Commonwealth Bank of Australia v Iinvest Pty Ltd

Judgment 1The plaintiff bank obtained default judgment for possession of two properties of which the first defendant Iinvest Pty Ltd (in liquidation) is the registered proprietor. The properties are rural properties which may be referred to for the purpose of these reasons as Blackburn and Brecon. It is not necessary to otherwise distinguish between them for this decision, except for one aspect dealt with later. The Bank is the registered first mortgagee of each property. Iinvest was placed into liquidation by court order on 12th October 2012. Prior to the commencement of the winding up, the second defendant Mr Harker-Mortlock controlled the company as its sole shareholder and sole director. A writ of execution has been issued in respect of each property but has been stayed until further order of the Court. 2In its statement of claim filed on the 19th April 2013, the bank claimed to be entitled to possession under an express term of the mortgage conferring a right of possession in the event of any default under either mortgage by the company. It averred default under the terms of three loan agreements by dint of the company going into liquidation and its failure to pay the amount for which it was indebted under each loan when due. 3The company's indebtedness to the bank was guaranteed by Mr Harker-Mortlock by Deed of Guarantee dated 20th January 2006 extended on 9th May 2007 and 9th October 2007. When the Statement of Claim was issued, the total indebtedness of the company to the bank, and by Mr. Harker-Mortlock under the guarantee, was said to be $3,376,001.91. The precise amount is not in issue for present purpose.

The applications 4Two motions are before me for decision. The bank, by amended notice of motion filed in court, is seeking summary judgment for possession of Blackburn and Brecon against the second defendant. This action is necessary from the bank's point of view because Mr Harker-Mortlock purports to occupy Blackburn under a residential tenancy agreement granted by the company for a term of five years commencing on 1st November 2011. Brecon is not subject to that lease, and I assume the relief sought extends to that property for completeness only. The bank also seeks orders striking out a defence and a cross-claim filed by Mr Harker-Mortlock irregularly on 22nd October 2013. Mr Harker-Mortlock has no objection to the amended Notice of Motion being dealt with. 5By his amended notice of motion, also filed in Court, Mr Harker-Mortlock seeks the following relief: (1)A stay of the writs of possession until determination of these applications. That has been agreed to and orders made; (2)The setting aside of the default judgment; (3)Leave nunc pro tunc to file and serve the defence and cross claim irregularly filed on 22nd October 2013; (4)Leave to join JHM Pty Ltd, a company said to be the new trustee of the Harker-Mortlock Family Trust as a second cross-claimant; (5)Leave to join the company in its capacity as the former trustee of the Harker-Mortlock Family Trust as a defendant to the cross-claim. 6A further prayer in the amended motion for leave to bring a derivative action on behalf of the company in its corporate capacity under the Court's inherent jurisdiction or alternatively s 477(6) Corporations Act 2001 (Cth) was abandoned (3.20 and 5.15 - .20T). 7Mr Kidd SC who appeared for Mr Harker-Mortlock explained that leave to bring the "derivative action" was not pressed because of the attitude of the liquidator. By letter dated 1st November 2011, tendered as Exhibit A, Morgan Kelly, an official liquidator with Ferrier Hodgson, informed the Court that he did not consent to the bringing of the cross claim for cogent reasons fully set out in the letter. As that prayer is not pressed, I need not concern myself further with it.

