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National Australia Bank Limited v Colefax

 

[2017] QSC 71

SUPREME COURT OF QUEENSLAND

CITATION:

National Australia Bank Limited v Colefax & Ors [2017] QSC 71

PARTIES:

NATIONAL AUSTRALIA BANK LIMITED

(plaintiff)

v

ROBERT FOSTER COLEFAX

(first defendant)
IRENE LOUISE COLEFAX
(second defendant)
CHRISTOPHER MARK LEO COLEFAX
(third defendant) 

FILE NO:

BS2070 of 2016

DIVISION:

Trial

PROCEEDING:

Trial

DELIVERED ON:

5 May 2017

DELIVERED AT:

Brisbane

HEARING DATE:

3 May 2017

JUDGE:

Mullins J

ORDER:

1.The plaintiff recover possession of the following properties from the first, second and third defendants:

(a)all that parcel of land known as “Seven Springs Farm” located at Lot 10, 48 Masons Road, Kuranda in the State of Queensland, more particularly described as Lot 10 on SP111147, County of Nares, Parish of Cairns, Title Reference 50229127;

(b)Lot 1 Jumrum Close, Kuranda in the State of Queensland, more particularly described as Lot 1 on SP226624, County of Nares, Parish of Cairns, Title Reference 50793369;

(c)Lot 6 Jumrum Close, Kuranda in the State of Queensland, more particularly described as Lot 6 on SP226624, County of Nares, Parish of Cairns, Title Reference 50793374;

(d)Lot 7 Jumrum Close, Kuranda in the State of Queensland, more particularly described as Lot 7 on SP226624, County of Nares, Parish of Cairns, Title Reference 50793375;

2.The defendants pay the plaintiff’s costs of the proceeding.

CATCHWORDS:

MORTGAGES – MORTGAGEE’S REMEDIES – POSSESSION – UNDER CLAUSE ENTITLING MORTGAGEE TO POSSESSION UPON DEFAULT OF MORTGAGOR – where registered mortgages granted by the first defendant over trust properties in favour of the bank supporting guarantees and indemnities given by the first defendant as trustee in respect of loans by the bank to the first defendant in his personal capacity – where first defendant replaced as trustee by the second defendant – where first defendant then became bankrupt on his own petition – where bank proved in the bankruptcy as an unsecured creditor for outstanding amount of the loans owed by the first defendant and secured against the trust properties – where first defendant discharged from bankruptcy – where mortgages remained security for the obligations under the guarantees and indemnities – where default occurred under the terms of the mortgages – where bank seeking recovery of possession of the mortgaged properties pursuant to s 78 of the Land Title Act 1994 (Qld) and the clause in the mortgages entitling the bank to possession on default – whether bank entitled to enforce mortgages after release of the first defendant’s debts on his discharge from bankruptcy

Land Title Act 1994 (Qld), s 63, s 78

Trusts Act 1973 (Qld), s 71

Re Elders Trustee and Executor Company Limited v EG Reeves Pty Limited [1987] FCA 332, considered

COUNSEL:

P E O’Brien for the plaintiff

The defendants appeared in person

SOLICITORS:

Corrs Chambers Westgarth for the plaintiff

  1. The ambit of the dispute between the plaintiff and the defendants is narrow.  Most of the allegations in the statement of claim are admitted and a statement of agreed facts was relied on by the parties. 
  2. The plaintiff seeks to recover possession of four properties that are mortgaged to the plaintiff.  The Seven Springs Farm property was mortgaged by the first defendant as trustee of the Colefax Family Trust (Trust No 1).  The mortgage is registered and incorporates the standard terms in dealing number 701557820.  The first and second defendants are married and their son is the third defendant.  All defendants reside at Seven Springs Farm and remain in possession of the property, admitting they have refused to deliver up possession to the plaintiff.
  3. The first defendant as trustee of Colefax Family Trust No 2 (Trust No 2) mortgaged the Jumrum Properties to the plaintiff.  Lots 1, 6 and 7 on SP226624 are the balance of the Jumrum Properties that are the subject of this proceeding.  The registered mortgage over these lots incorporates the standard terms in dealing number 704919519.  The defendants also remain in possession of these lots. 
  4. On 28 March 2011 the first defendant was replaced as trustee of each of Trust No 1 and Trust No 2 by the second defendant.  The first defendant as trustee of Trust No 1 remains the registered owner of the Seven Springs Farm.  By transfer registered on 4 July 2011 Lots 1, 6 and 7 were transferred from the first defendant in his capacity as trustee of the Trust No 2 to the second defendant in her capacity as trustee of Trust No 2.  On 1 October 2016 the second defendant was replaced as the trustee of Trust No 2 by the third defendant, but the second defendant as trustee of Trust No 2 remains the registered owner of Lots 1, 6 and 7.   
  5. The mortgages over the Seven Springs Farm and the Jumrum properties were securities in support of facilities provided by the plaintiff to the first defendant which were restructured in 2010 into a Market Rate Facility (MRF) and a Flexiplus Mortgage Facility (FMF).      
  6. The first defendant became bankrupt on his own petition on 4 April 2011.  On 8 November 2012 the plaintiff submitted a proof of debt in the bankruptcy of the first defendant for the amount that the plaintiff then calculated was owing by the first defendant under the MRF ($260,000) and FMF ($695,224.91) and other amounts claimed to be owing by the first defendant pursuant to guarantees and indemnities.  The proof of debt in the total sum of $4,126,724.91 was lodged on the basis the plaintiff was an unsecured creditor of the first defendant.  The Seven Springs Farm and remaining Jumrum Properties were not included as assets in the first defendant’s bankrupt estate.  The plaintiff received distributions from the trustee in bankruptcy totalling $19,947.34 which was applied against the amounts owing to the plaintiff.  The first defendant was discharged from bankruptcy on 5 April 2014.
  7. The plaintiff’s proof of debt for the amounts owing under the MRF and FMF may have exceeded the balances of those facilities as at the date of bankruptcy.  As that was a proof of debt against the first defendant in his personal capacity and the distribution was small compared to the actual amounts owed under the MRF and the FMF at the commencement of the bankruptcy, any overstatement in the proof of debt has no relevance to the issues raised in this proceeding.  
  8. On the basis that there remain outstanding amounts owed under the MRF and FMF of those properties which are secured by the mortgages registered over Seven Springs Farm and Lots 1, 6 and 7 and the mortgagors are in default under the respective mortgages, the plaintiff as mortgagee claims to be entitled to recover possession of the properties pursuant to s 78 of the Land Title Act 1994 (Qld) and pursuant to the relevant term of each of the standard terms documents.  All relevant default notices have been served.  Ms Hitchcock who is a senior manager employed by the plaintiff and was the only witness who gave evidence at the trial confirmed that the total amount outstanding under the MRF and the FMF was over $1.2m.  

Issues

  1. The issues that are raised on the defendants’ pleading are whether:
    1. the plaintiff is precluded from claiming debt owed under the mortgages in circumstances where the plaintiff lodged a proof of debt in the first defendant’s bankruptcy and the first defendant was released from all provable debts at the end of his bankruptcy;
    2. by lodging an unsecured proof of debt in the bankruptcy, the plaintiff acknowledged that it had no right of indemnity against  the assets of the trusts;
    3. the mortgages are unenforceable on the basis the first defendant signed the mortgages and guarantees in breach of trust;
    4. the plaintiff is precluded from pursuing the amounts claimed to be owing under the MRF and FMF when it is not apparent under the terms of the “all moneys” mortgages as to what amount was secured by each of the mortgages;
    5. s 71 of the Trusts Act 1973 (Qld) saves the second defendant from liability pursuant to the guarantee executed by the first defendant.  

Structure of the facilities

  1. The facility letter dated 1 February 2010 in respect of the MRF evidenced a loan between the plaintiff and the first defendant that was supported by a guarantee and indemnity given by the first defendant as trustee for each of Trust No 1 and Trust No 2 on 3 February 2010 and an acknowledgement by the first defendant that the subject mortgages were security for the MRF.  Although the mortgage over the Seven Springs Farm was granted in 1998, and the mortgage over the Jumrum Properties was granted in 2005, it was agreed by the first defendant as the trustee of Trust No 1 and Trust No 2 that they be relied on by the plaintiff as securities for the liability under the guarantee and indemnity.  On 3 February 2010 the first defendant signed a declaration as trustee in respect of each of Trust No 1 and Trust No 2 declaring that the transaction entered into with the plaintiff was entered into in good faith and for the benefit of the beneficiaries of the Trust.           
  2. Similarly the contract for the FMF was between the plaintiff and the first defendant and supported by a guarantee and indemnity given by the first defendant as trustee of Trust No 1 and Trust No 2 dated 5 November 2010 and the subject mortgages.

Terms of the mortgages

  1. Under the Seven Springs Farm mortgage the debt secured by the mortgage is the “amount owing” as defined in the standard terms.  Under the standard terms, clause 1.1 provides:

“For the purpose of securing to the Bank the payment of the amount owing, you mortgage to the Bank all your estate and interest in the land described in this mortgage, together with each fixture, structure or improvement on it or fixed to it.”

  1. The definition of “amount owing” in clause 31 covers “all money which … you owe the Bank, or will or may owe the Bank in the future, and which by law may be secured by this mortgage, including … under an agreement covered by this mortgage”.  The definition of “agreement covered by this mortgage” includes an agreement between “you and the Bank which … you acknowledge in writing to be covered by this mortgage”.  The definition of “you” means the person or persons named in the mortgage as mortgagor and includes their successors and transferees.
  2. Identical provisions are in the Jumrum Properties mortgage and standard conditions.
  3. Clause 20.1 of each mortgage also permits the plaintiff on the occurrence of a default to seek to enforce the mortgages by taking possession of the subject property after giving proper notices as required by the mortgages and at law.    

Effect of the first defendant’s bankruptcy

  1. The defendants seek to rely on the principle a trustee does not have a separate legal personality from his personal capacity, so that it must follow that any debts owed by the first defendant as trustee were discharged by his bankruptcy and the plaintiff can no longer pursue any securities it may have had to support them.  The defendants rely on paragraph 244 in Re Elders Trustee and Executor Company Limited v EG Reeves Pty Limited [1987] FCA 332:

“It is fundamental that the common law does not recognize a trustee as having assumed an additional or qualified legal personality. This means that the liability of the trustee for debts he incurs includes those incurred in the course of performance of the trust. His liability to creditors is not limited or quantified by reference to the extent of the trust assets: In re Johnson (1880) 15 Ch D 548 at 552. The debts are his debts: Vacuum Oil Co. Pty. Ltd. v Wiltshire [1945] HCA 37; (1945) 72 CLR 319 at 324,325, Octavo Investments Pty. Ltd. v Knight (1979) 149 CLR 360 at 367. However, the law does permit a trustee to contract with third parties on the basis that his personal liability is limited, for example, to the extent of his right to resort to and apply trust funds for the discharge of liabilities incurred by him in the authorised conduct of the trust. Nevertheless, third parties may, in a given case, not be prepared to deal with a trustee on such a basis and, in any event, clear words are necessary to achieve a result whereby what is a prima facie the unlimited personal liability of a trustee is so qualified: Helvetic Investment Corp. Pty. Ltd. v Knight(1984) 9 ACLR 773.

  1. This paragraph is concerned with the recovery of trust debts by suing the trustee personally and anticipates the right of subrogation that the creditor may have in respect of the trustee’s right of indemnity from the trust assets.  This can be contrasted with what the plaintiff is seeking to do in this proceeding which is to enforce its rights that accrue under the registered mortgages over the trust properties.  The plaintiff is not seeking to enforce its claim over the trust properties through the entitlement of the trustee to be indemnified from the trust properties.  The defendants’ reliance on passages such as that set out in the preceding paragraph is misconceived. 
  2. Those trust properties were outside the first defendant’s bankruptcy.  They may have secured the same debts that the first defendant owed under the MRF and the FMF, but the release of the debts owed by the first defendant upon his discharge from bankruptcy did not affect the separate obligation of the trustee of Trust No 1 and Trust No 2 for the debts owed under the MRF and the FMF and those liabilities secured against the Seven Spring Farm and Lots 1, 6 and 7.
  3. The lodgement of the proof of debt by the plaintiff as an unsecured creditor of the first defendant could not in any way be taken to be an abandonment of the plaintiff’s rights to enforce the subject mortgages over the mortgaged properties.

Are the mortgages unenforceable?

