Plaintiff v First Defendant

Supreme Court of Victoria|2010-06-07|Before: WARREN CJ

TRUSTS - Declarations - whether appointment of trustee valid - whether vesting of real property in designated unit trust valid - whether plaintiff had standing to make application - court's inherent power to make orders vesting property -Trustee Act 1958 s 51(2).

2 The application is made with some urgency because the mortgagee of the property for which the vesting order is sought has served a demand for repayment on the third defendant. The demand compliance date has recently expired. The mortgagee, Perpetual Nominees Ltd ('Perpetual'), was joined as a party to the application. It was represented by counsel who informed the court that Perpetual neither consented to, nor opposed, the application.

3 There is a long and litigious background to the application. I will address that background so far as presently relevant, however, the detailed factual history is largely contained in previous judgments of this court.[1]

4 A number of affidavits, including exhibits, were before the court. The affidavits filed by the third defendant included affidavits sworn by Pasquale Lanciana on 19 May 2010 and 3 June 2010, and an affidavit sworn by Anthony Joseph Basilone on 28 May 2010. The plaintiff had filed three affidavits sworn by Antonio Gangemi on 28 May 2010, 1 June 2010 and 4 June 2010. The third defendant objected to the last of these affidavits on the grounds that it was served late and was irrelevant. Perpetual filed affidavits sworn by Boris Pogoriller on 28 and 31 May 2010.

5 I turn to the relevant facts. In 1997, Pasquale Lanciana engaged the services of Mr Gangemi on behalf of Aneal Residential Pty Ltd now known as 'Pre-Need Services Australia Pty Ltd', who is the fifth defendant. Mr Gangemi was hired to work as a builder and supervisor of the redevelopment of a property owned by the fifth defendant at Kororoit Creek Road, Williamstown. The redevelopment was completed in about 1999. Mr Gangemi was at all relevant times the sole director and shareholder of the plaintiff, Bloomingdale Holdings Pty Ltd ('Bloomingdale').

6 In mid-2000, the property at 86 Mitchell Street, Maidstone, was purchased and registered in the name of 'Clapana Pty Ltd' ('Clapana') as the trustee of the Mitchell Street Unit Trust. Originally, Clapana was the trustee of the Mitchell Street Unit Trust and is still registered as the proprietor of the Mitchell Street property. The Mitchell Street property was at all times held by Clapana in its capacity as trustee of the Mitchell Street Unit Trust.

7 On or around 4 May 2001, Clapana entered into a written loan agreement with Perpetual, having borrowed funds to enable it to complete the purchase of the Mitchell Street property. As security for the loan, Clapana provided Perpetual with a first registered mortgage dated 4 May 2001 over the Mitchell Street property.

8 On or around 30 January 2002, 87 Stevedore Street Pty Ltd was incorporated. At that time, Mr Gangemi was issued one share in the company. He was appointed the sole director and secretary of the company. Following completion of the Kororoit Creek Road development, other properties were purchased using various corporate and unit trust structures. Those properties included the property known as the Stevedore Street property and the property known as the Mitchell Street property.

9 However, by about early-May 2003, the business relationship between Mr Gangemi and Mr Lanciana had broken down. From about July 2003, the main parties entered into negotiations which culminated when Mr Gangemi, the plaintiff Bloomingdale and Mr Lanciana entered into an agreement entitled 'Heads of Agreement' (the 'heads of agreement') dated 9 September 2003. The heads of agreement resolved and settled the matters set out in it. A copy of it was exhibited to Mr Lanciana's affidavit dated 19 May 2010.

10 By clause 6 of the heads of agreement, Mr Gangemi and Bloomingdale were required to transfer to Mr Lanciana any units in the Mitchell Street Unit Trust held by them. A copy of the instrument of transfer for the transfer of the units executed by Mr Gangemi in his capacity as the director of Bloomingdale was exhibited. It was the subject of controversy to which I will return. It was the position of Mr Lanciana that as a consequence of the heads of agreement, neither Mr Gangemi nor Bloomingdale held any interest in the Mitchell Street property or any units in the Mitchell Street Unit Trust.