The evidence for each party 8Mr Kidd read an affidavit of his instructing solicitor, Anthony Ginsburg, sworn on 6th September 2013, and of his client, sworn on 21st October 2013. There was no objection to either affidavit. 9Mr White of Counsel who appeared for the Bank read an affidavit of Nicholas Chemuel, a bank officer sworn on 4th December 2013. He also read three affidavits of service proving service of the Statement of Claim on the company by post to the offices of the liquidator and delivery by hand of a notice to occupier attaching the Statement of Claim to the letterbox of each of Blackburn and Brecon on 16th May 2013. Finally, he read an affidavit of his instructing solicitor sworn on 16th September 2013, deposing to service of the Statement of Claim on Mr Harker-Mortlock, with the latter's agreement, by email and post to a post office box on 4th July 2013. 10Mr Kidd objected to letters at pages 20 to 24 and 39 to 44 as excluded by s 131 Evidence Act 1995 (NSW) as evidence of settlement negotiations. Some of the letters were marked "without prejudice" and the bundle represents correspondence passing between the bank's solicitors and Mr Harker-Mortlock's previous solicitors. Generally speaking, the correspondence falls within s 131(1)(a). 11As I understand the argument, Mr White relies upon s 131(2)(g). By way of explanation for his failure to file a defence, Mr Harker-Mortlock reads paragraphs 6 to 17 of his affidavit which explain that he was first served with the Statement of Claim on 4th July 2013. For what it may be worth, the correspondence in question shows that there was a long process of negotiation between the parties in an attempt to obtain agreement as to conditions by which possession would be surrendered to the bank, and the terms upon which Mr Harker-Mortlock could continue to occupy the properties pending sale. 12During this exchange a sealed copy of the Statement of Claim was forwarded to Mr Harker-Mortlock's previous solicitor asking whether he had instructions to accept service. The point sought to be made by Mr White is that although he has not challenged Mr Harker-Mortlock's affidavit by cross-examination, the evidence contained in the paragraphs to which I have referred could mislead the Court, unless qualified by evidence of the previous communications. I accept Mr White's argument and admit the correspondence over Mr Kidd's objection. 13I observe that the correspondence does not advance things markedly given the attitude of the liquidator as evinced by Exhibit "A", that is to say the liquidator did not regard it as prudent to defend the bank's proceedings on behalf of the company when it was served.

Uncontroversial facts 14It is necessary to set out some of the background, essentially uncontroversial facts established by the evidence. Prior to going into liquidation on 29th October 2012, the company under the guidance of Mr Harker-Mortlock had been involved in a variety of business ventures over several decades. From about 2005, Mr Harker-Mortlock decided to diversify into pastoral activities. To further this a property known as Yulgilbar was purchased on 24th February 2006. By then Mr Harker-Mortlock had already signed the Deed of Guarantee on 20th January 2006, which was extended on 9th May and 9th October 2007, although in his proposed defence, Mr Harker-Mortlock says the extensions were not supported by consideration and were not effective to vary or extend the guarantee. 15Expanding its pastoral pursuits, the company acquired Brecon on 7th May 2007. The purchase was financed by a loan from the bank of $1,314,000, the bank taking a registered first mortgage. The expansion continued with the company acquiring Blackburn on 17th October 2007, using another loan from the bank in the sum of $1,924,000, also secured by a registered first mortgage. 16In late January 2008, the company experienced cash flow difficulties, which Mr Harker-Mortlock expected to be short term. The origin of the problem was what the company regarded as the unlawful termination of a contract in the United Kingdom. To meet the company's needs for ongoing working capital, Mr Harker-Mortlock obtained an unsecured credit facility in the sum of $200,000 from the bank. The liquidity issue did not prove susceptible to early resolution and the bank pressed Mr Harker-Mortlock to come up with a plan for solving the problem, and reducing, doubtless, the bank's exposure. 17The allegations made by Mr Harker-Mortlock about the bank's conduct in this regard form the basis of the defence, and cross-claim, he wishes to prosecute in his own name on behalf of the company.

The case for Blackburn and Brecon being held on trust 18Before dealing with the facts said to underpin the defence and cross-claim, I need to provide some detail about the creation of The Harker-Mortlock Family Trust to complete the relevant chronology. The trust was established by Deed of Settlement executed on 10th November 2008, as is apparent, about 13 months after the acquisition of Blackburn . On the same day, by separate deeds, the company purported to make a declaration of trust in respect of each property. These declarations are set out as an attachment to the affidavit of Mr Ginsburg at page 59 and 61 of the court documents. They each take the written form of an indenture made between the company, described as the first party, and the Harker-Mortlock Family Trust, described as the second party. The recitals refer to the purchase of Brecon and Blackburn respectively by "the trustee". The trustee is not otherwise described, but by reference to circumstances that must have been known both to the company and the Harker-Mortlock Family Trust at the time of the declaration, including the execution of the deed of settlement, the trustee, by a process of interpretation, must be a reference to the company. It was the company who bought each of the properties referred to in the various recitals. Recital (C), in each case, goes on to state that the deposit and purchase monies were provided "by the entity described in schedule 2 hereto solely". Curiously, the entity described in schedule 2 is the company. 19The operative part of each deed is in the following terms: NOW WITNESS that the trustee hereby declares that it holds and will hold the benefit of the said agreement and the property the subject thereof and all monies paid or to be paid by the said entity described in the said schedule in relation to the said agreement in trust for the said entity absolutely AND at the request and cost of the said entity will make and execute all such instruments and applications and do all such things as may be necessary for the purpose of procuring the benefit of the said agreement and the property the subject thereof and the monies paid or to be paid as aforesaid to be transferred to the said entity or otherwise dealt with at such times and in such manner as the said entity shall direct or appoint. Clearly, this declaration by the ordinary meaning of its express language is to the effect that the company holds the property on trust for the company, not for the Harker-Mortlock Family Trust, or any of the potential discretionary objects of that trust. Rectification of the declarations of trust is not a remedy sought in the proposed cross-claim. There is no evidence read before me suggesting the existence of pleadable facts to support that remedy. 20Returning to the chronology, as I have said Mr Harker-Mortlock took a lease of Blackburn on 1st November 2011 for a term of 5 years in the standard form of a residential tenancy agreement issued by New South Wales Fair Trading. The lease was not registered under the Real Property Act 1900 (NSW). There is no evidence of any lease of Brecon. 21When the company went into liquidation on 29th October 2012, it vacated the office of trustee of the Harker-Mortlock Family Trust by dint of clause 13 of the Deed. Mr Harker-Mortlock is the person described as "parent" in the Deed and had the power to appoint a replacement by Clause 15. He exercised this power by separate deed executed on 29th October 2012, appointing another company, JHM Pty Ltd, as the new trustee. 22I will return to the question of whether Blackburn and Brecon are trust property, but it is obvious that no transfer has been executed and registered under the Real Property Act 1900 (RPA) nor has "an entry of the vesting" been made by the Registrar General: s 9(3) Trustee Act 1925 (NSW); see affidavit of Mr Ginsburg at [9].

Mr Harker-Mortlock's case 23The case that Mr Harker-Mortlock wishes to bring, both in defence to the bank's claims for possession, if allowed in to defend, and by way of cross-claim, relates to alleged breaches of ss 12DA and 12DB of Part 2 Division 2 Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) involving false of misleading conduct. Alternatively, unconscionable conduct within the meaning of either s 12CC or s 12CB of the same legislation is relied on. His case is, in part based on s 12CC(1)(b) ASIC Act, that he suffered severe financial loss and damage by the bank, in connection with the supply of financial services, engaging in conduct which required the company as trustee of Harker-Mortlock Family Trust to comply with conditions in relation to the loans that were not reasonably necessary for the protection of the bank's legitimate interests. Moreover, it is said that the Bank failed to comply with the requirements the Code of Banking Practice (the code) which was applicable either by force of s 12CC(1)(g) and (3) or by incorporation in the terms and conditions of the loan agreement in relation to each of the three facilities. 