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[2015] WASC 411
General information, not legal advice.
Supreme Court of WA
2015-11-05
Mitchell J
Original judgment source is linked above.
1 In these proceedings, the plaintiffs seek relief in relation to the drawdown by the Water Corporation of a $3 million Banker's Undertaking. The undertaking secured the performance of obligations of Neil Duckworth under agreements for the construction of water headworks for a subdivisional development. The headworks have never been constructed, and the plaintiffs claim to be entitled to enforce a contractual provision for repayment as assignees of Mr Duckworth's trustee in bankruptcy.
2 The Water Corporation challenges the plaintiffs' standing to enforce any rights which Mr Duckworth had under the agreements. First, it says that the rights were held by Mr Duckworth as trustee, and so never vested in Mr Duckworth's trustee in bankruptcy so as to be available for assignment by the trustee in bankruptcy. Secondly, the Water Corporation says that, even if the rights were held by Mr Duckworth in his personal capacity, they could not be assigned by the trustee in Bankruptcy without the Water Corporation's consent, which was never obtained.
3 I ordered that these questions relating to the plaintiffs' standing to enforce the alleged rights be tried as preliminary issues.
4 I have concluded that, at the time of his bankruptcy, Neil Duckworth held the claimed rights under the agreements on trust. Those rights did not vest in, and so could not have been assigned to the plaintiffs by, Mr Duckworth's trustee in bankruptcy.
6 There was no dispute as to the primary facts in these proceedings, which were recited in a statement of agreed facts filed by the parties. The following summarises the effect of the agreed statement and attached documents.
7 The plaintiffs are the children of Neil James Duckworth and the beneficiaries under the Ocean Farms Trust which Neil Duckworth established. The defendant is a corporation established by the Water Corporation Act 1995 (WA).
8 In 2002, Neil James Duckworth purchased 487 hectares of undeveloped land at Ocean Farm Drive in Nilgen (Property).
9 Mr Duckworth signed an offer to purchase the Property on 7 October 2002. There was nothing in the offer document to indicate that Neil Duckworth was purchasing the Property as trustee.
10 However, on the same day, Neil Duckworth signed a Declaration of Trust under which he declared that he held the Property on trust for the plaintiffs and his wife, Frances Duckworth. By that declaration, he undertook to transfer and deal with the Property on behalf of the plaintiffs and Frances Duckworth as beneficiaries.
11 The offer to purchase the Property was accepted by the vendor on 9 October 2002.
12 Neil Duckworth was registered as proprietor of the Property on 16 June 2004. There is nothing on the certificate of title to show that Neil Duckworth held his interest as trustee.
13 In 2004, a Deed of Variation of the trust was executed by Neil and Frances Duckworth. The trust was named the Ocean Farms Trust, and provision was made for Neil Duckworth, as trustee, to develop the Property so that it may be subdivided. The Deed provided that the Trustee was entitled to be indemnified out of the trust assets for all costs he incurred in relation to the purchase and development of the Property.
14 On 3 March 2006, Neil Duckworth and the Water Corporation entered into a Customer Constructed Works Agreement (CCWA) for the construction of water supply infrastructure for the Property.
15 Mr Duckworth was described in the CCWA as 'Neil James Duckworth (ABN 63 280 319 286)', and designated the 'Customer'. That Australian Business Number was registered in Neil Duckworth's name on 1 July 2003. Another ABN, 53 192 922 904, had been registered in the name of 'The Trustee for Ocean Farms Trust' on the same date. The CCWA was executed by Neil Duckworth as an 'authorised person' holding the position of 'Director (owner)'.
16 The CCWA recited the fact that the Western Australian Planning Commission had approved the subdivision of the Property. A subdivision condition required certification from a licensed water service provider that arrangements had been made so that connection to an adequate water service would be available to the subdivided lots.
17 Clause 2.1 of the CCWA required the Customer to undertake the design and construction of works (Works) specified as:
two bores and transfer pump station at existing Seaview Park Scheme and approx. 9500m of DN 200 supply Main and 1.5ML storage tank at Ocean Farms.
18 The construction of the Works was to be completed by 30 May 2007. The works would vest in the Water Corporation at a date of takeover provided for by cl 2.7 of the CCWA. The CCWA provided for the Water Corporation to reimburse the Customer for up to 51% of the cost of the Works as single residential equivalent developments occurred in an area adjacent to the Property.
19 A 'special condition' to the CCWA was expressed in the following terms:
20 The CCWA contained the following 'non-assignment' clause:
The Customer is not entitled, without the prior written consent of the Corporation, to assign, encumber, transfer or otherwise dispose of its interests in, or the benefit of, or the obligations under, this Agreement or agree to do so and the Corporation will not unreasonably withhold consent.
