Reliance Financial Services Pty Ltd v Antalija Developments No 4 Pty Ltd (No 4)

On 31 March 2023, I published my principal judgment on the issues that arose between the parties to these proceedings who are interested in the matters determined by these reasons for judgment: see Reliance Financial Services Pty Ltd v Antalija Developments No 4 Pty Ltd (No 3) [2023] NSWSC 304 ("J").

As noted at J [2], the judgment dealt with the claim made by the third plaintiff, Marginata Securities Pty Ltd (Marginata), against the fifth defendant, Ms Sue Price-Arcidiacono (who I noted has, for convenience, been called Ms Price in these proceedings). The issue was whether the Court should make a declaration that any sum payable by the first defendant, Antalija Developments No 4 Pty Ltd (Antalija 4), being her entitlement to a distribution of profits of a unit trust of which Antalija 4 was the trustee (the unit trust), was charged for payment to Marginata. If that declaration was made, Marginata sought an order that Antalija 4 pay any sum payable to Ms Price as a distribution of profits to Marginata.

For the reasons given in that judgment, the Court at J [46] made the following orders:

Ms Price has applied to the Court pursuant to the leave granted by order 4 to make an order varying the costs order made against her by order 3.

By notice of motion filed on 30 June 2023, Ms Price seeks the following orders:

As Ms Price explained in her affidavit in support of her notice of motion, she held the units in the unit trust of which Antalija 4 was the trustee in her capacity as trustee of a discretionary trust called the Susan Price-Arcidiacono Discretionary Trust (the discretionary trust), whose primary beneficiaries were her grandchildren. At the time of the hearing that led to the publication of the primary judgment, Ms Price was a recently discharged bankrupt, having been discharged on or about 15 January 2023. Ms Price's understanding was that even though she was the trustee named in the discretionary trust deed, a consequence of her bankruptcy was that she held the assets of the discretionary trust as a bare trustee. Ms Price said that the only asset of the discretionary trust was the units that Ms Price held in the unit trust. Ms Price said that on the basis of legal advice that she had received, she understood that she had reasonable prospects of defending Marginata's claim, and she only did so in the interests of the discretionary trust.

Marginata's response to Ms Price's notice of motion was to firstly state that it did not have any interest in Ms Price's application for an order in terms of prayer 1 of the notice of motion, as that was a matter between Ms Price and the beneficiaries of the discretionary trust or any new trustee that may be appointed in place of Ms Price.

The position taken by Marginata is obviously correct, which illuminates the reality that, if Ms Price wishes the Court to make an order in the terms of prayer 1, it would be necessary for her to join as a respondent to her notice of motion a discretionary beneficiary (who could be appointed to represent all beneficiaries) or a new trustee (if there was one). The Court could not make an order in favour of Ms Price that would take effect against the assets of the discretionary trust without an interested respondent being made a party to contest her application.

That is probably not a practical course of action because the effect of order 1 made by the Court on 31 March 2023 was that the whole of Ms Price's interest in the unit trust is subject to a charge in favour of Marginata that binds Ms Price. The only asset represented by that interest is Ms Price’s entitlement to a distribution of the profit of the unit trust. Ms Price's evidence was that the amount of that distribution was less than the debt secured by the charge. The result is that the assets of the discretionary trust have no value, and even if the Court were to make the order sought in prayer 1 of the notice of motion, that would not avail Ms Price, as she could not realise the indemnity out of the assets of the discretionary trust.

The only real issue in the proceedings is whether the Court should make the order in prayer 2 of the notice of motion, with the effect that Ms Price's liability for costs would be limited to the assets of the discretionary trust.

If the Court were to make that order, the costs order made against Ms Price in favour of Marginata by order 3 made on 31 March 2023 would not avail Marginata, as there would be no assets to meet the costs order after Marginata had received the benefit of its charge in partial payment of the debt owed to it by Ms Price.

Marginata's first response to prayer 2 of the notice of motion was to submit that Ms Price was not entitled to apply to vary the costs order, because such an application must be made either pursuant to liberty given at the time of the judgment, or Pt 36 r 16 of the Uniform Civil Procedure Rules 2005 (NSW): see Coastwide Fabrication & Erection Pty Ltd v Honeysett (No 2) [2009] NSWCA 291 at [12]-[17]. I do not accept that submission because of my understanding of the effect that order 4 was intended to have insofar as it included the words: "including any further or varied order consistent with these reasons." I made that order in part because I did not consider that the parties had been given an opportunity to make proper submissions on the costs order that should be made. I made the costs order in order 3 because I thought that was the most efficient course, and might impose the least costs on the parties, if it turned out that Ms Price was content to live with that order.

However, I accept Marginata's submission, as stated in pars 9-11 of its written submissions, substantially as follows:

It is the clearest of legal propositions that a trustee contracts in the trustee's own name and is liable at law under the contracts that the trustee makes in the trustee's capacity as such. The trustee's only recourse if it becomes liable to a third party by reason of its actions as trustee is to enforce its indemnity against the trust assets, if those assets are sufficient to meet the indemnity. The Court has no discretion to relieve a trustee from this personal liability. With respect, the submissions made by Ms Price in response, based upon authorities dealing with the making of costs orders against liquidators of companies, are based on a false analogy.

While Ms Price may have acted honourably in attempting to defend Marginata's claim for the benefit of the beneficiaries of the discretionary trust, she has taken the risk that the assets of the discretionary trust would not be sufficient to satisfy her right to be indemnified against the costs order made against her. On the facts now known to the Court, Ms Price must be taken to have known that if her defence was unsuccessful, she would have to meet personally any costs order made in favour of Marginata.

The notice of motion filed by Ms Price must be dismissed. There is no proper basis upon which the Court could make the order in prayer 3, being that the parties bear their own costs of the notice of motion.

The Court's orders are: