New South Wales Supreme Court CITATION : Crocombe v Pine Forests of Australia Pty Ltd (No 3) [2007] NSWSC 217 HEARING DATE(S) : 8 March 2007 JUDGMENT DATE : 8 March 2007 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Young CJ in Eq DECISION : Orders made in accordance with amended interlocutory process. CATCHWORDS : REAL PROPERTY [314]- Torrens Title- Tenants in common in undivided shares- Separate certificates of title- Some shares encumbered by mortgages- Sale in lieu of partition- Trustees for sale of whole of the land take free of encumbrances affecting undivided shares- Mortgagees' rights will be against fund raised by sale of the whole. Conveyancing Act 1919, s 66G LEGISLATION CITED : Corporations Act 2001 (Cth), s 601EE Property Law Act 1958 (Vic), Pt IV Real Property Act 1900, s 138 Arrow Custodians Pty Ltd v Pine Forests of Australia Pty Ltd [2006] NSWSC 341 Botterill v Botterill (2000) 10 BPR 18,787 Burton v Arcus (2004) 51 ACSR 683 Burton v Arcus (2006) 200 FLR 1 CASES CITED : Crocombe v Pine Forests of Australia Pty Ltd (2005) 219 ALR 692 Dunham v Minard (1834) 4 Paige Ch 441; 3 NY Ch Ann 506 Fulton v 523 Nominees Pty Ltd [1984] VR 200 Jadu Nath Roy v Parameswar Mullick (1939) LR 67 1A 11 McMahon v A F Wade Pty Ltd [1983] WAR 152 Peter Charles Hicks and William Frederick Tonkin (Applicants) John Gordon Crocombe (1st Respondent) PARTIES : Andrea Judith Crocombe (2nd Respondent) Pine Forests of Australia Pty Ltd (3rd Respondent) Ausforest Ltd (4th Respondent) FILE NUMBER(S) : SC 2200/04 COUNSEL : I Pike (Applicants) J T Johnson (1st Respondent) SOLICITORS : Johnson Winter & Slattery (Applicants) Maurice Blackburn Cashman (1st Respondent) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST YOUNG CJ in EQ Thursday 8 March 2007 2200/04 - CROCOMBE v PINE FORESTS OF AUSTRALIA PTY LTD (NO 3) JUDGMENT 1 HIS HONOUR: This is a further episode of the proceedings to wind up an unregistered investment scheme involving the planting, harvesting and processing of pine trees grown in the Oberon area of the State. 2 My principal judgment in the proceedings to date was delivered on 8 March 2005 and is reported as Crocombe v Pine Forests of Australia Pty Ltd (2005) 219 ALR 692. I will not repeat the facts there gathered. 3 For present purposes, all I need to note is that the scheme involved a forest of pine trees. Those trees were planted on land the fee simple of which was held by about 123 people as tenants in common. I initiated the winding up by appointing Messrs Hicks and Tonkin, official liquidators, as trustees for sale under s 66G of the Conveyancing Act 1919 of the whole of the land. 4 The trustees have decided that the only way to market the land is to sell it as one block. However, they have been advised by the Registrar General's Department that it is necessary to get in the individual certificates of title and "consolidate" those interests into one new title. 5 The present interlocutory application seeks orders that the individual certificates be produced to the court or that an order be made under s 138 of the Real Property Act 1900 that the Registrar General be directed to cancel those certificates and issue a new certificate in the name of the trustees for the whole of the land. 6 Although the trustees have included in their amended interlocutory process a claim for production of the certificates of title, this claim is principally made to give the court the necessary jurisdiction to make an order under s 138 of the Real Property Act; see Botterill v Botterill (2000) 10 BPR 18,787 and Arrow Custodians Pty Ltd v Pine Forests of Australia Pty Ltd [2006] NSWSC 341. 7 The matter was heard before me on 5 March 2007 at which time Mr I Pike of counsel appeared for the trustees and Mr J T Johnson of counsel appeared for the original plaintiff, Mr Crocombe. 8 At the end of the oral argument, I announced that I had decided to grant the application, but to require the trustees to circulate the holders of the individual certificates of title as I did not consider that their existing report was sufficiently detailed. I then stood the matter over until today both to allow time for a circular to be drafted for my approval and also for me to give formal reasons for my decision. 9 I had two principal concerns last Monday. 10 The major concern was about the interests of mortgagees from holders of the individual registered proprietors. The evidence showed that there were some registered mortgages against some of those certificates of title and I suspected that there could well be equitable mortgages in respect of others. My worry was that these interests would be extinguished if I made the order sought. Some of this concern is reflected in my principal judgment at pp 703-4; [75]-[79]. 11 My second concern was that there appeared to be some difference of views expressed about the problems that arose on this application. In particular there was the decision of Johnson J in Western Australia in Burton v Arcus (2004) 51 ACSR 683, since reversed by the Western Australian Court of Appeal (Burton v Arcus (2006) 200 FLR 1) as well as the apparently conflicting authorities considered in Fisher & Lightwood's Law of Mortgages, 2nd Australian edition at [11.4] to [11.6]. 