21 It is common ground that the Water Corporation has never been asked to give its consent, and has never given its consent, under this clause.
22 On 20 September 2006, Neil Duckworth, as 'Developer', entered into a Land Servicing Bond Agreement with the Water Corporation. The Bond Agreement was signed by an authorised agent of Mr Duckworth. There was nothing in the terms of the Bond Agreement to indicate that Mr Duckworth was acting as trustee.
23 In the Bond Agreement, the Water Corporation agreed to clear the conditions of subdivision of the Property which require completion of water supply headworks infrastructure. Neil Duckworth agreed to install and provide those works according to the Corporation's requirements and the Project Timetable (which required takeover on 31 July 2008). He also agreed to provide the Corporation with 'Financial Security' when entering into the Bond Agreement, and:
C10 To indemnify the Corporation for any loss, cost, claims or liability suffered or incurred by the failure of the Developer to follow and perform any of its duties under this agreement including all costs the Corporation incurs in completing the works.
C12 The Corporation may, without notice to the Developer, call on the Financial Security to recover any loss it suffers arising out of the failure by the developer to follow and perform its duties under this agreement. This right does not affect the indemnity under C10.
C13 The Corporation may if the Developer fails to follow and perform its duties under this agreement step in and complete the Works and call on the Financial Security to recover all costs incurred in completing the Works.
25 The Financial Security provided to the Water Corporation under the Bond Agreement was a Banker's Undertaking to pay up to $3 million to the Water Corporation on demand. Neil Duckworth secured financing for that undertaking by a second mortgage over the Property.
26 Draft accounts, prepared by the accountant for the Ocean Farms Trust from 2004 - 2006 showed the Financial Security, development costs and bank loans as assets and liabilities of the Trust.
27 At the hearing, counsel for both parties accepted that the Works had never been undertaken, either by Neil Duckworth or the Corporation.
28 On 15 January 2008, the Water Corporation called on the Financial Security and was paid $3 million by the bank.
29 Counsel for the Water Corporation accepted that the Water Corporation had, to date, spent only a small amount of the $3 million on preliminary work.
30 On 7 December 2010, a solicitor wrote to the Water Corporation indicating that he acted for 'the Ocean Farms Trust and am instructed by the current trustee, Neil James Duckworth'. The letter asserted that the $3 million had been wrongfully taken.
31 On 23 December 2010, Neil Duckworth, in his capacity as trustee of the Ocean Farms Trust, commenced proceedings against the Water Corporation in this court, seeking restitution of the $3 million (First Proceedings).
32 On 27 September 2011, Mr Duckworth became bankrupt. Subsequently, Edelman J held that the First Proceedings had been stayed by operation of s 60(2) of the Bankruptcy Act 1966 (Cth).[1] Mr Duckworth's trustee in bankruptcy then elected to discontinue the action.
33 On 15 April 2012, Neil Duckworth resigned as trustee of the Ocean Farms Trust and appointed Karl James Duckworth (one of the plaintiffs) to be the new trustee of the trust under s 7(1) of the Trustees Act 1962 (WA).
34 On 17 April 2012, Mr Duckworth, Mr Duckworth's trustee in bankruptcy and each of the plaintiffs entered into a deed (Assignment Deed). The Assignment Deed provided that, in consideration of the plaintiffs paying $4,000 to the trustee in bankruptcy, the trustee would assign to the plaintiffs absolutely the following causes of action 'which have vested in [the trustee in bankruptcy] pursuant to section 58 of the [Bankruptcy Act]':
(a) The pleadings filed in the [First] Proceedings; or
(b) The Statement of Agreed Facts and Issues for trial filed in the [First] Proceedings dated 27 January 2012.
(a) Water Corporation (ABN 28 003 434 917); or
(b) Any person or organisation associated with it.
(a) [Neil James Duckworth] (in his own capacity or as Trustee of the [Ocean Farm] Trust) entering into a Consumer Constructed Works Agreement with the Water Corporation requiring [Neil James Duckworth] (in his own capacity or as Trustee of the Trust) to pay the cost of the works on the [Property] and to provide the Water Corporation with a financial guarantee;
(b) [Neil James Duckworth] (in his own capacity or as Trustee of the [Ocean Farm] Trust) claiming restitution from the Water Corporation of approximately $700,000.00 alleged to have been wrongfully charged by the Water Corporation to the Bankrupt;
(c) [Neil James Duckworth] (in his own capacity or as Trustee of the [Ocean Farm] Trust) claiming restitution from the Water Corporation of $3,000,000.00 drawn down by the Water Corporation from a bank guarantee provided by [Neil James Duckworth]; and
(d) [Neil James Duckworth] (in his own capacity or as Trustee of the [Ocean Farm] Trust) claiming damages for unconscionable conduct by the Water Corporation pursuant to section 51AC of the Trade Practices Act 1974 (Commonwealth).