11 On 1 October 2004, Clapana was placed into liquidation before being deregistered on 2 March 2005. Ultimately, the main parties became involved in protracted proceedings instituted by the plaintiff. As a result of those proceedings, and other related proceedings, undertakings were provided on 19 July and 26 July 2005 by Mr Lanciana to the court not to deal with the Mitchell Street property. Meanwhile, Clapana remained on title as the registered proprietor of the Mitchell Street property.

12 The undertakings provided by Mr Lanciana were in the following form:

(a) that 87 Stevedore Street Pty Ltd, Michie Investments Pty Ltd and Pasquale Lanciana by their counsel undertake that they will not whether by themselves or by their servants or agents or howsoever otherwise take any steps to transfer, encumber or otherwise deal with:

(i) the property situate at 87 Stevedore Street, Williamstown being the property more particularly described in Certificate of Title Volume 17634 Folio 908;

(ii) the property situate at 86 Mitchell Street, Maidstone being the property more particularly described in Certificate of Title Volume 10464 Folio 006;

(iii) any units in the Stevedore Street Development Unit Trust;

(iv) any units in the Mitchell Street Unit Trust;

until 4.00pm on 26 July 2005 or further order; and

(a) that 87 Stevedore Street Pty Ltd, Michie Investments Pty Ltd and Pasquale Lanciana by their counsel undertake that they will not whether by themselves or by their servants or agents or howsoever otherwise take any steps to transfer, encumber or otherwise deal with:

(i) the property situate at 87 Stevedore Street, Williamstown being the property more particularly described in Certificate of Title Volume 17634 Folio 908;

(ii) the property situate at 86 Mitchell Street, Maidstone being the property more particular described in Certificate of Title Volume 10464 Folio 006;

(iii) any units in the Stevedore Street Development Unit Trust;

(iv) any units in the Mitchell Street Unit Trust.

13 Ultimately, the litigation proceeded to trial before Hargrave J.[2] His Honour held that the heads of agreement was valid, binding and enforceable and altered various rights between both the parties to it and the parties who subsequently relied upon it.[3]

14 Having taken the opportunity to consider the judgment of Hargrave J, it is apparent from the reasons for judgment that the case turned on the credit of the principal witnesses. There was the evidence of Mr Gangemi against that of Mr Lanciana, one Mr Osborne and one Mr Jafari. Hargrave J, of course, had the benefit of hearing all these witnesses to form his views. His Honour made adverse findings against both Mr Gangemi and Mr Lanciana, however, notwithstanding the referral of various taxation issues to the Attorney-General, his Honour stated that he found Mr Lanciana to be an, 'impressive witness'.[4]

15 A great deal of argument was made before me that related to the credibility of the parties, and the caution that I should apply to the orders sought in light of the adverse findings made by Hargrave J with respect to both Mr Gangemi and Mr Lanciana. In any event, the reasons for judgment of Hargrave J stand, and this is not the occasion for them to be revisited.

16 On 28 June 2008, Mr Gangemi and Bloomingdale filed a notice of appeal against the judgment and the orders of Hargrave J, attacking his Honour's findings of fact and law. The judgment of Hargrave J was upheld on appeal. The Court of Appeal dismissed all the grounds of appeal concerning the alleged invalidity of the heads of agreement.[5]

17 Following this, on about 5 March 2010, the parties to this proceeding, and, it seems, several other related proceedings issued in the Supreme Court and also the Federal Court of Australia, executed a deed of settlement (the 'deed').

N. Bloomingdale and Gengemi have agreed that an instrument whereby Bloomingdale's unit in the Mitchell Street Unit Trust was transferred to Lanciana, previously disputed, was effective in transferring that unit.

