Statewide Developments Pty Ltd (in liquidation) (receivers and managers appointed) v Azure Property Group

Threshold Questions 4The defendant has propounded two threshold questions in support of its claim. If the answer to both of those questions is "No", its attempt to upset the priority of the registered security interests must fail. The questions are as follows:

1. Whether the appointment of a new Security Trustee made pursuant to clause 8 of the Security Trust and Intercreditor Deed requires a registered deed as referred to in section 6 of the Trustee Act 1925 (NSW) in order to be effective and [for] the trust assets [to] vest in the "new" trustee thereof.
2. Do two trustees have to be appointed to the Security Trust on replacement of an original sole trustee notwithstanding a statement in the trust deed to the effect that the original sole trustee of the trust estate need only be replaced by another sole trustee?

Replacement of Trustee 5The first question has its origin in the complex arrangements that govern the financing of the development are founded on a trust deed known as the Security Trust and Intercreditor Deed. The parties to this Trust Deed comprise a "Security Trustee", two lenders described respectively as the "Senior Subscriber" and the "Mezzanine Subscriber", the plaintiff as the borrower and mortgagor and the "Initial Obligors" who were the individuals associated with the plaintiff, the plaintiff itself and another related company. The beneficiaries of the trust established by the Trust Deed are the two lenders, the Security Trustee on its own account and not as trustee of the trust and each other person that the Obligors and the Security Trustee (on instructions from the beneficiaries) agree should be a beneficiary. 6The initial Security Trustee was BWA Custodians Ltd. When the Commonwealth Bank of Australia acquired the Bank of Western Australia, the Security Trustee was changed to CBA Corporate Services (NSW) Pty Ltd. On 20 December 2011 there was another change of Security Trustee when CBA Corporate Services retired as the Security Trustee and AET Structured Finance Services Pty Ltd was appointed in its place. In both cases of change of trustee, the retirement and appointment were effected pursuant to a Deed of Replacement of Security Trustee. Clause 8 of the Trust Deed permitted a change of Security Trustee in this manner and contained detailed provisions prescribing the requirements and consequences of such a change. 7The defendant contends that the effect of Section 6(1) of the Trustee Act is to require the registration of the Deed of Replacement of Security Trustee. It says that, unless and until registration, there is no effective change of trustee and no vesting of the trust property in the new trustee. The vesting point depends on Section 9 of the Trustee Act. The defendant says Section 9 has the effect that the vesting of trust property in a new trustee will only be effective in accordance with the terms of Section 9. Each Deed of Replacement of Security Trustee was ultimately registered but not until 23 April and 27 March 2012 respectively. The principal deed, the Trust Deed, was never registered. 8It is not necessary to do other than note in outline the argument that the defendant advances on the assumption that it is correct about the effect of Section 6(1) and Section 9 of the Trustee Act. It says that the assets of the trust remain vested in the former trustee; that the actions of any new trustee are those of a trustee de son tort; and that its conduct is therefore governed by the trusts that governed the initial Security Trustee, save that the right of indemnity and recourse to trust assets is limited by Section 59(4) of the Trustee Act. The argument as to how all of this necessarily leads to the conclusion that the defendant's equitable charge has priority over the registered security interests of the lenders, so as to justify the maintenance of the defendant's caveats, is complex and obscure. Ultimately however it need not be resolved because I have reached the firm view that Section 6(1) and Section 9 of the Trustee Act do not have the effect for which the defendant contends.

