Reliance Financial Services Pty Ltd v Sunset 53 Pty Ltd

Background

1. The background to this matter is gleaned from the affidavit sworn 31 July 2018 of Ms Angela Delic (the sole director and secretary of both ASV and South Maroota).
2. In summary, these proceedings were commenced by Reliance Financial in 2013, shortly after Sunset 53 served a lapsing notice in respect of the caveat that had been lodged by Reliance Financial in June 2010 on the title to the South Maroota Property.
3. Reliance Financial claimed to be owed, by Sunset 53, a debt of $1,200,000 pursuant to a Deed of Acknowledgement and Security (the Security Deed) alleged to be have been executed on 23 July 2010 and an additional debt of $531,820 alleged to have been advanced to Sunset 53 in October and November 2010 for the purchase of the South Maroota Property. Reliance Financial claimed that Sunset 53's liabilities were secured by an unregistered charge or mortgage against the South Maroota Property, pursuant to the terms of the Security Deed.
4. In its defence, Sunset 53 denied that it entered into the Security Deed and did not admit that Reliance Financial had advanced any amount for the purchase of the South Maroota Property. In the alternative, by the first cross-claim, Sunset 53 and Mr Russo: sought a declaration that the Security Deed was void and an order that it should be set aside; or, alternatively, damages from CAP Accounting and an agent of that firm (Mr Sam Cassaniti), who were retained to incorporate Sunset 53. The damages claimed in the first cross-claim were in an amount equivalent to the amount of any liability of Sunset 53 under the Security Deed. Sunset 53 and Mr Russo relied on various grounds for this relief, based on the claim that Mr Russo had retained CAP Accounting to incorporate Sunset 53 as a "shelf company" to purchase the South Maroota Property as trustee of a newly created discretionary trust, the South Maroota Trust, which Sunset 53 would then hold on trust for its sole beneficiary, Mr Russo.
5. Mr Russo and Sunset 53 alleged that it was unconscionable conduct or negligent for CAP Accounting and Mr Sam Cassaniti to allow Sunset 53 to enter into the Security Deed, or to fail to disclose that Sunset 53 had entered into the Security Deed prior to the appointment of Sunset 53 as trustee of the South Maroota Trust and prior to Sunset 53's acquisition of the South Maroota Property. Sunset 53 alleged that Reliance Financial had knowledge of this unconscionable conduct on the basis of the knowledge of Mr David Cassaniti, who was the sole director of Reliance Financial, the sole director of CAP Accounting, the settlor of the South Maroota Trust, and the cousin of Mr Sam Cassaniti.
6. On 25 September 2017, Sunset 53 was removed as trustee of the South Maroota Trust and replaced by South Maroota. On the same date, Sunset 53 executed a transfer to South Maroota, as transferee, in respect of the South Maroota Property (the Transfer). South Maroota continues to hold that transfer, but it has not yet been registered.
7. On 29 November 2017, South Maroota entered into a loan agreement with ASV to pay out Sunset 53's liability to the Commonwealth Bank of Australia (which had been registered as first mortgagee over the South Maroota Property and was originally a party to these proceedings).
8. On 17 November 2017, South Maroota was joined to the proceedings as the third defendant and the Commonwealth Bank of Australia was removed as a party and replaced by ASV as the second defendant. ASV paid out the Commonwealth Bank of Australia mortgage on 29 November 2017.
9. By their defence in these proceedings, South Maroota and ASV: denied that Sunset 53 entered into the Security Deed; denied that any amount was owing under the Security Deed; and denied that any charge or mortgage under the Security Deed was enforceable (including on the ground that Sunset 53 did not enter into the South Maroota Trust, that trust not being settled until on or about 18 October 2010, some three months after the alleged entry into the Security Deed). By the second cross-claim, South Maroota sought declarations and orders to that effect, including declarations and orders for the removal of the caveat lodged by Reliance Financial and for the registration of the Transfer.
10. In its defence to the second cross-claim, Sunset 53 admitted each of the above matters and the allegation that Sunset 53 held the South Maroota Property on trust for the South Maroota Trust (see, in particular, the admissions from [22]; [26]-[36] in the defence to the second cross-claim). South Maroota and ASV rely upon those admissions for the purposes of the declaratory and other relief now sought.

