In the matter of Elegant Swan Pty Ltd (in liquidation) (controllers appointed) [2022] NSWSC 1451

Company details

1. The company as I note below was placed into liquidation and Ian Niccol (Mr Niccol) was appointed as liquidator of the company (liquidator).
2. The company was registered on 11 March 2016, initially having a registered office in Kiama, then at North Ryde and most recently at Orange.
3. The company has had various directors. Holly Grant (Ms Grant) was the initial director from March 2016 until August 2017.
4. Stephen Sgroi (Mr Sgroi) was appointed as a director in August 2017 and apart from a four-month period between February and June 2018 in which Nick Vitale (Mr Vitale) replaced Mr Sgroi as director. Mr Sgroi continued as a director until October 2019, at which point of time Jesse Kennedy (Ms Kennedy) was appointed as director.
5. Ms Kennedy is the current secretary of the company and Mr Sgroi the immediate prior secretary.
6. The company has two ordinary shares of one dollar each, and at relevant times, each of the single directors of the company have held those shares. Ms Kennedy currently owns the two shares.
7. The company operated six bank accounts, three each with the Commonwealth Bank of Australia (CBA) and the NAB, such accounts being opened on various dates commencing from 16 March 2016 with the latest account opened on 11 November 2020: CB 76.
8. The liquidator's investigations in relation to Ms Kennedy reveal that she was not an authorised signatory for any of the company's bank accounts: CB 72.
9. The liquidator's inquiries show the company is laden with debt. The records of the company reveal the largest creditor is the Deputy Commissioner of Taxation (DCT) claiming the sum of $1,008,724.84 (proof of debt) as well as being owed the sum of $3,129.20 in respect of its costs winding up the company: CB 76.
10. There are a number of other creditors totalling $4,508,224. The largest of which is said to be 5 Hibble Street Pty Ltd atf the 5 Hibble Unit in the sum of $2,549,224: CB 77.
11. However, as at 15 September 2022, only one creditor of the company, namely the DCT had submitted a proof of debt: CB 76.
12. As at the date of the liquidator's appointment (3 March 2021) there was $50 in one of company's three CBA bank accounts and no cash held in any of the company's other bank accounts: CB 76.
13. Other than the assets the subject of the surplus from the mortgagee sale and paid into Court, the liquidator is unaware of any assets held by the company that could be realised to generate a return to creditors: CB 76, 77, T 11.

Payment into Court

1. The property of the company was sold in circumstances in which I will briefly note below.
2. There were surplus proceeds of the sale in the sum of $913,705.63.
3. On 28 June 2022, the plaintiffs filed a summons seeking pursuant to r 55.9 Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to pay into Court that sum.

Payment out applications

1. Following various procedures to identify and serve interested parties and to justify amounts claimed, each of the controllers on the one hand and the liquidator on the other hand filed Notices of Motion seeking payment out.
2. On 13 September 2022, the plaintiffs filed a Notice of Motion pursuant to r 55.9(6) (or alternatively r 55.11) UCPR seeking an order that an amount of $25,375.75 be paid to the plaintiffs out of the funds paid into Court on 28 June 2022.
3. In support of the plaintiffs' application the plaintiffs rely on two affidavits of Mr Marsden affirmed 23 June 2022 and 8 September 2022, an exhibit SM-1 and two affidavits of Alice Johnson solicitor affirmed respectively on 2 and 22 September 2022, proving service of the application and evidentiary material.
4. The liquidator consented to the plaintiffs' application: T 1.
5. On 16 September 2022, the liquidator filed a Notice of Motion seeking orders that: 1. pursuant to r 55.11 UCPR the sum of $913,705.63 less any amount ordered to be paid to the plaintiffs (remainder) be paid out of Court to the company; 2. pursuant to s 90-15 Insolvency Practice Schedule (Corporations) that the liquidator would be justified in dealing with the remainder as if it were funds of the company; and 3. the costs of the application be costs in the liquidation of the company.
6. In support of the liquidator's application, reliance is placed on an affidavit of Mr Niccol affirmed 15 September 2022 and an exhibit to that affidavit, exhibit IMN-1. For proof of service of the application, Mr Niccol's affidavit and exhibit IMN-1, reliance is placed on three affidavits all dated 14 October 2022 of Declan Riordan (with exhibit DR-1), Stuart McKenzie and Tanya Hoff.
7. The plaintiffs did not oppose or seek to comment on the liquidator's application: T 1.

