PERPETUAL TRUSTEE COMPANY LIMITED (ACN 000 001 007) & ANOR v SJA PROPERTIES PTY LIMITED (ACN 108 345 580) & ORS [2010] ACTSC 76 (30 July 2010)

REAL PROPERTY – guarantee by registered proprietor of repayment of loan – registered fixed and floating charge over assets of registered proprietor – registered proprietor to the knowledge of the lender a trustee – property held in trust – whether lender had caveatable interest in property

CONTRACT – parties intended that lender would take fixed and floating charge over assets of trust – no charge prepared or executed prior to advance of loan money – whether rectification available

 

No.  SC 413 of 2009 

Judge:		Master Harper
Supreme Court of the ACT
Date:		30 July 2010 

IN THE SUPREME COURT OF THE	)
	)	No.  SC 413 of 2009 
AUSTRALIAN CAPITAL TERRITORY	)

BETWEEN:	PERPETUAL TRUSTEE COMPANY LIMITED (ACN 000 001 007)

		First Plaintiff

	CHALLENGER MANAGED INVESTMENTS (ACN 002 835 592)

	Second Plaintiff

AND:	SJA PROPERTIES PTY LIMITED (ACN 108 345 580) AND OTHERS

		Defendants

ORDER

Judge:	Master Harper
Date:	30 July 2010 
Place:	Canberra

THE COURT ORDERS THAT:

1.	The plaintiff’s application dated 29 April 2010 be dismissed.
2.	The defendant’s application dated 3 May 2010 be dismissed.
3.	The matter be listed on 6 August 2010 for submissions as to the disposition of the moneys in court and as to costs.