First Cross-claim

1. As noted earlier, there was no appearance by Sunset 53 (nor was there any appearance by Mr Russo) at the hearing before me. Nor had there been any appearance for Sunset 53 at any of the directions hearings held in relation to this matter from September 2018 (namely, the directions hearings on 14 September 2018, 9 November 2018, 8 March 2019, 29 March 2019 and on 11 April 2019, when the matter was relisted for directions on the application of South Maroota and ASV at a time when the hearing was imminent).
2. Mr Russo, who was, as I understand it, the sole director and secretary of Sunset 53 prior to 6 September 2018, and who verified the first cross-claim and is a cross-claimant, as well as verifying the defence to the second cross-claim, has not appeared and now no longer appears to hold any office or position in relation to Sunset 53.
3. It is apparent from the Court file that both Sunset 53 and Mr Russo were represented by solicitors (Nelson McKinnon Lawyers) at the time of the filing of their amended first cross-claim in June 2015 (the solicitor on the record verifying the cross-claim as required pursuant to s 347 of the Legal Profession Act 2004 (NSW)). At the hearing on 15 April 2019, I was informed that a Notice of Ceasing to Act was filed by those solicitors in September 2018 and that (as is borne out by the Court file) no step has been taken in the proceedings by Sunset 53 or Mr Russo since the filing of their defence to the second cross-claim on 23 July 2018.
4. The matter was initially listed for hearing on 9 November 2018. There was no appearance for Sunset 53 or Mr Russo on that occasion and I directed the plaintiff (Reliance Financial) to notify those parties of the listing of the matter for hearing. There was no evidence before me on 15 April 2018 on behalf of Reliance Financial as to the steps, if any, taken in compliance with that direction. Nevertheless, as will appear from the following, it is clear that, at the latest by 8 April 2019, Sunset 53 was on notice that the matter had been fixed for hearing. I was satisfied that all reasonable attempts had been made in order to bring this listing to the attention not only of the company, Sunset 53, but also to the company's now current director.
5. The current ASIC record (annexed to an affidavit sworn 10 April 2019 by Ms Phoebe May Martin) discloses that the current sole director and shareholder of Sunset 53 is Ms Christine Franklin. Ms Martin has annexed to her 10 April 2019 affidavit copies of communications sent to Ms Franklin in relation to the proceedings. Also in evidence is an affidavit of service sworn 15 April 2019 by Mr Lucas Hampson, an office services assistant, deposing to the attempts that have been made to notify Sunset 53 of the listed hearing date in relation to this matter; including notification by letter dated 8 April 2019 to Ms Franklin, at the registered office of the company (the address of Wentworth Williams, a chartered accountancy firm), together with a subsequent email sent on 8 April 2019 by the solicitors acting for South Maroota and ASV to Ms Philomena Kyriacou, who is identified on the website of Wentworth Williams as a founding partner of that accountancy and financial advisory firm.
6. Ms Martin deposes that she had a telephone conversation with Ms Kyriacou on 8 April 2019 in which Ms Kyriacou requested that correspondence regarding the proceedings addressed to Sunset 53 be sent to her email address to forward to the director of Sunset 53. There is also annexed a copy of a letter dated 10 April 2019 from the solicitors acting for South Maroota and ASV to the current director of Sunset 53 at its registered office address. That letter (and further correspondence) was also hand delivered to the address specified in the ASIC records as the address of the current director of Sunset 53.
7. I was satisfied on 15 April 2019 that Sunset 53 and Mr Russo were absent parties within the meaning of that expression for the purposes of UCPR r 29.7 and, in circumstances where I was also satisfied that Sunset 53 had had notice of the listing of the hearing date by service, at the very latest, of the letter dated 8 April 2019 at the registered office of Sunset 53, I proceeded to deal with the matter on its merits. Insofar as Sunset 53 and Mr Russo are the moving parties on the first cross-claim, and had not attended Court to prosecute that cross-claim, I ordered pursuant to UCPR r 29.7(4) that the first cross-claim should be dismissed with costs.

Second Cross-claim

1. South Maroota and ASV rely upon the following admissions made by Sunset 53 in its defence to the second cross-claim: that Sunset 53 held the South Maroota Property on trust for the South Maroota Trust ([22]); that, on 25 September 2017, Sunset 53 was removed from the office of trustee of the South Maroota Trust and South Maroota was appointed as trustee of the South Maroota Trust ([33]); that, on 25 September 2017, Sunset 53 executed the Transfer in respect of the South Maroota Property and delivered it to South Maroota ([34]); that South Maroota holds the Transfer in its capacity as trustee of the South Maroota Trust ([42]); that, on 29 November 2017, ASV repaid Sunset 53's liability to the Commonwealth Bank of Australia ([36]); that ASV is subrogated to the Commonwealth Bank of Australia in respect of first registered mortgage number AF906215 ([43]); and, that ASV has a registrable interest as first mortgagee in the South Maroota Property ([44]).