24The remedies sought include not only damages under s 12GF of the ASIC Act, but also, importantly for present purposes, relief under s 12GM of that Act declaring that the bank is not entitled to take possession of the real property or otherwise enforce the security in respect of the real property together with an injunction restraining the taking of such action. 25I understand it to be an important part of the case that the acts of default by the company relied upon by the bank as a foundation of its action for possession were brought about by the bank's breaches of its own obligations under the federal legislation and under the code: Ruthol Pty Ltd v Tricon (Australia) Pty Ltd [2005] NSWCA 443 at [19] - [25] by Giles JA (Santow JA and Hunt AJA agreeing). 26The remedies sought under s 12GM are important because they seek to undermine the bank's title to sue for possession: Horrobin v Australia & New Zealand Banking Group Ltd (1996) 40 NSWLR 89 at 100 per Sheller JA; and to that extent the remedy sought seeks to outflank the general principles underlying the decision of the High Court of Australia in Inglis v Commonwealth Trading Bank of Australia (1971) 126 CLR 161 at 165-167, 169, so far as there is scope for their application in the present context: see Australia and New Zealand Banking Group Limited v Comer (1993) 5 BPR 11,748; BC9302012 at 12 - 13 per Young J (as his Honour then was). 27The facts underpinning Mr Harker-Mortlock's claim are set out in his affidavit commencing at [46] to [148] covering 18 pages. He estimates the gross losses involved at $4.6m. It is appropriate at this interlocutory stage, in circumstances where they are not challenged by cross-examination to assume that they will be made good at a final hearing. The conclusions Mr Harker-Mortlock wishes to be drawn from those facts have been summarised succinctly in Mr Kidd's written submissions of 8th November 2013 at [20] (page 3 - 5). My summary draws upon his: (a)The bank's claimed entitlement for possession is based on rights to possession contained in mortgages over Blackburn and Brecon given by Iinvest to the bank being rights said to have been enlivened by Iinvest's default in paying the full amount owing under certain loan facilities. I would add and by the company's default in going into liquidation; (b)The code was incorporated as terms of the loan facilities. Clause 2.2 of the code imposed a contractual obligation on CBA to "act fairly and reasonably towards the borrower in a consistent and ethical manner". The code was also relevant to the statutory causes of action, as I have said. (c)The loan facilities were financial services within the meaning of Part 2 Division 2 of the ASIC Act. (d)CBA breached the obligation in clause 2.2 of the Code in ways set out in paragraph 104 of the Cross Claim and contravened the sections of the ASIC Act I have referred to above by, in broad terms, engaging in unconscionable conduct, and misleading and deceptive conduct, by doing or omitting to do the matters set out in the Cross-Claim in more detail, but including: (i)Falsely representing that the company was in default with the loan facilities; (ii)Falsely representing that the bank had the power to direct that the company sell of its livestock and property; (iii)Refusing to give reasonable consideration to the company's plan of action to sell off part of the land and limited livestock to enable the temporary overdraft facility to be repaid without preventing the pastoral business from continuing to operate; (iv)Insisting that the company sell off all its livestock and thereby preventing the pastoral operations from continuing to operate; (v)Refusing to give reasonable consideration to requests that some of the proceeds from asset sales be applied to the acquisition of stock so that the pastoral business could be recommenced; (vi)Falsely representing from July 2008 to July 2009 that farm debt mediation under the Farm Debt Mediation Act 1994 was not available; (e) By reason of the breaches and contraventions alleged, the company, and Mr Harker-Mortlock, suffered losses, and the company became unable to repay the facilities when they became repayable in 2012; (f)Mr Harker-Mortlock's claims that the event of default relied upon by the bank was caused by the bank's breach of clause 2.2 of the Code and therefore the entitlement to possession was not enlivened; (g)The company's claims "go to the root of", or "impeached the title of", the bank's claim for the mortgage debt and therefore for possession, such as the company is entitled to an equitable set-off of its entitlements against the bank's claim for the mortgage debt: see Fisher and Lightwoods Law of Mortgage (2nd Australian Edition) at [19.24]. The facts material to this case are very fully set out and particularised in the first cross-claim and no complaint was made by the Bank about the adequacy of the pleading.