Background

1. The liquidator's enquiries revealed that the purpose of the incorporation of the company was connected to the (purported) demolition of an existing dwelling on the property and construction of five townhouses: CB 73.
2. No other company activity apart from the purported development of the property has been identified: CB 73.
3. On or about 8 August 2017 the company exchanged contracts for the purchase of the property.
4. The records obtained by Mr Niccol revealed at least four forms of contract for the purchase of the property from the vendor, each dated 8 August 2017: 1. the first form of contract reveals the company as purchaser "atf The Swan Unit Trust" (SU Trust): CB 644. That is the form of contract which was ultimately stamped by the Office of State Revenue; 2. the second and third form of contract are essentially contract counterparts signed on behalf of the vendor and purchaser with the company as purchaser simpliciter: CB 684, 685. A copy of this form of contract was provided to the NAB: CB 84; and 3. the fourth form of contract reveals the company as purchaser "atf The Elegant Projects Unit Trust" (EPU Trust): CB 686.
5. There are various alterations on each of the front pages of the forms of contract including to the name of the vendor, the date of completion and to the amount of the deposit monies.
6. The purchase price for the property was $2.38M with a deposit in the sum of $238,000 leaving a balance due of $2.142M: CB 644, 684-686.
7. On 23 October 2017 the NAB provided a letter of offer for financial accommodation to the company: CB 80.
8. On 24 October 2017 the company entered into a facility agreement under which the NAB agreed to lend to the company $1.666M (loan agreement). The facility was secured by a first mortgage over the property (mortgage) and a general security agreement (GSA) over the company's assets and undertaking: CB 80.
9. On or about 26 October 2017 the company opened one of its three NAB bank accounts (mortgage account). The NAB advanced the sum of $1.666M into the mortgage account. The liquidator has been informed by staff the NAB that they have been unable to identify the authorised signatory for the mortgage account: CB 80.
10. On or about 27 October 2017 it appears that the purchase of the property was completed: CB 81. The purchase price was comprised of the monies borrowed from the NAB ($1.666M), the deposit ($238,000) and additional sums totalling $476,000. The liquidator has been unable to identify which entity paid the deposit and the additional sums that contributed to the purchase price: CB 81.
11. Investigations of the liquidator revealed materials including the forms of contract noted above, suggesting the company might be the trustee of the EPU Trust and the SU Trust.
12. The affairs of the EPU Trust were the subject of an Australian Taxation Office (ATO) audit.
13. On 15 August 2019 the ATO reported to the company as trustee for the EPU Trust its findings regarding the audit: CB 551.
14. The report was not complimentary of Mr Sgroi finding he had made false and misleading statements to the DCT including informing the DCT that (CB 557[24]-[25], 566, 570-572): 1. the company was conducting the development, that costs had been incurred primarily in respect of the demolitions; 2. the development had reached "lock-up stage and internal finishes"; and 3. approximately $4M in construction costs had been incurred.
15. Mr Sgroi provided a letter to the DCT purportedly from Ryde Council confirming that the development application had been approved and provided a false invoice from the builder to substantiate that development was under way: CB 79, 558[28], 560-561, 566.
16. Ryde Council confirmed that there were no current and previous development application for the property: CB 566[14].
17. Contrary to Mr Sgroi's assertion that there were demolition costs associated with the property, physical inspection of the property indicated that no demolition or other works had been commenced and the original two story house remained on the property. The invoice was rejected as false: CB 566.
18. As a result of the audit the company was assessed to pay a sum in the order of $652,000 following the disallowance of all GST credits previously claimed by it and a further sum in the order of $575,000 in penalties: CB 566, 572, 573.
19. After deducting monies in unreleased refunds a total amount of approximately $944,000 was payable by the company as trustee of the EPU Trust to the ATO.
20. On 16 August 2019, the day following the audit report, the DCT commenced proceedings against the company: 1. to recover the sum as a debt by filing an originating application in the Federal Court: CB 386; and 2. to obtain freezing orders against the assets of the company - such orders being made by Rares J: CB 71, 390.
21. On 4 February 2020 Stewart J gave summary judgment for the DCT against the company: CB 411; Deputy Commissioner of Taxation v Cutili Invest 88 Pty Ltd [2020] FCA 47.
22. On 3 March 2021 the Federal Court ordered that the company be wound up in insolvency on the petition of the DCT and Mr Niccol was appointed as liquidator.
23. The winding up of the company was an event of default under the terms of the mortgage.
24. On 18 March 2021 pursuant to powers of enforcement under the mortgage and the GSA, NAB appointed the controllers jointly and severally to take control of the property.
25. On 21 April 2021 the DCT lodged a proof of debt in an amount slightly exceeding $1M for a running balance account in respect of BAS amounts in connection with the assessments referred above to the EPU Trust.
26. The controllers took steps to secure, market and sell the property with the assistance of a licensed real estate agent.
27. Valuations were obtained from Opteon Property Group Pty Ltd indicating a value for the property as at 1 April 2021 of $2.4M (CB 252) and as at 26 October 2021 of $2.85M: CB 285.
28. On 18 November 2021 the property was sold by public auction for $3,060,000: CB 347, 444. The sale was completed on 23 December 2021 with a balance of $2,752,920.47 due on settlement after payment of council and water rates: CB 347, 444.
29. On 22 December 2021 and 3 March 2022, the liquidator sent correspondence to the controllers, indicating that the surplus funds should be paid either to the liquidation bank account or into Court: CB 16, 358-360.
30. As events transpired the plaintiffs paid the funds into Court.
31. The surplus sum paid into Court represents the then net proceeds of sale of the property plus rental income received by the property less the debt owing to the NAB and enforcement costs secured by the mortgage which had been incurred up until that point of time.

Principles as to payment into Court

1. Payment into Court may be permitted pursuant to particular legislation, rules of Court and pursuant to the Court's inherent powers: JKB Holdings Pty Limited v de la Vega [2013] NSWSC 501 at [11]-[12].
2. Procedurally the UCPR contains a number of provisions relating to payment into Court.
3. There are general payment in provisions pursuant to Pt 41 UCPR.
4. There are other particular provisions which enable payment in by stakeholders (Pt 43 UCPR), trustees and other specified persons holding funds: Pt 55 UCPR.

Payment in and investment of funds

1. Within a day after monies paid into Court the registrar must deposit the money in the Court's bank account: r 41.2 UCPR. The funds so deposited (deposited funds) may not be withdrawn or paid except by the authority of the UCPR or of a judgment or order: r 41.3 UCPR.
2. The registrar is required to keep an account of the deposit and all withdrawals (r 41.4 UCPR) and the Court may direct that any deposited funds be invested in any manner in which a trustee is authorised to invest trust money under the Trustee Act 1925 (NSW) (Trustee Act): r 41.5 UCPR.
3. Certain funds do not bear interest. This includes funds paid into Court as security for costs or security on an appeal or in relation to an offer of compromise under the Commercial Arbitration Act 1984 (NSW) (with the exception of monies paid to the NSW Trustee and Guardian): r 41.6 UCPR.
4. There are provisions for payment to the NSW Trustee and Guardian: r 41.7 UCPR.
5. Otherwise interest in funds in Court are left to abide the decision in the proceedings: r 41.8 UCPR.
6. Once the Court gives notice to parties of its intention to order the payment to a party of funds in Court or of any interest accruing on those funds, and the party fails to attend Court as directed in the notice, the Court has a number of options: r 41.9 UCPR.
7. The options include making an order for payment to one or more of the parties in such proportions as the Court thinks fit or directing the registrar to pay the funds or any interest accruing on them to the treasurer for payment into the Consolidated Fund: r 41.9 UCPR.
8. The Court may also decide not to make any such order: r 41.9 UCPR.

