FEDERAL COURT OF AUSTRALIA Apostolou v VA Corporation Aust Pty Ltd [2010] FCA 64 Citation: Apostolou v VA Corporation Aust Pty Ltd [2010] FCA 64 Parties: VASILIKI APOSTOLOU (AS TRUSTEE OF THE VASILIOU FAMILY TRUST) and ANDREW VASILIOU (AS TRUSTEE OF THE VA UNIT TRUST) v VA CORPORATION OF AUST PTY LTD, DAVID CHARLES QUIN AND CLYDE PETER WHITE (AS JOINT LIQUIDATORS OF VA CORPORATION OF AUST PTY LTD), PERPETUAL TRUSTEE COMPANY LIMITED, CHALLENGER MANAGED INVESTMENTS LIMITED and REGISTRAR OF TITLES File number: VID 124 of 2008 Judge: FINKELSTEIN J Date of judgment: 11 February 2010 Catchwords: MORTGAGES – exercise of mortgagee's power of sale – whether a breach of mortgagee's duties where a property properly marketed and auctioned but is sold for less than its market value TRUSTS AND TRUSTEES – right of indemnity – nature of – power of sale – whether trustee should seek judicial sale where trustee has express power to sell – whether lien claimed against new trustee CORPORATIONS – liquidation – corporate trustee – whether a liquidator has power to sell trust property CORPORATIONS – winding up – corporation wound up in insolvency but actually solvent – duties of liquidators Legislation: Corporations Act 2001 (Cth) ss 420A, 471A, 482, 511 Transfer of Land Act 1958 (Vic) ss 76, 77 Trustee Act 1958 (Vic) s 45(3)(c) Cases cited: Anderson v Palmer [2002] NSWSC 192 cited ANZ Banking Group Ltd v Intagro Projects Pty Ltd [2004] NSWSC 1054 discussed Chief Commissioner of Stamp Duties v Buckle (1998) 192 CLR 226 applied Coates v McInerney (1992) 6 ACSR 748 cited Commercial Acceptance Corporation Limited v Nixon (1981) 152 CLR 491 cited Davies v Littlejohn (1923) 34 CLR 174 discussed Dimos v Dikeakos Nominees Pty Ltd (1996) 68 FCR 39 cited Forsyth v Blundell (1973) 129 CLR 477 cited Global Funds Management (NSW) Ltd v Burns (in prov liq) (1990) 3 ACSR 183 Hewett v Court 149 CLR 639 discussed Jennings v Mather 1902 1 KB 1 discussed Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344 not followed Pendlebury v Colonial Mutual Life Assurance Society Limited (1912) 13 CLR 676 cited Re Pumfrey (deceased); The Worcester City and County Banking Co Ltd v Blick (1883) 22 ChD 255 discussed Stockl v Rigura Pty Ltd [2004] NSWCA 73 discussed Stone v Farrow Mortgage Services (in liq) (1999) 12 BPR 22 applied Stucley; Re [1906] 1 Ch 67 discussed Suco Gold Pty Ltd (in liq); Re (1983) 7 ACLR 873 cited Telescriptor Syndicate Limited; Re [1903] 2 Ch 174 cited The Exhall Coal Company Limited; Re (1866) 35 Beav 449 cited The Melbourne Tramways Trust v The Melbourne Tramway and Omnibus Co Ltd (1887) 13 VLR 487 discussed Trim Perfect Australia Pty Ltd (in liq) v Albrook Constructions Pty Ltd (2006) NSWSC 153 discussed UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 cited Vasiliou v Westpac Banking Corporation (2007) 19 VR 229 questioned Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 cited Warbler Pty Ltd; Re (1982) 6 ACLR 526 cited Xebec Pty Ltd (In Liq) v Enthe Pty Ltd (1987) 18 ATR 893 cited E Sykes and S Walker, The Law of Securities (5th ed, 1993) G Bogert, Trust and Trustees (2nd ed, rev, 1982)H A J Ford and W A Lee, Principles of the Law of Trusts (Lawbook Co, subscription service) (update 62) H A J Ford, 'Trading Trusts and Creditors' Rights' (1981) 13 MULR 1 Date of hearing: 27, 28, 31 August 2009 Date of publication of reasons: 11 February 2010 Place: Sydney (heard in Melbourne) Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 67 Appearing for the applicants: Mr A Vasiliou (in person) Counsel for the 2nd and 3rd Respondents: Mr R S Randall Solicitor for the 2nd and 3rd Respondents: Thomson Playford Cutlers Counsel for the 4th and 5th Respondents: Mr D Williams Solicitor for the 4th and 5th Respondents: Deacons IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 124 of 2008 BETWEEN: VASILIKI APOSTOLOU (AS TRUSTEE OF THE VASILIOU FAMILY TRUST) and ANDREW VASILIOU (AS TRUSTEE OF THE VA UNIT TRUST) Applicants AND: VA CORPORATION OF AUST PTY LTD, DAVID CHARLES QUIN AND CLYDE PETER WHITE (AS JOINT LIQUIDATORS OF VA CORPORATION OF AUST PTY LTD), PERPETUAL TRUSTEE COMPANY LIMITED, CHALLENGER MANAGED INVESTMENTS LIMITED and REGISTRAR OF TITLES Respondents JUDGE: FINKELSTEIN J DATE OF ORDER: 11 february 2010 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application be dismissed. 2. The applicants to pay the respondents' costs. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 124 of 2008 BETWEEN: VASILIKI APOSTOLOU (AS TRUSTEE OF THE VASILIOU FAMILY TRUST) and ANDREW VASILIOU (AS TRUSTEE OF THE VA UNIT TRUST) Applicants AND: VA CORPORATION OF AUST PTY LTD, DAVID CHARLES QUIN AND CLYDE PETER WHITE (AS JOINT LIQUIDATORS OF VA CORPORATION OF AUST PTY LTD), PERPETUAL TRUSTEE COMPANY LIMITED, CHALLENGER MANAGED INVESTMENTS LIMITED and REGISTRAR OF TITLES Respondents JUDGE: FINKELSTEIN J DATE: 11 FEBRUARY 2010 PLACE: SYDNEY (hEARD IN MELBOURNE) REASONS FOR JUDGMENT Introduction 1 This dispute arises out of the winding up of V.A. Corporation of Aust. Pty Ltd. VA Corporation was the trustee of the VA Unit Trust. The applicants are Mrs Apostolou, who claims to have replaced VA Corporation as trustee of the VA Unit Trust prior to the company's liquidation, and her husband, Mr Vasiliou, who says that he was later appointed as trustee in lieu of his wife. Although there are several respondents, the applicants' primary claims are against the former mortgagee of a property which had been a trust asset and the former liquidators of VA Corporation. In broad outline the applicants' claim against the former mortgagee, Perpetual Trustee Company Ltd, is that it had sold the property when it had no right to do so, and in any event, sold it at an undervalue. As against the former liquidators, Messrs Quin and White, the complaint is that they had acted unreasonably, if not illegally, in their handling of the winding up of VA Corporation and, for that reason, are not entitled to the fees and expenses which they claim are due to them. The fees and expenses are around $470,000. For reasons which follow none of those allegations can be sustained and the claims will be dismissed. 