12 The standard form of order made on successful applications under s 66G of the Conveyancing Act is that the subject land vest in the trustees appointed, subject to encumbrances affecting the whole, but free of encumbrances (if any) affecting any undivided or aliquot share. 13 I researched the reason for this with the assistance of counsel and was satisfied on the point when I reserved. However, because there is some variation of view in the authorities, I considered it best to take a little time to state the principles in more precise language than I might have used in an ex tempore judgment. 14 The leading case is the decision of the Privy Council in Jadu Nath Roy v Parameswar Mullick (1939) LR 67 IA 11. The Privy Council explained that when an order for partition or sale is made, that vests the whole of the equity of redemption in the trustees. The trustees hold subject to any mortgage affecting the whole, but claims of the former proprietors in fee, their mortgagees and any other claimant of an interest in the land under the former proprietors is virtually converted into a claim against the fund that the trustees will raise by selling the land. However, if there is a partition with a parcel of land being allotted to a former co-owner, the result may be that the mortgagee will be entitled to a mortgage over that part of the land which his or her mortgagor gains out of the partition. 15 The Privy Council thus held that mortgagees are not proper parties to a partition suit, but are usually granted leave to appear as what the Board described as "quasi-parties" on the hearing as to how the fund should be distributed. 16 Fisher & Lightwood at [11.4] to [11.6] deals with many of the cases on the present point. However, care must be taken when reading the cases there referred to. The cases do not appear to be altogether consistent, but this is at least partially explained by the fact that the relevant statutes differ considerably in the various jurisdictions. 17 The New South Wales Statute plainly provides in s 66G(1) of the Conveyancing Act that the court may make an order which vests the land in trustees for sale "subject to incumbrances affecting the entirety, but free from incumbrances affecting undivided shares". 18 There is thus in New South Wales, no room for the view reached in a very learned judgment by Tadgell J in Fulton v 523 Nominees Pty Ltd [1984] VR 200 that there is no jurisdiction to make an order appointing trustees for sale where an undivided share other than one belonging to a plaintiff is mortgaged. The Victorian Property Law Act 1958, Part IV is cast in different terms to the New South Wales Act. 19 It is true that the New South Wales Act does not adopt the actual words of the 19th Century New York reform which explicitly converted the interest of a mortgagee of an undivided share into a claim upon the fund produced by the sale; see Fulton's case at 208 and Dunham v Minard (1834) 4 Paige Ch 441, 442; 3 NY Ch Ann 506, 507. However, the wording of s 66G produces that consequence. 20 The approach taken by Pidgeon J in McMahon v A F Wade Pty Ltd [1983] WAR 152 reflects the approach that is taken in New South Wales. Although his Honour was evidently not referred to the Privy Council decision, by logical reasoning, he reaches the same result. 21 I respectfully agree with the decision in McMahon that the fact that registered interests are being expunged does not offend the principles of the Real Property Act. The Western Australian Court of Appeal reached the same view in Burton v Arcus (2006) 200 FLR 1, 36. 22 Thus, it is proper to make the orders sought in the amended interlocutory process that the existing certificates of title be cancelled and that the trustees sell the land as a whole. However, each owner (and known mortgagee of any owner) must be properly notified by circular letter of what is happening and that their rights will be against the fund raised by the trustees as a result of the sale of the land. 23 Mr Johnson for Mr Crocombe, the original plaintiff, sought an order for costs. I decline to make an order at this stage. If there were sufficient funds available, the proper costs of the trustees and the original plaintiff would be paid out of the fund. There may or may not be sufficient in the fund to pay all or indeed any of the proper costs. Questions of costs and the order of priority in which they should be discharged are best left until one knows the amount of money available and the total amount of all proper claims for costs. Costs should continue to be reserved. 24 Finally, I should remind everyone that this s 66G order is merely the first stage of winding up an unregistered investment scheme under s 601EE of the Corporations Act 2001. This is now a recognized method of proceeding; see Burton v Arcus (2006) 200 FLR 1, 24 and 37. There is a chance of other monies becoming available to investors when other assets are collected or monies are received as a result of pursuing claims against the promoters or managers of the scheme. ******************* DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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