General principles applicable to this application 28The principles which inform the exercise of the Court's discretionary power to set aside a default judgment are set out in Magnate Projects Pty Ltd v Youma Constructions (No. 2) Pty Ltd [2005] NSWCA 331 at [48] to [52]. I hope no injustice is done to Hodgson JA's analysis if I summarise the principles by saying generally what is required is an adequate explanation for the failure of a party to appear and the demonstration of "an arguable case on the merits". An arguable case is one "that might reasonably bring about a different result". At [52] Hodgson JA said: In my opinion, an applicant seeking to set aside a judgment obtained after an undefended hearing does not have to show that a different result is likely should the judgment be set aside and a new trial ordered. However, the circumstances may be such, as Jordan CJ says, as to require "a reasonably clear case of merits to be shown"; that is, that it appear reasonably clearly that there is a defence capable of producing a different result. If that defence depends on facts, then there should be some evidence of those facts; and the circumstances may be relevant to the quality of the evidence that is required to show a defence on the merits in particular cases. Among such circumstances could be the degree of the applicant's default, and hardship to the respondent. 29As the default judgment is for possession entered at the suit of a registered first mortgagee, it should be borne in mind that in proper cases the Court readily grants summary judgment for possession. This approach, in my view, is influenced by the general rule expressed by Walsh J in Inglis, which itself is underpinned by the Court's reluctance "to deprive the mortgagee of the benefit of his security" (Inglis at [164] - [165]); 30However the relevance of the general rule may depend upon where in the continuum of enforcement, commencing with the mortgagor's default and ending with the execution of a writ of possession, the question of the application of the general rule arises for consideration. As Young J said in Comer at p. 13: Whatever be the scope and rationale of the rule, it seems to me absolutely impossible to import that rule of equity or of the statutory injunction into a purely common law case such as the present where a bank is suing for possession of land. In such a case, there is no room for any principle, no matter what it is, that a person who disputes the amount of a debt to a bank has to pay into court the admitted balance before the Court will listen to his defence (cf Goater v Commonwealth Bank of Australia [2014] NSWCA 265 at [70] - [78]). 31As Sheller JA pointed out in Horribin at (page 100), by reference to Inglis, the existence of a cross-claim even if it exceeds the amount of the mortgage debt will not by itself defeat a right to possession. His Honour pointed out, however, that a claim based on unconscionability may go to the right of the bank to enforce any right under the mortgage, giving rise to a triable issue about that, making summary judgment inappropriate. 32There is an obvious cross-over between the Court's approach to an arguable case for the purpose of setting aside a default judgment and the existence of a triable issue for the purpose of refusing summary judgment. The principles governing the latter are well known. They were summarised by Macfarlan JA in a similar context in O'Brien v Bank of Western Australia Limited [2013] NSWCA 71 [3]; see also Ward JA at [66] - [68]. As Macfarlan JA and Ward JA both point out, the real issue is whether there is an underlying defence that has a real, not fanciful, prospect of success. This is distinct from the question of whether such a defence is actually pleaded. An applicant for summary judgment is required to demonstrate that the outcome of the litigation is so certain that it would be an abuse of the process of the Court to require the action to proceed to a full hearing on the merits. A court satisfied that there is a sufficiently arguable case to set aside a default judgment is unlikely, at the same time, to conclude that the outcome of the litigation is sufficiently certain to justify summary judgment. The only real distinction in practice is as to the party who bears the onus, which however remains on the party seeking the relevant relief. 