2 It is necessary to mention that Mr Vasiliou appeared in person and, by leave, on behalf of his wife. Mr Vasiliou's command of English is fair but his knowledge of the law is limited. His limited knowledge has been acquired largely through the numerous actions in which he has been involved and in which he always appeared on his own behalf. At the trial it was not always easy to follow Mr Vasiliou's arguments. In the event, Mr Vasiliou was given a good deal of latitude in the presentation of his case during the trial, which went for three days. To be fair, counsel for the respondents, Mr Randall for the liquidators and Mr Williams for Perpetual, went along with this approach. Although it is clear that Mr Vasiliou feels he has much to complain about, his complaints are being dismissed because they have no legal substance. Background 3 On 1 July 1997, VA Corporation acquired the property at 181-185 St Kilda Road, St Kilda in its capacity as trustee of the VA Unit Trust. Perpetual Trustee Company Ltd, as custodian of the Challenger Howard Mortgage Fund, was granted a mortgage over the property to secure a loan of approximately $1.2 million. 4 On 29 March 2006 VA Corporation was wound up in insolvency. The applicant for the winding up was the Commissioner of State Revenue. The Commissioner founded his application on the deemed insolvency of the company for having failed to comply with a statutory demand to pay unpaid land tax. The company was wound up by a master of the Supreme Court and the liquidators were appointed. The form of order indicates there was no appearance on behalf of the company. 5 An appeal against the winding up order was heard and dismissed by a judge of the Supreme Court on 28 July 2006. Although Ms Apostolou was then the company's only director, on the appeal Mr Vasiliou was permitted to appear for the company. He had previously been a director but, having been declared bankrupt, could no longer hold that office. It is not clear on what grounds Mr Vasiliou argued to have the winding up order set aside. I assume, consistently with the position he took in the instant proceeding, that Mr Vasiliou contended that the debt claimed by State Revenue was not in fact due. For reasons that are by no means apparent, Mr Vasiliou believes VA Corporation was entitled to an exemption from the obligation to pay land tax. If this is how he ran the appeal it is unsurprising that it was dismissed. 6 Nonetheless there was a basis for avoiding the winding up. At the time the winding up order was made VA Corporation was likely to have been solvent. Indeed, as later events established, its assets exceeded its liabilities by several millions of dollars. It seems that Mr Vasiliou did not on the appeal (which was a hearing de novo) tender evidence that would have shown the company to be solvent. 7 Following their appointment, the liquidators took preliminary steps to realise the property, the only trust asset, to pay out the company's creditors. But, instead of putting the property up for sale, in May 2007 the liquidators issued proceedings seeking an order for a judicial sale. A second interlocutory application delayed the trial which was fixed to commence on 23 April 2008. In the meantime, Perpetual had taken possession of the property and sold it for $4.6 million by public auction on 6 March 2008. The debts due to Perpetual, the Commissioner of State Revenue and the City of Port Phillip, being the only creditors, were paid out of the proceeds. 8 Although, following the payment of the company's debts, the auction produced a handsome profit for the company, the winding up and the sale led to a spate of litigation in both the Supreme Court and the Federal Court. The cost of this litigation has eaten up a substantial portion of that profit. This action will take more. Claim against Perpetual 9 The basis for the claim against Perpetual is not entirely clear but, at trial, Mr Vasiliou argued that Perpetual had no right to sell the property and, in any event, sold it at undervalue. Before considering those complaints it is necessary to say something about the history of Perpetual's dealings with VA Corporation. 10 Challenger Managed Investments Ltd, as trustee of the Howard Mortgage Trust (which later became the Challenger Howard Mortgage Fund), provided a loan facility to VA Corporation. Two advances totalling $1.2 million were made under the facility. The loan was secured by a mortgage dated 3 September 2001. The mortgage was in favour of Perpetual, as custodian of the Challenger fund. The loan was due to expire on 1 September 2003. The term of the loan was extended from time to time and ultimately fell due for payment on 31 December 2005. 11 The applicants contend that Perpetual was required to further extend the loan for a period of twelve months but failed to do so and, therefore, was not entitled to exercise its power of sale. The only basis for this contention is that in previous years Perpetual had extended the loan and so it should have continued to do so. 12 There is nothing in this point. In particular, Mr Vasiliou did not assert there was an agreement which required Perpetual to extend the loan when it expired. Nor did he suggest there was any representation which could found of an agreement by estoppel along the lines of Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387. 