Payment in by mortgagees

1. A mortgagee has available a number of provisions under which payment in may be made.
2. A "stakeholder" can pay a disputed amount of money into Court which then enlivens a procedure for giving notice to competing claimants requiring them to litigate their claims or be barred from doing so: Residential Housing Corporation v Esber (2011) 80 NSWLR 69; [2011] NSWCA 25 (Residential Housing Corp v Esber) at [113] per Campbell JA, Macfarlan JA agreeing at [194].
3. A "stakeholder" is relevantly a person (other than the Sheriff) who is under a liability in respect of a debt or other personal property: r 43.1 UCPR.
4. A mortgagee who has sale proceeds in its hands, after payment of its own secured debt, is a "stakeholder" within this definition both by reason of its statutory obligations under s 58(3) Real Property Act 1900 (NSW) and by reason of its fiduciary obligations: Residential Housing Corp v Esber at [110].
5. There is an alternative provision for payment of funds into Court by a mortgagee provided for pursuant to Part 4 Trustee Act. It is this alternative which was adopted by the plaintiffs in this case.
6. The provisions under Pt 43 enable the Court to give relief (r 43.2 UCPR) in relation to disputed property which relevantly means any debt or other personal property in respect of which a stakeholder is being sued, or is expects to be sued in proceedings by two or more persons in proceedings before the Court property: r 43.1 UCPR
7. In contrast to the provisions under Pt 43 UCPR, the Pt 55 UCPR provisions dealing with payment in do not require the payee prove that it is being sued or expects to be sued: Residential Housing Corp v Esber at [116].

Payment in by pursuant to Part 4 Trustee Act

1. The regime for payment in Court identifies in four sections (ss 95, 96, 97 and 99) persons or entities who are enabled to make a payment into Court. Essentially these provisions broaden beyond trustees per se the scope of parties eligible to make payment in.

Categories of payees

1. The categories of payees include are: 1. trustees: s 95; 2. persons liable to pay monies to minors or persons of unsound mind: s 96; 3. life insurance companies - where the directors hold the opinion that no sufficient discharge can be obtained otherwise than the company paying the money into Court: s 97.
2. The category of persons who fall within the definition of trustees is broad.
3. "Trustee" is defined under the Trustee Act as having a meaning corresponding with the definition of "trust". That definition does not include duties incident to an estate conveyed by way of mortgage but does include implied and constructive trusts: s 5 Trustee Act.
4. By reference to the definition of "trustee" and "trust" the trustee includes the legal representative of a deceased person (which is defined to mean an executor or administrator), the NSW Trustee and a trustee company so defined: s 5.
5. The notion of trustee extending to implied and constructive trusts is reinforced by the specific provisions of Part 4 which provides that "trustee" includes every implied or constructive trustee, without any exception: s 99.
6. The purpose of the "without any exception" in s 99 is to remove the exception concerning the duties incident to an estate conveyed by way of mortgage that appears in the definition of "trust" in s 5: Residential Housing Corp v Esber at [116].
7. A mortgagee holding surplus funds following exercise of the power of sale is at the least a constructive trustee of those funds and thus can pay into Court under Part 4, without needing to establish that he is being sued or expects to be sued: Residential Housing Corp v Esber at [116], [142].

Mechanics of payment in

1. The second main issue which Part 4 Trustee Act addresses is the mechanics for payment into Court. This is addressed in s 98.
2. It may be noted that: 1. the payment of money or securities into Court is subject to the rules of Court; 2. the receipt or certificate of a registrar of the Court or other proper officer is sufficient discharge to any trustee, person or company for money or securities paid into Court; 3. the monies or security so paid in are, subject to the rules of Court, to be dealt with according to the orders of the Court; and 4. the Court may make such order as it thinks fit as to the investment payment or distribution of such funds (money or securities) or the earnings on them (dividends or income).
3. Once the payee has determined to make the payment into Court the procedure is that that is done by filing a summons supported by an affidavit (prescribed affidavit) r 55.9 UCPR. Certain aspects of both documents are specified in the rules.
4. The summons, unless the Court otherwise directs, must not join any person as a defendant in the proceedings, but must nonetheless be served on each person identified in the prescribed affidavit as a person interested in, or entitled to the money or securities: r 55.9 (4),(5) UCPR.
5. Payment of money (cf securities) must be accompanied by a cheque payable to the "Supreme Court of New South Wales" in the amount to be paid in. Once that is done, the money is deemed to have been paid into Court upon the filing of the summons without the need for any further directions: r 55.9(2)(b), (3) UCPR.
6. The prescribed affidavit must essentially address four things (r 55.10 UCPR), namely: 1. a short description of the trust and of the instrument creating it or, as the case may be, of the circumstances in which the trust arose; 2. the amount and description of the fund; 3. the name and an address (so far as it is known to the deponent) of each person interested in or entitled to the funds; and 4. the name of the person paying the funds into Court and his or her address for service.
7. Further, where the person interested in, or entitled to the funds is a minor or a protected person, particular details must be provided: r 55.10 UCPR.
8. The payee may make an application by a Notice of Motion in the proceedings so instituted for an order for the payee's costs to be paid from the money or securities: r 55.9(6) UCPR.

Exoneration

1. The payment in provisions under Pt 43 and Pt 55 UCPR read with Pt 4 Trustee Act enliven other statutory provisions providing protection to the payee by exonerating the payee in respect of the payment: s 171 Conveyancing Act 1919 (NSW) (Conveyancing Act). That is because a payment in is under the provisions of "any other Act", being relevantly the Civil Procedure Act 2005 (NSW) and the Trustee Act within the meaning of s 171 Conveyancing Act: Residential Housing Corp v Esber at [117]-[118].
2. However, payment in of funds to the Court does not shed the payee from obligations entirely. The payee must answer all enquiries relating to the application of the funds as the Supreme Court may make or direct: r 55.12 UCPR.

