EQUITY - Equitable estates and interests - Claim to funds paid into Court by mortgagee - UCPR Part 55 r 55.11
Source
Original judgment source is linked above.
Catchwords
EQUITY - Equitable estates and interests - Claim to funds paid into Court by mortgagee - UCPR Part 55 r 55.11
Judgment (5 paragraphs)
[1]
Summary
HIS HONOUR: By notice of motion dated 9 May 2016 the plaintiff, Champion Homes Sales Pty Ltd ("Champion"), seeks a direction under Uniform Civil Procedure Rules Pt 55 r 55.11 for a sum of $365,319.82 (the "Sum"), which was paid into Court by the National Australia Bank ("NAB"), to be paid to Champion. The other parties who are interested in the Sum are the first defendant, JKAM Investments Pty Ltd ("JKAM"), and Hotray Pty Ltd ("Hotray"). The Court is satisfied that Champion is entitled to a direction that the Sum be paid out to Champion.
[2]
The Facts
Over the course of 4 to 6 June 2014, Darke J heard these proceedings together with proceedings between Hotray and JKAM. Another party to those proceedings was Mr Karl Damien, who was the registered proprietor of certain land at Camden (the "Property"). The proceedings before his Honour were constituted by a summons in connection with a caveat that had been lodged over the Property. There were no pleadings and the proceedings went on affidavit. To understand the present application, it is necessary to say something about the course of the hearing before Darke J.
At the commencement of the hearing, Darke J said to the parties:
"HIS HONOUR: The primary dispute is a priorities dispute as it seems to me, and whilst there may be arguments available concerning precise amounts due, I'm not sure that there's the time available if indeed, the parties are fully ready to deal with all matters of minutiae dealing with the precise amounts said to be due. If there was a simple neat point to demonstrate that there could not conceivably be any amount owing for example, that would be one thing. But if there's going to be, in effect, a detailed case about amounts due, that's another thing altogether. And there may need to be some thought given to the precise way in which the matter proceeds, either by separate questions, or whether the parties can reach agreements about not taking Anshun points later and that sort of thing."
His Honour's reference to "Anshun points" was prescient in light of the application which I have heard today. Both before Darke J and before me, Mr C Stomo of Counsel appeared for Champion. Before Darke J, JKAM was represented by Mr D G McDonald of Counsel. However, before me today JKAM was represented by Mr M Mando of Counsel.
Having raised the question in the way in which he did, the following exchange then took place between Darke J and Mr McDonald for JKAM (emphasis added):
"HIS HONOUR: As I say, there seems to be two categories. One category might be a relatively simple or neat point to the effect that there is no relevant secured obligation. But if it's not simple and it requires detailed factual investigation, I'm just not sure whether it can be dealt with in the time available, that's my concern.
McDONALD: We agree that it would be unlikely that fine minutiae could be dealt with both in the way the case has been set up, the lack of statement of claim, lack of pleadings and the time available, so we're not going to press for effectively a judgment for a finite amount. It won't work in the circumstances. But the issue of priority, and on the defendant's case, the claim there is a zero amount for particular reasons, that is something we wish to press and we think can be achieved in 3 days. That's our position.
HIS HONOUR: Yes very well, I'll leave the matter with the parties for the moment, but if it can be the subject of some discussion as to the appropriate mechanism, whether that's by way of adjournment of part of the claims, or probably preferably separate questions being formulated, that is desirable."
I was informed from the bar table that ultimately no agreement or separate questions were formulated of the kind which his Honour foreshadowed.
Shortly after the exchange referred to in paragraph [5] above, Mr McDonald, for JKAM, also said during the reading of the evidence:
"McDONALD: If we're not going to delve into the fine detail then the Court need not deal with 500 pages of exhibits. At this stage that can be admitted subject to relevance and hopefully we won't be dealing with it in these 3 days and we don't need to take it further."
The matter proceeded to its conclusion after three days and on 18 July 2014, Darke J delivered his reasons: Champion Homes Sales Pty Ltd v JKAM Investments Pty Ltd; Hotray Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952 (the "Judgment").
Darke J identified JKAM's primary attack upon Champion's asserted status as an equitable chargee over the Property in a section of the Judgment entitled "Summary of Principal Submissions":
"58. An attack was made by JKAM upon Champion's asserted status as a chargee over the Property. The primary submission (supported by Hotray) was that the charge purportedly given by the terms of the Letter of Acknowledgement was not supported by any consideration passing from Champion."