13 Although the loan was not extended, VA Corporation (via Ms Apostolou) continued to pay interest to Perpetual. There was a default in the payment of one month's interest as a result of a cheque being dishonoured. Mr Vasiliou challenged the allegation that there had been a failure to pay the instalment and says, if there had been a failure, it was made good. This is not a dispute that need be resolved because, according to Mr Vasiliou's evidence, and as the records produced by Perpetual confirm, at least by April 2007 interest on the loan had stopped being paid. By then, as Mr Vasiliou explained, he and his wife had simply run out of money. 14 On 2 July 2007 Perpetual served a notice of default as required by s 76 of the Transfer of Land Act 1958 (Vic), calling upon VA Corporation to pay $93,000.00, being the amount of interest then in arrears. The notice stated that if the interest was not paid Perpetual would take possession of the St Kilda Road property with a view to its sale. Mr Vasiliou acknowledged that the company received the notice. Although Mr Vasiliou argued that the notice was not a good one, he could not point to any particular deficiency in it. In particular, he acknowledged that the default referred to in the notice had occurred. 15 Mr Vasiliou also argued that Perpetual was not entitled to exercise its power of sale and should instead have agreed to refinance the loan. On various occasions prior to the sale, the applicants requested that they be permitted to refinance the property in order to pay out the mortgage. Indeed, Mr Vasiliou issued this proceeding in part to restrain the sale of the property, basing an application for an interlocutory injunction upon a proposed refinancing. The injunction was refused as the proposal for finance was conditional and there was no certainty that a new lender would put up the required funds. In the circumstances, Perpetual's decision to go ahead with the auction cannot be impugned. A mortgage may be redeemed by the tender of the full amount due to the mortgagee. In some cases the conduct of the mortgagee may amount to a dispensation with the obligation to tender. But, short of tender or conduct on the part of the mortgagee that renders tender unnecessary, a mortgagee is not required to give a mortgagor time within which to find alternative finance. The applicants are not entitled to complain about any failure (if there was any) on the part of Perpetual to grant them an indulgence. 16 Perpetual took possession of the property on 13 November 2007. It obtained a valuation from Messrs Demchinsky and Brady of WPB Property Group on 5 February 2008. The valuers assessed the market value of the property to be in the range of $2.5 million to $3 million with a forced sale value of $2.5 million. 17 Mr Demchinsky was called by Perpetual to give evidence. He was asked to explain the significant difference between the WPB valuation and the amount ($4.6 million) obtained from the sale of the property. Mr Demchinsky acknowledged that the sale price "came as a surprise". This is something of an understatement given that the sale price exceeded the top of the valuation range by approximately fifty per centum. Mr Demchinsky proffered two explanations for the difference, neither of which was very convincing. First of all he said the property was "rather unique and specialised in its shape" and therefore there was very limited directly comparable sales evidence. He also surmised that the developer who had purchased the property "had done their homework, homework which is at their cost and cannot be afforded to a valuer." The "homework" to which Mr Demchinsky referred was a feasibility study for a multi-story commercial development. WPB did not do that kind of "homework". Messrs Demckinsky and Brady based their valuation on "other sales of vacant development sites". There were five vacant development sites that were referred to in his valuation. 18 Now, I think the problem with WPB's valuation is that the valuers took insufficient time to prepare it and, most likely, did not do the necessary "homework" that is required of a valuer. Under cross-examination, Mr Demchinsky stated that he had received his instructions to carry out the valuation on 29 January 2007 and valued the property as at 5 February 2007. He said the valuation was delivered to Perpetual shortly after that date. At best, then, WPB had ten days to do the necessary research and write up the valuation. It strikes me that this is a very short period to work on the valuation of a property that is worth millions of dollars. 19 The auctioneering firm that sold the property on behalf of the mortgagee, Sutherland Farrelly, did a much better job. The auction date was 6 March 2008. The advertising campaign commenced one month earlier with an advertisement in The Age newspaper. A marketing brochure was prepared and widely distributed. A detailed property report was prepared and circulated to many prospective purchasers. Advertisements were placed on the auctioneer's internet website and on affiliated sites. The auction itself was well attended. The contemporaneous evidence indicates that, following a reasonable advertising campaign, the best price possible was achieved at the auction. 20 There is, nonetheless, one piece of evidence which suggests that the sale was at undervalue. That evidence is a valuation by Mr Dowling, who is a very experienced valuer. Mr Dowling was retained by Mr Vasiliou to carry out the valuation for the purposes of the trial. He produced a detailed written valuation. It is founded upon an analysis of 72 sales, some of which occurred subsequent to the auction date, as well as Mr Dowling's own experience and knowledge. 21 In Mr Dowling's view, at the date of the auction the property was worth $5.7 million. That was his assessment notwithstanding the property had been sold for $4.6 million. In Mr Dowling's opinion "it was possible to effect a sale of the property, [on 6 March 2008] at a price of $5,700,000, with reasonable time allowed in which to find a purchaser, buying the land with knowledge of all of the uses and purposes to which it is adapted and for which it was capable of being used". 