35 On 18 May 2012, Edelman J refused an application by Mr Duckworth to reinstate the First Proceedings, and ordered Mr Duckworth to pay the Water Corporation's costs of the action.[2]
36 In making his decisions Edelman J noted, but did not need to resolve, a dispute between Neil Duckworth and the Water Corporation as to whether Mr Duckworth was in fact acting as a trustee.
37 Neil Duckworth ceased to be bankrupt on 19 October 2012, when his bankruptcy administration was annulled.
38 On 16 May 2013, the plaintiffs commenced these proceedings by writ. The writ was indorsed with a statement of claim[3] which pleaded that the plaintiffs were assigned all of the causes of action that Neil Duckworth's trustee in bankruptcy held against the Water Corporation.
39 The plaintiffs plead the express term of the CCWA that the unused portion of the Financial Security would be returned to Neil Duckworth. There is also pleaded an implied term in the CCWA and the Bond Agreement that the Water Corporation would commence and complete construction of the Works within a reasonable time, in the circumstances not being more than two years from the drawdown of the Financial Security. It is pleaded that:
The defendant is obliged to account to the plaintiffs with respect to how the $3,000,000 Banker's Undertaking drawn down by the defendant has been used to complete the works described in the CCWA and Bond Agreement.
The plaintiffs ask that the defendant account, and that an inquiry be undertaken in respect thereto.
40 The plaintiffs then sought in the prayer for relief:
An account for all monies received by the defendant upon drawn down of the $3,000,000 Banker's Undertaking.
An inquiry into how and to what extent the defendant has used the $3,000,000 drawn down under the Banker's Undertaking to complete the works described in the CCWA and the Bond Agreement.
An order that the defendant is liable and a declaration and order that the defendant make payment to the plaintiffs of any sum found to be due and payable to the plaintiffs upon taking such an account and inquiry.
41 It appeared that the plaintiffs' claimed right to relief was based on rights held by Neil Duckworth against the Water Corporation being assigned to them by the Assignment Deed. However, it is common ground that, if the rights were held by Neil Duckworth as trustee, they did not vest in, and so could not have been assigned by, the trustee in bankruptcy. The Water Corporation also asserted that, even if the rights were held by Neil Duckworth in his personal capacity, they could not have been assigned to the plaintiffs by reason of the non-assignment clause in the Guarantee.
42 I considered it appropriate to try the question of whether Neil Duckworth held the rights under the CCWA and the Bond Agreement as trustee for the Ocean Farms Trust or only in his personal capacity, and the effect of the Assignment Deed, as preliminary issues in the proceedings.
43 The plaintiffs' primary contention, contrary to that advanced by Neil Duckworth in the First Proceedings, is that:
As a matter of objective fact Neil Duckworth entered into the CCWA and the Bond Agreement in his personal capacity. No ambiguity arises on the face of the CCWA or the Bond Agreement in relation to what capacity Neil Duckworth entered into those agreements, and nothing in those documents provides any clues as to an alternative capacity in which he executed those agreements. An ambiguity should not be sought to be established by reference to extrinsic evidence.[4]
44 The Water Corporation's position, contrary to that which it adopted in the First Proceedings, is now that:
The facts overwhelmingly support the conclusion that Duckworth was carrying out his duties as trustee of the Trust in relation to the development of the Property, beneficially owned by the Trust, in entering into the CCWA. The Court should find that Duckworth entered into the CCWA in his capacity as trustee on behalf of the Trust.[5]
45 For the reasons which follow, I have concluded that Neil Duckworth entered into the CCWA and Bond Agreement in his capacity as trustee of the Ocean Farms Trust.
46 The fact that Neil Duckworth did not expressly enter into the CCWA or the Bond Agreement as trustee is of no particular significance. It is common ground that a trust is not a separate legal entity and cannot be a party to a contract.[6] Both counsel submitted that Neil Duckworth, in his personal capacity, is the legal owner of any trust property and is the person who would enter into any contracts on behalf of the trust.[7] In the absence of clear words to the contrary, he will be personally liable under a contract entered into as trustee in a manner not limited by the value of trust assets.[8]
47 Further, as Barrett J noted in Sotrip NSW Pty Ltd v Sotrip Pty Ltd,[9] a person who enters a contract as trustee is under no obligation to disclose that fact to the other contracting party. There are many reasons why a trustee may choose not to do so, and the fact that there is no express reference to a person acting as trustee is generally of little or no significance.
