Supreme Court New South Wales Medium Neutral Citation: Sydney Markets Credit Services Co-operative Limited ABN 67503292864 v Barry Anthony Taylor as Trustee of the Bankrupt Estate of Natale Piscuineri; A.C.N 123849883 Pty Limited v Sydney Market Credit Services Co-Operative Limited (No. 2) [2015] NSWSC 499 Hearing dates: Reasons based on the consideration of written submissions completed 15 July 2014. Date of orders: 01 May 2015 Decision date: 01 May 2015 Jurisdiction: Equity Division Before: Slattery J Decision: See paragraph [37]. Catchwords: CONTRACT – interpretation of contract of guarantee – whether guarantee created equitable interest subsequently acquired real property – where guarantors subsequently acquired property as trustees of beneficiaries of a superannuation fund. EQUITY – trusts and trustees – application for vesting order. Legislation Cited: Superannuation Industry (Supervision) Regulations 1994 (Cth) Trustee Act 1925 (NSW) Cases Cited: Barlin Investments Pty Ltd v Westpac Banking Corporation (2012) 2012 BPR 30,671 Butler v Fairclough (1917) 23 CLR 78; [1917] HCA 9 Clark v Raymor (Brisbane) Pty Ltd (No 2) [1982] Qd R 790 Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd (1996) 42 NSWLR 409 Global Network Services Pty Ltd v Legion Telecall Pty Ltd [2001] NSWCA 279 Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326 In the application of Roderick Mackay Sutherland and Sule Arnautovic [2014] NSWSC 821 Jacobs v Platt Nominees Pty Ltd [1990] VR 146 Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265; [1965] HCA 17 Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 Sydney Markets Credit Services Co-operative Limited v Taylor [2014] NSWSC 754 Westfield Holdings Limited v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194 Texts Cited: JD Heydon & MJ Leeming, Jacobs' Law of Trusts in Australia (7th ed 2006, LexisNexis Butterworths) P Butt, Land Law, (6th ed 2010, Thomson Reuters) Category: Costs Parties: (2012/275063) Plaintiff: A.C.N. 123 849 883 Pty Limited First Defendant: Barry Taylor as trustee of the bankrupt estate of Natale Pisciuneri Second Defendant: Ferdinando Pisciuneri (estate of the late Ferdinando Pisciuneri) Third Defendant: Sydney Markets Credit Services Co-Operative Limited (2012/268321) Plaintiff: Sydney Markets Credit Services Co-Operative Limited (ABN 67503292864) First Defendant: Barry Anthony Taylor as trustee of the bankrupt estate of Natale Pisciuneri Second Defendant: Registrar-General, New South Wales Third Defendant: Andrew Bruce Coffey Representation: Counsel: Plaintiff: D. Roberts Third Defendant: A.J. Bulley File Number(s): (2012/275063); (2012/268321) Publication restriction: No Judgment 1. This is the Court's second judgment in these proceedings. It should be read together with the Court's principal judgment: Sydney Markets Credit Services Co-operative Limited v Taylor [2014] NSWSC 754. Events, persons and matters are referred to in this judgment in the same way as they are in the principal judgment. 2. The principal judgment made the factual findings material to the dispute. Then the Court invited further submissions from the parties based on those factual findings. The parties provided these on 4 and 15 July2014. 3. Mr D. Roberts of counsel continues to appear for ACN 123 and Mr A. Bulley of counsel for Sydney Markets. Summary of relevant facts 1. The key findings in the principal judgment may be briefly re-stated. This restatement is provided for convenience and any slight differences in wording is not intended to change the content of the findings made in the principal judgment. 2. Sydney Markets made credit available to Duffy Bros. Natale and Ferdinando Pisciuneri provided a 1996 Guarantee to Sydney Markets to guarantee the supply of credit to Duffy Bros. Under the 1996 Guarantee, the Pisciuneris charged their respective interests in any land "then or thereafter held by [each of them] for all monies guaranteed pursuant to the deed of guarantee". 3. In 1991 the Pisciuneri brothers established a Superannuation Fund. On 5 June 1998 they executed a contract to purchase the Goulburn property. The Pisciuneris funded the purchase of the Goulburn property with monies from the Superannuation Fund. The Pisciuneris became registered proprietors of and held the legal ownership of the Goulburn property on acquisition. But Natale and Ferdinando Pisciuneri held the Goulburn property on trust for the Superannuation Fund. 4. The trustees of the Superannuation Fund changed several times following the purchase of the Goulburn property. In September 2003, Ferdinando Pisciuneri resigned as trustee and was replaced by Dominic Pisciuneri. In December 2003 Natale and Dominic Pisciuneri appointed Janelle Pisciuneri as an additional trustee of the Superannuation Fund. On 14 July 2011, Natale, Jennelle and Dominic Pisciuneri all resigned as trustees and a company, ACN 123, was appointed the new trustee in their place. 