22 Mr Dowling had little time for WPB's valuation. It is fair to say that he was dismissive of it. Mr Dowling noted that the report "cited five examples of comparable sales evidence, relating to transactions in Southbank, South Yarra, Prahran, Hawthorn East and Hawthorn". 23 Mr Williams cross-examined Mr Dowling at some length. As regards sales which took place after the auction date, Mr Dowling conceded that they were not available to Mr Demchinsky. Acknowledging the limited value of the post auction sales, Mr Dowling said he had given them limited weight. Another topic dealt with during the questioning was whether the sales upon which Mr Dowling based his valuation were comparable sales. Mr Williams sought to show that a number of the sales were of properties that were different in type, and a reasonable distance from, the St Kilda Road property. He also suggested that some sales were so far removed in point of time to the sale of the subject property as to be unhelpful, if not irrelevant. To be sure, some of the properties to which Mr Dowling referred are different in important respects from the St Kilda Road property. But the differences are not so great as to lead to the conclusion that the sales have no bearing on the value of the St Kilda Road property. It is necessary not to lose sight of the fact that only a handful of the sales were of properties that had significant differences from the St Kilda Road property. And, if they did nothing else, those sales were useful in establishing a trend in real estate prices. 24 Another criticism levelled at Mr Dowling was that he failed to rely upon the price achieved at the auction of the St Kilda Road property. Mr Dowling gave a reason for not taking that sale into account. He said that the sale "doesn't fit the pattern, and therefore, notwithstanding that the sale took place, it doesn't fit the pattern of evidence. It would be wrong, as a matter of evaluation method, to give weight to a transaction of the property being valued – that would be a contradiction in terms. One needs to disregard a transaction affecting the property being valued if one is to be objective about the value. As it happens, to put it directly, the property was sold for less than the value that it possessed at that date, in my view, according to the evidence." 25 It is largely, if not exclusively, on the evidence of Mr Dowling that Mr Vasiliou founds his claim against Perpetual for breach of duty. 26 In exercising its power of sale, Perpetual was subject to duties at general law, under the Transfer of Land Actand as a 'controller' under s 420A of the Corporations Act 2001 (Cth). The nature of those duties are well known, albeit that some aspects of them are still to be settled: see generally Pendlebury v Colonial Mutual Life Assurance Society Limited (1912)13 CLR 676; Forsyth v Blundell (1973) 129 CLR 477; Commercial Acceptance Corporation Limited v Nixon (1981) 152 CLR 491. In this case, there is no evidence to suggest that Perpetual breached any of the duties it owed to VA Corporation. 27 To resist the charge of breach of duty Mr Williams referred in particular to a decision of the Court of Appeal of New South Wales, Stone v Farrow Mortgage Services (in liq) (1999) 12 BPR 22,175. There, it had been alleged that a mortgagee had breached its mortgagee's duties in selling the mortgaged property at an undervalue. One issue was whether it was permissible to have regard to the price achieved at a sale in deciding whether the property had in fact been undersold. 28 Hodgson CJ in Equity said (at paragraph [4]): In such a case there are two broad areas of inquiry. First, what steps were taken in relation to the sale, and the second, the comparison between the sale price and the true value of the property. These areas are interdependent. A price actually obtained after proper steps have been taken is strong evidence of the true value of the property. On the other hand, if it is proved that the price obtained is substantially below the true value, that may be some evidence that proper steps were not taken. The relationship between the price obtained and the true value is also relevant in that if it is shown that the duty has been breached, measure of damages is the difference. Hodgson CJ further noted that the fact that the impugned sale was at an undervalue is not of itself sufficient to establish a breach (at para [3]). 29 Stone has been followed in a number of subsequent decisions. For instance, in Stockl v Rigura Pty Ltd [2004] NSWCA 73, the Court of Appeal (at para [34]) cited Stone for the proposition that, in determining whether there has been a breach of duty in exercising a power of sale: [T]he first question is always: has the mortgagee taken proper steps to advertise and sell the property? If the clear answer to that question is 'yes', the court may regard the resultant sale as the best evidence of the current market value of the property so that no regard need be paid to other valuation evidence. However, if the answer to the first question is doubtful, valuation evidence as to current market value may assist to resolve the doubt. 30 A recent decision of the Court of Appeal in Victoria may, on one reading, conflict with the approach in Stone. In Vasiliou v Westpac Banking Corporation (2007) 19 VR 229, (a case in which Mr Vasiliou also appeared), the plaintiff sought to challenge a mortgagee's sale on the basis that the mortgagee had breached s 77 of the Transfer of Land Act. Section 77 imposes an obligation upon a mortgagee exercising a power of sale to act "in good faith and having regard to the interest of the mortgagor". The mortgagee sold the property privately, without advertising the property or otherwise attempting a public sale. Evidence from a number of valuers called by the bank was to the effect that the price achieved was at least as good as the price that would have been achieved if the property had been sold by public auction. On the basis of that evidence, the Court of Appeal rejected the contention that there had been a breach of s 77. The Court said (at p 242) that the mere fact that a property was advertised, or not advertised, will rarely be decisive. It went on to say (at p 242): What matters is the price obtained. If the price is satisfactory, a failure to advertise will be immaterial. Conversely, if the price is unsatisfactory, as a result of the mortgagee's acts or omissions, the fact that the property was advertised would be unlikely to be an answer to the allegation that the duty under s 77(1) had been breached. 31 It is difficult to know what to make of this passage. Of course what matters in assessing whether a mortgagee has acted properly is the price obtained. If through private negotiation resulting in a private treaty the best price is achieved it will not matter that there has been no advertising. The point of an advertisement is to bring the fact that the property is for sale to the attention of potential buyers. This is the usual way of obtaining the best price. It is not, however, the only means. Sometimes the best price may be obtained by private negotiation. The point of the New South Wales cases is that if a property is properly advertised, that, most likely, will produce a satisfactory price. If, which is not clear, the Victorian court is suggesting a different approach, I prefer the view in Stone. 32 Moreover, what was said in Stone is directly applicable in this case. Here, the evidence shows that the price obtained at the auction followed a reasonable marketing campaign. While Mr Dowling's evidence is that the price was below the property's true market value (a view I do not discount), in the absence of something to show that there had been conduct that amounted to a breach of duty on the part of Perpetual (or its agents who conducted the marketing and auctioning campaign) the claim against it must fail. There is no such evidence. Indeed, there is nothing to suggest any act or omission on the part of Sutherland Farrelly which led to the sale price being below the market price. If there was a sale at an undervalue, that is simply a fortuitous result. Claim against the Liquidators 33 The applicants' claims against the liquidators are to the effect that the liquidators improperly prolonged the liquidation of VA Corporation, for two reasons. First, the liquidation was unnecessarily delayed by the liquidators issuing court proceeding seeking a judicial order to sell the mortgaged property. Second, once it became apparent to them that the company was solvent, the liquidators failed to take steps to terminate the liquidation. 34 Although the property was ultimately sold by Perpetual, shortly after their appointment the liquidators took steps to sell the property. One step was the application in the Supreme Court for an order authorising the sale. The issue is whether it was appropriate for the liquidators to institute that application and incur costs in so doing, rather than simply sell the property. 35 As has been pointed out, VA Corporation was the trustee of VA Unit Trust. It held the St Kilda Road property as part of the trust estate. The liabilities which VA Corporation owed (its only debts were those due to Perpetual, the State Revenue Office and the City of Port Phillip) were debts which the company had incurred in its capacity as trustee. The company had a right of indemnity against the trust estate in respect of these debts. The right of indemnity was supported by an equitable lien, or more properly described, an equitable charge over the trust assets: Hewett v Court 149 CLR 639, 663. 36 Prior to the mortgagee taking possession of the property, the liquidators took advice from solicitors concerning the company's position in relation to the discharge of the trust debts. The liquidators were advised that VA Corporation's right of indemnity over the trust property was "enforceable by a court order for sale of the trust property". The solicitors also pointed out that Mr Vasiliou and Ms Apostolou "are vigorous litigants and have no hesitation in issuing proceedings to protect their commercial interests". The liquidators were advised to issue proceedings to seek an order granting them permission to sell the property. 37 A key element of the solicitors' advice was that a trustee's lien can only be enforced through court process. Mr Randall for the liquidators made detailed submissions in support of that view. Given its general importance, it is necessary to consider the issue in a little detail. 38 The starting point is with the trustee's right of indemnity. Ordinarily the trustee does not require any assistance from a court to exercise his indemnity. The indemnity has two aspects which can be exercised as acts of self help: (1) the right in the trustee to reimburse himself out of trust assets in respect of payments made out of the trustee's own funds in satisfaction of trust liabilities (a so called right of reimbursement) and (2) a right to apply trust funds in direct satisfaction of trust liabilities (a right of exoneration): Chief Commissioner of Stamp Duties v Buckle (1998) 192 CLR 226, 246. 