Eldsure Pty Limited v Sheridan Legal Pty Ltd

Submissions

1. Before turning to the submissions put on behalf of Eldsure, it is necessary to begin with a fundamental proposition. That is that, in the absence of the present claim by Eldsure and in the ordinary course, the Surplus would be payable to Mr Duyker. As the former registered proprietor of the Property, he is prima facie beneficially entitled to any surplus of the proceeds of sale after payment out of the mortgagees and all related costs and expenses. Insofar as Eldsure asserts any right to the Surplus, it does so as a judgment creditor. It does not have a beneficial entitlement to the Surplus. Mr Condylis quite properly acknowledged that his client did not have and did not assert a proprietary claim.
2. Nevertheless, Mr Condylis submitted that the Court had jurisdiction to make an order for the payment out of the Surplus in accordance with a line of cases that rely upon an analogy with the process of garnishment under the Uniform Civil Procedure Rules ("UCPR").
3. Those authorities begin with the decision of Hodgson CJ in Eq (as his Honour then was) in Westpac Banking Corporation v Morris [1998] NSWSC 666 (2 December 1998). There are then three decisions of Slattery J which deal with similar questions: Westpac Banking Corporation v Arthur James Morris & Ors [2014] NSWSC 332; Reozone Pty Ltd v Rene Santoro & Ors [2018] NSWSC 650 ("Reozone"); and La Trobe Capital [2009] NSWSC 1118.
4. Mr Condylis helpfully took me to this summary of principle by Slattery J in Reozone which I respectfully adopt: "79. Various legal analogies are available to resolve competing unsecured claims to a fund that is insufficient to satisfy them all. Interpleader proceedings are one analogy which are governed by UCPR, r 43. On an interpleader motion, the Court may make such orders "as it thinks fit": UCPR, r 43.7. The nature of interpleader relief which allows for the competing claims to be determined by the Court has been extensively discussed: De La Rue v Hernu Peron & Stockwell Ltd (1936) 2 KB 164 and Australian Customer Target Information Code Pty Limited v Cabool Holdings Pty Limited [2003] NSWSC 753 at [9] - [10]. 80. Principles of garnishment provide another analogy. The applicable rule is UCPR, r 39.3. Where money has been paid into Court, the Court can be placed in the position of a garnishee. But this is not a true garnishment: Westpac Banking Corporation v Morris [1998] NSWSC 666. In the field of garnishment, where a claim by garnishee that someone other than the judgment creditor may be entitled to any money to be paid under a garnishee order or may be entitled to an interest in such money, then UCPR, r 39.41 provides for the Court to "hear and determine the garnishee's claim and give such judgment or make such order in respect of the claim… as the nature of the case requires". If a third party has a lien or charge over the attached debt, the Court must take that fact into account: MG Charley Pty Ltd v FH Wells Pty Ltd [1963] NSWR 22; 80 WN (NSW) 754. A third party may be given leave to appear on the motion and assert a claim to the debt: Wentworth v Rogers [2003] NSWSC 472. 81. Money paid into Court as security for a judgment may also be the subject of a charging order: Patterson v Cohen [2006] NSWSC 424. Elite's liquidator, although having the benefit of a judgment, has not yet applied for a charging order. Under Civil Procedure Act 2005 ("CPA"), s 106 (1)(c) the Court has a discretion to grant a charging order by which "a judgment debt may be enforced". 82. The applicants here are all seeking payment out of Court. Funds paid into Court "may only be paid out of court pursuant to the directions of the Supreme Court": UCPR, r 55.11. That power of directions is unconfined. On its face, this power is broad enough to encompass the giving of directions for the trial of issues still to be contested among competing claimants before the payment out of Court is finally authorised. 83. That implies a broad power to do justice between competing claimants. If one applicant is in a more advanced position to seek an attachment order or to seek payment out from the funds, in fairness that applicant may have to wait so other claims can be resolved. That is the situation here. Disadvantages to competing claimants may be able to be minimised by staying proceedings and ordering the various claimants to provide security for the costs of other claimant parties, by analogy with what can occur in interpleader proceedings, where the ordinary rules as to security for costs may apply: Tudor Furnishers Limited v Montague and Finer Production Co Ltd [1950] Ch 113. 84. Where the monies paid into Court represent the fund of a debtor, for which fund various claimant creditors are competing, before paying funds out of Court the Court's role is to determine the conflicting claims and counterclaims, so that the funds in Court could satisfy any orders, including any orders for costs, made by the Court consequent upon its determination of those conflicting claims, and the monies are held to be dealt with in accordance with the orders of the Court and not otherwise: Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264; [1991] HCA 51 at CLR 274. 85. Finally, the principle that "equity is equality" will, in my view, apply to the distribution of the funds if multiple claims are established against the funds in Court and the funds are insufficient to meet all claims. The maxim "equity is equality" is the basis of the rule which requires the rateable distribution of equitable assets between specialty and contract debts: Wolestoncroft v Long (1663) 1 Cas in Ch 32; 22 ER 679; and Hixon v Wytham (1675) 1 Cas in Ch 248; 22 ER 784, see also JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (5th ed, 2014, LexisNexis Butterworths) at [3-130]."
5. Relying on those principles, Mr Condylis submitted that, either by analogy with the garnishee process or pursuant to UCPR Part 55 r 11, the Court had power to make an order of the kind sought by Eldsure. UCPR Part 55 r 11 provides: "55.11 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."

Consideration

1. The Court accepts Mr Condylis' submissions. In my respectful view, there are at least two clear bases upon which the Court can make an order of the kind sought in this case. The first is pursuant to UCPR Part 55 r 11. While applications under that rule are commonly made to resolve a dispute between claimants who are beneficially entitled to a fund, I respectfully agree with Slattery J's analysis that the power to make directions conferred on the Court under the rule is relevantly unconfined. It is certainly not confined to cases where each of the competing claimants to a fund that has been paid into Court has a beneficial interest in that fund.
2. Alternatively, I respectfully apply the analogy with garnishee proceedings which has its origins in the judgment of Hodgson CJ in Eq referred to in paragraph [17] above. It is an analogy because, as his Honour observed, the money has already been paid into Court so that, in that sense, the Court has become the garnishee.
3. It is for that reason that I identify a more fundamental jurisdictional basis which, in my respectful opinion, is the source of the power exercised by analogy with the garnishee provisions. That fundamental basis is an inherent power of the Court to make orders to enforce its own judgments. In this case, Eldsure is the beneficiary of the Costs Judgment and I have no doubt that, if otherwise satisfied as a matter of discretion that it should be done, the Court has power to assist in the enforcement of that judgment by ordering payment out of the Surplus which has come into the control of the Court.
4. In dealing with applications of this kind, the Court is concerned to ensure that other potential claimants to the fund in Court have been notified and given an opportunity to approach the Court if they wish. In this case, Eldsure has tendered evidence of searches concerning Mr Duyker's circumstances including that he is not a bankrupt and does not appear to own personal or real property (so does not have any mortgage or other security obligations). Given that evidence, and where Mr Duyker (perhaps unsurprisingly) has not himself suggested that there are any other potential claimants, the Court is satisfied that there are no potential claimants to the Surplus other than Eldsure and Mr Duyker. As a matter of proportionality, because the Surplus is not large, I would not have required general advertising of the availability of the Surplus, as has sometimes been done in other cases.
5. I therefore accept Mr Condylis' submissions that it is appropriate, in the discretionary exercise of the inherent power of the Court or pursuant to its power under UCPR Part 55 r 11, to order the payment of the Surplus to Eldsure in partial satisfaction of the Costs Judgment. In doing so, I have taken careful account of the submissions that were put by Mr Duyker. I do not intend any disrespect by seeking to summarise those submissions as being to the effect that he was very concerned about various irregularities which he alleged had occurred that had led ultimately to the sale of the Property and also in relation to how the Surplus had come to be paid into Court. He alleged, in a way that I did not completely understand notwithstanding my inquiries of him, that Sheridan Legal had somehow provided false evidence in the District Court and in this Court. I hasten to add that there was nothing in the material before me that would support that conclusion.
6. There can be no doubt that Mr Duyker has suffered much misfortune and now finds himself in very straitened circumstances. That misfortune includes the loss of the Property that was his home. However, importantly for present purposes, Mr Duyker was unable to point to anything at all which would have suggested that Eldsure was in any way responsible for any of the matters about which he made complaint. When I put that to Mr Duyker, he accepted that was the case.
7. The fact therefore remains that Eldsure is a judgment creditor for a significant sum against Mr Duyker. That judgment is a judgment of this Court which should be enforced to the extent it can be. The Surplus should be paid out to Eldsure in partial enforcement of that judgment debt.