5. Those trustee changes were not reflected in the certificate of title of the Goulburn Property. A mortgage over the Goulburn property was granted to St George Bank on 24 April 2003 in error, as well as over an adjacent property. St George Bank then failed to return the certificate of title to the trustees for some years. The trustees of the Superannuation Fund could have rectified this situation by requesting a replacement certificate of title for a lost original through the application of modest diligence. But they did not. 6. In April 2010 Duffy Bros defaulted on its financial obligations to Sydney Markets. Mr Mendonca, Sydney Markets' manager, discussed Duffy Bros' financial position with Natale Pisciuneri on 19 May 2010. Natale Pisciuneri represented to Mr Mendonca that the Goulburn property belonged to him alone, that Ferdinando Pisciuneri's name should not be on the registered title and that Ferdinando Pisciuneri had nothing to do with the property. Natale Pisciuneri concealed the Superannuation Fund's entitlement to the Goulburn property because he wanted Mr Mendonca to keep dealing with him. And he had a very casual attitude to the difference between his own assets and those of the Superannuation Fund. 7. Sydney Markets extended further credit to Duffy Bros in the period 19 May to 10 July 2010 on the strength of Natale Pisciuneri's representation. On 20 May 2010, Sydney Markets lodged a caveat over the Goulburn property based on the 1996 Guarantee. Further discussions took place between Mr Mendora for Sydney Markets and Natale Pisciuneri until late 2011. Mr Pisciuneri was prepared to to treat with Mr Mendonca on the basis that he was the beneficial owner of the Goulburn property. The Issues 1. The Court explained the interrelationship of the entitlement and priorities issues in these proceedings in its principal judgment (at [27], [28] and [29]) as follows: "[27] The first group are entitlement issues. Sydney Markets contends: that the Superannuation Fund does not own the land; that Natale and Ferdinando Pisciuneri purchased it beneficially; and that ACN 123 has no equitable entitlement to the land on behalf of the Superannuation Fund. Likewise, ACN 123 says that Sydney Markets acquired no interest in the land under the 1996 Guarantee. This group of issues will be resolved first. If either party loses on this issue then priorities questions do not arise. [28] The next group are priorities issues. If both Sydney Markets and ACN 123 are successful in establishing an equitable interest in the Goulburn property a question arises as to which has priority at general law and which has priority under the Real Property Act. [29] The entitlements issues require the Court to examine the circumstances in which Sydney Markets took the 1996 Guarantee and the circumstances in which the Goulburn property was purchased in 1998. The priorities issues then require an examination of some circumstances between 1998 and 2012." 1. The Court will consider the entitlements issues first. The Court finds in these reasons that these proceedings are resolved by the entitlements issues and that Sydney Markets acquired no equitable interest by way of charge in the Goulburn land under the 1996 Guarantee. The priorities issues do not arise. The Parties' Entitlements - Submissions 1. To found its own equitable interest in the Goulburn property ACN 123 relies upon the Court's finding in the principal judgment (at [39] – [71]) that the Goulburn property was beneficially owned by the Superannuation Fund. 2. Sydney Markets' principal submission is that upon the purchase of the property by Natale and Fedinando Pisciuneri under the 1996 Guarantee, it acquired an equitable interest in the Goulburn property. Sydney Markets submits, that by clause 13 of the 1996 Guarantee, Natale Pisciuneri charged his interest in the Goulburn property as a purchaser, and subsequently registered proprietor, of the property. The final sentence of 1996 Guarantee, clause 13 states: "The Guarantors each hereby charge their respective interests in any land now or hereafter held by them for all monies guaranteed pursuant to this Deed". 1. Sydney Markets' submission is factually correct. In the principal judgment (at [85] to [112]) the Court deals with the various meetings between Mr Mendonca and Mr Natale Pisciuneri and other communications between the parties during the period May 2010 to September 2011. The Court made findings that support Sydney Markets' main factual contentions behind this submission. Between 19 May and 10 July 2010 Sydney Markets continued trading on credit to Duffy Bros, resulting in the incurring of at least some of the debt subject to the District Court judgment: principal judgment at [90]. Although the precise amount of the credit that Sydney Markets extended to Duffy Bros between those two dates is not known as precision, it could be ascertained by a Court ordered inquiry, were it required. Mr Natale Pisciuneri concealed the Superannuation Fund's claim over the Goulburn property from Mr Mendonca because he wanted Mr Mendonca to keep dealing with him, even though Mr Pisciuneri was well aware that lot 6 was probably a property of the Superannuation Fund: principal judgment at [91]. It is improbable that Mr Mendonca would have then engaged with Mr Natale Pisciuneri at all if Mr Mendonca had been aware that Mr Pisciuneri was alleging the Superannuation Fund that held the land beneficially: principal judgment at [102]. Mr Natale Pisciuneri was prepared to treat Mr Mendonca on the basis that he (Mr Pisciuneri) was the beneficial owner of the Goulburn property, even though he knew it was owned beneficially by the Superannuation Fund: principal judgment at [112]. 