39 The trustee will, however, face difficulties if there are no funds against which to exercise the right of reimbursement or exoneration. The difficulty exists because an equitable lien or charge does not, in itself, carry with it a right of sale to enable trust assets to be converted to cash and stand as a fund from which the trustee can make payments to creditors and reimburse himself for lawful expenditure. It confers no right of sale because an equitable lien or charge does not grant title to the property over which the charge or lien is held: Hewett v Court 149 CLR 639, 663. It follows that, at least where there is no other source of power to sell charged property, a trustee's right of indemnity against non-cash assets must be enforced by the processes of equity, ie by judicial sale or the appointment of a receiver with a power of sale. 40 What is the position where the trustee who holds the legal title and has an equitable lien also has an express power of sale conferred by the trust instrument? Mr Randall submitted that even in those circumstances it is still necessary for the trustee to seek a curial order to enforce his equitable lien. 41 This submission is contrary to such authority as there is on the point. In Jennings v Mather 1902 1 KB 1, 6, Stirling LJ said that the trustee "has a right to resort to [the trust] property, without the assistance of the Court, for the purposes of indemnity against liabilities properly incurred by him in the administration of the trust". See also Re The Exhall Coal Company Limited (1866) 35 Beav 449, 453; Xebec Pty Ltd (In Liq) v Enthe Pty Ltd (1987) 18 ATR 893, 898; H A J Ford, 'Trading Trusts and Creditors' Rights' (1981) 13 MULR 1, 2; Scott on Trusts (5th ed, 2006), pp 1627-1628. 42 In Trim Perfect Australia Pty Ltd (in liq) v Albrook Constructions Pty Ltd (2006) NSWSC 153 the trustee had an express power of sale conferred by the relevant trust instrument. The trustee was removed from office. Two days after being removed, the trustee purported to sell trust property in order to enforce its equitable lien. Austin J said (at [22]) that if the trustee had sold the property while remaining trustee, "it would have had the power to do so". The purported sale was outside power because at the time of sale the trustee had ceased to hold office. 43 Mr Randall relied upon cases, of which there are many examples, where it is said that the trustee's proprietary interest may only be enforced by judicial sale and not by sale without curial intervention. Some of the better known cases are Re Pumfrey (deceased); The Worcester City and County Banking Co Ltd v Blick (1883) 22 ChD 255, where the trustee sought a judicial sale because his power of sale had not yet arisen; Re Stucley [1906] 1 Ch 67, Davies v Littlejohn (1923) 34 CLR 174 and Hewett v Court (1983) 149 CLR 639, cases which concerned a vendor's or purchaser's lien; ANZ Banking Group Ltd v Intagro Projects Pty Ltd [2004] NSWSC 1054 a case where a former trustee had lost control of the trust assets and was not in a position to enforce its lien without approaching the court. 44 Another case which is commonly cited in this area is The Melbourne Tramways Trust v The Melbourne Tramway and Omnibus Co Ltd (1887) 13 VLR 487. The issue that arose for determination was whether a security granted to pursuant to specific legislation (The Melbourne Tramway and Omnibus Company's Act 1883 (Vic)) was intended to confer a power of sale. The legislation referred to the security as being 'chargeable' on the plant and rolling stock of [the defendant]. The Court said (at p490) that it was well understood that a 'charge' could only be enforced by court order. 45 In each of these cases, however, the court was only concerned to describe the right conferred upon the holder of a charge, such as a right of indemnity. The court was not dealing with a trustee who had been given an express power of sale in his trust instrument. Interestingly, Melbourne Tramways is cited by Sykes and Walkers' The Law of Securities (5th ed, 1993) at p 198 for the proposition that: "The remedies of an equitable chargee, unless contract adds others, are judicial sale and the appointment of a receiver. Both remedies are gained only through the court". (emphasis added) 46 It is, in my view, clear that where a trustee has legal title to property coupled with a power of sale and has a proprietary interest in that property by reason of his right of indemnity, the trustee may have recourse to the power of sale to get in funds against which his right of indemnity can be exercised. Here, such a power is to be found in clause 8.3 of the deed which established the VA Unit Trust. 47 In addition to the trust instrument, the liquidators had a separate authority to sell the property. Upon his appointment a liquidator has three main tasks: (1) to locate and get in the company's property; (2) to realise (ie sell) that property; and (3) to distribute the proceeds among those entitled to them. The liquidator is given statutory powers to perform each task. The power to sell is conferred by s 477(2)(c), which provides that a liquidator may sell or otherwise dispose of, in any manner, all or any part of the property of the company; 48 In the circumstances we are considering (ie where a corporate trustee holds legal title to trust property over which it also has a proprietary claim) the right of indemnity passes to the liquidator who may resort to the trust property to make good that right: In re Suco Gold Pty Ltd (in liq) (1983) 7 ACLR 873, 878, 881. There is no reason in principle why the liquidator's statutory power of sale is not available to enable the claim to be satisfied. To the contrary, it would be highly inconvenient if it could not and, instead, the liquidator was required to go to court. In my view, the power of sale conferred by s 477 may be exercised in respect of property in which the company in liquidation has an equitable interest, provided the liquidator has the legal title to dispose of. The statutory power of sale may be exercised by the liquidator of a trustee company even where the trust instrument itself did not confer a power of sale. See, for example, UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (1996) 21 ACSR 457 where it was held that an unassignable chose in action could be sold by a liquidator under the statutory power of sale. 49 Mr Randall also suggested that because VA Corporation may have been replaced as trustee by Ms Apostolou, the liquidators were required to seek a judicial sale order. This is not correct. First, the removal of a trustee does not get rid of the trustee's right of indemnity: Coates v McInerney (1992) 6 ACSR 748; Dimos v Dikeakos Nominees Pty Ltd (1996) 68 FCR 39. Second, the appointment of a new trustee does not automatically vest Torrens land in the new trustee: Trustee Act 1958 (Vic) s 45(3)(c). In any event, only 'trust property' can vest in the new trustee. It is arguable that, whether or not the trust property is Torrens land, 'trust property' does not include property in respect of which the former trustee retains an equitable interest: Chief Commissioner of Stamp Duties v Buckle (1998) 192 CLR 226, 247; Xebec Pty Ltd (in liq) v Enthe Pty Ltd (1987) 18 ATR 893, 898; see also Ford and Lee Principles of the Law of Trusts (Lawbook Co, subscription service) [8400] (update 62). 50 Third, even if trust property includes property in which the former trustee retains an equitable interest, the retiring trustee is entitled to retain possession of the trust property, subject to a court order to the contrary, until it is paid what it is due or until it sells the property. I acknowledge that Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344 holds that a retiring trustee cannot retain possession of trust property as against a new trustee. With respect, in my opinion there is no doubt that a retiring trustee can hold trust property to secure his right of reimbursement against both the beneficiaries and a new trustee. Stott v Milne (1884) 25 Ch Div 710, a decision of a powerful Court of Appeal presided over by the Lord Chancellor, states the rule in unqualified terms. So also does G Bogert, Trust and Trustees (2nd ed, rev 1982) §718 in the following passage: If a successor trustee has been appointed, he cannot recover possession of the trust property from the retiring trustee until the latter is paid from the trust property for all advances from his own funds properly made for the benefit of the trust. If there is a duty on the part of the trustee to convey the property to a beneficiary at the termination of the trust, the trustee can insist on reimbursement for expenses incurred by him for the benefit of the trust before he is obliged tot execute a conveyance. The trustee may assert this right of retention against principal or income of the trust. 51 That the right of indemnity is not lost if possession is given up is not, contrary to what is said in Lemery Holdings, to the point. Nor, also contrary to what is said in Lemery Holdings, is there a principled distinction between a claim for possession by a beneficiary (whose claim is said to be defeated by the lien) and a claim for possession by a new trustee (whose claim is said to defeat the lien). Lemery Holdings bases the distinction on the potential for the destruction of the security interest, considering it less likely if the property passes to a new trustee. In the end, the risk depends upon the honesty of the individual, not the legal capacity in which the individual holds the property. This is not to suggest that in an appropriate case, a court does not have power to order that trust property be delivered into the hands of the new trustee on terms by which the old trustee's indemnity is fully protected: see eg Global Funds Management (NSW) Ltd v Burns (in prov liq) (1990) 3 ACSR 183. 52 In passing I note that although Trim Perfect Australia Pty Ltd (in liq) v Albrook Constructions Pty Ltd [2006] NSWSC 153 is authority for the proposition that the original trustee could no longer exercise the power of sale conferred by the trust instrument, it appears not to have been argued that the liquidator could have recourse to s 477. 53 Notwithstanding the existence of a power of sale, there were in this case good reasons for the liquidators to apply to the court for permission to sell. First, there was in existence a transfer by which VA Corporation had purported to transfer the property to Ms Apostolou. The transfer had been lodged in the Stamps Office and had been assessed to duty. That assessment was being challenged. Second, Mr Vasiliou had informed the liquidators that VA Corporation had no right to remain as the registered proprietor of the property. Third, Mr Vasiliou also denied that the trustee had a right of indemnity. Fourth, Mr Vasiliou was making a variety of complaints about the liquidators' conduct. Finally, the liquidators were acting on their solicitors' advice regarding matters which were not legally straightforward. 54 These reasons made it proper, if not necessary, for the liquidators to seek the protection of a court order. No doubt proceedings would have been issued challenging any attempt on their behalf to sell the property. As things turned out, it was unnecessary for the Supreme Court to rule on the liquidators' application. The mortgagee's taking of possession rendered the liquidators' application redundant. 55 Another complaint raised against the liquidators is that they unnecessarily prolonged the winding up of a company which was clearly solvent, and failed to assist the beneficiaries of the unit trust in their attempt to refinance the property so that the liquidation could be brought to an end. 56 This complaint raises the issue of what a liquidator should do when he discovers that the company in liquidation, having been wound up in insolvency, turns out to be solvent and all that is required to pay out creditors is some reorganisation of the company's finances. It is not difficult to appreciate that, in those circumstances, it may be in the interests of the company (creditors and contributories) for the liquidators to facilitate a restructure of the company's debts. A stay of the winding up could then follow. 