Adams v Bank of NSW

I have never heard it doubted that where a mortgagee sells, and has a balance in his hands, he is a trustee of that balance for the persons beneficially interested. He takes his mortgage as a security for his debt, but, so soon as he has paid himself what is due, he has no right to be in possession of the estate, or of the balance of the purchase-money. He then holds them, to say the least, for the benefit of somebody else, of a second mortgagee, if there be one, or, if not, of the mortgagor. What, then, is he to do? Surely he has a duty cast upon him. His duty is to say, 'I have paid my debt: this property which is pledged to me, and in respect of which I now hold this surplus in my hands, is not my property. I desire to get rid of this surplus, and hand it back to the person to whom it belongs.' ... The duty of this mortgagee was at least to set this money apart in such a way as to be fruitful for the benefit of the persons beneficially entitled to it. To that extent and in that manner he was, according to my understanding of the law, in a fiduciary relation to the persons entitled to the money. It was so held in the case of Quarrell v Beckford [(1816); [1816] EngR 319; 1 Madd 269 [56 ER 100]], and so far as I know has always been so held, and although I quite agree that the Court is very reluctant to treat a mortgagee as being a trustee in any sense while any money is due to him, still when he has paid himself, and has money remaining in his hands which is no longer his property, how can he be treated as other than a trustee of such money?" 36 Part 4 of the Trustee Act 1925, relevantly, provides: "(1) Where trustees, or the majority of trustees, have in their hands or under their control money or securities belonging to a trust, they may pay the same into court." 37 Once moneys are paid into court under Part 4 of the Trustee Act, those moneys become subject to the Uniform Civil Procedure Rules 2005 ("UCPR") (s 98 of the Trustee Act). The moneys are to be dealt with by the Registrar in accordance with the rules of court and in accordance with any order of the court. The party who pays money into court does not retain any legal, or equitable, interest in the money: In Re Gordon; Ex Parte Navalchand [1897] 2 QB 516. The money is invested by the Court and is disbursed in accordance with the directions of the Court. 38 In Harmer v Federal Commissioner of Taxation [1991] HCA 51; (1991) 173 CLR 264, an interpleader case, moneys were paid into court by a company, which had no claim to it, pending the resolution of the competing claims by others. The Court held, at 272, that upon payment into court, the money became "trust moneys" in the broad sense that the holder of the money (in the present case that person is the Registrar of the Court) was not beneficially entitled to the money as they were received by the court pursuant to the statutory provisions and rules of court under which they were paid in. 39 Division 3 of Part 55 UCPR applies to the payment of funds into Court under Part 4 of the Trustee Act and to proceedings arising out of payment into Court under that Part. So far as is materially relevant, UCPR 55.11 provides: "Proceedings for directions as to payment out of court

(1) Funds that have been paid into court may only be paid out of court pursuant to the directions of the Supreme Court.

(2) An application for such directions is to be made by filing a notice of motion in the proceedings in which the funds were paid into court." The Claims 40 In Commonwealth Bank of Australia v The Estate of the Late Mahmoud Slieman [2010] NSWSC 661, Slattery J dealt with UCPR 55.11 and, helpfully, stated what needed to be established by a claimant. He said: "[8] An applicant under UCPR r 55.11 must establish three matters to justify an order for the payment of money out of Court. The first is to identify the person who is primarily entitled to any funds paid into Court and the basis of that entitlement. It is fundamental that the person be identified from the best evidence available, so that the Court can be sure that the person has been given appropriate notice of the application and can if necessary contest it.

[9] The second matter that needs to be proved by a claimant is that he or she is not merely an unsecured creditor against the person primarily entitled to the fund but is a person who has an beneficial interest in the very fund that has been paid into Court. The same evidence that demonstrates a person's primary entitlement to the funds in Court often establishes this second matter.

[10] Thirdly, it is necessary for an applicant to identify the other potential claimants to the fund in Court and to prove that those persons were notified of its claim. Those persons may consent to the claim. Alternatively, the applicant may prove that those persons either do not have valid claims against the fund or that their claims do not have priority over the applicant's claims.

[11] The Court requires strict proof as to who has the entitlement to the funds in Court. There is a heavy burden placed on a party seeking payment of money out of court under Trustee Act s 98 and UCPR r 55.11. It is necessary for that party not only to prove his or her entitlement to the funds but also to prove that all other potential claimants to the funds in Court have been properly notified. Otherwise there is a risk of incorrect payments being made." Submissions 41 Mr Young, on behalf of the Applicant, submitted that the Applicant had discharged its onus by establishing that it was the second mortgagee and the amount that was owed under the Applicant's mortgage. He submitted that, despite the assertions made in the affidavits read on behalf of Mrs Singh, there was no evidence to demonstrate the nature of her claim against the Proceeds. 42 Mr Young also submitted that, in effect, to succeed in preventing the Proceeds being paid to the Applicant, Mrs Singh had to demonstrate that "there was a serious question to be tried" and that she had a "good arguable case". 43 Mr Kumar did not agree with the submission made by counsel for the Applicant. He disputed that there was any obligation upon Mrs Singh to establish either a serious question to be tried or a good arguable case. He submitted that it was for the Applicant to establish an entitlement to the Proceeds.