33The complexity in the present case is born of the contention of Mr Harker-Mortlock that the real property vested in the company as trustee for the Harker-Mortlock Family Trust. The rule, to which there are exceptions, is that the trustee's legal right must be vindicated by the trustee and not by a beneficiary. Here the trustee is in liquidation and the Liquidator is not prepared to challenge the rights of a secured creditor. Nor does he consent to Mr Harker-Mortlock bringing an action in the company's name. As I have said already this is why Mr Harker-Morlock eschews any application for leave to bring a derivative action on behalf of the company, as a company. 34Among the recognised exceptions to the rule mentioned in the preceding paragraph, a beneficiary may be permitted bring a claim involving rights of property of the trust in his own name if the trustee is insolvent: Ramage v Wacklaw (1988) 12 NSWLR 84; Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432. The relevant principles are expounded by Perram J in Mercedes Holdings Pty Ltd & Ors v Waters (No.2) [2010] FCA 472; 78 ACSR 118 at [105] - [111]. On the basis of Ramage and Lamru, his Honour accepted "that the principle extends to common law rights vested in a trustee". His Honour rejected an argument that the rule in Foss v Harbottle (1843) 2 HARE 461 limiting the ability of a shareholder to bring a derivative action on behalf of a company which may have the effect of reducing the company's capital had application to the question of whether a beneficiary could sue on behalf of the trust. At [111] his Honour said: No such necessity arises in the case of a trust. Because a trust does not have a separate legal personality about which creditors need be concerned and because it is the trustee who at all times remains liable, the removal of "capital" from a trust does not affect the position of creditors as against the trustee. This is particularly so because the trustee's liability to creditors is not limited to his own entitlement to indemnity out of the trust assets (citation omitted). A non-consenting trustee is a necessary defendant. 35If, Blackburn and Brecon are assets of the Harker-Mortlock Family Trust, a question arises about whether JMH Pty Ltd, the new trustee, is able to bring the proposed cross-claim instead of the company: see Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; 74 NSWLR 550 at [52] - [54] by Brereton J; Lewis v Condon [2013] NSWCA 204 at [85] - [86]. There is no evidence that the Deed of Appointment of JMH Pty Ltd has been registered, as is necessary if the Trustee Act governs the appointment in this case. Registration would at least have vested in it the right to call for the transfer of the title of Blackburn and Brecon to it and, if necessary to sue for its recovery: s 9(7) Trustee Act. 36An important, indeed central, question is whether the choses in action to sue under the statute for unconscionability, or deceptive and misleading conduct, and Blackburn and Brecon are trust property. I have connected these separate parcels of rights because it seems to me as the alleged choses in action relate to the administration by the bank of the loans and mortgages charged upon the real property categorising the choses in action as trust property will depend upon whether the land is trust property. Mr Kidd took this approach (see [38] below). 37Except to the extent to which Mr Harker-Mortlock wishes to defend and claim in his own right as a guarantor, only JMH Pty Ltd, and not the company is a necessary party to the proposed cross-claim. As the company vacated the trusteeship by going into liquidation, and no derivative action is sought to be brought referable to its status as a company, it is not a necessary party at all. As Leeming JA said in Lewis v Condon at [85] "a new trustee holds office from the time of appointment, not from the time title to trust property is transferred". Under Trustee Act the transfer of property occurs on registration of the Deed of Appointment or later in accordance with s 9(3) in the case of land. As I say below at [54], however, it is legally sufficient for the appointment of a new trustee to be done in accordance with the deed of settlement which need not require appointment by registered deed. 38I accept that the question of whether the choses in action are trust property may be nuanced, as Mr White argued by reference to Young v Murphy; Swinbank v Murphy [1996] 1 VR 279 at 291 by Brooking J; and 317 by Phillips J. I do not think it necessary to consider that decision further. Mr Kidd made it clear (at 25.40 - .50T) the land and choses in action, for the purpose of his case, run together. He argued "when the real estate was made trust property, the mortgages and any charges attached to or affecting the real estate went with it". As I have said the case is that the choses in action arise out of the administration of the mortgages and loans by the bank.

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.