Principles as to payment out

1. Once the funds have been paid into Court, they may only be paid out pursuant to directions of the Court. The application for directions is made by filing a Notice of Motion in the instituted proceedings: r 55.11 UCPR.
2. The applicant may seek costs: r 55.9(6) UCPR.
3. The payment in rules contain provisions which reflect the substantive law and are directed to identifying claimants who are interested in the funds: see r 55.9(5) and r 55.10(a)-(c) UCPR. Based on these provisions and the substantive law, judges of this Court have traditionally identified three evidentiary matters for applicants or claimants to prove to enliven the power, and indeed the discretion to pay the monies out of Court.
4. The matters were helpfully addressed by Slattery J in Commonwealth Bank of Australia v Estate of late Mahmoud Slieman [2010] NSWSC 661 (Slieman) at [8] - [10], namely there must be evidence establishing: 1. the identity of the person who is primarily entitled to the funds and the basis of the entitlement; 2. that the claimant is a person who has a beneficial interest in the fund; and 3. other potential claimants to the fund
5. Much of the Court's focus in relation to payment out applications is, as indicated by the above criteria, fixed upon establishing whether the claimants have a beneficial interest in the fund or some other interest such as an unsecured creditor and that the various claimants or persons who claim to be interested in or might have a claim to be interested in the fund have been identified and appropriately served with the application: Slieman at [8] - [10].
6. It has been said that the Court requires strict proof as to who has the entitlement to the funds and that it should be identified by the best evidence available, there being a heavy burden placed on a party seeking payment out: Slieman at [8] - [10].

Trust and non-trust monies

1. The law distinguishes between circumstances in which monies are paid into Court by a trustee or otherwise.

Determinations regarding trust monies

1. Where monies are paid into Court by a trustee the funds paid into Court remain subject to any pre-existing trust notwithstanding the payment in: Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264 at 272; [1991] HCA 51.
2. If one or more persons are presently entitled to the capital or income of such funds before the payment in, the fact of payment in, does not displace that present entitlement: Harmer at 272.
3. If the entitlement is disputed the function of the Court is to identify existing interests in the money paid into Court, rather than to create new ones: Harmer at 272.
4. The interest of a beneficiary in the monies is vested and the beneficiary has a right to demand and receive payment of income. The fact that the interest and the right are disputed and await vindication by order of the Court does not make the interest contingent or negate the existence of that right: Harmer at 272.

Determinations regarding non-trust monies

1. Sometimes monies are paid into Court (not necessarily under Part 4 Trustee Act) where the monies are not held by the payee as trustee.
2. In those circumstances, it is necessary to determine the effect of the payment of monies into Court and the subsequent deposit of the monies: Harmer at 272.
3. In such a circumstance once the monies are paid into Court, at least colloquially, monies become "trust monies" in the broad sense that neither the payee nor the Court itself is beneficially entitled to them: Harmer at 272.
4. They are received by the Court pursuant to the statutory provisions or rules of Court under which they are paid in and after payment in the claimants to the monies acquire an "interest" in the monies in the sense that they are entitled to insist that they are properly administered and apply for the purposes for which they are paid in: Harmer at 272-273.
5. In cases where no claimant has a vested interest in any of the monies paid into Court until an order in his or its favour is made by the Court does not mean that the Court is doing other than discharging its ordinary judicial function in determining the competing claims of the claimants: Harmer at 274.
6. In contrast with a case where (trust) monies are paid into Court, which are subject to a pre-existing trust and the dispute is between claimants to a direct and vested interest in the actual monies, the function of the Court in (non-trust) cases is not to resolve a dispute between claimants about beneficial ownership of the money themselves. Rather, the function of the Court is to determine the conflicting claims of the claimants in other capacities, e.g. as debtor and creditor: Harmer at 274.