Determination 44 As she was represented at the hearing of the Applicant's notice of motion, Mrs Singh had been given appropriate notice of the application and was contesting it. There appears to be no dispute that the relevant parties to the contest have appeared and have contested the entitlement to the Proceeds. I am, therefore, satisfied, that the first requirement prescribed by Slattery J, has been satisfied. 45 The Applicant must next establish a proprietary interest in the Proceeds. The Applicant had an unregistered second mortgage over the Green Valley property, securing the obligations between the Applicant and Mrs Singh. Counsel for Mrs Singh accepted that, as the second mortgagee, the Applicant, prima facie, was entitled to the surplus proceeds of sale after the payment of all amounts due to the first mortgagee. 46 Counsel for the Applicant accepted that Mrs Singh, as the registered proprietor of the Green Valley property, in the absence of another claimant, with priority, would be entitled to the Proceeds. (There are, in fact, no other claimants.) 47 There was no submission made by counsel for Mrs Singh, to the effect that the reference to "subsequent mortgages" in s 58(3) of the Real Property Act means only subsequent registered mortgages. It may be he did not do so because the intention of Mrs Singh to make the Green Valley property act as security was clear. 48 In Croft C and J Johansson, The Mortgagee's Power of Sale 2nd edition (2004), the authors state that, although the matter is not free from doubt, it appears that where there are subsequent encumbrances, the whole of the surplus should be paid to the encumbrancer next in point of priority: at 186; citing as authority Re Thompson's Mortgage Trusts [1920] 1 Ch 508. 49 In Kerabee Park Pty Ltd v Daley [1978] 2 NSWLR 222, Holland J, in dealing with the rights of a caveator, referred to the obligation of the first mortgagee who sells the mortgaged property to account to the holder of a subsequent encumbrancer. He said (at 228): "As well as being required by s 58(3) [of the Real Property Act 1900 (NSW)] to apply surplus proceeds in payment of subsequent mortgages, the first mortgagee is liable by the general law to account to the holder of a subsequent encumbrance of which he has notice: West London Commercial Bank v Reliance Permanent Building Society ." 50 In Bank of New South Wales v Adams at 665, Helsham CJ in Eq held that where a mortgagee of land under the provision of the Real Property Act sells pursuant to the power conferred by s 58, he held any purchase money in excess of that required to pay the expenses occasioned by the sale and that due and owing to him, in trust for subsequent mortgagees of whose interest he has notice. 51 On appeal [1984] 1 NSWLR 285, Hutley JA expressly stated that the surplus, if any, would be held by the first mortgagee on trust for the second mortgagee as Helsham CJ had also found. 52 I respectfully agree with the view expressed by Slattery J in La Trobe Capital & Mortgage Corporation Limited [No 2], in relation to s 58 Real Property Act, at [33], that: "The section does not abrogate the rights of mortgagees under unregistered mortgages but merely postpones them to those of mortgagees under registered mortgages and it does not vest the surplus from the mortgagee sale in the mortgagor free from all equity but is subject to them: Hope v Hope (1937) 1 NZLR 582 per Wilson J, considering the New Zealand Land Transfer Act 1952 s 104 which is in terms similar to s 58(3)." 53 In all the circumstances, I am satisfied that the second requirement prescribed by Slattery J, has been satisfied. 54 The Applicant also has an obligation to show that there is an amount outstanding in respect of an obligation that is secured by the mortgage. This has been done by Mr Carter's evidence, which was not the subject of challenge by cross-examination. 55 The real question, in the present case, is whether, in circumstances where Mrs Singh has not consented, the Applicant has proved that she either does not have valid claim against the Proceeds, or that her claim does not have priority over the Applicant's claim. 56 I do not think that there is any utility in using the type of description used by counsel for the Applicant to describe what a person in the position of Mrs Singh is required to do as a competing claimant to the Proceeds. I agree with the submission made on behalf of Mrs Singh that it is for the Applicant to demonstrate that any other claimant, either does not have valid claim against the funds paid into court, or that his, her or its, claim does not have priority over the Applicant's claim. 57 Despite that conclusion, I do not think it is enough for Mrs Singh to merely rely on the fact that she is the registered proprietor. More is required. As I have attempted to demonstrate above, s 58(3) provides for an order of priority of payment of the Proceeds and without more, the Applicant is entitled to the proceeds in accordance with that priority. 58 In this case, Mr Kumar accepted that he could not point to any evidence that demonstrated the nature of Mrs Singh's claim, other than that she was the registered proprietor. He pointed to the relief that had been sought in Mr Singh's proposed notice of motion, but was unable to take me to any evidence that gave substance to those claims for relief. Mr Kumar accepted that the evidence was simply not there. 59 If that were not enough, I note that the claim of the Applicant was raised about 4 months ago in correspondence sent to Mrs Singh's solicitors. Those solicitors appear not to have responded to any of that correspondence. Furthermore, Mrs Singh, at no time, commenced any proceedings claiming the type of relief that was sought in the notice of motion proposed by Mr Singh. 60 It will be also be appreciated that the matter was before me over 2 months ago and that directions for filing the evidence to be relied upon were made. Other than filing some affidavits, in which general assertions were made, there was no evidence to provide a basis for concluding that any of the alleged claims had any prospect of succeeding. 61 I raised with counsel for the Applicant the question of the amounts, included in the schedule of costs, relating to the proceedings commenced by the Applicant that had been discontinued. I referred him to r 42.19 UCPR, which provides: "Unless the court orders otherwise, or the notice referred to in rule 12.1 (2) otherwise provides, the plaintiff must pay such of the defendant's costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued." 62 Mr Young submitted that there was no evidence of any costs incurred by Mrs Singh. That is undoubtedly true. In relation to the Applicant's costs that had been included in the schedule, to make up the total amount owed, he submitted that the Applicant was entitled to include those costs and disbursements, as they were costs and expenses incurred by the Applicant "in consequence, or on account, of a default of the Mortgagor" (see, Clauses 16 and 18 of the mortgage between Mrs Singh and the Applicant). 63 As I have noted previously, counsel for Mrs Singh did not make any submissions that the amounts claimed for such costs and/or disbursements were unreasonable or otherwise should not be allowed. 64 I am satisfied, in the circumstances, that the Applicant is entitled to recover the costs and expenses under the mortgage, as these were costs and expenses incurred in consequence of the default of Mrs Singh. 65 Even if that conclusion were wrong, it seems to be clear that the amount owed to the Applicant without those costs, and taking into account the legal costs not otherwise included, will exceed the Proceeds. 66 In all the circumstances, the Applicant has satisfied me that if Mrs Singh has any claim (which is far from clear), it does not take priority over the claim of the Applicant. 67 Mr Young, on behalf of the Applicant, sought an order for costs, such costs to include the mention of the matter on 29 November 2010. When I pointed out that it was unusual to make an order for costs on such an application, Mr Young submitted that an order could be made on the basis that Mrs Singh was named as a respondent to the Applicant's notice of motion, that she had appeared as such to the application, and had contested the Applicant's entitlement to be paid the Proceeds. In the alternative, he submitted that the costs of 29 November 2010 should be ordered to be paid as the Applicant had been brought back to Court for no valid forensic reason. 68 Section 98 of the Civil Procedure Act 2005, relevantly, provides that subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and