2. South Maroota and ASV submit that all the relevant facts for the purposes of the declarations and orders sought are admitted on those pleadings. Reliance is also placed on the evidence contained at [40]-[42], [45], 52 and [63]-[77] of the affidavit sworn 31 July 2018 of Ms Delic and the transactional documents relating to the holding on trust of the South Maroota Property.
3. Ms Delic has deposed that: prior to his death on 20 January 2014, her late husband, Dennis, had run a construction business in NSW and Queensland ([5]); that her husband and his businesses had been in financial trouble ([6]); that Dennis had been made bankrupt ([6]; [11]); and that, after Dennis' death, she obtained certain documents in relation to, inter alia, the purchase of the South Maroota Property.
4. The evidence before me establishes that Sunset 53 was incorporated on 23 July 2010; its sole director and company officer at that time being Mr Zeljko Mitrovic (later, Mr Russo became the sole director and company officer). On that same day, the South Maroota Trust was established by a deed of settlement entered into between Mr David Salvatore Cassaniti as settlor and Sunset 53 as trustee (see CB 181). The "Appointer" named in the Deed of Settlement was Mr Angelo Russo. Mr Russo is the sole beneficiary under the Deed of Settlement. Under the Deed of Settlement, the trustee (Sunset 53) was given various powers including a power to give security over a trust property (see cl 6).
5. On 23 September 2010, Mr Dennis Delic and Mr Russo met with Mr Sam Cassaniti (see the minutes of meeting and agreement dated 23 September 2010 - CB 203). The minutes of that meeting recite by way of background that Mr Delic wanted to buy the South Maroota Property but considered himself "unable to obtain the necessary finance if the Property is in his name or if he is, directly or indirectly seen to have an interest in the Property". The minutes also recorded that Mr Delic was "wary about potential creditor claims". The minutes recorded that, because of this, Mr Delic and Mr Russo agreed that Sunset 53 as trustee of the South Maroota Trust should complete the sale of the South Maroota Property.
6. The minutes record the following agreement: (1) Russo agrees that the purpose of acquiring the Property is for use by Delic as he sees fit. (2) Consistent with (1), Delic promises to (directly or indirectly) meet all mortgage repayment obligations on the Property. (3) Russo agrees that to facilitate (2) above, the Company [Sunset 53] will enter into such lease of the Property as directed by Delic and that the income from that leasing will be applied towards the mortgage repayments. Delic agrees he is responsible to meet any gap. (4) Delic agrees to prevent Russo from any personal liability in acting as director of the Company as trustee of the South Maroota Discretionary Trust ("Trust") and in carrying out their agreement. (5) Russo agrees that the Company will deal with the Property as directed by Delic. Without limitation, this means that (if not done earlier) before completion of any sale, Russo will, as Appointor under the Trust and on behalf of the Company, change the General Beneficiaries under the Trust to those nominated by Delic and that the proceeds after discharge of all encumbrances, costs of sale and any liability of Russo associated with the Company and this agreement will be distributed in accordance with Delic's direction.
7. Thus the minutes record an agreement that Mr Russo would in effect treat Mr Delic as the appointor and the beneficiary of the South Maroota Trust and act in accordance with Mr Delic's directions.
8. In the first cross-claim, it was alleged that Sunset 53 was incorporated and appointed as trustee to hold the South Maroota Property in trust for Mr Russo. That, however, is inconsistent with the documentary evidence referred to above.
9. The fact that Mr Delic had been considering the purchase of the South Maroota Property in his own right (or through a company apparently associated with him) can be gleaned from various of the documents exhibited to Ms Delic's affidavit (including copies of sales advices initially disclosing the purchaser to be Delic Family Pty Ltd, and then amending the purchaser to that of Mr Delic himself). The contract for the sale of land dated 23 July 2010 (see the cover sheet as stamped at CB 207) bears successive corrections to the named purchaser - from Delic Family Pty Ltd to Mr Delic and then to Sunset 53 expressly as trustee for the South Maroota Trust.