The bank's application 59The bank has judgment for possession of Blackburn and Brecon against the company and has caused writs of execution to be issued to enforce those judgements. The writs are currently stayed. It now seeks summary judgment against the second defendant, who remains in occupation, at least of Blackburn pursuant to his lease. Subject to that, in my judgment it is unnecessary to make any further order: the bank is entitled to possession and can enforce its rights. 60The lease of Blackburn, as I have said, commenced on 1st November 2011 and terminates on 31st October 2016. The rent is a very nominal $10 per week. This lease was entered into years after the company granted the bank the mortgage. Moreover, the lease was entered into without the consent of the mortgagee in breach of clause 11A of the mortgage (bank's Exhibit NC-1 page 91). I am satisfied from the unchallenged evidence of Mr Chemuel (page 4 [23] - [24]), that no request for any consent to the lease was made by the company and that the first the bank knew of the residential tenancy agreement was when it was provided to the bank's lawyers by Mr Harker-Mortlock's previous lawyers under cover of the latter's letter dated 21st February 2013. The residential tenancy agreement is unstamped and unregistered under the RPA. In my judgment the bank is not bound by the lease. 61Section 53(4) RPA provides: A lease of land which is subject to a mortgage, charge or covenant charge is not valid or binding on the mortgagee, chargee or covenant chargee unless the mortgagee, chargee or covenant chargee has consented to the lease before it is registered. 62 To my mind this brings Torrens Title Land into line with the general law and a tenant of the mortgagor claiming under a lease made after the mortgage without the privity of the mortgagee has no right to prevent the mortgagee from exercising its right to possession: ELG Tyler, PW Young and C Croft, Fisher and Lightwood's Law of Mortgage (Lexis-Nexis Butterworths, 2nd Edition, 2005) at [12.16]. In Perpetual Finance Corp Ltd v Blain (1996) 9 BPR 16, 243; BC9605176 at p7 - 8, Giles CJ Comm D (as his Honour then was) said that s 53(4) invalidates as against a mortgagee a lease to which he has not consented prior to its registration. It also applies to a lease which need not be registered because of 42(1)(d) RPA and a fortiori to a lease that should have been, but was not registered. As I have said the mortgage to the bank provided that the company would not lease the property without the previous consent in writing of the bank, which was neither sought nor given. 63For these reasons, it is beyond argument that the residential tenancy agreement is ineffective as against the bank; any contrary argument is completely untenable. Without more, the bank would be entitled to summary judgment for possession against Mr Harker-Mortlock. 64But there is more, Mr White drew my attention to the provisions of the Residential Tenancies Act 2010 (NSW), which appeared to apply to this lease. By virtue of s 6 the Act applies to residential tenancy agreements in respect of residential premises. S 3 defines "residential premises" in sufficient breadth to catch Blackburn. The lease itself purports to be in the standard terms prescribed pursuant to s 15 of the Act and prima facie is a residential tenancy agreement under s 13. Mr Kidd did not seek to argue otherwise. Sections 81, 122, 124 and 125 potentially apply to Mr Harker-Mortlock's lease: see O'Neill v Commonwealth Bank of Australia [2013] NSWSC 836 at [20] - [29] by Slattery J. 65Notwithstanding the agreed term by dint of s 81(4) the residential tenancy agreement terminated when the bank became entitled to the possession of the premises to the exclusion of the tenant. That occurred when default judgment for possession was entered. But other provisions may serve to protect the position of the tenant. 66Section 122 intersects with s 7A Sheriff Act 2005 (NSW) (see O'Neil at [25] - [26]). Under s 7A Sheriff Act a sheriff's officer executing a writ for possession of land must give the occupier "not less than 30 days' notice to deliver up possession of the land". When that occurs as it did in this case according to Mr Harker-Mortlock's affidavit on 25th July 2013, s 122 Residential Tenancies Act was engaged. The tenant is relieved from paying rent during the period of notice, and if paid in advance, may recoup it. 67Section 124 Residential Tenancies Act required this Court, prior to giving judgment for possession to satisfy itself whether or not anyone was in possession of the premises under a residential tenancy agreement, and if so, whether that person had reasonable notice of the proceedings. Failure to comply, however, does not invalidate the judgment: s 124(3). 