48 Both parties accepted that the proper approach to determining the capacity in which Neil Duckworth acted was that adopted by Eames J in Re Interwest Hotels Pty Ltd (in liq):[10]
49 In the present case, the CCWA and Bond Agreement do not unambiguously indicate the capacity in which Neil Duckworth entered into those agreements. As I have noted, the fact that the agreements do not expressly indicate that Neil Duckworth acted as trustee is not significant. It simply means that the agreements do not state in what capacity Mr Duckworth was acting. Further, the fact that the CCWA was signed as 'authorised person' and 'director (owner)' suggests that he may not have been acting only in his personal capacity. The execution clause of the CCWA at least amplifies the ambiguity in the document as to the capacity in which Neil Duckworth was entering into the agreement.
50 Neil Duckworth is not expressly identified as trustee in the contract for the purchase of the Property or the certificate of title of the Property, despite clearly holding the Property on trust. This illustrates that the absence of reference to a trust in a legal document is not inconsistent with the manner in which Neil Duckworth generally approached descriptions in legal documents when acting as trustee.
51 The plaintiffs' counsel relied on the ABN used in the CCWA. However, this number has no significance on the face of the agreement. Appreciating the significance of the ABN requires resort to the extrinsic facts that Neil Duckworth registered two ABNs at the same time, one in his name and one in the name of the trust. When account is taken of those extrinsic facts, the use of the ABN registered in Mr Duckworth's name suggests that he was entering into the CCWA only in his personal capacity. However, once resort is had to extrinsic material I see no warrant for confining the court's attention to the one fact which tends to support the plaintiffs' position. The ABN reference is a factor to be taken into account, but must be weighed against all of the evidence as to the capacity in which Mr Duckworth was acting.
52 In my view, greater significance is to be given to the uncontested fact that Neil Duckworth held the Property on trust for the Ocean Farms Trust. As trustee, Neil Duckworth undertook to deal with the Property on behalf of the beneficiaries of the Trust, and develop the Property so that it may be subdivided. As trustee he was entitled to be indemnified for development costs out of the trust assets. The CCWA and Bond Agreement were entered into as part of the subdivisional development of the property, in order to satisfy conditions of subdivision imposed by the Western Australian Planning Commission. The terms of the Ocean Farms Trust provided for Neil Duckworth to undertake that subdivisional development. The financing required to fund the Financial Security given to the Water Corporation was secured by mortgaging the Property. The provision of an adequate water supply was an integral part of the subdivisional development of the Property.
53 If Neil Duckworth entered into the CCWA and Bond Agreement in his capacity as trustee of the Ocean Farms Trust, then he would have been performing his duty as trustee. If he was acting in his personal capacity, he would have been in breach of that trust by dealing with trust property for his own benefit, and using trust property to secure his personal obligations. Such a result would fly in the face of commercial logic, and counts strongly against a conclusion that Neil Duckworth entered into the agreements in his personal capacity. The facts that:
(b) the CCWA and Bond Agreement facilitated the subdivisional development provided for in the trust instruments; and
(c) finance for the Bank Undertaking was secured against the Property,
together count strongly in favour of a conclusion that Neil Duckworth was acting as trustee when he entered the agreements.
54 That conclusion is reinforced by the fact that the trust's accounts recorded transactions involved in the development of the Property, including the Banker's Undertaking of $3 million and the loan to finance that undertaking. It is also reinforced by the fact that, when Neil Duckworth sought to enforce his claimed rights under the CCWA and Bond Agreement, he did so as trustee.
55 The last two matters are not conclusive, as they reflect conduct subsequent to the agreements which may simply reflect a misunderstanding by Mr Duckworth as to what he had done.[15] Even though the weight which may be placed on those factors is limited, they tend to support the proposition that Mr Duckworth was acting as trustee.
56 The plaintiffs make the point that, if he acted as trustee, Mr Duckworth would be responsible for the obligations imposed by the CCWA and Bond Agreement and have a right of indemnity against the assets of the Ocean Farms Trust.[16] They also make the point that this right of indemnity would have vested in his trustee in bankruptcy. So much may be accepted. However, the plaintiffs' counsel was unable to adequately explain how these conclusions affected the rights which the plaintiffs might have to bring an action against the Water Corporation, or assisted in ascertaining the capacity in which Neil Duckworth entered into the CCWA and the Bond Agreement.