10. On 27 September 2010, Mr Delic executed a personal guarantee in favour of the vendors of the South Maroota Property in respect of the obligation to pay the purchase price for the property "in consideration of" the vendors' agreement to allow Delic Family Pty Ltd to nominate Sunset 53 as trustee for the South Maroota Trust to take the place of Delic Family Pty Ltd as purchaser of the property.
11. It is submitted that whether or not, as alleged in the first cross-claim, the purpose of the incorporation of Sunset 53 was to hold this property on trust is an issue that does not here need to be resolved; it being sufficient to note that it is not disputed that Sunset 53 was incorporated on 23 July 2010.
12. Mr Mitrovic, the director of Sunset 53 who was appointed on its incorporation on 23 July 2010, signed the relevant 23 July 2010 deed with Reliance Financial. (In September 2010, Mr Mitrovic was replaced as director of Sunset 53 by Mr Russo.) The 23 July 2010 deed with Reliance Financial (Exhibit A) recited that it was intended that Sunset 53 be a property‑owning entity; and that the deed further stated that Sunset 53 was contracting in its personal capacity, and as capacity as trustee, including in capacity as future trustee, trustee of future trusts. Under the deed, the property held by Sunset 53 was charged as security for the performance of its duties. Pursuant to that deed, Sunset 53 acknowledged $1.2 million debt owing to Reliance Financial (both as original obligor and as guarantor), in circumstances where that $1.2 million debt had previously been incurred by entities associated with Mr Delic. Reliance Financial's claim in the proceedings was that in about September/October 2010, Reliance Financial made advances directly to Sunset 53 of about $500,000 (that it says are secured by that deed).
13. Although the South Maroota Trust was established by deed of settlement dated 23 July 2010, it appears that no property was settled on that trust until about September or October 2010. The acquisition of the South Maroota Property was completed on 4 November 2010 by Sunset 53, in its capacity as trustee.
14. On 15 June 2011, Reliance Financial Services NSW Pty Ltd (not the same named entity as Reliance Financial) lodged a caveat on the title to the South Maroota Property, claiming an equitable charge or constructive trust in respect of $250,000 it says it advanced for the purchase of the property. A lapsing notice was served by Sunset 53 on the address nominated in the caveat (namely that of ACP Accounting) and these proceedings were then commenced by way of an application to extend the caveat.
15. In 2014, Reliance Financial replaced Reliance Financial Services NSW Pty Ltd as trustee of the Reliance Discretionary Trust (see the amended statement of claim). See also Lemery Holdings v Reliance Financial Services (2008) 74 NSWLR 550; [2008] NSWSC 1344 where Brereton J, as his Honour then was, declared that Reliance Financial Services NSW Pty Ltd was appointed trustee of the Reliance Discretionary Trust in place of Reliance Financial on 26 June 2008 and that certain loans, the subject of other proceedings in this Court, are or were assets of the Reliance Discretionary Trust (see orders at [56]). In the course of his Honour's reasons, his Honour noted that the effect of s 9 of the Trustee Act 1925 (NSW) is that trust assets, other than those specifically exempted, vest upon execution and registration of the deed of appointment (of the new trustee) without any necessity for a vesting order (see [53]) and noted that, in principle, a former trustee does not have a right to retain, against a new trustee, the trust assets. Reliance Financial Services NSW Pty Ltd has now been deregistered.
16. In September 2017, Sunset 53 was removed as trustee and replaced by South Maroota; and also at that time ASV paid out the Commonwealth Bank of Australia debt owed by Sunset 53 and, pursuant to orders made by Darke J, was joined to the proceedings.
17. South Maroota filed its defence and cross-claim, denying that the deed with Reliance Financial was entered into, but pleading in the alternative that if it was entered into then it was entered into by Sunset 53 in its personal capacity, not in any capacity as trustee of the South Maroota Trust, and that Sunset 53 could not, in respect of its indemnity, be indemnified from the trust assets. It was asserted that equity would not enforce the charge under this deed in circumstances where, to the knowledge of the parties, no such trust existed at the time the deed was entered into. (South Maroota has also denied any liability of the Delic companies for any outstanding debt but this is not an issue necessary here to resolve.)