1.	This action was commenced by the first and second plaintiffs on 21 May 2009 by originating claim against ten defendants, accompanied by a statement of claim for debt.  The defendants were served on 29 May 2009.  
2.	On 1 June 2009 an amended statement of claim was filed, and served on all the defendants on 9 June 2009.  
3.	On 16 March 2010 a notice of intention to respond was filed on behalf of all but the ninth defendant.  On 9 April 2010 the present solicitors for the defendants filed a notice of change of solicitor, including a statement that they acted for the ninth defendant.
4.	On 3 May 2010, a defence was filed on behalf of all of the defendants other than the ninth defendant.  The defence stated that the ninth defendant was “no longer a party to the proceeding as proffered to the court by the plaintiff.”  The name of the ninth defendant in the title to the proceedings was lined through.  I have not been able to identify any order of the court whereby the ninth defendant ceased to be a party.
5.	On 1 April 2010 the plaintiff’s solicitors filed an application seeking leave to further amend the statement of claim.  I granted that leave on 9 April.
6.	On 29 April, the plaintiffs’ solicitors filed the application presently before me, seeking an order that a caveat lodged against the registration of dealings involving a commercial property in Pelle Street, Mitchell, remain in force notwithstanding a request by its registered proprietor, one of the defendants, that it lapse.  
7.	On 3 May 2010 the solicitors for the defendants filed an application asking for a declaration that the plaintiffs did not have a caveatable interest in the Pelle Street property.
8.	A title search of block 5 section 58 Mitchell (volume 1764 folio 88) on 28 April 2010 showed AI Property Group Pty Limited as registered proprietor, subject to a mortgage in favour of Permanent Custodians Limited dated 27 June 2008, a caveat by Rexel Group Australia Pty Limited dated 16 October 2009, and a caveat by the first plaintiff, Perpetual Trustee Company Limited, dated 11 January 2010.  On 15 April 2010 an application was lodged seeking the lapsing of the caveat by the first plaintiff.  A copy of that caveat is in evidence.  The nature of the estate or interest in the land asserted to be the caveatable interest is described as “fixed and floating charge over all assets owned by AI Property Group Pty Limited (the proprietor) including the land (ASIC registration number 1628714).”
9.	A certificate of entry of charge issued by ASIC on 5 May 2008 confirms the lodgement of the charge, number 1628714.  A form 309 (details of charge) was lodged with ASIC on that date, giving the chargor’s name as AI Property Group Pty Limited and the chargee as the first plaintiff, Perpetual Trustee Company Limited.  The charge is described as a fixed and floating charge created by instrument on 24 April 2008 to secure a maximum liability of $15,000,000.00.  The property charged is described as “all of the property and assets of the Chargor whatsoever and wheresoever both present and future.”  The form is signed by the tenth defendant Spiros Apostolopoulous as director of AI Property Group Pty Limited.
10.	The form 309 annexed a statutory declaration by Mr Spiros Apostolopoulous in which he said that he was a director of AI Property Group Pty Limited, that the company had executed a mortgage debenture over all of its assets and undertaking in favour of the first plaintiff, and that all of the assets charged were situated in the Australian Capital Territory.
11.	The form 309 also annexed a copy of the charge.  This was a document of 43 pages, described as a fixed and floating charge (all assets) provided in connection with facilities granted to the first plaintiff (SJA Properties Pty Limited in its own right) the second plaintiff (SJA Properties Pty Limited as trustee for the SJ’s Property Trust) and another company not a party to the present proceedings, both in its own right and as a trustee.  The parties to the deed were AI Property Group Pty Limited and the first plaintiff.  The first plaintiff was said to be a party in its capacity as custodian for and on behalf of the lender.  The definition clause identified the second plaintiff as the lender, in its capacity as trustee of the Challenger Howard Mortgage Fund.  Clause 3 of the charge stated that the chargor charged the secured property to the chargee to secure the payment of the secured money.  The definition clause defined “secured property” and “secured money.”  “Secured property” was defined to mean every legal or equitable estate or interest of the chargor in any present and future undertaking and property, including all real and personal property, choses in action, goodwill and uncalled capital and called but unpaid capital.
12.	Clause 4 of the charge stated, for relevant purposes, that the charge document constituted a fixed charge over the present and future interest of the chargor in all freehold and leasehold property, and any other interest in real property or land, and all buildings and fixtures on that property or land; and each security interest over any property; and also a floating charge over the balance of the secured property and any part of the secured property that was not otherwise effectively charged by way of fixed charge under the clause.
13.	In clause 7 of the charge, the chargor represented that unless a trust was specified in the schedule, the chargor had not entered into the document and did not hold any of the secured property as trustee of any trust, and entered into the document as beneficial owner of the secured property.  The schedule included an item where a trust could be specified, but there was no trust specified under that item.
14.	Clause 7 went on to provide that if a trust was specified in the schedule, the chargor entered into the document as sole trustee of the trust in relation to the secured property comprising the trust fund of the trust, and as beneficial owner in relation to any other secured property; and “not only as trustee of the trust but also so as to bind itself personally for the obligations of the chargor under this document whether or not it has the capacity to enter into this document as trustee of the trust.”
15.	At the same time that the charge was executed and moneys advanced by the plaintiffs, AI Property Group Pty Limited and certain others of the present defendants executed mortgages over real estate in the Australian Capital Territory.  The Pelle Street property was not one of the properties mortgaged.
16.	AI Property Group Pty Limited as trustee for the AI Property Group Unit Trust is the fifth defendant in the present action.  AI Property Group Pty Limited in its own right is the sixth defendant.
17.	On 16 October 2009, AI Property Group Pty Limited exchanged contracts for the sale of the Pelle Street property for a price of $1,950,000.00.  The present application came before me for hearing in circumstances of some urgency where that sale was due to be completed within a few days.  The plaintiffs were prepared to withdraw the caveat only if the balance of the sale price after paying out the registered mortgage and other deductions not in contention was paid to them.  This was not acceptable to the fifth and sixth defendants.  At the conclusion of the hearing I made interim orders to facilitate completion of the sale and avoid exposure of the fifth and sixth defendants to penalties under the contract for sale, requiring payment of the moneys in contention into court.  The sale was duly completed and the balance of the proceeds, $50,656.81, has been paid into court pending my decision.  
18.	The question for determination on this application is whether the first plaintiff had a caveatable interest in the Pelle Street property prior to completion of the sale.  If so, the moneys in court should be paid out to the plaintiffs.  If not, those moneys should be paid to either the fifth defendant or the sixth defendant.