57 The evidence does not point all one way, but the only significant indicator that Neil Duckworth acted in his personal capacity is the use of the ABN. When all of the evidence is taken into account, the clear inference is that Neil Duckworth was acting in his capacity as trustee when he entered into the CCWA and the Bond Agreement. None of the evidence contradicts anything on the face of the CCWA or Bond Agreement, which do not indicate whether or not Neil Duckworth entered into those agreements in his capacity as trustee. The inference to be drawn from the agreed primary facts is that Neil Duckworth was carrying out his duties as trustee in relation to the subdivisional development of the Property, rather than breaching those duties, when he entered into the CCWA and the Bond Agreement.
58 It follows that, at the time of his bankruptcy, Neil Duckworth held the claimed rights under the CCWA and Bond Agreement on trust for the plaintiffs under the Ocean Farms Trust. Those rights did not vest in Mr Duckworth's trustee in bankruptcy, and so could not have been assigned to the plaintiffs by the Assignment Deed.[17] It follows that the plaintiffs' claim, as currently formulated in a way which depends on them taking an assignment of those rights under the Assignment Deed, is untenable. It is unnecessary to determine what the position would have been if Mr Duckworth entered into the CCWA and Bond Agreement in his personal capacity.
59 This is not necessarily an end to the plaintiffs' case however. One of the plaintiffs, Karl Duckworth, is the current trustee of the Ocean Farms Trust. His appointment may well have involved the transfer to him of rights held by the retiring trustee under s 10(1) of the Trustees Act. In that event, Karl Duckworth in his capacity as trustee could assert a claim for payment of the $3 million under express or implied terms of the agreements. Significant repleading would be required to advance such a claim.
60 The parties have not addressed the effect of s 10 of the Trustees Act in any detail, and it is not necessary for me to determine its effect to resolve the preliminary issues. However, the determination of some of the preliminary issues adversely to the plaintiffs does not compel the conclusion that the action must be dismissed.
61 The preliminary issues should be determined in the following manner:
(b) in his capacity as trustee of the Ocean Farm Trust?
Answer: Neil James Duckworth entered into the CCWA and the Bond Agreement with the defendant in his capacity as trustee of the Ocean Farm Trust.
(a) did any cause of action which Neil James Duckworth held against the defendant under the terms of the CCWA and the Bond Agreement vest in his trustee in bankruptcy by virtue of s 58 of the Bankruptcy Act 1996 (Cth); and
(b) if so, did Neil James Duckworth's trustee in bankruptcy validly assign to the Plaintiffs any cause of action which Neil James Duckworth held in his capacity as the trustee of the Ocean Farm Trust against the Defendant with respect to the drawdown of the financial guarantee under the terms of the CCWA and the Bond Agreement which had vested in his trustee in bankruptcy by virtue of s 58 of the Bankruptcy Act 1966 (Cth)?
62 I will hear from counsel as to costs and the further directions or orders which should be made in this action.
[1] Duckworth v Water Corporation [2012] WASC 30.
[2] Duckworth v Water Corporation [No 2] [2012] WASC 163.
[3] At the hearing on 15 October 2015, I ordered that a minute of proposed amended statement of claim dated 5 March 2015 stand as the statement of claim. The amendments clarified the circumstances in which the Assignment Deed was entered into and do not materially affect what follows.
[4] Plaintiffs' outline of submissions, par 28.
[5] Defendant's outline of submissions, par 29.
[6] Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360, 367.
[7] Plaintiffs' outline of submissions, par 13; defendant's outline of submissions, pars 12 13.
[8] Octavo Investments (367); Gebauer Nominees Pty Ltd v Cole [No 2] [2008] WASCA 41 [51].
[9] Bechara v Sotrip Pty Limited [2011] NSWSC 252 [22] [25].
[10] Re Interwest Hotels Pty Ltd (In Liq) (1993) 12 ACSR 78.
[13] Interwest (88 - 91), (99 - 100), (106).
[15] Such evidence would not be admissible at all if the question concerned the construction of the agreements, rather than the factual question of the capacity in which Mr Duckworth entered into the agreements: see Birla Nifty Pty Ltd v International Mining Industry Underwriters Ltd [2014] WASCA 180; (2014) 47 WAR 522 [50].
[17] Bankruptcy Act 1966 (Cth), s 58(1), read with s 5 (definition of 'the property of the bankrupt') and s 116(2)(a).
(1979) 144 CLR 360
(2014) 47 WAR 522