Application of principles
39To my mind the central question, given how the case has been put is whether Blackburn and Brecon and the choses in action sought to be asserted in the cross-claim are trust property. As I have said Mr Kidd has linked them for the purpose of his argument and having regard to the passages from Young referred to by Mr White, I think this is a necessary approach from Mr Harker-Mortlock's point of view.
40It is also important to remember that the bank has judgment for possession of Blackburn and Brecon. It does not have judgment on its action to recover the mortgage debt, or in its action on the guarantee, which given the company is in liquidation is likely to be the only money-action it ultimately pursues. Quite clearly, Mr Harker-Mortlock is entitled to the opportunity to defend the action on the guarantee and bring any available cross-claim in response to it, to him in his own right and interest.
41The liquidator's attitude, and the withdrawal of prayer 7A in Mr Harker-Mortlock's amended notice of motion, means there is no question of any defence or cross-claim being mounted for the company in its own right either by the liquidator or derivatively.
42I turn then to the question of whether the default judgment for possession should be set aside. I have decided that the explanation for Mr Harker-Mortlock's default, in reality the default of the company, is adequately, not perfectly, explained. I accept the argument of the bank, that through his previous solicitors Mr Harker-Mortlock should have known that the bank had commenced proceedings, and had served the company by the liquidator. After all a copy of the pleading after it was filed was forwarded to the previous solicitors. Assuming in Mr Harker-Mortlock's favour it was not passed on to him, the knowledge of his solicitor is constructive knowledge of him. Moreover, he resides at Blackburn. His affidavit says that he and his family have lived at Blackburn since 2007 and from November 2011 pursuant to the Residential Tenancy Agreement. This being so, the notice to occupier, served by delivery to his mail box at the homestead, not his post office box, should have come to his attention. He does not say that he was away, overseas or otherwise absent at any material time.
43As against these considerations the statement of claim was served upon the liquidator. I infer from Exhibit A that the liquidator, quite properly from his point of view, was not prepared to waste costs on defending proceedings brought by a secured creditor to realise its security: see s 471C Corporations Act 2001 (Cth). There was no evidence that the liquidator consulted or even contacted Mr Harker-Mortlock about the matter, nor was there any reason for him to do so. Mr Harker-Mortlock's evidence that the first time he became aware that an order for possession had been made in respect of Blackburn was when the sheriff delivered the notice of eviction on 25th July 2013 has not been challenged and I accept it. I infer that he was similarly unaware that an order had been made in respect of Brecon. Although the proceedings were served on him on 4th July 2013, I accept that he had received no actual notice of the application for default judgment on the claim for possession of Brecon.
44I accept that after 25th July 2013 he moved with proper expedition to assert his rights, instructing his current solicitors within a few days, who filed an appearance on 1st August 2013. On the same day they wrote to the bank's solicitors advising they were acting seeking further and better particulars and pointing out that the matter was "of some complexity". I infer that counsel was also instructed to advise in relation to the proper course to be followed. Apparently Mr Harker-Mortlock provided some boxes of papers with his instructions.
45Counsel also acted promptly as by the end of August a letter was written to the liquidator asking for their consent to a derivative action, and the motion to set aside the judgment was filed in the Registry on 6th September 2013, on which day a stay of the writs of execution were ordered. As I have said, on balance I am satisfied that the explanation for default is adequate.
46I turn then to the question whether Mr Harker-Mortlock has shown that he has an arguable case on the merits "that might reasonably bring about a different result". I am not satisfied that Mr Harker-Mortlock has discharged his onus in this regard. The edifice of his arguable case, as I have laboured rests upon the foundation that Blackburn, Brecon and the choses in action relevant to each mortgage are trust property. This foundation is sand, not rock, which cannot support the weight of the otherwise carefully and elaborately constructed argument.
47The argument that the land is trust property commences with the deed of settlement of the Harker-Mortlock Family Trust. The Settlor of the trust is Mary Dorothy Mortlock and the company is described as the trustee. The operative words of the creation of the trust are in the following terms:
It is agreed that in consideration of the premises the Settlor declares that the Trustee shall and the Trustee declares that it will henceforth stand possessed of the Trust Fund and of the income upon the trusts and with the powers and subject to the following provisions.
By clause 1 (r), "Trust Fund" means:
... the sum of $10 referred to in recital B and any additional property real or personal which may hereafter be vested in the Trustee upon the Trusts of this Deed and all investments and property into which such property may be converted or which by the exercise of any of the powers contained in this deed may accrue to otherwise become subject to the Trusts of this Deed.
48As I have already pointed out, and set out, the means by which Blackburn and Brecon, on Mr Harker-Mortlock's case, are said to be "vested in the trustee upon the trusts of this deed" are by way of the declarations of trust also made on 10th November 2008. I will not repeat the operative language of those declarations. It is set out above at [19]. What is plain from the language used is that the company declared that it holds, inter alia, Blackburn and Brecon, as the case may be, "in trust" for the entity described in the second schedule to the deed of declaration of trust. As I have pointed out that entity is the company itself; and not, the Harker-Mortlock Family Trust or its objects. I understand it to be clear law that a trust in that form is "of no effect".
