Comlin Holdings Pty Ltd v Metlej Developments Pty Ltd [2018] NSWCA 329 | Case summary | Zoe

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Comlin Holdings Pty Ltd v Metlej Developments Pty Ltd [2018] NSWCA 329 | Case summary | Zoe

Judgment

BASTEN JA: There is an appeal pending in this Court brought from a judgment of Parker J in the Equity Division, delivered on 28 May 2018. The plaintiff in the proceedings below now appeals from the dismissal of its claim.
The four respondents have each sought security for their costs of the appeal. Arrangements have been made which were acceptable to the third and fourth respondents. On 12 November 2018 I ordered that the appeal be stayed pending the provision of security for the costs of the first and second respondents in an amount of $85,000 by way of a caveatable interest over one of the properties in the ownership of Mrs Betty Bassil. [1] The respondents now seek to vary the orders made on 12 November on the basis that they cannot accept the security proffered.
Counsel for the appellant has raised three procedural objections to the Court dealing with this application. First, he referred to the decision of this Court in Katter v Melhem [2] in which Campbell AJA dealt with the effect of reserving liberty to apply. What Campbell AJA said in that regard applied to liberty to apply granted with respect to final orders of a court. [3] The propositions articulated in Katter do not relate to orders which are interlocutory. There is no doubt that the Court can vary an interlocutory order, if it deems it appropriate, and can do so on an exercise of liberty to apply. It is not necessary to require that there be a notice of motion seeking a variation. If such a motion were required then it is proffered by counsel for the respondents and if it were necessary I would give leave for it to be filed in Court; however, it is not necessary because the basis of the objection is without substance.
The argument that the order for security is not open to variation in this Court in the absence of a notice of motion is therefore rejected. The order was made and accepted by the respondents in absence of full knowledge that the property was subject to a trust. I will come back to that matter shortly.
Secondly, counsel for the appellant suggested that the respondents knew the facts as to the holding of the property at the time the property was proffered through the affidavit of Mrs Bassil of 2 November 2017. The evidence of the respondent's solicitor, Mr Sachs, is that he did not know that that was the case, but the appellant submitted that that was irrelevant. The appellant relied upon the fact that such knowledge was available through the principal of one of the respondents, who was the executor and trustee of the will of the late Mr Metlej. However, had the existence of the trust been revealed by the appellant it is clear that a different order was possible. The matter must be dealt with on the basis of the facts as they are now known.
Thirdly, counsel for the appellant claimed that the basis of the objection to the proffered caveat has not been explained, yet he argued that there was no breach of trust in the trustee seeking to charge the property. He referred the Court to s 82 of the Real Property Act 1900 (NSW), s 38 of the Trustee Act 1925 (NSW) and the powers of management conferred by the testamentary trusts.
As will be explained below, the issues were adequately raised by the emails of 15 and 16 November from the solicitor for the respondents to the solicitor for the appellant. In any event, the trustee from whom the appellant obtained the proffered security was obliged to be acquainted with the terms of the trust and the identity of the trust property. It may therefore be assumed that that information was available to the legal representatives for the appellant.
The order made on 12 November was made on the basis of an affidavit of Mrs Bassil, who is the wife of the sole director and secretary of the appellant, Antonios Bassil. Mrs Bassil gave evidence that she was the owner of three identified properties.
On 23 November 2018, Mr Peter McKell, the solicitor for the appellant, swore an affidavit, noting that on 12 November he had prepared a caveat to be registered on the title of one of the three properties identified by Mrs Bassil in her 2 November affidavit. Mr McKell stated that the first and second respondents had refused to accept any caveat in respect of those properties on the grounds that the appellant itself is not a known beneficiary of the trust referred to in the will of the late Youssef Wadih Metlej. Mr McKell then noted that the respondents were aware the appellant was not the registered proprietor of the properties of Betty Bassil when the Court made the order on 12 November 2018.
The latter statement was true, but whether it involved a rejection of the basis on which the respondents refused to accept the caveat is less clear. Mrs Bassil's affidavit annexed a title search which disclosed the identity of the registered proprietor of the property; however, it is not in accordance with the Real Property Act, or established practice in the Registrar General's office, to record details of any trust to which a property may be subject in the hands of a trustee.
The circumstances relied upon by the respondents are set out in an affidavit of Mr David Sachs, solicitor for the respondents, sworn on 21 November 2018. The late Mr Metlej died on 24 December 2012. Pursuant to a will dated 8 November 2012 he left the whole of his real estate to be divided into five testamentary trusts, the trustees of which were his offspring, including his daughter Betty Bassil. The inventory of property prepared for probate purposes (and said to be owned solely by the deceased) included the properties over which Mrs Bassil offered to provide a caveat to secure the appellant's costs in these proceedings. It may be inferred from the fact that the property was registered solely in her name in 2014 that the transfer to her was subject to the testamentary trust created by the will. It has not been suggested otherwise in these proceedings.