19.	On 3 April 2008 Mr Spiros Apostolopoulous signed a statutory declaration.  He declared that he was a director of AI Property Group Pty Limited and was authorised by the company to make the statutory declaration on its behalf.  He acknowledged that it would be relied on by the second defendant.  He declared that the company was the trustee of AI Property Group Trust in accordance with the terms of a trust deed dated 21 March 2007.  A copy of the trust deed had been supplied to the lender.  A copy of the trust deed, of 38 pages, is in evidence and I am satisfied that it was provided by the defendants to the plaintiffs on or about 3 April 2008.
20.	It is apparent from the loan documentation that the loan funds were in fact advanced to the first and second defendants, with other defendants including AI Property Group Pty Limited guaranteeing the performance of the loan agreement by the first and second defendants.  The charge, in the case of AI Property Group Pty Limited, was security for the guarantee.
21.	On 19 March 2008, prior to the preparation of the loan documents and a little over a month before the advance, a letter was sent by Mr Colin Smith of Challenger Commercial Lending Limited, a company associated with the second plaintiff, to the first defendant, setting out the basis on which a loan of $9,045,000.00 would be made.  The letter listed six properties, including the Pelle Street property, which were to be security for the loan.  The letter specified minimum amounts for which the improvements on each property were to be insured - $1,850,000.00 in the case of the Pelle Street property.  A second letter sent at the same time required that a duplicate copy of the letter be signed and returned.  This second letter also identified the Pelle Street property as one of the six properties over which security by way of registered first mortgage was to be taken.  By way of additional security, there was to be a fixed and floating charge over the assets of AI Property Group Pty Limited.  The repayment of the loan was to be guaranteed by, among others, “AI Property Group Pty Limited IOR & ATF the AI Property Group Trust.”  I accept that this was understood by all concerned to mean a guarantee by AI Property Group Pty Limited in its own right, and a further guarantee as trustee for the trust.  The duplicate was duly signed by Mr John Apostolopoulos and Mr Spiros Apostolopoulos “for and on behalf of AI Property Group Pty Ltd IOR & ATF the AI Property Group trust.”  It was returned to Challenger by fax on the same day.  
22.	When money was advanced a month later, only $7,245,000.00 was advanced.  Counsel for the defendants submits that the Pelle Street property was agreed between the parties not to be security for that portion of the advance, but was to be provided as security only when the balance of $2,415,000.00 was advanced subsequently.
23.	On 24 April 2008, just prior to the first advance, a deed of guarantee and indemnity was executed.  The guarantors were described in the deed as “John Apostolopoulos, Spiros Apostolopoulos and AI Property Group Pty Limited in its own right and as trustee for the AI Property Group unit trust.”  The deed was executed by Mr John Apostolopoulos, Mr Spiros Apostolopoulos and by the company.  The wording on the execution page of the deed, in relation to the company, reads “executed by AI Property Group Pty Limited in its own right and as trustee for the AI Property Group Unit Trust in accordance with section 127 of the Corporations Act 2001.”  The execution was by Mr Spiros Apostolopoulos as director and company secretary and Mr John Apostolopoulos as director.
24.	The fixed and floating charge was executed on the same date and signed by the same persons as directors.  The difference is that the fixed and floating charge execution page does not mention the trust.  The execution wording is “executed by AI Property Group Pty Limited in accordance with section 127 of the Corporations Act 2001.”  The execution clause is on the same page as the schedule, which included an item for entry of details about any trust or trust deed.  As I have said, that item was blank.  The item made specific reference to clause 7.3 of the charge.
25.	Clause 7 of the deed dealt with representations and warranties.  In relation to trusts, the clause set out two alternatives.  Clause 7.2 was to apply where a trust was not specified in item 4 of the schedule.  Clause 7.3 applied if a trust was so specified.
26.	There is no evidence as to how it came about that no trust was specified in item 4 of the schedule.  Counsel for the defendants submits that it was intentional, there being no intention on either side at the time of execution for there to be any charge over the assets of the trust.  Counsel for the plaintiffs submits in effect that the omission in the schedule must have been because of an oversight by the solicitors.
27.	Both of these explanations seem to me inherently unlikely.  I cannot see why the lender would take security over the assets of a company which seems by all accounts to have been a bare trustee with no assets of its own, while choosing not to take security over the assets of the trust.  The more likely explanation, it seems to me, is that the solicitors for the plaintiffs intended to prepare a second charge document which would create a fixed and floating charge over the assets of the trust, but that through inadvertence this document was either not prepared or not executed or for some other reason was overlooked in the midst of what must have been a mountain of paperwork to be executed on 24 April 2008.
28.	If I am right about this, rectification is not available.  This is not a case where the parties executed a deed which through mutual mistake failed to record accurately the agreement between them.  Rather, the parties overlooked entirely executing, and on the part of the plaintiffs perhaps even preparing, a deed to reflect a particular aspect of the proposed arrangements.  The doctrine of rectification does not extend so far as to empower the court to bring into notional existence a deed which was never executed by the parties at all.
29.	Counsel for the plaintiffs submits, and I accept, that a trustee has a right of indemnity over trust property, for example in respect of expenditure of the trustee out of its own funds for the benefit of the trust.  However, in the present case there is no evidence of any such expenditure, and hence no evidence that AI Property Group Pty Limited in its own right has or had any right, presently or at any relevant time, to indemnity out of the trust assets.  There is certainly no evidence that the company itself has any interest in its own right in the Pelle Street property.
30.	In those circumstances, I am not persuaded that the first plaintiff had any caveatable interest in the Pelle Street property at any relevant time.  
31.	The caveat having been withdrawn since the hearing, there is little point in declaratory relief.  All that remains to be done is to dispose of the money in court and to hear the parties about costs.  My provisional view is that the moneys in court should be paid out to the fifth defendant, AI Property Group Pty Limited as trustee for the AI Property Group Unit Trust, and that the plaintiffs should pay the defendants’ costs of the applications.  I shall provide the parties with an opportunity to make further submissions before I make orders.

I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.

Associate:

Date:	 30 July 2010

Counsel for the plaintiff:	Mr P A Walker
Solicitors for the plaintiff:	Norton Rose
Counsel for the defendant:	Mr D C Eardley
Solicitors for the defendant:	Moscardo Lawyers
Date of hearing:	14 May 2010
Date of judgment:				30 July 2010