Costs

1. Eldsure's motion sought an order for costs against Mr Duyker on the indemnity basis. The application for indemnity costs was based upon a submission recorded by Hodgson CJ that had been made by Mr Rares SC (as his Honour then was) that his client in that case was seeking payment out and sought costs on an indemnity basis. However, it is by no means clear that Hodgson CJ acceded to that application. The record of the judgment with which I was provided from AustLII simply records his Honour as making a costs order.
2. I am, with great respect, inclined to the view that a judge as careful as Hodgson CJ in Eq would have expressly referred to indemnity costs if that is what he was ordering. But in fairness to Mr Condylis, it must be acknowledged that the matter is not entirely clear because his Honour does not in terms reject Mr Rares SC's submission. In relation to the matters before Slattery J, none of the orders that were made by his Honour for costs in those cases appear to have been on the indemnity basis.
3. In considering the question of costs, the most important consideration to my mind is that, prima facie, Mr Duyker was beneficially entitled to the Surplus. In those circumstances, he did not, in my view, bear any onus on an application of this kind beyond asserting his clear beneficial entitlement. For anything other than that to happen, it was a matter for Eldsure to make out its case to defeat the rights of the beneficial owner.
4. I certainly do not think that anything Mr Duyker has said or done would justify, on the usual principles relating to such applications, an order against him for indemnity costs. Moreover, that same consideration informs my conclusion that in this case there should be no order as to costs at all in relation to Eldsure's application. It had to come to Court to make its claim. It has done so and it has succeeded. But given his prima facie entitlement to the Surplus, I am unpersuaded that Mr Duyker should have any costs liability to Eldsure for what has occurred. Quite properly, no application for costs of Eldsure's motion was made by Sheridan Legal.

Stay

1. Finally, before he went off the line due to his mobile telephone running out of battery power, Mr Duyker indicated that he wished to appeal against this decision. I asked him whether he wanted a stay of the orders to enable him to do so. He said he did. In opposition, Mr Condylis argued that this matter had been going on for some time and that his client should be entitled to the Surplus immediately.
2. It is no criticism of anyone to note that the Court had no evidence before it of Eldsure's capacity to repay the Surplus if Mr Duyker is successful on appeal. In those circumstances, I propose to take a precautionary approach and proceed on the basis that to allow the Surplus to be paid out would create a risk, at least from Mr Duyker's point of view, that it would not be able to be repaid if he does appeal and is successful.
3. I will therefore accede to the application for a stay but on terms that Mr Duyker must, within 28 days, seek leave to appeal (the amount of the Surplus being less than $100,000). I made it expressly clear to him that it will not be sufficient for him to file only a notice of intention to appeal within that time.

Conclusion

1. The orders of the Court are: 1. Order that the $27,300.47 paid into Court on 14 November 2018 and any accrued interest on that amount from that date: 1. stand as if garnished by Eldsure Pty Limited; 2. be applied in respect of the costs order made by Judge Neilson on 29 May 2017 in District Court number 2014/00257210 assessed at $174,791.58; and 3. be paid out of Court to Eldsure Pty Limited. 1. Stay Order (1) up to and including 10 December 2020 and then, if on or before that date the second defendant, John Theodore Duyker, files an application for leave to appeal against Order 1, until further order of this Court or the Court of Appeal. 2. Liberty to any party to apply on 3 days' notice by email to the Associate to Kunc J. 3. Note that the Court makes no order as to the costs of the plaintiff applicant's motion filed 29 July 2020.

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: 13 November 2020