In these reasons I shall refer to that Letter of Acknowledgement as the "Letter".
Because of its importance to the present application, it is then necessary to set out the entirety of the Judgment in relation to the determination of Champion's claim:
"67. Champion claims an interest as an equitable chargee. It may be accepted that the evidence did not demonstrate that Champion provided valuable consideration for a promise by Mr Damien to give the charge referred to in the Letter of Acknowledgement of Debt dated 4 April 2012. All the work the subject of the construction contract had been performed by about mid-2011, and there was no evidence of any fresh agreement on Champion's part to do anything, or forbear from doing anything, in return for an agreement by Mr Damien to give a charge. However, I do not think that it follows that no valid equitable charge was created by the Letter of Acknowledgement of Debt.
68. An equitable charge is a proprietary interest granted by way of security (see Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd [2000] HCA 25; (2000) 202 CLR 588 at [6]). The creation of such an interest may, but does not necessarily, depend upon an enforceable agreement to grant a charge. In essence, the creation of an equitable charge depends upon the existence of an intention on the part of the chargor to create the interest.
69. An equitable charge can be created by words of present grant in an instrument whereby real or personal property is expressly or constructively made liable or specifically appropriated to the discharge of a debt (see ELG Tyler, PW Young and CE Croft, Fisher and Lightwood's Law of Mortgage, (3rd Australian ed 2014, LexisNexis Butterworths) at [2.3]; GE Dal Pont, Equity and Trusts in Australia, (5th ed 2014, LexisNexis Butterworths) at [1.65]; EI Sykes and S Walker, The Law of Securities, (5th ed 1993, Law Book Company) at 193). Where the property concerned is land, the interest must be created by writing signed by the person creating the interest (see s 23C(1)(a) of the Conveyancing Act). The writing must show with sufficient clarity an intention to create the interest (see Nabeth Taleb v National Australia Bank Ltd [2011] NSWSC 1562; (2011) 82 NSWLR 489 at [50]).
70. The Letter of Acknowledgment of Debt, which was signed by Mr Damien, contains words of present grant ("I hereby charge"). The Property is expressly charged to Champion as security for the debt of $506,334 which is acknowledged in the same instrument. In conjunction with those words of express grant of a charge, the Letter of Acknowledgment of Debt gives Champion an entitlement to lodge a caveat over the Property. In my view, the terms of the Letter of Acknowledgement of Debt clearly reveal an intention on the part of Mr Damien to grant a charge over the Property in favour of Champion as security for the acknowledged debt. Having regard to Mr Malesev's evidence, which I accept, there is no reason to doubt that the acknowledged debt was (and remains) truly owing and may be sued for (see Lewis v Wilson (1997) 42 NSWLR 228 at 233B-C per Sperling J).
71. In my opinion, a valid equitable charge in favour of Champion was created by the Letter of Acknowledgment of Debt. This is not a situation (such as occurs, for example, when an equitable mortgage is said to arise on the basis of an enforceable agreement to grant a legal mortgage) where the existence of the claimed interest depends upon proof of an enforceable agreement which, unless it is an agreement under seal, requires valuable consideration (see EI Sykes and S Walker, The Law of Securities (5th edition, Law Book Company, 1993) at pages 193-194).
72. In view of that conclusion, it is not necessary for Champion to assert the existence of a charge based upon clause 3.6 of the construction contract, and it is not necessary for the Court to consider the various arguments raised by JKAM as to the validity and scope of any such charge."
For present purposes, the critical findings (the "Findings") were made by his Honour in paragraphs [70] and [71] of the Judgment (citations omitted):
"70. …Having regard to Mr Malesev's evidence, which I accept, there is no reason to doubt that the acknowledged debt was (and remains) truly owing and may be sued for.
71. In my opinion, a valid equitable charge in favour of Champion was created by the Letter of Acknowledgement of Debt."
His Honour went on to deal with the claims of interests in the Property by the other parties to the proceedings. The Judgment was ultimately given effect by orders made on 30 July 2014:
"1. Declaration that the parties have acquired the following equitable interests in the property at x Ironbark Ave Camden (Folio Identifier xxxxx);
a) Champion Homes Sales Pty Ltd acquired an interest as an equitable chargee on 4 April 2012;
b) JKAM Investments Pty Ltd acquired an interest as an equitable lessee on 1 September 2012;
c) Hotray Pty Ltd acquired an interest as an equitable mortgagee on 10 December 2012;
d) JKAM Investments Pty Ltd acquired an interest as an equitable mortgagee on 21 December 2012; and
e) JKAM Investments Pty Ltd acquired an interest as a purchaser under a contract for sale on 21 December 2012.