57 I am of opinion that if a reasonable restructuring is proposed by the contributories, the liquidator should take the steps necessary to facilitate that restructure. What kind of facilitation is required depends upon the facts of each particular case. Sometimes it will be no more than the provision of information about the affairs of the company. On other occasions, the refinancing may require the liquidator to take positive steps to facilitate an arrangement. Of course, in no case will the liquidator be obliged to incur any personal liability in relation to any substitute loan. Such liability could easily be avoided with an order under s 471A by which the director is given power to execute documents on behalf of the company. 58 In considering whether it is in the company's best interests to stay the liquidation, the liquidator will need to consider the factors relevant to the court's discretion as regards whether to grant a stay. A stay order will usually be made if all creditors are paid out, the liquidator's costs and expenses are covered and the members agree. It may be accepted that there will be exceptional cases where it would not be appropriate to stay the winding up of a company simply because it is solvent. For example, where it is "detrimental to commercial morality and to the interests of the public at large" a stay will not be granted: Re Telescriptor Syndicate Limited [1903]2 Ch 174, 180. See also Re Warbler Pty Ltd (1982) 6 ACLR 526; Anderson v Palmer [2002] NSWSC 192. The reasons that lie behind that rule will usually have no application to a company which has not engaged in trade and has incurred only a handful of debts. 59 If application for a stay is to be made, the liquidator could bring the application. After all, the liquidator has standing to make the application: see ss 482 and 511 of the Corporations Act. 60 In the case of a solvent trustee there will be even greater imperative to arrange for a refinancing of, or assist the beneficiaries in their endeavour to refinance, the trust debts. It is, after all, a paramount duty of the trustee to preserve the trust estate if its preservation is both reasonable and possible. If the trust estate can be preserved then that is what the liquidator of the trustee should do. It may not be necessary to stay the liquidation. It might suffice for the liquidator to apply for the appointment of a new trustee. Whether there should be a stay of the liquidation or the appointment of a new trustee will also depend upon the circumstances of the case. 61 I should indicate that I did stay the winding up. That order was made following the sale of the St Kilda Road property. Its purpose was to ensure, so far as was possible, that all debts having been paid and no further costs would be incurred by the liquidators that would cut into the surplus. 62 Turning to the facts in this case, as has been observed it is highly likely that VA Corporation was solvent when it was wound up. At the time, in addition to the debt due to Perpetual the company had only two other unsecured creditors, the State Revenue Office which was owed $147,525.31 for unpaid land tax together with interest and the City of Port Phillip to which was due $55,188.93 for unpaid rates and costs. 63 Mr Randall said that the solvency of the company was only apparent after the outcome. This is putting the position too favourably for his clients. The liquidators knew from at least March 2007 that the company's liabilities were in the vicinity of $1.4 million (although this figure grew over time as the liquidator and mortgagee incurred fees dealing with Mr Vasiliou). In mid-2006, the liquidators had received an offer of $1.75 million for the property. During 2007, they received numerous expressions of interest from potential purchasers of the property. In these circumstances, it seems that the liquidators had strong reason to believe that the value of the property well exceeded the quantum of the company's liabilities. 64 It is also important to note that from shortly after their appointment, the liquidators had been in discussions with Mr Vasiliou regarding a potential refinancing of the property. Mr Vasiliou had indicated that he could not refinance the property while the company was in liquidation and while he could not use the property as security to obtain finance. It is fair to say that the liquidators did not go out of their way to assist Mr Vasiliou, or to raise with him the possibility of seeking a stay or alternative orders to facilitate a potential refinance. For example, at one stage the liquidators informed Mr Vasiliou that a proposed refinance could only occur if Mr Vasiliou procured the payment to the company of sufficient funds to enable all the debts to be discharged, implicitly without being able to use the property as security for any loan that may be required. 65 I have some reservations about the manner in which the liquidators dealt with Mr Vasiliou's refinancing proposals. Ultimately, though, there were a number of factors which would have justified a decision not to facilitate a refinance of the company's debts. Most importantly, Mr Vasiliou would not have gone along with any arrangement that would have resulted in the payment of the debts due to the State Revenue and the City of Port Phillip. For reasons which I do not understand, Mr Vasiliou is convinced those debts were not due. He had instituted proceedings to challenge the claims of the State Revenue and the City of Port Phillip. Yet there is nothing to suggest those debts were not due. 66 By reason of Mr Vasiliou's attitude concerning the company's debts, it was inevitable that there would be no arrangement which the liquidators could reasonably adopt, and that the property would be sold by either the liquidators or the mortgagee so that the company's debts were paid. 67 For the foregoing reasons the application will be dismissed with costs. I certify that the preceding sixty-seven (67) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein. Associate: Dated: 11 February 2010