2. Sydney Markets also alleges that another later equitable interest in the Goulburn property arises by way of a further equitable mortgage. Sydney Markets claims that this interest arises out of Natale Pisciuneri's fraudulent conduct in 2010 and 2011 in representing that he owned the Goulburn property absolutely and offering that land as security for further advances by Sydney Markets to Duffy Bros. Sydney Markets submits that the Court has found it relied upon that representation in providing further funds in May and June 2010. The advances at this time were to Sydney Markets' detriment, as the monies advanced formed part of Sydney Markets unsatisfied District Court judgment against Duffy Bros. The Parties' Entitlements - Consideration 1. Only if both Sydney Markets and ACN 123 successfully establish an equitable interest in the Goulburn property does the question arise as to which of them has priority at general law. The Courts' findings in the principal judgment establish that the Superannuation Fund was the equitable owner of the Goulburn property at acquisition. 2. But the Court finds on the construction of the 1996 Guarantee that Sydney Markets did not obtain an equitable interest in the Goulburn property at its acquisition. 3. Sydney Markets relies upon the charging clause of the 1996 Guarantee, clause 13, set out in the principal judgment (at [37]) and which is as follows: "13. The Guarantors each hereby charge their respective interests in any land now or hereafter held by them for all monies guaranteed pursuant to this Deed'." 1. ACN 123 first submits that this clause is inefficacious immediately to charge, as at the date of the 1996 Guarantee, that which the trustees did not possess: referring to P Butt, Land Law, (6th ed 2010, Thomson Reuters) at [1947] and [1948]. 2. It can be accepted that the 1996 Guarantee, clause 13 could not have immediately charged the Goulburn property as at its date, because the property was not acquired for another two years. But clause 13 extends to charge land "hereafter held by [the guarantors]", words that are sufficient to encompass after acquired land such as the Goulburn property. 3. But properly construed, in my view clause 13 does not extend to create any equitable interest by way of charge over the after acquired Goulburn property, for several reasons. 4. First, the only interest that Fernando and Natale Pisciuneri had in the Goulburn land when it was acquired was to hold the legal estate as trustees on behalf of the Superannuation Fund. That did not give them a beneficial interest in the land. Trustees charging property held by them on trust are not to be assumed when contracting to be charging their beneficiaries' interests in breach of trust. 5. Secondly, to the extent that Natale Pisciuneri and the other beneficiaries had any interest in the Superannuation Fund it was not an interest that readily answered the description of an "interest in any land…. hereafter held". They had an interest as beneficiaries in the administration of the various assets of the Superannuation Fund, the assets of which could be acquired and disposed of by the trustees according to the terms of the Deed of Trust for the fund. At best that would give them some interest in the fund but not in my view something that can readily be described as an "interest in any land" within clause 13. Specifically the members' entitlements to benefits under the Superannuation Fund's Trust Deed and rules in their various forms are not referable in any way to a particular asset of the fund. 6. Thirdly, the guarantee should be construed in accordance with existing law at the time it was entered. Where the words of a contract are capable of two meanings, one lawful and one unlawful the former construction will be preferred: Global Network Services Pty Ltd v Legion Telecall Pty Ltd [2001] NSWCA 279 at [102], per Mason P. The parties can be assumed to be making their agreement, the 1996 Guarantee, in the context of and in conformity with existing superannuation law. 7. The then current superannuation legislation prohibited the trustees from charging interests in superannuation funds such as this. The Superannuation Fund beneficiaries' equitable interest. The detail of these is found in the Superannuation Industry (Supervision) Regulations 1994 (Cth) ("Regulations") that were at all relevant times applicable to the Superannuation Fund. Regulations, r 13.14, relevantly states that "the trustee of a fund must not give a charge over, or in relation to, an asset of the fund". Regulations, rr 6.17 and 6.22, govern the manner by which members' benefits from funds must be applied. Regulations 6.17 forbids the payment of funds from a member's benefits in a fund in any way except for those listed in the regulation, which do not include the application of such funds for the other commercial enterprises of the trustees. And Regulations 6.22 forbids cashing out a member's benefits in a regulated superannuation fund in favour of a person other than the member or the member's legal personal representative, except for in certain circumstances following the member's death or in relation to some payments to the Commissioner of Taxation. The giving of a charge by the 1996 Guarantee and the realisation of the charged assets would contravene these provisions. The 1996 Guarantee should not be construed as requiring either party to contravene that law. 8. Sydney Markets secondly submits that Natale Pisciuneri's conduct in falsely representing to Mr Mendonca that the Goulburn property was available to secure further advances from Sydney Markets to Duffy "constitutes a further equitable mortgage in respect of the Goulburn property". The submission is that this is an example of the legal owner of property engaging in an act which though insufficient to confer a legal estate or title, shows the intention of the parties to create a present security: Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 at 595 and Westfield Holdings Limited v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194 at 200. 