18. As to the relief sought, concern was raised as to the difficulty of obtaining a withdrawal of the caveat (notwithstanding the agreement of Reliance Financial to its removal) in circumstances where the entity named as caveator is not the same as the entity that has agreed to the withdrawal of the caveat.

Determination

1. Having regard to the documentary material in evidence before me and the admissions made by Sunset 53 in its verified pleading, I was satisfied on 15 April 2019 that it was appropriate to make the declarations and grant the relief sought by South Maroota and ASV in respect of the second cross-claim, in order to: finalise the proceedings; avoid any further dispute arising between Sunset 53, South Maroota and ASV regarding their dealings affecting the South Maroota Trust; and ensure that the South Maroota Property vests in South Maroota as trustee of the South Maroota Trust. In that regard, I note that by s 9(3) of the Trustee Act 1925 (NSW) the South Maroota Property will not vest until the Transfer is registered or an entry of vesting is made by the Registrar-General.
2. I accepted that the admissions made by Sunset 53 in its defence to the second cross-claim were sufficient to establish: first, that Sunset 53 held the South Maroota Property on trust for the South Maroota Trust; second, that Sunset 53 was removed from the office of trustee on 25 September 2017 and South Maroota was appointed as trustee; third, that Sunset 53 executed a transfer of the South Maroota Property on 25 September 2017 and the transfer was delivered to South Maroota on the same day; fourth, that the transfer is held by South Maroota in its capacity as trustee; fifth, that ASV Consultancy repaid Sunset 53's liability to the Commonwealth Bank of Australia with the consequence that it is subrogated to the Commonwealth Bank of Australia in respect of first registered mortgage number AF906215; and, finally, that ASV retains a registrable interest as first mortgagee in the South Maroota Property.
3. Further, I accepted the submission made on behalf of South Maroota and ASV that it is undesirable to appoint new trustees and, at the same time, leave another person not in the position of a trustee in the possession of the trust fund (see Re Pauling's Settlement Trusts (No 2) [1963] Ch 576 (Wilberforce J)). I further accepted the submission that, in the circumstances, such orders would not cause any relevant prejudice to Sunset 53, as a former trustee does not have a right to retain trust assets against a new trustee.
4. Further, as I have observed, all the assets of Reliance Financial Services NSW Pty Ltd, which has been deregistered, have vested in Reliance Financial and, as a result of a partial settlement of the proceedings being reached, Reliance Financial, each of South Maroota and ASV has consented to the removal of the caveat.
5. Accordingly, for the above reasons, on 15 April 2019 I made the following declarations and orders: (1A) Dismiss with costs the first cross-claim. 1. Declare that South Maroota Farm Pty Ltd was appointed as trustee of the South Maroota Discretionary Trust in place of Sunset 53 Pty Ltd on 25 September 2017. 2. Declare that the property situated at and known as 55 Gallaghers Road, South Maroota in the State of New South Wales (South Maroota Property), being land with the folio identifier Lot 3 of deposited plan 811961, is an asset of the South Maroota Discretionary Trust. 3. Discharge with immediate effect the order made by consent on 18 November 2013 for the extension of caveat no AG300964J. 4. Declare that, on the making of order 3 above, caveat no AG300964J lapses pursuant to s 74LA of the Real Property Act 1900 (NSW). 5. Direct the Registrar General to remove caveat no. AG300964J from the title (folio identifier Lot 3 of deposited plan 811961). 6. Direct that the third defendant serve a copy of these orders as soon as practicable on the Registrar General. 7. Order that Sunset 53 Pty Ltd do all things necessary to facilitate the registration of the transfer dated 25 September 2017 annexed to these orders and marked "A" (Transfer). 8. Order that the Transfer be registered on the Register maintained by the Registrar-General under s 31B of the Real Property Act 1900 (NSW). 9. Declare that upon registration of the Transfer the South Maroota Property vests in South Maroota Farm Pty Ltd. 10. Declare that ASV Consultancy Pty Ltd has a registrable interest as first mortgagee in the South Maroota Property pursuant to a Deed of Loan dated 29 November 2017 entered into with South Maroota Farm Pty Ltd. 11. Order that the proceedings otherwise be dismissed, with no order as to costs (save as to the order for costs made on the dismissal of the first cross-claimant's cross-claim). 12. Order that these orders be entered forthwith. 13. Direct that the second and third defendants serve a copy of these orders on the first and second cross-claimants to the second cross-claim by service at the registered office of the first cross-claimant.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 May 2019