O. Bloomingdale and Gangemi have agreed that Lanciana, Michie and their privies are the sole persons entitled to deal with the Mitchell Street Unit Trust and the property at 86 Mitchell Street Maidstone.

P. The parties have agreed to settle the Proceedings and claims on the terms of this Deed.

19 Following the execution of the deed, Mr Lanciana incorporated a new company, Percy & Michele Pty Ltd. His son, Daniel Leigh Lanciana, is the director and secretary of the company. Mr Lanciana holds 95 shares in the company, and his former wife Michelle Riddiford holds the other five issued shares. Mr Lanciana deposed in his affidavit that the shareholding in the new company reflected the shareholding in Clapana. On 24 March 2010, the company resolved to accept an appointment to be the trustee of the Mitchell Street Unit Trust. A copy of the resolution passed by the company was exhibited.

20 Also on 24 March 2010, Mr Lanciana, as the sole unit holder of the Mitchell Street Unit Trust, resolved to appoint Percy & Michelle Pty Ltd as the new trustee of the Mitchell Street Unit Trust. A copy of the resolution was exhibited. A deed of appointment was also executed whereby Mr Lanciana, in his capacity as the sole unit holder in the Mitchell Street Unit Trust, appointed Percy & Michelle Pty Ltd to be the trustee of the Mitchell Street Unit Trust. On 3 May 2010, Perpetual served a notice of default pursuant to s 76 of the Transfer of Land Act 1958 (Vic).

21 Under that notice, demand was made for the repayment to Perpetual of the sum of $1,960,943.71 within 30 days of the date the notice was served. Since the deed was executed, Mr Lanciana deposes he has attempted to arrange refinance of the loan from Perpetual. The appointment of a new trustee, not in liquidation as Clapana is, is a necessary step in that process.

22 The applicant seeks declarations that Percy & Michele Pty Ltd has been validly appointed as trustee of the Mitchell Street Unit Trust, and that the property situate and known as 86 Mitchell Street, Maidstone vests in Percy & Michele Pty Ltd as trustee of the Mitchell Street Unit Trust.

23 In order to give practical effect to the declarations and provide further certainty, the applicant also seeks a vesting order under s 51(2) of the Trustee Act 1958 (Vic) (the 'Act'), to vest the Mitchell Street property in a new trustee company incorporated for the purpose of taking over as trustee of the Mitchell Street Unit Trust.

24 Property may be vested in any person by a vesting order made by the Supreme Court under the powers contained in s 51 of the Act, or under the courts' general equitable jurisdiction, without a conveyance, transfer or assignment. The court may make a vesting order in the circumstances set out in s 51(2) (b),(h) and (o) of the Act:

(b) where a new trustee has been appointed out of court under any statutory or express power;

(h) where a trustee being a corporation is dissolved; [and]

(o) where property is vested in a trustee and it appears to the Court to be expedient to make a vesting order.

25 Paragraph 51(2)(h) statutorily obviates the difficulty which has arisen when a company has completely dissolved, but still has property in its name of which it was an express or constructive trustee. Upon deregistration, all property held on trust vests in the Commonwealth,[6] but pre-existing rights and interests are preserved and the jurisdiction under this paragraph, as well as the court's inherent jurisdiction to make vesting orders, is enlivened.[7] Section 52(6) makes provision for the creation by the court of estates which have been determined on dissolution of the corporation in question so that an effective vesting order can be made by the court.