Indicia of beneficial interests, declaration of trusts and sham trusts

1. The facts referred to above and in particular the circumstances regarding the creation of the various different forms of contract for purchase including the company on the one hand as the purchaser per se and on the other hand purportedly as purchaser as trustee for the EPU Trust or the SU Trust have created some degree of uncertainty for the liquidator which has informed both the relief sought by the liquidator and the evidence adduced on this application.
2. The liquidator does not expressly assert that the so called EPU Trust or the SU Trust are shams (T 8). The liquidator has not considered it necessary to go that far. Rather than liquidator in the course of investigating whether beneficial interests were created in the property, has discovered and points to circumstances which create some suspicion as to use of the word "trust" in respect of the purchase of the property and the dealings with the property.
3. It is for those reasons that it is relevant to briefly look at indicia of beneficial interests, declarations of trust and understand a little regarding sham trusts.
4. Precise definition of a "trust" has been said to be elusive if not impossible: J D Heydon and M J Leeming, Jacobs' Law of Trusts (8th ed, 2016, LexisNexis) (Jacobs') at [1-01] page 1.
5. Basically, a "trust" may be described as a relation between trustee and beneficiary in respect of certain property. Specifically, a trust exists when the owner of a legal or equitable interest in property is bound by an obligation, recognised by and enforced in equity, to hold that interest for the benefit of others, or for some object or purpose permitted by law: Jacobs' page 1.
6. Statutory provisions may create trusts and deem certain relationships to be trust relationships.
7. Generally speaking, leaving aside charitable trusts, in assessing whether the trust exists one ordinarily looks to see if there is a "trustee", "trust property", a "beneficiary" and "a personal obligation annexed to the property": Jacobs' at [1-04]-[1-10] pages 3-5.
8. The requirements for a declaration of trust are that the declarer declares itself in a final and binding way to be a trustee of a property for another. No consideration is required. No formal or technical words are required, any act of expression of clear intention to create a trust will do: Jacobs' [5-02], [6-22] page 75; Hyhonie Holdings Pty Ltd v Leroy [2004] NSWCA 72 (Hyhonie Holdings) per Hodgson JA at [42]-[44].
9. If the trust property is land or any interest in land the declaration must be manifested in writing signed by the person making the declaration: s 23C(1)(b) Conveyancing Act; Jacobs' [6-23] page 75.
10. Particular issues arise where the trust is created by deed, including whether, even if the deed has been executed, it has in addition been delivered: Hyhonie Holdings at [40]-[41].
11. A person's intention, at a particular time may be proved by admissions, direct statements, words and acts and statements accompanying acts or omissions: Halsbury's Laws of Australia, 195 - Evidence (online) (Halsbury's) at [195-845].
12. Remoteness of the statements regarding intention, whether before or after the relevant time, goes to the weight rather than the admissibility of the evidence: Halsbury's at [195-845] citing Nash v Commissioner for Railways (1963) 63 SR (NSW) 357 at 360 (Full Court); Herald and Weekly Times Ltd v McGregor (1928) 41 CLR 254 at 265; [1928] HCA 36 per Isaacs J.
13. However, the statement of a witness of his or her intention is scrutinised carefully by the Court (e.g. Cox v Smail [1912] VLR 274 at 283 per Cussen J) and such statements may be insufficient to rebut an contrary inference drawn from that person's acts and conduct: Halsbury's at [195-845] citing Forster v Forster [1907] VLR 159 at 170 per Hood J.
14. Where there is a written declaration of trust in unambiguous words the creation of the trust may be rebutted by evidence of contrary intention, but the onus is on the party seeking to disprove the trust to show a contrary intention and strong evidence is required for this purpose: Strang v Strang [2009] NSWSC 760 per Nicholas J at [67] citing Re Lamshed [1970] SASR 224 at 239 per Bray CJ.
15. The relevant question is whether there was the requisite intention at the time that the declaration was made: Strang at [68].
16. The signing of a declaration and having it witnessed is some evidence of the required intention: Hyhonie Holdings at [45] per Hodgson JA.
17. For a party to challenge the declaration of trust to establish the declarer's intention was otherwise it is necessary to demonstrate (which for example could be done by reference to subsequent conduct) that it was not the declarer's real intention at the time to create the trust: Strang at [81].
18. Particular issues arise in relation to declarations of trust and situations in which it is either contended or suspected that there is a sham trust.
19. A sham relevantly refers to steps which take the form of a legally effective transaction but which the party or parties intend(s) should not have the apparent, or any, legal consequences: Lewis v Condon (2013) 85 NSWLR 99; [2013] NSWCA 204 (Lewis v Condon) per Leeming JA at [58] citing Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55 at [46].
20. A sham arises when the true intent is that the transaction is different from that which would ordinarily be attributed to the transaction on the face of the document(s). Deeds aside, legal meaning is given to the document by reference to a subjective intention and a sham requires a finding of an intent to deceive: Lewis v Condon at [59]-[63].
21. A sham is to be distinguished from transactions entered into for an improper purpose and also from situations in which apparently artificial transactions attract tax benefits and advantages: Lewis v Condon at [64] citing inter alia Fletcher v Federal Commissioner of Taxation (1991) 173 CLR 1 at 19; [1991] HCA 42.
22. The character of some transactions (such as a licence or a lease) can by subsequent varied agreement of the parties change: Lewis v Condon at [80] citing Marac Finance Ltd v Virtue [1981] 1 NZLR 586 at 588.
23. However, leaving aside the operation of the rule in Saunders v Vautier (1841) Cr & Ph 240; 49 ER 282, a trust once validly constituted does not change in nature because the trustee and some of the beneficiaries subsequently choose no longer to abide by the obligations of the trust relationship: Lewis v Condon at [81]. Leeming JA there noted: "Such conduct may amount to a breach of trust, and may lead to the removal of the trustee, but does not destroy the proprietary and personal rights and obligations which came into existence when the trust was created."
24. Lastly, sometimes issues arise in relation to whether, if a trust has been declared, it later has been effectively revoked (assuming there is a power to revoke): e.g. Hyhonie Holdings at [32]. That is not a consideration in this case.

Identification of other interested parties

1. Mr Marsden in the prescribed affidavit addresses the issue of who, after the NAB, is entitled or potentially entitled to the funds.
2. A number of possibilities have been suggested being: 1. the liquidator on behalf of the company; 2. Revenue NSW; and 3. Mr Sgroi.
3. In relation to Revenue NSW, whilst land tax notices had been issued in respect of the property to the company in its capacity as trustee for the SU Trust before settlement of the sale of the property the controllers paid for the outstanding land tax owing and accordingly it is submitted that Revenue NSW has no claim to the anticipated surplus: CB 14[33].
4. In relation to Mr Sgroi it was noted that he was a guarantor of the amounts advanced under the loan agreement. However, Mr Marsden is unable to determine whether Mr Sgroi might have some claim in that capacity, which explains why Mr Sgroi was served with notice of the application: CB 14-15.
5. Ms Kennedy was served although it is entirely unclear what, if any claim, she might have other than making the observation that she is the current director and shareholder of the company: CB 14-16.

Notice to potential interested parties

1. In these proceedings the summons and first affidavit of Mr Marsden have been served by the plaintiffs on a number of persons including the liquidator on 26 June 2022 by email to the legal representatives for the liquidator (CB 19 - 20), Ms Kennedy on 29 June 2022 by express post to an address in Orange (CB 20 - 21) and Mr Sgroi on 29 June 2022 by express post to addresses in North Ryde and Wadalba: CB 20 - 21. The attempted service at North Ryde was returned undeliverable but there was delivery to the address at Wadalba. The ATO was served on 13 July 2022 by email: CB 22.
2. The application by the plaintiffs and the second affidavit of Mr Marsden were similarly served on the above parties: CB 89 - 92, 102. The emails and postage occurred on dates being 13, 14 and 20 September 2022. The attempted service of Mr Sgroi by post on this occasion to the Wadalba address was returned as undeliverable but there was a delivery acknowledgement to the North Ryde address.
3. The notice of motion of the liquidator and the affidavit of Mr Niccoll and exhibit were served on the plaintiffs by email to the legal representatives for the plaintiffs on 16 September 2022: CB 110, 112. The ATO was also served both by express post and email on 16 September 2022: CB 104 - 105, 110, 135 and 772.
4. Ms Kennedy was served by express post to the address in Orange sent on 28 September 2022 and there is a delivery acknowledgement in respect of that service: CB 143, 168.
5. Mr Sgroi was served by express post to addresses in North Ryde and West Ryde on 16 September 2022 and there is a delivery acknowledgement in respect of that service: CB 107 - 108, 772. He was also served by email: CB 111, 137.
6. Additionally the liquidator served Mr Vitale by express post sent on 16 September 2022 to addresses in North Ryde, The Ponds and Wadalba. There are delivery acknowledgements regarding that service and he was also served by email: CB 105 - 107, 111, 139, 141, 723.
7. I am satisfied the identified potentially interested parties have been served with notice of the payment out applications: T 3-4.
8. At the hearing of the application only the representatives for the plaintiffs and the liquidator appeared. The evidence establishes there has been no contact by the other parties served nor seemingly any attempted appearance before the Court in opposition to the applications.

