Batmor Mortgages Pty Ltd v Salvatore Arcuri

These proceedings concern a residential property at 218 Warimoo Avenue St Ives, NSW (“the property”).

The First Defendant Mr Salvatore Arcuri (“Mr Arcuri”) is the registered owner of the property.

The property is the subject of a mortgage to Westpac Banking Corporation (“Westpac”) to secure a loan of $1.25 million made by Westpac to Mr Arcuri. The Westpac loan with interest presently stands at $2.05 million.

Batmor Mortgages Pty Ltd (“Batmor”) claims that it is now the trustee of a trust known as the Residential Trust (“the Trust”) and that Mr Arcuri was removed as trustee on 22 October 2013, being replaced at that time by Ms Joanne Dib and that Ms Dib was removed on 21 January 2015 with Batmor being appointed as trustee of the Trust.

The Trust was established as a unit trust of one hundred units and units were issued to the following persons:

Vanessa was Mr Huxley’s wife at that time and Adam, Daniel, Robert, Edward, Pace, being Mr Huxley’s stepson, and Zara are children of Mr Huxley. At the time that the Trust was established Edward, Pace and Zara were minors but they each turned eighteen some years ago. The evidence supports the conclusions that as at 2013, Zara and Pace were 18 years of age or older, and that Edward may have been (see T125).

Batmor, Pace and Greg are the Plaintiffs and are represented by Mr D.L. Cook SC. Mr Arcuri now appears for himself but was until November 2016 represented by Kemp Strang solicitors.

The Second Defendant Bigzy Corp Pty Ltd (“Bigzy”) has never appeared in the proceedings. Service of the Further Amended Statement of Claim (and earlier process) was established through the affidavit of Mr Tim Orlizki of 5 February 2017. I shall explain why Bigzy has been joined later in these reasons.

Mr Arcuri cross claimed against the Plaintiffs and joined Westpac as a defendant to that cross claim. Mr Koch of counsel appears for Westpac but for reasons which will become apparent he was excused from attending the balance of the hearing.

After the hearing commenced there were discussions between Mr Arcuri and Mr Cook on behalf of the Plaintiffs, following which there was a narrowing of the issues between the parties (see T27.44-T30.50). Yesterday Mr Cook handed up the declarations and orders which the Plaintiffs and Westpac seek. The only matters in that document which are in contest or not agreed by Mr Arcuri are 2-4 and 12, which do not affect Westpac. Before I describe the issues that remain, I will summarise what is not in dispute between the Plaintiffs and Mr Arcuri.

Mr Arcuri accepts that he has only ever held the title to the property as trustee for the Trust. He says, and the Plaintiffs accept, that he agreed to become the trustee so that a debt then owed by the then trustee (ICA Nominees Pty Ltd) could be refinanced with Westpac. Mr Arcuri has never paid any mortgage repayments to Westpac. He is personally liable to Westpac and for council rates and water rates levied in respect of the property. These rates he says are in the order of $40,000. Neither the Plaintiffs nor Mr Arcuri dispute that Westpac is owed $2.05 million and that it would be entitled to sell the property if refinancing cannot be organised. There is also agreement that the property is worth approximately $3.3 million.

Mr Arcuri was in practice as an accountant and he performed accounting work for Mr Huxley and some of the many companies which Mr Huxley controlled or had an interest.

There is a dispute as to the terms of the conversation by which Mr Arcuri agreed to become trustee but the Plaintiffs accept that Mr Arcuri as trustee is entitled to be indemnified for the debt to Westpac, the Council, and Sydney Water relating to the property for which Mr Arcuri is liable. There is another debt of Mr Arcuri’s which is in dispute, and that is a debt of approximately $55,000 owed to Toyota Finance in connection with vehicles leased by Mr Arcuri and driven by Mr Huxley and Vanessa.

It is clear that the Trust was established at the behest of Mr Huxley and that he had a continuing involvement with the Trust and the property made even more obvious by the fact that he has, since it was purchased, resided in the property with Vanessa and his children, although the details of who amongst them are still residing in the property is not clear. Mr Huxley, Pace and Batmor say that Batmor wishes to refinance the Westpac debt but is unable to do so because Mr Arcuri is the registered owner and maintains that he is the trustee and ought to remain as trustee until the Westpac debt is paid out.

After the Westpac debt had been in place for some time there were failures to make the monthly payments due and Mr Huxley arranged for a loan to Mr Arcuri from Mr and Mrs Powers. The Powers were not repaid the debt owed to them and they sought possession of the property. Those proceedings ended in a judgment debt of $438,556.12 being entered against Mr Arcuri on 30 January 2013 (“the judgment debt”).

The Plaintiffs assert that the judgment debt was paid and that therefore the mortgage which Mr Arcuri entered into on behalf of the Trust must be discharged. There is in evidence (see Exhibit B2 p 372) a deed of assignment of the Powers mortgage to Joanne Dib and an assignment of it from Ms Dib to Bigzy for a consideration of $1 (see Exhibit B3 p 487). There is also a document which appears to have been created in the office of Mr Dib which purports to show $1.8 million owing by Ms Dib as trustee for the Trust to Mr Dib as a result of the transfer of the Powers loan and mortgage (see Exhibit B3 pp 497-500).

