McMillan Investments Holdings v North Coast Beach Property [2011] NSWSC 1363

The owner of a smash repairs business ran into financial difficulty and the business was sold to a buyer for a sum of money. The buyer advanced loan monies to a trustee company set up by the buyer to purchase the business premises from the owner’s wife, and those monies were used to discharge a bank mortgage, with a mortgage subsequently granted by the trustee company, as mortgagor to the buyer as mortgagee to secure the loan. Relations between the owner and the buyer became strained and the owner’s sister, as appointer of the trust, purported to remove the trustee company and appoint the owner’s company as the new trustee, declaring the property to be held on trust for the owner’s wife. The buyer then assigned his mortgage to a third party, who became the new mortgagee. The new mortgagee brought proceedings for possession of the property against the mortgagor trustee company in default. The purported new trustee was not joined as a party and was opposed by both the mortgagee and trustee company. The new mortgagee was granted possession of land pursuant to a consent judgment. The new trustee sought to be joined to the proceedings. The owner denied monies were loaned by the buyer as mortgagee to the trustee company for the purchase of the property and says the monies were paid as part of the buyer’s consideration for the purchase of the business and then formed the trustee company’s own resources. The owner says that the previous trustee company acted in breach of trust and the buyer acted improperly in relation to the loan and the mortgage.

The law

Rule 6.24 of the Uniform Civil Procedure Rules provides as follows:-

  1. If the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party.
  2. Without limiting subrule (1), in proceedings for the possession of land, the court may order that a person (not being a party to the proceedings) who is in possession of the whole or any part of the land (whether in person or by a tenant) be added as a defendant.

The court accepted that it should hear arguments, even extensive arguments, to demonstrate whether the matters in dispute required the joinder of the purported new trustee.
The court then proceeded to determine whether the following issues in dispute were genuinely arguable:

  1. Did the seller and buyer make an agreement that certain transactions should occur? The court found no, the conversations that took place between the owner and buyer of the business did not give rise to a binding agreement because too many things were left unresolved.
  2. Was the payment by the buyer to the trustee company a loan? The court found yes.
  3. Whether there was any breach of trust by the trustee company as trustee or any improper conduct by buyer (as director of the trustee)? Inapplicable given (1) and (2).
  4. If there was a breach of trust by the trustee company or improper conduct by its director (the buyer), did the assignee of the mortgage have notice of the breach of trust or improper conduct, before the assignment took place? Inapplicable given (1) and (2).
  5. Whether there was an effective assignment to the assignee of its right, title and interest in the loan agreement and the mortgage? The court found yes.
  6. If there was a breach of trust by the trustee company or improper conduct by its director (the buyer) and if the assignee had notice of the breach of trust or improper conduct before the assignment, would that constitute an exception to the indefeasibility of title the assignee would otherwise have as the registered proprietor of a mortgage? Inapplicable given (1) and (2).
  7. Was the new trustee validly appointed as trustee of the Trust? The court found it unnecessary to determine this question.

The court held that there was no matter in dispute which required the joinder of the applicant and dismissed the application.

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