The lender sought judgment for $20m against the guarantors. The guarantors argued that the Trust Company which was suing them, had no standing to sue them as it was not the company they originally contracted with.
The loan was originally made by City Pacific, a responsible entity operating a mortgage fund. After the GFC Trilogy Funds Management brought a successful hostile takeover challenge and seized control of the fund. Trilogy then appointed a new trustee to act as custodian of the assets of the fund. It was this new trustee that the guarantors argued had no standing.
The guarantors argued and the judge agreed that the new trustee had no standing to sue because no notice of the assignment of the debt was given to the borrower, the assignment was not effected at law (s 199 of the Property Law Act 1974 (QLD). At best there was an equitable assignment. The judge further commented:
Even if it were found that legal title in the guarantees had been transferred to Trilogy, it had no standing, because the mortgage had been transferred to the trustee and registered. There was no evidence of assignment of the guarantee from Trilogy to the trustee. Even if the notice given the guarantors was valid to cause legal title in the guarantee to vest in Trilogy, the result would be that it was the legal holder of the guarantee while the trustee was the legal holder of the mortgage and hence neither had standing to bring the present action.
In order for either Trilogy or the trustee to sue on the guarantee, they needed to show legal title to both the principal debt which was being guaranteed, as well as legal title to the guarantee. That could not be established, with the result, in the circumstances, that the proceedings must be dismissed.
When the hearing commenced, the Trust Company announced that it had taken various steps to cure the defect in its standing. This included entering into a deed of assignment and issuing various new notices. The guarantors agreed that this cured the defects but that the proceedings ought to be transferred to Queensland (where they resided). This was agreed to by the lender and the only issue left was costs.
The judge decided in favour of the guarantors, commenting:
The steps which the lender took on the question of standing, ought to have been taken long before. The issue of standing had long been pressed by the defendants, in the face of obvious deficiencies of the original statement of claim.