Plaintiffs' submissions

1. Submissions on behalf of the plaintiffs as might be expected were relatively straightforward.
2. Mr Tao submitted, the mortgage provisions permit the relief claimed by the plaintiffs. Specifically he noted: 1. insolvency, which is defined to include the company being placed in liquidation, is an event of default: clause 15(g) Mortgage Memorandum (memorandum) (CB 60, 66); 2. the NAB's rights consequent upon a default include appointing an agent to act on NAB's behalf in the exercise of any powers: clause 16.1(g) memorandum (CB 60); 3. pursuant to the mortgage company must pay NAB's costs and any receiver's costs and remuneration in inter alia enforcing the mortgage: clause 13.2 memorandum (CB 59); 4. under the memorandum "costs" includes charges, fees and expenses and costs, charges and expenses in connection with advisors (including legal advisors in-house or otherwise) and reasonable expenses incurred by use of the staff and facilities of NAB: "keywords" provisions at the end of the memorandum (CB 66); and 5. the NAB's rights against the company are said to survive the discharge of the mortgage upon the completion of the sale of the property: clause 26.3 memorandum (CB 63).
3. It was further submitted that the NAB's interest in the surplus has priority over the interest of the company and any other person who may stake a claim: Plaintiffs' Submissions [17].
4. Mr Street on behalf of the liquidator did not suggest otherwise.

Determination of the plaintiffs' application

1. There is no suggestion on any of the materials that any party other than NAB has a secured interest in the surplus and in the funds.
2. There is no suggestion that the ATO, the current director Ms Kennedy, or any of the prior directors, have any claim to any priority over the plaintiffs' claim: T 6.
3. A mortgage/registered proprietor is the person primarily entitled to any surplus proceeds of sale after exercise by mortgagee of its power of sale. The mortgagee holds the surplus proceeds of sale, after satisfaction of the first mortgage liability, on trust for the registered proprietor but subject to any other secured interests: s 58(3) Real Property Act; Slieman at [15] citing Bank of New South Wales v Adams [1982] 2 NSWLR 659 at 663 - 665.
4. The mortgage provisions recited above provide that the company must pay NAB's costs and any receivers costs and remuneration in inter alia enforcing the mortgage: clause 13.2 memorandum.
5. The plaintiffs' claim relates to costs incurred of enforcement from late May 2022 to the end of August 2022, comprising the controllers' remuneration and expenses, legal fees and further amounts from 1 September 2022, including additional remuneration and expenses, legal fees, counsel's fees and Court fees connected with the finalisation of the Notice of Motion.
6. Mr Marsden asserts, and I have no reason to seriously doubt, that the amounts claimed are fair and reasonable: CB 41.
7. I am satisfied on the evidence that the plaintiffs' claim for payment out is appropriate and that there should be an order for payment out.

Liquidator's submissions

1. Mr Street submitted that the company as the registered owner of the property (prior to sale) is prima facie entitled to the funds (after the claim of the plaintiffs): CB 791[12].
2. Mr Street referred to what he described as "two theoretical wrinkles" arising from internal inconsistencies in the company's records as to its status as owner of the property arising from the various references to the SU Trust and the EPU Trust: CB 791[13].
3. Mr Street properly drew to the Court's attention the possibility of the property being held for the purposes of either the SU Trust or the EPU Trust referring to a notice to the liquidator dated 10 March 2021 from the Office of State Revenue and a land tax assessment notice dated 11 February 2021: CB 86 [72].
4. Mr Street referred me to the different forms of the contracts for purchase. He noted that it is unsurprising that there may be inconsistent documents in the context of the material in the ATO audit. In particular Mr Street submitted that the Court should accept the liquidator's opinion based on his investigations that the company owned the property in its own right and not as trustee and/or to prefer that opinion over the ad hoc documentary inconsistencies: CB 791[14].
5. In particular Mr Street highlighted the evidence of Mr Niccol (CB 86 [73]) which established that: 1. Mr Niccol had not located or been provided with any trust deeds to indicate that the company acted as trustee of any trusts; 2. the company's books and records do not include any details as to the beneficiaries of the SU Trust, the EPU Trust or any other trust; 3. the company did not maintain separate trust accounts or financial records that indicate that it was acting as trustee of any trust; and 4. various forms of contract (which I have noted above) had been prepared in a context where the ATO audit found that Mr Sgroi had communicated with the ATO in the false respects set out in its report: see CB 557 - 556.