Section 6(1) - Trustee Act 9Section 6(1) provides as follows: 6 New trustee (1) A new trustee may by registered deed be appointed in place of a trustee, either original or substituted, and whether appointed by the Court or otherwise. 10There is an immediate and obvious ambiguity in the syntax of Section 6(1). Is it facultative so that it should be read as meaning that a new trustee "may be appointed by registered deed"? Or does it impose, as the defendant contends, a mandatory obligation that effectively stipulates that the appointment of a new trustee will only be valid if it is effected by a registered deed? If the defendant's contention were correct, the consequences would be far-reaching. Indeed they would be surprising. 11There are two grammatical observations that deserve preliminary attention. The first is that the word "may" is classically permissive. The second is that the adverbial phrase "by registered deed" must modify the passive subjunctive "may be appointed". It must describe the way in which such an appointment is to be effected, namely by registered deed. It is not however a prescriptive formula. The use of "may" makes clear that any such appointment may - or may not - be effected by registered deed. 12Although resort to grammatical and syntactical considerations is not necessarily a foolproof method of unlocking the meaning of an ambiguous statutory provision, it can sometimes be helpful. In this case I think those considerations provide assistance in illuminating the true meaning of Section 6(1). The insertion of the phrase "by registered deed" between "may" and "be appointed" is clumsy and leads to unnecessary ambiguity. In a more orthodox sentence structure the phrase "by registered deed" would follow immediately after the words which they modify, namely "may be appointed". If that were done, the ambiguity would be avoided and the intended meaning would be clarified. That is the way in which I think Section 6(1) should be read. 13In any event however, and independently of those grammatical considerations, I think that the natural meaning of the language used in Section 6(1), which is repeated in Section 7(1) and 8(1), is that the phrase "by registered deed" modifies the words "may be appointed" and should be read as if they followed them. In fact, in the only reasoned decision which may be said to support the defendant's contention, this is the way in which the judge first paraphrased the provision: Retravision (NSW) Ltd v Copeland (Supreme Court of New South Wales, Young J, 8 October 1997, unreported). In that decision, Young J said that "Section 6 of the Trustee Act provides that a new trustee may be appointed by registered deed" (emphasis added). In the very next paragraph however, he said of Section 6 that "It specifically says that the new trustee may by registered deed be appointed" (emphasis added). He then went on to say that it seemed to him "that until the deed is actually registered, the appointment does not take effect". He suggested that that was the plain meaning of the section. I regret to say that I cannot bring myself to agree. 14I prefer the decision and reasoning of Muir J in Kendell v Sweeney & Ors [2005] QSC 64. His Honour said at [41]: In my view, it is improbable that the legislation intended such an obvious and commonplace power to be overridden by an inference to be drawn from a provision which establishes an express statutory power. Such a conclusion is unlikely. Section 6 is similar in terms to section 41 of the Trustee Act 1925 (UK) and has analogues in other Australian States and in New Zealand. My research, admittedly brief, does not reveal the existence of any suggestion, let alone determination, that the provisions under consideration should not be regarded as facilitative rather than qualifying or overriding powers expressly conferred in instruments creating trusts. Also subsections (6), (13) and (15) of section 6 suggest that the section is not intended to restrict or qualify any power of appointment of new trustees conferred by the instrument constituting the trust. 15I respectfully agree with Muir J. The statutory power to appoint a new trustee only supplements any power to do so that may be contained in the trust instrument. It does not override it. That may explain why there is no mention of the Retravision decision, or the particular observations of Young J, in Jacobs' Law of Trusts in Australia, 7th ed, 2006. Instead, the authors state at [1504]: Appointment of New Trustees New trustees may be appointed in accordance with the provisions made in the trust instrument or statutory enactment conferring a power to appoint. In most jurisdictions, the trust instrument is of primary importance, with statutory powers only relevant if the instrument is silent or if the provisions of the trust instrument do not apply. (emphasis added) 16I should not omit to mention that the view expressed by Young J in Retravision was followed without comment or analysis in Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd [2003] NSWSC 535 at [40] (Austin J) and in Attorney-General for New South Wales v Fred Fulham [2002] NSWSC 629 at [59] (Bryson J). And in Commonwealth Bank of Australia v Nick Frisina Pty Ltd [1999] NSWSC 907 at [12] and [13], the point was conceded and acted on by the trial judge without comment or analysis. As I am in the unfortunate position of being convinced that the construction of Section 6(1) of the Trustee Act that was held to apply in Retravision is plainly wrong, I should not follow it notwithstanding those subsequent decisions and the considerations of comity to which I would ordinarily give significant weight. 17There are several additional reasons that fortify my conclusion as to the proper construction of Section 6(1). First, if the legislative intention were as the defendant contends, it would have been so easy for the drafter to say "Any change of trustee shall be by registered deed". But even that formulation would not necessarily lead to the result that the absence of a registered deed would, without more, render a change of trustee invalid. If that were the statutory intention, it would have been simpler and clearer for the drafter to say "A change of trustee will not be valid unless and until effected by registered deed". Instead the drafter has used quite different language, language whose natural connotation is permissive and facultative. 18A final determinative consideration is Section 6(13). It provides: (13) Except as otherwise provided in subsection (12), this section applies only if and as far as a contrary intention is not expressed in the instrument, if any, creating the trust, and shall have effect subject to the terms of that instrument and to the provisions therein contained. 19The trust instrument in this case, as most commercial trust instruments do, expresses a "contrary intention". It does so because it provides its own formula for the appointment of new trustees. Section 6(13) serves to emphasise that the mechanism of appointment of a new trustee by registered deed contemplated by Section 6(1) has no application where the trust instrument provides its own regime governing a change of trustee. Muir J said as much in Kendell v Sweeney & Ors at [41]. The same reasoning is implicit in the statement from Jacob's Law of Trusts in Australia to which I referred in paragraph [15] above. And Gzell J resolved the issue by the same analysis in Drinkwater v Gedrot Holdaway Pty Ltd [2003] NSWSC 255 at [8]. 20So also did Santow J in Synergy Concepts Pty Ltd v Rylegrove Pty Ltd (in liquidation) (1997) 8 BPR 15,555. His Honour addressed and despatched an identical argument to that which the defendant has put in this case, pointing out that the appointment of the replacement trustee in that case was made pursuant to the trust instrument; was not dependent on the statutory power; and was not deferred from taking effect until registration of the deed: However, on 30 September 1992, Synergy was by deed ("the Deed") appointed trustee of the Bryant Family Trust in substitution for Rylegrove. That deed was not stamped and registered with the Registrar General until 17 April 1997. It does not follow that the appointment of Synergy in replacement of Rylegrove as trustee is deferred from taking effect until 17 April 1997, as the appointment is not dependent on the statutory power to appoint and remove trustees under the Trustee Act 1925 ... . This is because the appointment was made pursuant to the trust instrument, not in reliance on the statutory power. Thus it is agreed that the appointment was made pursuant to cl16 of the trust instrument ("JBI") by "the Appointor" under it. It follows that the appointment was effective from 30 September 1992, when made under the instrument. (emphasis added)