Mr Arcuri and the Plaintiffs are all in agreement that Bigzy’s claim that $1.8 million is owing to it by the Trust is completely unfounded and based on the false premise that the Powers were not paid the amount due to them in respect of their mortgage. In evidence is the trust account ledger of McLaughlin & Riordan, solicitors for the Powers, which shows the repayment of the judgment debt (see exhibit C) and other documents including receipts for portions of the remaining debt (see Exhibit B2 p 259-261) and a letter from McLaughlin & Riordan to the NSW Sheriff’s Officer confirming that “payment in settlement” had been made (see Exhibit B2 p 262).

The fact that Bigzy has not appeared to answer the Plaintiff’s case is not surprising. In my view the Plaintiffs have demonstrated that the Powers debt supported by the Powers mortgage merged in the judgment debt and that the judgment debt was paid in full and to the satisfaction of the Powers. It follows that the Plaintiffs are entitled to the declarations they seek in relation to the Powers/Bigzy mortgage.

The matters which I need to decide in order to determine whether or not the declarations and orders that the Plaintiffs seek (in addition to the declarations and orders relating to the Powers/Bigzy mortgage) are these:

On 22 October 2013, all of the unitholders, Adam, Daniel, Robert, Mr Huxley, Vanessa, Pace, Zara and Edward (by his mother Vanessa) signed a deed by which Mr Arcuri was removed and Joanne Dib was appointed (Exhibit B2 p.301). The document was also signed by Vanessa on behalf of Ava, another child, although it is not clear why Ava or her guardian needed to be a party to the deed.

The background to the deed, according to Mr Huxley, is that Mr Arcuri had been found guilty of fraud charges in 2011 and Mr Arcuri also was accused in 2013 of misappropriating funds from the proceeds of a refinancing of a property at Beechworth, a company with which Mr Huxley had a connection, from which funds Mr Arcuri paid $120,000 to Mr Simon Piscopo as trustee of an arrangement with creditors into which Mr Arcuri entered in late 2012. In relation to the 2011 fraud conviction Mr Arcuri appealed and in 2014 was successful in that appeal. In relation to the Beechworth funds Mr Arcuri was convicted in November 2016 of dishonestly obtaining a financial advantage under s192E(1)(b) of the Crimes Act 1900 (NSW) and in January 2016 he was sentenced to a twenty month term of imprisonment, with a non-parole period of ten months. Mr Arcuri has appealed that conviction but bail was refused and he is presently incarcerated and was brought to Court by Correctional Service Officers consequent upon the issue of an order under s77 of the Crimes (Administration of Sentences) Act 1999 (NSW). There is another charge brought against Mr Arcuri by the Australian Taxation Office in respect of which he was convicted on 24 October 2016 but for which he has not yet been sentenced. Mr Arcuri has also appealed from that conviction.

Mr Arcuri was, following the execution of the Deed, notified of his removal (see Exhibit B2 pp 341-369) and did not challenge that removal at that time, although lawyers retained by him wrote to lawyers retained on behalf of the new trustee (see Exhibit B2 p 359).

Mr Arcuri offered no effective reason as to why he claims that his removal and replacement by Ms Dib was not authorised by the trust deed or effected by the deed of October 2013. Clause 6.4 of the Trust Deed (Exhibit B2 p23) provides:

If reason was needed, and the Trust Deed does not require it, the fact that Mr Arcuri entered into an arrangement or composition with his creditors in November 2012, as evidenced by Exhibit D, meant that he was required to retire (see Clause 6.4(a) of the Trust Deed Exhibit B2 p 22). I find that the unitholders were entitled to remove Mr Arcuri as trustee on 12 October 2013.

On 21 January 2015 there was a meeting at which Mr John Batiste, Adam and Mr Huxley attended. As at that date Mr Batiste and Mr Huxley were directors of Batmor. Adam owned one share in his own name but held 95 shares in trust for Pace, Edward and Zara. It appears that in 2016 on Adam transferred the holding on behalf of Pace into Pace’s own name (see exhibit B3 pp 594-595). As at 21 January 2015 Mr Huxley held one unit and Adam had one unit, although he may have been bankrupt at that time. Whilst Adam many not have been free to exercise a vote in respect of his own unit (if he was a bankrupt at that time) he was not precluded from exercising his authority to vote for the units on behalf of Edward, Pace and Zara and to make decisions on their behalf.

It will be noted that when the 2013 Deed was executed, Adam did not execute it on behalf of Pace, Zara, and Edward, but only himself, yet he did hold units in trust for Pace, Zara, and Edward. No argument was addressed as to the anomaly of the execution of the Deed by persons who were not registered unitholders but if Adam remained as trustee for these beneficiaries so far as the Trust was concerned, and he executed the Deed, all registered unitholders effectively entered into the Deed. In any event, the decision to remove Ms Dib in 2015 and replace her with Batmor was taken by Adam and Mr Huxley and they together held either for their own account or as trustee 97% of the units in the Trust.