2. Declaration that in relation to the interests in order 1 priority is given according to the order in which they were acquired.
3. The defendant/ cross claimant pay the plaintiffs/ cross defendants costs of the proceedings including the cross claims."
It was acknowledged during the course of the proceedings before Darke J that NAB had appointed a receiver and manager in respect of the Property. The Property was subsequently sold. On 12 May 2016, Sackar J made orders by consent, including:
"2. NAB is released from the undertaking given in these proceedings and in proceedings No 2014/22761 on 25 November 2015 by its counsel, being an undertaking to the effect that it (NAB) would, as mortgagee in possession of the property located at x Ironbark Crescent, Camden South, New South Wales (the Property), deal with the surplus monies arising from the sale of the Property in accordance with the orders and determinations of Darke J in proceedings No. 2014/21077 and 2014/22761 made on 18 July 2014.
3. The court dispenses with the requirement for NAB to comply with rule 55.9 of the Uniform Civil Procedure Rules 2005 (NSW) insofar as such Rule would otherwise require the filing of a summons seeking to have those trust monies paid into Court with the intent and effect that NAB be permitted to obtain orders for the payment of monies into Court by its Amended Notice of Motion dated 10 May 2016.
4. Pursuant to s 95 of the Trustee Act 1925 (NSW), NAB pay into Court by way of bank cheque or solicitors' trust account cheque payable to the "the Supreme Court of New South Wales" the Sum of $365,319.82, being part of the amount which remains form the proceeds of sale of the Property after deducting the costs, expenses and outgoings related to the sale of the Property and after further deducting the amount which is owed to NAB and secured by its mortgage over the Property."
Subsequently, the Sum was paid into Court in accordance with Sackar J's orders.
[3]
Consideration
The question is whether the Sum should be paid out to Champion. It is trite law that to justify a direction for payment out in circumstances such as those before the Court in this application, the claimant must demonstrate four things (see Ritchie's Uniform Civil Procedure NSW (2005) at [55.11.5]):
1. The identity of the person who is primarily entitled to the funds paid into court and the basis of that entitlement;
2. In the case of a claim other than by the person primarily entitled to the moneys, that the person has a beneficial interest in the money paid into court;
3. That any other potential claimants to the funds have been duly notified of the application for payment;
4. That the claimant has priority over other potentially entitled persons, or that they consent to the payment.
Champion asserts that it is primarily entitled to the Sum and that the basis of its entitlement is the Findings. There was no dispute that, insofar as his Honour found that there was a valid charge giving rise to Champion's interest in the sum of $506,334, no payments have been made in reduction of that amount. JKAM's objection was based upon its contention that it was entitled now to challenge the amount owing under the Letter. JKAM submitted that it wished to demonstrate by evidence that, as at the date of the Letter, there was in fact no money owing by Mr Damien to Champion. I shall return to that submission shortly.
Because Champion claimed that it was primarily entitled to the Sum, the second matter referred to in paragraph [16] above is irrelevant.
The third point required to be shown - due notification to other potential claimants - was satisfied by the presence of JKAM and an affidavit read by Champion from a director of Hotray. The Hotray director deposed that he was aware of this application but that Hotray was not taking an active part because payment out of the Sum to Champion would mean that there were insufficient funds left to pay out any moneys owing to Hotray.
The fourth matter required to be proven - Champion's priority over the other potentially entitled persons - is established by reference to the declarations made by Darke J on 30 July 2014 set out in paragraph [13] above.
The real question for determination today is whether or not the Findings create an issue estoppel such that JKAM cannot seek to go behind them to demonstrate that, in fact, no money was owing to JKAM by Mr Damien at the date of the Letter.
Mr Stomo submitted, by reference to the extracts from the transcript and Judgment set out above, that it was clear that his Honour had advisedly and necessarily dealt with the question of how much was owing under the Letter. Mr Stomo referred the Court to the well-known passage in the judgment of Dixon J (as his Honour then was) in Blair v Curran (1939) 62 CLR 464; [1939] HCA 23 ("Blair") at 532:
"… the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue. Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous."
Mr Mando's submission was that it was clear from the extracts of the transcript and the Judgment that Darke J never had to determine what had been referred to before him as the "minutiae". Those "minutiae" were the precise amounts referable to the parties' various interests in the Property. Mr Mando drew attention to the fact that there was no pleading before Darke J and that it had not been necessary for him to determine the quantum of any amounts owing. Any discussion of quantum before Darke J had been "secondary". In particular, it was submitted that Darke J had not had to consider any invoices issued by Champion to Mr Damien, which would have enabled quantification of any debt that was the subject of the Letter. It was an analysis of those invoices that JKAM wished to rely upon before me to go behind the Findings.
In considering JKAM's submissions, I have set out in paragraphs [5] to [13] above the entirety of the material upon which JKAM relied for its submissions. I draw attention to that because JKAM did not put before me the transcript of the entire hearing and, therefore, was not in a position to make any submission to me about the course of the hearing. My decision is made solely by reference to the evidence which I have set out in paragraphs [5] to [13] above.
In determining whether or not an issue estoppel has arisen, it is necessary to determine precisely what issues the Court in the earlier proceedings was required to determine. In the absence of pleadings, the Court must rely upon the summons, the evidence, the submissions and, ultimately, the judgment and any orders giving effect to that judgment. On the material before me, it is clear that while Darke J was not called upon to determine the precise amounts that may have been owing under the various interests that were asserted by the parties in the Property, JKAM did put into issue the question of whether or not anything was owed by Mr Damien to Champion that would have supported the Letter. So much is apprehended from Mr McDonald's submission to his Honour, see paragraph [5] above, that (emphasis added):
"But the issue of priority, and on the defendant's case the claim that there is a zero amount for particular reasons, that is something we wish to press and we think can be achieved in three days. That's our position."
While I do not have evidence before me of the transcript of the hearing or the submissions, I infer from those parts of the Judgment that I have extracted above that the question of consideration supporting the Letter was squarely before Darke J and was the subject of argument. His Honour recorded that the lack of consideration was the primary attack made by JKAM upon Champion's status as an equitable chargee over the Property. Significantly for present purposes, his Honour accepted at paragraph [67] "that the evidence did not demonstrate that Champion provided valuable consideration" for the promise referred to in the Letter. However in paragraph [70], his Honour made clear findings that Champion's interest was created by the Letter itself. The way in which his Honour approached the question meant that it was entirely unnecessary, and would have been irrelevant, for him to have had to consider invoices from Champion to Mr Damien. The Findings are to the effect that Champion's entitlement arose pursuant to the Letter.
The Findings were an essential step in Darke J ultimately making the declaration that Champion had acquired an interest as an equitable chargee in the Property. The Findings, and the declaration, were made in the face of JKAM's primary case that there was in fact no consideration supporting the Letter. The Court is satisfied that his Honour's determination as to the existence of the interest created by the Letter and the conclusion at paragraph [70] that there was "no reason to doubt that the acknowledged debt was (and remains) truly owing and may be sued for", are so central to his Honour's ultimate declaration of priorities that it would now be contrary to principle for JKAM to be permitted to challenge the Findings by seeking to erect a case that no money was in fact owing by Mr Damien to Champion at the date of the Letter. To adopt the language of Dixon J in Blair (at 532), the Findings were "legally indispensable to the conclusion" that Champion had an interest that was first in priority. Had Darke J found that there was no proper basis for the interest claimed under the Letter because it was unsupported by consideration, then he would not have made the declaration which he did.
It follows that the Court is not satisfied that JKAM is entitled now to challenge his Honour's conclusions. There is an issue estoppel as to the existence and value of Champion's interest. Therefore, by reason of the declarations made by Darke J (see paragraph [13] above), the Court is satisfied that Champion is primarily entitled to the Sum.
[4]
Conclusion
The orders of the Court are:
1. Direct that the sum of $365,319.82 paid into court by National Australia Bank pursuant to orders made by Sackar J on 12 May 2016, together with any interest accrued thereon, be paid to Champion Homes Sales Pty Ltd.
2. JKAM Investments Pty Ltd pay Champion Homes Sales Pty Ltd's costs of and incidental to the latter's motion dated 9 May 2016, including the costs of today's hearing.
[5]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 15 November 2016