(b) the court has full power to determine by whom, to whom, and to what extent costs are to be paid. 69 Rule 42.25 UCPR provides: "(1) Subject to subrule (2), a person who is or has been a party to any proceedings in the capacity of trustee or mortgagee is entitled to be paid his or her costs in the proceedings, in so far as they are not paid by any other person, out of the fund held by the trustee or out of the mortgaged property, as the case may be.

(2) The court may order that the person's costs not be so paid if:

(a) the trustee or mortgagee has acted unreasonably, or

(b) in the case of a trustee, the trustee has in substance acted for his or her own benefit rather than for the benefit of the fund."

70 However, r 42.1 UCPR provides: "Subject to this Part, if the court makes any order as to costs, the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs." 71 In this case, the "event" appears to be the application for payment out of the funds paid into court, to which application Mrs Singh was named as the respondent, and to which notice of motion she appeared, initially, by her daughter, then by counsel, and then again, by her daughter. 72 In my view, had there been no appearance by, or on behalf of, Mrs Singh, it would not have been necessary to have the matter mentioned on 29 November 2010. However, it would have still been necessary for there to have been a hearing of the application. In my view, the duration of the application was extended only by a little time because of the appearance on behalf of Mrs Singh. 73 Doing the best I can, I am of the view, that Mrs Singh should pay one half of the Applicant's costs of the proceedings. She should pay all the Applicant's costs of 29 November 2010. Otherwise, and to the extent that those costs are not paid, they may be paid out of the Proceeds. 74 I order that (a) the amount paid into Court by the Plaintiff, together with the interest accrued thereon up to and including the date of the payment out, shall be paid out to C & L Cameron Pty Limited. (b) Mrs Singh should pay one half of the Applicant's costs, of the application; she should pay all the Applicant's costs of 29 November 2010. Otherwise, and to the extent that those costs are not paid by her, they may be paid out of the Proceeds.

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