68Section 124 dovetails with rule 6.8 Uniform Civil Procedure Rules 2005 (NSW) requiring the occupier of land, the subject of proceedings for possession of land to be served with the originating process and notice to occupier. The two affidavits of Kris Sabatino sworn on 19th May 2013 and read as part of the evidence in this case satisfy me that rule 6.8 was complied with in this case in respect of each property. Moreover, the affidavit of Nicolas Chemuel sworn on 14th June 2013 in support of the application for default judgment reiterated the circumstance of service on the occupiers. I am satisfied that this compliance with rule 6.8, in turn satisfied the requirements of s 124. 69Notice needed only to be reasonable. It is not necessary that the bank ensured that any occupier of the premises had actual notice. Objectively viewed, I am satisfied from the circumstances set out in [42] above that Mr Harker-Mortlock had reasonable notice whether or not the proceedings were actually brought to his attention before 4th July 2013. In any event, compliance with s 124 was not an essential pre-condition of the validity of the judgment of this Court in favour of the bank. 70In passing I should note s 125 of the Residential Tenancies Act. It permits the Court, or in some circumstances the Civil Administrative Tribunal New South Wales, to "make an order vesting a tenancy over the residential premises" in the tenant, notwithstanding the commencement of proceedings for the recovery of possession, by, inter alia, a mortgagee. No such application had been made by Mr Harker-Mortlock and I need not consider the effect of the section further. I record, however, that under Clause 22 Residential Tenancies Regulation 2010 the time for making an application "is within 30 days after the applicant was given notice of proceedings for the recovery of possession of the residential premises". That time had long since passed on any view of the facts when the matter was heard before me. 71For these reasons I make the following orders: (1)The application to set aside default judgment for possession entered on 3rd July 2013 is refused. (2)The stay ordered on 8th November 2013 of the writ of possession issued on 18th July 2013 in respect of land comprised in folio identifier 2/1166883 situated at and known as 1380 Cooks Hill Road, Yass, New South Wales is dissolved. (3)The stay ordered on 8th November 2013 of the writ of possession issued on 25th July 2013 in respect of land comprised in folio identifier 1/1105157 situated at and known as 1205 Cooks Hill Road, Yass, New South Wales is dissolved. (4)Notwithstanding the provisions of s 7A of (4) Sheriff Act 2005, the sheriff at Goulburn is to give the occupier of the land referred to in orders (2) and (3) thirty days' notice to deliver up possession before executing the writs. (5)The plaintiff is to inform the sheriff of orders (2), (3) and (4) by notice in writing forthwith. (6)James Harker-Mortlock, second defendant, is to give possession to the Commonwealth Bank of Australia, the plaintiff, the whole of the land comprised in folio 2/1166883 situated at and known as 1380 Cooks Hill Road, Yass, New South Wales. (7)Strike out the cross-claim filed irregularly on 22nd October 2013. (8)The second defendant to have leave to re-plead a cross-claim in respect of any claim available to him in his own right and interest within 28 days of today's date. (9)Strike out the defence filed irregularly on 22nd October 2013. (10)The second defendant to have leave to re-plead any defence available to him in his own right and interest within 28 days of today's date. (11)The second defendant to pay the plaintiff's costs of the applications on the ordinary basis after they have been agreed or assessed. (12)The amended notices of motion filed in Court on 8th November 2013 are otherwise dismissed. (13)List the proceedings for directions before the Common Law Case Management Registrar at 9:00 a.m. Monday 13th October 2014.

Amendments 17 October 2014 - Penultimate line delete the word "no" Amended paragraphs: 34 17 October 2014 - Penultimate line delete the word "available" Amended paragraphs: 40 17 October 2014 - Beginning of third sentence the word "Whilst" deleted Amended paragraphs: 42 17 October 2014 - 1st April should be amended to 1st August Amended paragraphs: 44 17 October 2014 - The word "An" at the beginning of the seventh sentence should be deleted Amended paragraphs: 54 17 October 2014 - The words "under the mortgage" should be substituted for the words "under them". Amended paragraphs: 56 17 October 2014 - "Mr Kidd" should be substituted for Mr White Amended paragraphs: 64 17 October 2014 - Clause "11A" should be substituted for Clause "A11" Amended paragraphs: 60 17 October 2014 - Fourth line from the bottom the "as of right" should be substituted for "as a right" Amended paragraphs: 55 17 October 2014 - The word "were" should be deleted and the word "who" should be substituted Amended paragraphs: 49 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 October 2014