Introduction
By summons filed on 7 May 2019, Riva NSW Pty Limited (Riva) applied for leave to appeal from orders made on 7 February 2019 by a judge of the Equity Division (the primary judge). The proceedings in question are concerned with the conduct of the respondent, the Official Trustee in Bankruptcy (the Official Trustee), in relation to a property situated in Point Piper (the Property). The Property was purchased in 2000 by Gustavo Ferella and Angelo Ferella (together the Ferellas) as trustees of the Cavallino Unit Trust (the Trust). The purchase of the Property was financed by a loan made to the Ferellas in their capacity as trustees of the Trust by Key Nominees Pty Ltd (Key). The repayment of the loan was secured by a mortgage over the Property in favour of Key (the Mortgage). On 19 April 2005, the Ferellas resigned as trustees of the Trust and Riva was appointed as trustee of the Trust.
- In February 2006, arrangements were being made for the refinancing of the loan to Key. Riva claims that representations were made by or on behalf of the Official Trustee to the effect that the Property was vested in the Official Trustee and that no one else was authorised to deal with the Property. Riva alleges that that conduct resulted in the refinancing falling through, with the consequence that the estate of the Trust suffered loss.
- By statement of claim filed on 2 March 2018, Riva claimed from the Official Trustee equitable damages and compensation for breach of trust and equitable damages and compensation from the Official Trustee. By notice of motion filed 6 July 2018, the Official Trustee sought orders, pursuant to r 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), that judgment be entered for the Official Trustee and, in the alternative, that Riva's statement of claim be struck out pursuant to UCPR r 14.28. In the further alternative, the Official Trustee claimed an order, pursuant to s 67 of the Civil Procedure Act 2005 (NSW), that the proceedings be permanently stayed.
- On 7 February 2019, for reasons published on that day, the primary judge made orders that judgment be entered for the Official Trustee, that Riva's statement of claim be struck out and that the proceedings be permanently stayed. In addition, the primary judge ordered Riva to pay the Official Trustee's costs. The propriety of making all three of the substantive orders claimed may be questionable. However, no question has been raised as to the relief granted.
- The proceedings before the primary judge constituted the latest step in a series of proceedings in which the actions of the Official Trustee in relation to the Property have been impugned. The disputation dates back to 14 October 2005, when sequestration orders were made in relation to the estates of the Ferellas and the Official Trustee was appointed as trustee of their estates.
- However, on 19 April 2005, the Ferellas resigned as trustees of the Trust and Riva was subsequently appointed as trustee in their stead. Notwithstanding the change of trustee, no steps were taken to transfer to Riva the legal title to the Property, which is under the provisions of the Real Property Act 1900 (NSW). Hence, when the sequestration orders were made, the Ferellas were still the registered proprietors of the Property.
- By deed dated 9 February 2006, Riva purported to resign as trustee of the Trust and Agusta Pty Ltd (Agusta) was purportedly appointed as trustee of the Trust. It is now common ground that the purported resignation and appointment were ineffective, with the consequence that Riva has remained as the trustee of the Trust at all times since its first appointment.
- On 11 April 2006, Key sold the Property in the exercise of power of sale under the Mortgage. The net proceeds of sale, after repaying the loan secured by the Mortgage and paying other expenses, amounted to $1,742,030.39. That sum was paid to the Official Trustee, who claimed to be entitled to the proceeds on the basis that the Property was beneficially owned by the Ferellas. If it had been beneficially owned by the Ferellas, their interest in the Property would have vested in the Official Trustee under the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). However, by the operation of s 116(1)(a) of the Bankruptcy Act , the Property, as an asset of the Trust, did not vest in the Official Trustee.
- The allegations made in Riva's statement of claim in the present proceedings may be restated as follows:
- The Official Trustee, as trustee in bankruptcy of the Ferellas, being the registered proprietors of the Property, was a constructive trustee for Riva in respect of the legal title to the Property and all rights incidental to that title;
- The Official Trustee as such a trustee was bound to deal with the legal title to the Property and all rights incidental thereto on the footing that only Riva was entitled to take legal title thereto or exercise proprietorial rights with respect thereto, including the right to refinance the loan secured on the Property and receive any surplus proceeds of a mortgagee sale of the Property;
- The Official Trustee had no legal or beneficial interest in the Property or the proceeds of sale of the Property;
- The Official Trustee was not entitled to hold out to third parties such as Provident Capital Limited (Provident) that the Official Trustee had any interest in the Property;
- The Official Trustee was not entitled to deal with the Property or proceeds of sale of the Property without the consent of Riva; and
- The Official Trustee was not entitled to interfere with any proposed dealings with the Property on behalf of Riva including the proposed refinancing by Provident.
- Riva alleges that, in February 2006, arrangements were made with Provident for Provident to refinance the loan from Key secured by the Mortgage and thereby forestall the then threatened sale of the Property by Key as mortgagee. Riva complains that representations were made by or on behalf of the Official Trustee to the effect that the Property was vested in the Official Trustee and that no one else was authorised to deal with the Property. Riva asserts that those representations caused Provident to decline to proceed with the refinancing, which was due to occur on 3 March 2006. Riva claims that the loss of the opportunity of refinancing the loan from Key brought about the sale of the Property at an undervalue by Key as mortgagee, with the consequences that:
- The estate of the Trust was diminished by the sale of the Property; and
- Riva lost the opportunity of constructing improvements on the Property and selling the Property on an improved basis at a greatly enhanced value.
Riva asserts that the Official Trustee should indemnify Riva in respect of that loss and damage.