26 When dealing with vesting applications, the courts approach them with the principles of practicality, flexibility and expediency in mind. The statutory provisions are not regarded as exhaustive of the court's jurisdiction. The court's jurisdiction to appoint and make vesting orders in circumstances such as the present is intended to be applied in circumstances where it is inexpedient, difficult or impractical for other steps to be taken.[8] Where a trustee, being a corporation, has been dissolved or in other ways ceased to exist, the courts have taken a pragmatic approach.[9]

27 It is provided in all Australian states that the fact that a vesting order is founded or purports to be founded on an allegation of the existence of certain matters referred to in the course of the application shall be conclusive evidence of the matters so alleged in any court upon any question as to the validity of the order. The court therefore requires clear evidence of the factual basis upon which it is asked to make a vesting order.[10]

28 The court's attitude to a petition for a vesting order will depend to some extent on the propriety of the case before it, the assiduity with which the evidence, including any documentary evidence, has been assembled, and the need for the relief sought.[11]

29 The plaintiff opposes the making of the orders on two grounds. First, there is outstanding capital gains tax and stamp duty that must be assessed and paid for, which, as a result of clause 4(c) of the heads of agreement (as continued by clause 6 of the deed), affects the plaintiff. Secondly, the relevant transfer is not before the court in a stamped form and, in any event, the identify of the transferee is blank. In this regard, the plaintiff called for the production of the original transfer. I will return to this matter. Finally, there is uncertainty, even dubiousness, surrounding the income and expenditure of the trust. In this regard, various accounts were focused upon, and the point was made that the accounts, including rental accounts, need to be produced.

30 The court is urged to approach Mr Lanciana's affidavits with caution due to, first, the negative findings against him by Hargrave J (particularly his non-payment of taxation and revenue obligations) and, secondly, the revelation from exhibited materials that Mr Lanciana has illegally operated a company account as a director when he was barred from doing so.

31 It is submitted that the proper course is for Clapana to be reinstated. In this regard, I note that the Australian Securities and Investments Commission was served with the relevant summons consistent with s 601AD of the Corporations Act 2001 (Cth), but has not made an appearance.

32 In my view, the first issue is whether the plaintiff has standing to make its submissions. Generally speaking, it is not unusual for vesting order applications to be made ex parte. It may be observed in this context, rather than instituting the application by summons under the existing proceeding, one option open to the applicant was to institute separate proceedings seeking declaratory relief in the nature of the vesting provisions of the Act. Doubtless, the third defendant was concerned by the history between Mr Gangemi and Mr Lanciana as to the prudence of such a course, and ultimately concluded to proceed by way of summons on the basis of the existing proceedings. In light of the terms of the agreement as construed by Hargrave J, the terms of the deed, and the effect of those documents, the interests of the plaintiff have been largely displaced.

33 It is curious that the plaintiff seeks to agitate, as it does, in the face of the heads of agreement and the terms of settlement contained in the deed to which it has already agreed. Counsel for the plaintiff argued forcefully with respect to the taxation, revenue and accounting issues raised. However, the court is not the agency responsible for those matters. If there is concern or disquiet it should be referred to the appropriate authorities. On an application of this nature, it is not enough to make assertions and rely upon adverse findings made previously by another judge, more so where that judge has already referred the matter to the relevant authority through the Attorney-General.

34 I am not aware of what steps, if any, have been taken in that regard. The parties did not canvass the matter with me. Indeed, on the face of things, and for the purposes of exercising the present discretion, most of the complaints made by the plaintiff are irrelevant and/or tantamount to frustrating the heads of agreement and the terms of the deed. A number of matters were raised both in the affidavits of Mr Gangemi, and in the course of submissions, that I would regard as irrelevant in the present context.

35 I note that clause 6 of the deed expressly confirmed and continued the indemnities already provided by Mr Lanciana by clause 4(c) of the heads of agreement. It seems that whatever liability that indemnity covers, that liability and indemnity have been continued. It was not suggested to the contrary in the course of submissions. Neither Mr Gangemi nor the plaintiff would be entitled to place themselves in any better position than they are under already pursuant to the heads of agreement.

36 Furthermore, whether Clapana was or was not validly replaced as trustee is now irrelevant to the plaintiff. It does not have any legal or other interest in any issue as to the validity or otherwise of that dispute. The sole owner of the units in the Mitchell Street Unit Trust may, and has, appointed a new trustee. Clapana ceased to be the trustee upon its dissolution. In addition, the fact that Mr Lanciana collected rent from the Mitchell Street property, is as matters now stand, not relevant to the plaintiff.