Determination of the liquidator's application

1. The focus on payment out orders is to identify the person(s) who is/are beneficially entitled.
2. The principles which I have referred to above, in relation to indicia of beneficial interests, declaration of trusts and understanding of circumstances in which a trust may be claimed but is in reality a sham, all direct attention to the point of time at which any declaration of trust initially occurs (accepting that later events may in an evidentiary sense shed light on a declarer's intention at that time).
3. The liquidator's investigations and inquires have been directed to that end.
4. The earliest suggestion of any creation of the EPU Trust and SU Trust appears to be the references in the forms of contracts for purchase bearing date 8 August 2017: CB 644 and 686.
5. That begs the question as to what if any documentation or other material existed as at or before that time regarding such "trusts".
6. Mr Marsden made enquiries with the NAB and the liquidator to obtain a copy of a trust deed for either of the trusts. He was informed that neither had been able to locate copies of any trust deeds for the trusts: CB 15[36].
7. The liquidator issued notices pursuant to ss 530A and 530B Corporations Act to various parties to establish what books and records of the company existed. The notices were issued to a number of people but relevantly Ms Kennedy, Mr Sgroi, Ms Grant, Mr Vitale: CB 73-74.
8. A notice was issued also to Ms Jennifer Di Sano who appears to have acted as the company bookkeeper during the period in which the company was audited by the ATO. Ms Di Sano was also an authorised signatory of one of the company's three CBA accounts: CB 74-75.
9. In addition to the notices issued the liquidator specifically enquired with a number of parties as to whether they were in possession of any trust deeds relating to the company. The parties included the Office of State Revenue, the ATO, the Commonwealth Bank of Australia, the NAB, the Macquarie Group and CMN Lawyers: CB 74-75[19].
10. The liquidator formed the view that the company did not comply with its obligations to keep proper books and records under s 286 Corporations Act: CB 76.
11. One of the notices issued pursuant to ss 530A and 530B Corporations Act was to Mr Stefano Laface of AJL Legal: CB 74-75. The name "Stefano" of "AJL Legal" appears as the reference to the purchaser's solicitor on each of the four versions of the contracts in evidence.
12. AJL Legal have provided documents associated with the company's purchase of the property: CB 76.
13. The documents provided by AJL Legal do not include any trust deed: CB 82[55], 86[73].
14. The question is whether there was a declaration of requisite intention of any relevantly authorised person from the time of the first mention of a trust: Strang at [68].
15. At the time of the apparent dating or exchange of the contracts for purchase (8 August 2017) the director of the company was Ms Grant: CB 173. Ms Grant ceased to be a director of the company on 16 August 2017 (eight days after the date nominated on the contracts) and thereafter Mr Sgroi was appointed as a director: CB 173.
16. However, that is to be contrasted with material indicating that the company as supposed trustee for the EPU Trust was purportedly registered with the ATO as a fixed unit trust and also registered for GST on 3 July 2018 with an effective (back) date of 8 August 2017 and the authorised contact with the ATO as at 8 August 2017 was Mr Sgroi, not Ms Grant: CB 365.
17. The period of Ms Kennedy's directorship did not coincide with any time during which the events the subject of the audit occurred: CB 72.
18. Neither Ms Grant nor Mr Sgroi has appeared on this application. They have not produced any trust deed indicating the company was the trustee of any trust nor details of any beneficiaries of any such purported trusts: CB 82[55], 86[73].
19. Nor has the liquidator otherwise been provided with or located any trust deeds which indicate that the company acted as trustee of any trust or any details of any beneficiaries of any purported trust: CB 82[55], 86[73].
20. The property was in fact being rented during the period of time that was purportedly being developed by the company. The rent was being paid into one of the company three NAB accounts: CB 82[55]. That account is not styled as a trust account.
21. The title search discloses the company as the registered owner of the property and prima facie the legal owner: CB 188, T 7.
22. The inquiries of the liquidator regarding the purchase contracts reveal the four versions I have noted above. They are all in the same handwriting: CB 644, 684, 685 and 686; T 9. The writer (author) has not been identified.
23. The liquidator states that the contracts showing the company as purchaser as trustee for the SU Trust and the EPU Trust have been executed by both the vendors and purchaser: CB 84[69], 85[71]. However that does not accord with the versions of the front pages of the contracts exhibited.
24. The version of the contracts showing the company as trustee for the SU Trust has been signed only by the vendor: CB 644.
25. The two apparent counterpart versions of the contract with the company appearing as purchaser in its own right have been signed by the vendor and the purchaser: CB 684 and 685.
26. The version of the front page of the contract showing the company as purchaser as trustee for the CPU Trust is only signed by the purchaser: CB 686.
27. There are no identified trust accounts or financial records which would indicate that the company was trustee of any trust: CB 82[55].
28. None of the loan agreement, the GSA and the mortgage documents which all postdate the forms of contract for purchase the property reveal the company purchasing in other than its own capacity. The mortgage does not at any point refer to the company entering into the mortgage in its capacity as trustee of any trust: CB 84.
29. The form of contract of purchase with the company purportedly as trustee for the EPU Trust was provided to the ATO by Mr Sgroi on 18 July 2018, well after the time of exchange and completion, in support of a claim for GST credits: CB 85[(c)(iii)], 360, 561; T 9.
30. Later during the course of the audit the NAB supplied to the ATO on 7 November 2018 a copy of both the vendor and purchaser executed contracts indicating the company as purchaser in its own right without reference to the EPU Trust: CB 84 [66], 560.
31. For the SU Trust, Mr Marsden was not aware of its existence before receiving Land Tax Assessment Notices dated 11 February 2021 and 10 March 2021 from Revenue NSW: CB 14[33(a)].
32. For both trusts, there are references to outstanding income tax returns from the year ended 30 June 2018: CB 359, 424.
33. Cases such as this one arise from time to time in which there are some competing indicators as to whether a trust has been created. An example is the decision of the Court of Appeal in Hyhonie Holdings supra.
34. In that case the substantial evidence against an intention to create a trust was the passage of over five years, when (with small exceptions) all documents (including tax returns and annual returns of the company) that were created by a bankrupt (the shareholder of the company who had signed a declaration of trust witnessed by an accountant) and by two accountants were inconsistent with the existence of a trust, and consistent only with beneficial ownership of the shares by the bankrupt: Hyhonie Holdings at [46], [51].
35. Hodgson JA (with whom Mason P and Handley JA agreed at [1]-[2]) found that the indications relied on to prove the shares were held on trust (cheques paid, one minute of the meeting, accounts prepared just prior to the bankruptcy and instructions to stamp a document) were trivial and de minimis: at [50].
36. This case has in my opinion similar considerations.
37. On the whole, I find, as submitted by Mr Street that the inquiries of and conclusions drawn by the liquidator suggesting that the company purchased the property in its own right rather than as a trustee is persuasive against the few ad hoc references to trusts.
38. There was no evidence as to who inserted a handwriting on various forms of contract showing on the one hand the company purchasing simpliciter and on the other hand the company purchasing as trustee of the SU Trust and EPU Trust.
39. The fact that the substantial part of the funding for the property came from borrowed funds based on a contract provided to the NAB which named the company as purchaser in its own right is significant.
40. Despite the references to the SU Trust and EPU Trust there is no identifiable beneficiary of such trust on the evidence.
41. In the absence of any credible suggestion of any party being an identifiable beneficiary of the trust, I consider the company as the legal owner is entitled to the payment out order: T 10.
42. The DCT has no claim at this point. The DCT has lodged a proof of debt in the liquidation. That claim will be advanced and be dealt with in the context of the liquidation in the way that a liquidator would ordinarily deal with proof of debt claims. It is not part of the function of the Court to pre‑empt or deal with that at this point of time: T 11.
43. Having considered the evidentiary material and the submissions of Mr Street I am comfortably satisfied that within the meaning of the authorities there is no person other than the company who is primarily entitled to the funds.