49In DKLR Holdings Co (No 2) v Commissioner of Stamp Duties (NSW) (1980) 1NSWLR 510 at 519 Hope JA (Glass JA agreeing) at 519 said:
... an absolute owner in fee simple does not hold two estates, a legal estate and an equitable estate. He holds only the legal estate, with all the rights and incidents that attach to that estate. If he were to execute a declaration that he held the land in trust for himself absolutely, the declaration would be of no effect; it would give him no separate equitable rights; he would remain the legalowner with all the rights that a legal owner has. At least where co-extensive and commensurate legal and equitable interests are concerned, "... a man cannot be a trustee for himself.": Goodright v Wells (10a), per Lord Mansfield. "You cannot have a legal estate in trust for yourself.":Harmood v Oglander (11a), per Lord Eldon.
The result in DKLR Holdings was varied on appeal to the High Court of Australia, but this principle was not questioned: DKLR Holding Co (No 2) v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431 by Gibbs CJ at 442; at 463 by Aickin J at 473 - 474 by Brennan J (Aickin and Brennan JJ who formed the minority but the basic principle is not in doubt). In Rix v Mahony & Ors. (No 2) [2012] NSWCA 332 Meagher JA (Campbell and Barrett JJA agreeing) at [19] summed the principle up succinctly in the following couplet, referring to them as "fundamental and uncontroversial propositions":
(a)A person cannot declare himself to be a trustee for himself alone in a property he already owns; and
(b)If a person holds a legal estate absolutely, he does not hold separate and legal equitable estates.
50Once these "fundamental and uncontroversial propositions" are brought to mind, the whole edifice of Mr Harker-Mortlock's arguable case collapses, like the house built on sand: there is no trust of the real property; and accordingly there is no trust of the choses in action which are said to be appurtenant to the mortgages over it. For this reason I am not satisfied that Mr Harker-Mortlock has an arguable case in the relevant sense.
51Accordingly, it is not necessary for me to express a view about the bank's argument that, in any event, as the declaration of trust post-dated the acquisition of Blackburn and Brecon and the registration of the mortgages, it could have no effect upon them; or the effect upon that argument of the power conferred upon the trustee by clause 5 of the deed of settlement for backdating the distribution date.
52As I have decided that Blackburn and Brecon and the statutory choses in action are not trust property, the question whether or not, in the hands of the company, the choses in action would undermine the bank's title as mortgagee to possession does not arise because the principle discussed by Perram J in Mercedes Holdings at [105] - [111] is not engaged. Again this is simply because that property is not held on trust.
53Were I satisfied that Blackburn and Brecon were assets of the Harker-Mortlock Family Trust, I would have been satisfied that the argument based upon the statutory causes of action, in their various permutations, rise to a sufficient level to create a triable issue. I would have set aside the judgment and permitted Mr Harker-Mortlock to bring the action on the principles discussed by Perram J, if that were necessary, given the insolvency of the company.
54Having said that, on one view, it appears unnecessary that that should be done. The evidence establishes that after the company went into liquidation its occupancy of the office of trustee was determined and vacated: see cl 13, Deed of Settlement. The evidence establishes that JHM Pty Ltd was appointed new trustee by deed dated 29th October 2012. As I have said the deed of appointment was not registered under Part 23 Conveyancing Act 1919 (NSW) as required by s 6(1) Trustee Act. However, the deed of settlement itself, by clause 15, empowered Mr Harker-Mortlock to appoint a new trustee. That power was exercisable by notice in writing delivered to the trustee; registration of the deed is not a requirement. appointment under the instrument creating the trust is legally sufficient: s 6(13) Trustee Act; JD Heydon and MJ Leeming Jacobs' Law of Trusts in Australia (Lexis-Nexis Butterworths 7th Edition, 2006) at p 317 [1505]. As the choses in action were transferred to the new trustee upon appointment, unless the new trustee itself was insolvent or unwilling, of which there is no suggestion, it had standing to sue to vindicate the cause of action forming part of the assets of the trust as of right even for causes of action accruing to the trust prior to its appointment. It would have been appropriate, therefore, to grant leave substituting JHM Pty Ltd for Mr Harker-Mortlock as the cross claimant so far as choses in action vested in the trustee were concerned. But as I have said, these questions did not arise.
55It would not have been necessary to grant leave under s 471B of the Corporations Act to add the company as a cross-defendant for two reasons. First, as I have said, it was unnecessary to give Mr Harker-Mortlock leave to sue instead of the trustee; JMH Pty Ltd, on the evidence had been validly appointed. Secondly, as the company is no longer a trustee, it was not a necessary party; the new trustee had title to sue: Lewis v Condon at [85].
56Another view is that as Mr Harker-Mortlock advanced the "trust" argument to challenge that the bank's right to possession had arisen under the mortgage, the company was a necessary party because it is the registered proprietor and the "trust" is not registered or otherwise noted on the title. As the liquidator is unwilling the company may have been a necessary defendant if the "trust" argument had been good.
57It is not necessary for me decide this either way because I am not satisfied that the "trust" argument is arguable.
58Because of these findings, it will be appropriate for me to strike out the defence and cross-claim filed irregularly on the 22nd of October 2013. However, as I have remarked, obviously Mr Harker-Mortlock is entitled to defend the action on the guarantee against him and bring any cross-claim against the bank available to him on it and I will grant leave in respect of that when I pronounce my orders.