37 As the heads of agreement were held to be valid by Hargrave J, and his Honour's findings were confirmed on appeal, any interest held by Bloomingdale in that trustee property was transferred to Mr Lanciana's interest in at least December 2003. Although it is not necessary for me to find as such, I would observe that Mr Lanciana was therefore on one view not obliged to account to Bloomingdale or Mr Gangemi since September 2003 for money received from the rent of the Mitchell Street property.

38 I note further that it is not necessary in this application for Mr Lanciana to provide any detailed accounts as asserted by Bloomingdale. It is a matter for the new trustee of the Mitchell Street Unit Trust and the sole beneficiary to deal with any such issues. The plaintiff has no legal or other interests to advance. Indeed, in my view, the plaintiff has not made out any detriment, nor was it seriously suggested as such in the course of submissions.

39 It was asserted for Mr Lanciana that the vesting order and refinancing of the property does not affect any indemnity provided to Mr Gangemi and Bloomingdale. In fact, if the property redevelopment can be saved, Mr Lanciana's asset position will improve and thereby, it was argued, his indemnity would be all the more valuable. However, having explored these matters, which I consider to be irrelevant, there remain other important matters that weigh in the exercise of the discretion. The deed of settlement was binding and took effect immediately. It contained important recitals that were intended to end various disputes between the parties, I note in particular recital P. I have already observed the actions taken by Mr Lanciana following execution of the deed of settlement.

40 In the course of submissions, counsel for the third defendant drew my attention to particular recitals contained in the deed and argued that two matters arose. First, that recitals N, O, P and clause 2[12] of the deed constituted an admission against interest as to the matters admitted, which in turn created an estoppel against Mr Gangemi and the plaintiff from raising those matters again. Emphasis was also placed on clause 7.1 of the deed[13] which was said to constitute an additional bar. Further emphasis was placed upon clause 5.2 of the deed, whereby the parties mutually released each other from all claims.[14]

41 It is not necessary for me to form a view as to the creation of an admission against interest or an estoppel in this context. However, the matters recited in the various provisions I have adverted to are factors appropriately taken into account in the exercise of the discretion and the weighing up of all the matters before the court. I note that Mr Lanciana asserted in his affidavit that the filing of Mr Gangemi's affidavit in opposition constituted a breach of clause 7.3 of the deed[15] which required the parties not to do anything inconsistent with the intentions demonstrated by the deed and their obligations under it.

42 Further reliance was placed on clause 8.2 of the deed[16] whereby the parties committed to do all things necessary to give effect to it. Again it is not necessary for me to reach a definitive view on these matters, however, they are factors in the general weighing of the discretion.

43 Ultimately it was urged on behalf of Mr Lanciana that Mr Gangemi, through his affidavits, sought to re-agitate disputed matters that were settled by the deed, as well as matters that were substantially the subject of a trial in this court before Hargrave J, and which were later the subject of an unsuccessful appeal of Hargrave J's first instance decision.

44 I am so persuaded. The various principles with respect to the application of documents such as the deed are set out in the relevant authorities.[17] The formal contract records the parties' bargain, and if they later find the bargain to be less than satisfactory then it is something they must wear.[18]

45 There are two remaining matters to be addressed. It appears that the original exhibit constituting the transfer was before the Court of Appeal. The court records show it was returned to and signed for by solicitors for the plaintiff. Neither of the parties have the document at this time. The plaintiff called for production of the transfer. It is not a matter for the court to investigate. There is no evidence of the destruction of the documents, it is simply a case that the document cannot be found. Ultimately, it comes back to the terms of the heads of agreement and the deed. In my view no adverse inference or finding should be drawn in the circumstances. Secondly, there is the matter of the third affidavit of Mr Gangemi (4 June 2010). The affidavit does not assist me and is irrelevant to the substantive issue before the court.

46 There is a significant issue in the exercise of the discretion, namely, the facilitation by this court of the heads of agreement and the deed in light of the judgment of Hargrave J at first instance in Bloomingdale Holdings, and the subsequent affirmation of that decision by the Court of Appeal in Gangemi. The making of the vesting order in my view would be consistent with such facilitation.

47 Finally, I note that the plaintiff in its submissions to the court did not satisfactorily explain why it appeared and complained as bitterly as it did about the process and the matters underlying the processes of the third defendant, whilst it had taken no action against the third defendant. As pointed out by counsel the effect of the submissions of the plaintiff was tantamount to stifling the appointment which would enable the terms of the deed to proceed. At no stage have I been alerted to any action, as part of this proceeding or otherwise, by the plaintiff where it has sought to restrain the third defendant, or in any other way challenge the deed or other arrangements between the parties.

48 Whilst it is not a matter of itself ultimately determinative of the proceeding, it is a factor appropriately to be taken into account in the exercise of the discretion. It follows that I am satisfied that the discretion should be exercised and I will make the orders sought by the third defendant.

[1] Bloomingdale Holdings Pty Ltd v 63 Buckley Street Pty Ltd [2008] VSC 168 ('Bloomingdale Holdings') and Gangemi v Osborne & Anor; Bloomingdale Holdings Pty Ltd & Anor v 63 Buckley Street Pty Ltd & Ors [2009] VSCA 297 ('Buckley Street').

[5] See Gangemi v Osborne [2009] VSCA 297 ('Gangemi').

[7] Re Cenco Holdings Pty Ltd [2005] NSWSC 293; (2005) 53 ACSR 484, [24]-[25].

[8] Trustees Act 1958 (Vic) s 51(2). See also, H. A. J. Ford and W. A. Lee, Principles of the Law of Trusts (3rd ed, 1996) 8460.

[9] See in Re General Accident Assurance Corporation Ltd [1904] 1 Ch 147, followed in Re Clark and Solomons' Agreements Trusts [1905] 5 SR (NSW) 498.

[10] See Re Hayward's Settlement [1884] VicLawRp 6; (1884) 10 VLR Eq 38.

[11] Casella v Casella [1969] VicRp 8; [1969] VR 49; Re Bennett [1954] QWR 52.

[12] 'The parties covenant and declare that the recitals to this Deed are true and correct to the best of their knowledge and form part of the agreement set out in this Deed.'

[13] 'The Parties and each of them may plead this Deed as a bar to any action or proceedings brought by or involving one party against the other where relief, damages or payment of money is sought directly or indirectly by one party from the other in relation to any of the matters alleged in the Proceedings.'

[14] 'Subject to and in consideration of the Terms of Settlement in this Deed, the Parties mutually release and forever discharge each other from all claims, actions, proceedings, suits demands, costs (including all outstanding orders for costs and any reserved costs) and expense of every description whatsoever which he, she or it may have, may have had or may in the future have, and any and all rights they may have but for this Deed of Settlement against each other concerning or arising out of the Proceedings or in any way related to the subject matter of the Proceedings.'

[15] 'The parties must not do any act or thing or sign any document that is inconsistent with the intentions demonstrated by this Deed and their obligations thereunder.'

[16] The numbering in the deed of settlement is erroneous. The parties include a clause 8.2, when in fact it should be numbered clause 7.2. In the following clause they move directly from clause 7 to clause 9. For convenience this erroneous numbering system is adopted.

[17] Carpenter v Buller [1841] EngR 552; 151 ER 1013, 1014; Young v Rangock [1849] EngR 314; 137 ER 124, 135; Greer v Kettle [1938] AC 156, 171.

[18] Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101, 1109 (Lord Hope).

At a glance

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Judgment (71 paragraphs)

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