Section 9 - Trustee Act 21The second aspect of the first question turns on Section 9(1) of the Trustee Act. It provides as follows: 9 Vesting (1) Where a new trustee is appointed, the execution and registration of the deed of appointment shall without any conveyance, except as otherwise provided in this section, vest in the persons who become and are the trustees for performing the trust, as joint tenants and for the purposes of the trust, the trust property for which the new trustee is appointed. 22The phrase "except as otherwise provided in this section" refers to the effect of subsections (3), (3A), (4), (5) and (6). Those provisions make clear that registration of a deed of appointment of trustee will not by itself result in the vesting of trust property in the new trustee where the property falls into the categories described in those subsections. In those cases, there must be an appropriate transfer or assignment. The only effect of the registration of the deed of appointment in those cases is to vest "the right to call for a transfer of the property, and to sue for or recover the property": subsection (7). 23The defendant contends that by reason of Section 9, the vesting of the trust property in the new trustee will only be effective if the deed of appointment of new trustee is registered pursuant to Section 6(1). I do not agree. Section 9 itself recognises that the vesting of certain categories of property is not dependent on registration of a deed of appointment. In those categories, it remains necessary that there be a duly executed transfer or assignment. The only effect of Section 9(1) is that, where there is a registered deed of appointment, and the trust property is not one of the categories described in subsections (3), (3A), (4), (5) and (6), the trust property will vest in the new trustee "without conveyance". 24It seems clear that Section 9(1) of the Trustee Act, like Section 6(1), is facultative. Neither provision is intended to constitute an exclusive mandatory code, whether considered separately or together. If a deed of appointment of a new trustee is registered, the parties may derive certain benefits from having done so. But a choice not to register the deed of appointment, or not to do so immediately, has no effect by itself on the validity of the appointment, or the vesting of the trust property - so long as the relevant provisions of the trust instrument are followed and a transfer or assignment of the trust property is duly executed. 25In this case, the relevant trust property consists of mortgage securities and fixed and floating charges. With each change of trustee, those securities were transferred to the new trustee in accordance with the requirements of the Real Property Act 1900 or the Corporations Act 2001 as the case may be. The defendant does not suggest otherwise. The point of its challenge in relation to the vesting of the trust property, is that absent registration of the deed of appointment, that there could be (it says) no effective vesting in favour of the new trustee. I am unable to accept this reasoning. In my view, neither Section 6(1) nor 9(1) of the Trustee Act has the effect for which the defendant contends. The first question should therefore be answered "No".

Section 66B - Conveyancing Act 26The second question turns on the effect of Section 66B of the Conveyancing Act. It is difficult to see what this provision has to do with the issues in dispute between the plaintiff and the defendant in these proceedings. Section 66B(1) provides that a "purchaser of property from trustees for sale or having a power of sale" shall not be concerned with the trusts affecting the proceeds of sale of the property. That is not this case. The apartments and townhouses are being sold by the plaintiff to which receivers and managers have been appointed. The defendant is not a relevant purchaser within the meaning of Section 66B(1). 27Section 66B(2) then goes on to provide that: Notwithstanding anything to the contrary in the instrument (if any) creating a trust for sale or power of sale of property ... the proceeds of sale or other capital money shall not be paid to or applied by the direction of fewer than two persons as trustees except ... 28The protection afforded by Section 66B(2) seems palpably irrelevant to the defendant's position in this case. The defendant has nothing to do with the trust, is not a purchaser of property from trustees for sale and is simply a real estate agent that makes a claim for commission. It contends that by reason of Section 66B of the Conveyancing Act, the receivers of the proceeds of sale of the apartments and townhouses owned by the plaintiff "did not, indeed could not, obtain a good receipt for the monies". Where that proposition leads to or how it assists the defendant is veiled in mystery. 29If Section 66B(2) has any application, its only effect is to provide that there must be at least two trustees to give a valid receipt for the proceeds of the sale of property under trust for sale: Re Bellamy & Metropolitan Board of Works (1883) 24 Ch D 387. If, on different facts, that could be a problem for anyone, it might be a concern for the purchasers of the apartments and townhouses. It does not assist the defendant in this case. As Hodgson J observed in Commonwealth Bank of Australia v Nick Frisina Pty Ltd [1999] NSWSC 907, the consequence of a contravention of Section 66B(2) "would only mean that the Bank did not have a defence based on such a discharge, if the beneficiaries had some identifiable cause of action". The same reasoning applies in this case.

Conclusion & Orders 30For those reasons, the answer to both questions is "No". In the circumstances, the other questions that were the subject of the order for separate determination do not arise or are not pressed. The defendant should pay the plaintiff's costs. 31I was not asked to order the withdrawal of the defendant's caveats. I should make clear however that, in the light of these reasons, there appears to be no apparent basis on which the defendant's caveat can be maintained. There is a public as well as private interest in ensuring that unjustified caveats are not permitted to remain on the title to land. If the defendant is unwilling to consent to final orders, the plaintiff has liberty to apply to seek such orders from me. It goes without saying that the mere filing of a notice of appeal from this decision is not a ground for maintaining the caveats lodged by the defendant.

Amendments 05 July 2012 - Slight grammatical changes Amended paragraphs: 11 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: 05 July 2012