Advice to the liquidator

1. The liquidator submits that the Court ought be satisfied that the company has the beneficial interest in the proceeds. However to avoid doubt the liquidator seeks directions that he would be justified in receiving the proceeds: Liquidator submissions [19].
2. The Court has power to give direction in relation to questions arising in respect of the external administration of the company: s 90-15(3)(a) Insolvency Practice Schedule (Corporations), being sch 2 to the Corporations Act. The liquidator has standing to make such an application as an officer of the company: s 9 Corporations Act; s 90-20(1)(d) Insolvency Practice Schedule (Corporations).
3. The principles in relation to applications for directions under s 90-15 were summarised by Rees J in In the matter of Courtenay House Capital Trading Group Pty Ltd (in liq) [2020] NSWSC 780; (2020) 147 ACSR 1 at [6] where her Honour stated: "The principles in relation to applications for directions were summarised by Black J in In the matter of Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [7]-[9] and Gleeson JA in In the matter of Hawden Property Group Pty Ltd (in liq) (ACN 003 528 345) (2018) 125 ACSR 355; [2018] NSWSC 481. The Court may give directions where it will be "of advantage in the liquidation": Dean-Willcocks v Soluble Solution Hydroponics Pty Limited (1997) 42 NSWLR 209 at 212; (1997) 24 ACSR 79 at 81 per Young J. The Court will not generally give a direction where the matter relates to the making or implementation of a business or commercial decision, when no legal issue is raised or where there is no attack on the propriety or reasonableness of the liquidator's decision but may do so where there is the prospect of such an attack: In the matter of 7 Steel Distribution Pty Limited (in liquidation) (receivers and managers appointed) [2013] NSWSC 669 at [20] per Black J; In the matter of Dungowan Manly Pty Limited (in liq) [2018] NSWSC 1083 at [17]. A direction protects the liquidators from liability for breach of duty or unreasonable behaviour if full disclosure is made to the Court: Re Daniel Efrat Consulting Services Pty Ltd (receiver appointed) (in liq) (1999) 91 FCR 154; [1999] FCA 412 at [13]; Re Ansett Australia Ltd (2001) 39 ACSR 355; [2001] FCA 1439 at [59]-[62] per Goldberg J; In the matter of Dungowan Manly Pty Ltd (in liquidation) (2017) 124 ACSR 218; [2017] NSWSC 1771 at [3] per Black J."
4. Mr Street submitted that it was appropriate to give such directions having the effect of a protective order having regard to the following considerations: "a. the Company did not properly maintain books and records which enhances uncertainties and elevates risk; b. the inconsistent documents the Liquidator has been able to obtain during the course of the liquidation and the limited reliability of those documents; c. whilst the Liquidator has endeavoured to identify and serve potential claimants in addition to the current director and secretary, it is inherently beyond the control of the Liquidator to identify an exhaustive list with absolute certainty; in other words, there may be further material "out there" which is presently not available to the Liquidator. For example, the Liquidator is not in a position to carry out more detailed investigations or public examinations (see Niccol at [31], CB1 p77). d. the Company appears to have been a vehicle through which Mr Sgroi attempted to mislead and deceive the ATO in relation to GST credits, as found by the DCT; e. the ATO found that Mr Sgroi had deliberately made a number of false and misleading statements to the ATO, at least one of which involved forging formal correspondence from Ryde Council; f. Mr Sgroi appears to have prepared documents which state that the Company acquired the Property, purportedly as the trustee of at least 2 different trusts as it suited him; and g. the fact that neither Mr Sgroi, nor any of the other current or former directors of the Company, have assisted the Liquidator with his investigations."
5. I accept those submissions.
6. Despite the fact that the preponderance of the material obtained by the liquidator points to the company purchasing the property in its own right and not as trustee, I accept that the liquidator has been faced with some elements of risk including the fact that the company did not properly maintain books and records and that some inconsistent documents have been unearthed during the liquidator's enquiries.
7. In the above circumstances I am satisfied that it is appropriate to advise the liquidator that he would be justified in dealing with the proceeds of sale as an asset of the company.

Orders

1. I requested counsel for both the plaintiffs and the liquidator to provide me with a proposed form of short minutes of order. They did that.
2. With a minor adjustment, it seems to me appropriate that those orders be made.
3. The orders that the Court makes are as follows: 1. Pursuant to r 55.11 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), the sum of $25,375.75 be paid to the plaintiffs from the sum of $913,705.63 which was paid into Court on 28 June 2022. 2. Pursuant to r 55.11 of the UCPR, subject to order 1 above, all funds be paid out of Court to Elegant Swan Pty Ltd (in liquidation) (controllers appointed) ACN 611 273 726 (Company). 3. Pursuant to Corporations Act 2001 (Cth), Sch 2, s 90-15, direct and advise that Ian Malcolm Niccol in his capacity as liquidator of the Company (Liquidator) would be justified in dealing with the funds referred to in order 2 as an asset of the Company. 4. The Liquidator's costs of the application be costs in the liquidation of the Company. 5. The exhibits are to be returned forthwith.

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