  1. The defendants plead that under clause 11 of the trust deed for Trust No 1 the first defendant as trustee was excluded from benefits under the trust and the first defendant committed a negligent breach of trust by using the Seven Spring Farm property as security for the MRF and the FMF.  The plaintiff disputes this interpretation of the trust deed, but in any case relies on the declaration that was given by the first defendant on 3 February 2010, the declaration found in clause 17(b) of the standard terms of the subject mortgage and the assurance in each of the guarantees and indemnities that the first defendant as trustee had the power and authority to enter into the guarantee and indemnity and was doing so for a proper purpose.  There is no allegation of the defendants that the plaintiff had knowledge of the alleged breach of trust at the time the transactions were entered into.  In these circumstances, assuming there was the breach of trust by the first defendant as alleged, the plaintiff is entitled to rely on its registered mortgage over the Seven Spring Farm and any remedy for any breach of trust is by the beneficiaries against the first defendant.
  2. In respect of the mortgages being “all moneys” mortgages, the defendants rely on the fact that the mortgages do not specify the quantum of debt secured by them.  It is apparent from the facility letters and the guarantees and indemnities that it was the debts owed under the MRF and the FMF that were secured under the mortgages.  The fact that the amount of the debt is not apparent from the face of the mortgages themselves does not affect the right of the plaintiff to enforce the mortgages in respect of the debts owed under the MRF and the FMF. 

Section 71 of the Trusts Act 1973

  1. In respect of the transfer of Lots 1. 6 and 7 to the second defendant as trustee, the defendants argue that s 71 of the Trusts Act 1973 (Qld) means that the second defendant is not liable on the guarantee and indemnities entered into by the first defendant as trustee.  This overlooks the effect of s 63 of the Land Title Act 1994 and reflects a misunderstanding of the effect of s 71 of the Trusts Act which is concerned with a trustee only being answerable for the trust property which comes into the trustee’s hands and for the indemnification of the trustee for the acts of the trustee’s agents.

Orders

  1. None of the defences raised or submissions made by the defendants can succeed in preventing the plaintiff recovering possession of the mortgaged properties.  Usually a proceeding by a mortgagee to recover possession is brought against the registered owner and the warrant of possession may also be issued against all occupiers who claim possession through the registered owner. As all defendants acknowledged they were in possession of all the mortgaged properties, it is appropriate to make the order for recovery of possession against all defendants.  At the conclusion of the hearing, the defendants submitted that if they were unsuccessful in defending the plaintiff’s claim, as the second and third defendants were trustees, the order for costs should be that the plaintiff’s costs be paid from the trust properties.  It is those properties which are security for the debts owed to the plaintiff.  It is therefore not appropriate that the plaintiff’s costs be ordered to be paid from that source.  The costs should follow the event.
  2. The orders which I make are:

1.  The plaintiff recover possession of the following properties from the first, second and third defendants:

  1. all that parcel of land known as “Seven Springs Farm” located at Lot 10, 48 Masons Road, Kuranda in the State of Queensland, more particularly described as Lot 10 on SP111147, County of Nares, Parish of Cairns, Title Reference 50229127;
  2. Lot 1 Jumrum Close, Kuranda in the State of Queensland, more particularly described as Lot 1 on SP226624, County of Nares, Parish of Cairns, Title Reference 50793369;
  3. Lot 6 Jumrum Close, Kuranda in the State of Queensland, more particularly described as Lot 6 on SP226624, County of Nares, Parish of Cairns, Title Reference 50793374;
  4. Lot 7 Jumrum Close, Kuranda in the State of Queensland, more particularly described as Lot 7 on SP226624, County of Nares, Parish of Cairns, Title Reference 50793375.

2.  The defendants pay the plaintiff’s costs of the proceeding.

  1. Because the defendants reside on the Seven Spring Farm and all properties are situated in Kuranda, I am inclined to stay the issue of any enforcement warrant for possession for a period of up to six weeks, subject to any submissions the plaintiff wishes to make otherwise.       
Close

Editorial Notes

  • Published Case Name:

    National Australia Bank Limited v Colefax & Ors

  • Shortened Case Name:

    National Australia Bank Limited v Colefax

  • MNC:

    [2017] QSC 71

  • Court:

    QSC

  • Judge(s):

    Mullins J

  • Date:

    05 May 2017

Litigation History

Event Citation or File Date Notes
Primary Judgment [2017] QSC 71 05 May 2017 -
Notice of Appeal Filed File Number: 5458/17 01 Jun 2017 SC2070/16

Appeal Status

{hollow} Appeal Pending