The beneficiaries of each trust were the offspring of the testator and their issue, who are identified as those offspring other than the trustee. However the trustee, in this case Betty Bassil, and her issue, are also beneficiaries of the testamentary trust of which she is a trustee as a result of her being identified as the principal; namely as the nominated trustee.
The appellant was not the beneficiary of any of the testamentary trusts. Indeed, the appellant was controlled by the spouse of Betty Bassil, the spouse being an "excluded person" who was not entitled to benefit from the trusts that were created under the will.
Both parties referred to the purposes in cl 2 of the will. That clause requires the trustee to administer the trust "for the benefit of the beneficiaries in such manner as the trustee in their absolute discretion sees fit". Counsel for the appellant placed emphasis on the words "in their absolute discretion", but one cannot ignore the self-evident constraint that the trustee must act only for the benefit of the beneficiaries.
For the purposes of this application it would be wrong to make any finding as to whether or not the offer of the caveat would have constituted a breach of trust. The fact that there are doubts as to its enforceability is sufficient because that provides a reasonable basis for the respondent to reject its offer now that the full facts are established.
The doubts arise in the following way. In addition to the provisions relating to the purposes and the identity of the beneficiaries, the will provided that the property in question formed part of the capital of the trust. The terms of the trust required that it be held for the beneficiaries until the distribution date (a defined term), unless paid to or set aside for one or more of the principals before that date, which has not yet arrived. It may be that the trustee has power to raise the money required to exercise a power under the trust by selling or charging any part of the trust property pursuant to s 38 of the Trustee Act or otherwise. However, it was not explained by the appellant how the trustee (Mrs Bassil) had power to charge the property for the benefit of a third party not being a beneficiary.
Mr Sachs wrote to the appellant's solicitor on 15 November 2018 questioning the power of Mrs Bassil to use the property as security for the costs of the respondents in the appeal. Mr McKell responded the following day, asking Mr Sachs to "advise on which provisions you rely as Mrs Bassil is and was not otherwise aware of any restrictions preventing the granting of a caveat and has previously granted a mortgage over one of her properties." The same day Mr Sachs responded identifying the problems which have been noted already. There was no response either to Mr Sachs directly or in Mr McKell's affidavit filed in this Court on 26 November 2018, having been sworn on 23 November.
Although it is true that the person standing behind one of the respondents was the executor of the testator's will, it is troubling that the legal representatives for the appellant proceeded to offer as security for their client's possible liability in costs a property owned by a third party which was the subject of a trust. It is troubling that Mrs Bassil's affidavit of 2 November 2018 did not identify the fact that she was the registered owner of the property as trustee of a testamentary trust created by her father. It is hard to believe that she did not know that fact if she had fulfilled her core duties as a trustee, and did not know the terms of the trust, including the identity of the beneficiaries and the identity of the trust property. It is possible that she misled Mr McKell. It is also possible that he did not inquire.
In any event it is now apparent that the property proffered by the appellant as a possible source of security for the respondents' costs of the appeal is not acceptable as security. I repeat that the point is not whether the offer involved a breach of trust, the point is that such a claim was arguable. Full disclosure might have invited inquiry as to whether the consent of all beneficiaries was feasible. It is too late to explore such possibilities now.
Although no other offer of security has been provided, the appellant should have one further opportunity to provide security, and in the amount fixed by the order of 12 November 2018, either by a deposit of cash with the Registrar of the Court or the deposit of a bank guarantee with the Registrar.
The appellant should have until 29 January 2019 to comply with that direction, failing which the appeal will be dismissed as against the first and second respondents. I do not propose to increase the quantum of the security, but the appellant must pay the costs of the proceedings today with respect to the security for costs issue, such costs to be payable forthwith.
Accordingly I make the following orders with respect to security for costs: 1. Subject to order 2, the appeal against the first and second respondents shall be dismissed on 29 January 2019. 2. Order 1 shall not take effect if on or before 29 January 2019 the appellant has lodged with the registrar of the Court the sum of $85,000 or a bank guarantee in that amount by way of security for the costs of the first and second respondents to the appeal. 3. The appellant shall pay the costs of today's proceedings with respect to security for costs, such costs to be payable forthwith.
Counsel for the appellant objects to the order for costs being payable forthwith on the basis that it was only acknowledged by the respondents that a variation of the order made on 12 November was required in proceedings before the registrar on 26 November. It is clear that a variation of the order was required in accordance with the position taken by the respondents. I am not impressed by the proposition that anything said before the Registrar had any consequence in that regard. Order (3) is not varied.