9. The principal difficulty with this submission is that Natale Pisciuneri's statements at the May 2010 meeting with Mr Mendonca, which results in some limited further credit being advanced to Duffy Bros between 19 May and 10 July 2010, fell short of expressing a clear binding intention to grant a further charge or mortgage over the Goulburn property. That idea only clearly emerged after the further advances and at a time when Sydney Markets was already fully financially committed. 10. Mr Pisciuneri's later quite misleading statements at the 26 July 2011 meeting about his willingness to enter into a mortgage only resulted in some incidental delay in Sydney Markets commencing legal action and did not involve a clear promise that Sydney Markets would forbear such that a binding agreement to give a mortgage could be inferred. 11. As a result of these conclusions it is not necessary for the Court to consider the priorities issues that were argued. Making a Vesting Order 1. In its Amended Summons ACN 123 originally sought an order that the first defendant, Mr Taylor and the second defendant, the estate of Ferdinando Pisciuneri execute all necessary documents and do all things necessary to transfer the Goulburn property to ACN 123. But in the course of the hearing ACN 123 instead sought a vesting order under Trustee Act s 71, that the Goulburn property vest in ACN 123. 2. The difficulties of getting the title to the Goulburn property into the name of the existing trustees to the Superannuation Fund, including ACN 123, and the efforts of Mr Fedele in that direction have been explained in the principal judgment (at [72] – [84]). Mr Fedele sought without success to achieve compliance for the Superannuation Fund with applicable superannuation legislation, such that the Goulburn property would be held in the name of the trustee for the time being of the Superannuation Fund, both before and after the appointment of ACN 123 as the new trustee of the fund on 14 July 2011. 3. Given these past difficulties this is an appropriate case, in my view, for the exercise of the Court's power under Trustee Act, s 71(1). The power in Trustee Act, s 71 is enlivened here, as ACN 123 is a new trustee appointed out of Court under express power and the Goulburn property has not vested in the new trustee and will not so vest without the execution of further transfers: see Trustee Act, ss 9 and 71(2)(b) and JD Heydon & MJ Leeming, Jacobs' Law of Trusts in Australia (7th ed 2006, LexisNexis Butterworths), paragraph [2505]. Orders 1. For the reasons given the Court has concluded that Sydney Markets does not have an equitable interest in the Goulburn property either by reason of the 1996 Guarantee or of any subsequent conduct of Natale Pisciuneri and therefore no priorities issue arises between competing equitable interests claimed by the beneficiaries of the Superannuation Fund and Sydney Markets. The Court will accordingly grant the relief sought in the ACN 123 proceedings and decline to grant the relief sought in the Sydney Markets proceedings. 2. Ordinarily costs should follow the event but the Court will not make a costs order as yet. There may be argument between the parties about issues of costs. Moreover, one or other party may seek a special costs order. 3. The Court has set out below the form of orders that would follow from the Court's reasons. The orders will be made but stayed so that all orders can be made operative together, when the Court decides any issues of costs in the next few weeks. 4. The Court accordingly makes the following declarations and orders: 1. A declaration that the property described in Certificate of Title Folio Identifier 6/880227 known as Gunnilawah Park, South Bungonia Road, Goulburn in the State of New South Wales ("the Goulburn Property") is held by the First Defendant and the Second Defendant on trust for the Duffy Bros Fruit World Pty Ltd Superannuation Fund. 2. An order that, pursuant to section 74M of the Real Property Act 1900 (NSW), the Third Defendant withdraw caveat AF505460 lodged in relation to the Goulburn Property. 3. An order that, pursuant to section 74M of the Real Property Act (NSW), the First Defendant withdraw caveat AG720223 lodged in relation to the Goulburn Property. 4. An order that, pursuant to Trustee Act 1925, s 71 that the Goulburn Property be vested in the plaintiff, ACN 123 849 883 Pty Limited. 5. Dismiss the plaintiff's claim in proceedings 2012/275063 ("the Sydney Markets proceedings"). 6. List the proceedings for any remaining argument as to costs on Monday, 18 May 2015 at 9.30am, or at such other time as may be arranged through my Associate. 7. Grant liberty to apply in respect of the implementation of these orders. 8. Stay these orders until the Court determines issues of costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 May 2015