Merlaw, is entitled to be reimbursed out of the trust property in respect of all charges and expenses and that right of reimbursement and indemnity is a first charge or lien on the trust property. I do not consider it appropriate for me to interfere with the judgment and orders of Byrne J or their effect. Statutory interest follows as a consequence of the orders of Byrne J. Furthermore, there was no reason or evidence put before the court to deviate in any way from the usual principle that a plaintiff is entitled to statutory interest on the judgment. Accordingly, I will make appropriate declarations with respect to the payment of statutory interest.

The plaintiff sought costs on a solicitor client basis on the ground that he was compelled to come to court to contest all issues and lead evidence on all matters much of which ought properly have been admitted. In essence, it was said that the second defendant denied virtually all allegations but ultimately at trial there was little or no challenge to those matters. It was said that the conduct and attitude of the second defendant demonstrated an inappropriate attitude and caused the plaintiff to be put to unnecessary proofs.

In the circumstances of this matter I consider it is inappropriate to order costs on a solicitor client basis. The second defendant had much at stake; he was entitled to contest the plaintiff's claim with the utmost vigour. Furthermore, the matter involved complex issues of fact and law. I do not consider there was any aspect of the manner of the conduct of the case of the second defendant such as to warrant the costs sought. Accordingly the application for solicitor client costs is refused.

[2] (1980) 1 WLR 1182; also, Jacob's Law of Trusts in Australia (6th ed.) [2306]; Ford and Lee, The Principles of the Law of Trust (2nd ed.) [1739]; Picarda, H. The Law Relating to Receivers, Managers and Administrators (2nd ed.), 284.

[4] (1889) 43 Ch D 131, 135-136; see also Fry LJ at 138.

[6] (1788) 1 Cox Eq Cas 422; also Picarda at 299.

[8] Chambers v Goldwin (1804) 5 Ves 837; Quarrell v Beckford (1807) 13 Ves 377, 378; Rowe v Wood, supra at 557; also Hiles v Moore [1852] EngR 268; (1852) 15 Beav 175.

At a glance

Court

Decision date

Before

Source

Judgment (28 paragraphs)

Parties

Cases Cited (1)