It follows that Mr Arcuri was validly removed and replaced by Ms Dib as trustee in October 2013 and that Ms Dib was validly removed and replaced by Batmor as trustee in January 2015.

I should note that Mr Arcuri, supported by a director of Denmar Pty Ltd (which it is claimed is a creditor of Mr Huxley) Mr James Photios (whose application to make submissions on the matter was refused) wanted to introduce allegations against Mr Huxley that Mr Huxley used “other people’s money” to repay the Westpac loan, being money which he or the company using that money had no authority to use for that purpose. Mr Huxley does not dispute that he did not himself pay any amounts due to Westpac but quite apart from the absence of any evidence that the monies utilised to make monthly payments to Westpac were not legitimately obtained, the allegation has no relevance to the matters I must decide.

A further theme advanced by Mr Arcuri was that Batmor was not a suitable trustee because of Mr Huxley’s involvement with it as a director, and the allegation that Mr Batiste, who is a director of Batmor, lost money in a venture set up by Mr Huxley. Mr Huxley retired as a director of Batmor last year and was replaced by a Mr Steven Vickers, but, as Mr Cook pointed out, it is not at all surprising that Mr Huxley might be a director of the trustee since the only trust asset, the property, is inhabited by Mr Huxley and his children (or some of them), and he established the Trust in 2000.

The suitability of Batmor to administer the Trust would need to be considered if the Court was required to appoint a new trustee, but if Batmor was appointed trustee in 2015 any question of the fitness of Batmor to be or continue as trustee would be something which would be a matter for the beneficiaries of the trust, not a former trustee or creditor of Mr Huxley.

Mr Arcuri puts his claim to remuneration on three bases:

Mr Arcuri claims that at, or shortly before, the time he became trustee of the Trust he had a conversation with Mr Huxley in which Mr Huxley said to him words to the effect:

Mr Huxley denies that he had such a conversation with Mr Arcuri. Mr Huxley says that he discussed with Mr Arcuri the issue of refinancing the debt of the Trust to CKM Mortgages by utilising a mainstream lender at a lower rate of interest and that neither he, Mr Huxley, nor the then trustee, would be regarded as suitable borrowers. Mr Huxley told Mr Arcuri how much he wanted to borrow on security of the property and according to Mr Huxley Mr Arcuri said:

Mr Arcuri was cross examined by Mr Cook and Mr Huxley was cross examined by Mr Arcuri. Of course it was no easy task for Mr Arcuri to cross examine Mr Huxley and I take that into account but I formed an adverse view as to Mr Arcuri’s credibility and I was not satisfied that Mr Huxley was in any respect untruthful in his evidence before me.

In part Mr Arcuri’s case suffered as a result of a number of matters which I shall enumerate:

There is another problem with Mr Arcuri’s claim under this head. Mr Huxley held only one unit in the Trust. He had no authority within the Trust structure to agree to any payment or remuneration to Mr Arcuri unless he had either express of implied authority from other unitholders. There is no evidence that he had express authority from the other unitholders, and particularly Adam, to bind them on behalf of the Trust. Given my conclusion in respect of the alleged oral agreement I do not need to determine whether Mr Huxley had implied authority to bind the beneficiaries but I note it was not put to Mr Huxley that he did act on behalf of the beneficiaries in his dealings with Mr Arcuri and that Mr Arcuri did not respond to Mr Cook’s submission that there was no evidence to support that allegation.

A further matter is that even if he were entitled to remuneration it could only be for the period that he was validly trustee – he could not be entitled to remuneration for any period after he was required to retire by the terms of the Trust Deed.

I turn now to Mr Arcuri’s claim, based on the terms of clause 6.1(g) of the Trust Deed (Exhibit B2 p 14), which is in the following terms:

Mr Arcuri says that by agreeing to borrow from Westpac he was providing a service to the Trust because it enabled the Trust to reduce the amount of interest paid each month from approximately $18,000 to $7,000, a saving of $11,000. He submits that 30% of that saving i.e. $3,000 is a reasonable figure for the benefit which the Trust, and hence the beneficiaries, obtained. There are two problems with that contention:

A trustee is entitled to fair payment for the work they have performed for the trust, principally but not necessarily, of a professional nature. There is, in my view, no scope for a trustee to claim a share of profits or benefits accruing to the trust by reason of whatever work he has done.

In my view similar considerations apply to the claim that the Court should pursuant to its inherent jurisdiction award Mr Arcuri remuneration when he has done no work for and provided no services to the Trust whilst acting as trustee.

I do not need to consider Mr Cook’s alternate argument that Mr Arcuri should be denied any amount because of his conduct in seeking to block repayments of the loan amounts (see Exhibit B2 pp 350-351), failing to consider the interest of the beneficiaries, failing to retire as trustee as required by the Trust Deed and refusing to relinquish his position leading to extensive costs and depletion of the net equity of the Trust in the property.

I conclude that: