Hall v Foster

ex tempore Judgment 1By an amended notice of motion filed on 26 July 2012, the plaintiffs seek an order pursuant to s 67 of the Supreme Court Act 1970 (NSW) appointing a receiver to land in Mount Kembla owned by the first defendant in his personal capacity and in his capacity as the executor of his mother's estate. Alternatively, the plaintiffs seek a freezing order restraining the defendants from dealing with the property. 2The orders are sought in aid of a judgment the plaintiffs obtained in these proceedings from Tamberlin AJ on 15 April 2011 (Hall v Foster [2011] NSWSC 295) in which his Honour gave judgment in favour of the plaintiffs against the defendant in both capacities in the sum of $1,672,166.65 plus costs. Costs were subsequently agreed at $258,000. 3On 4 May 2012, the Court of Appeal delivered judgment dismissing an appeal from the judgment given by Tamberlin AJ. Taking account of the accrued interest since the date of Tamberlin AJ's judgment, together with costs, the total amount now owing by the defendant is in the order of $2 million. The defendant concedes, at least for the purpose of the current application, that he has no capacity to meet the judgment except from the proceeds of sale of the property. 4The underlying facts of the case are not important except to say that they arise out of an agreement made on 17 October 2000 between the plaintiffs and the defendant and his mother by which the plaintiffs agreed to buy the property from the defendant and his mother. The sale was conditional on the registration of a plan of subdivision and under the terms of the contract the parties were to use their best reasonable endeavours to satisfy that condition. The purchase price was $510,000 of which $385,000 was paid as a "deposit". Repayment of the deposit was secured by a registered mortgage. 5The plaintiffs originally claimed specific performance of the agreement, but ultimately that relief was abandoned and they obtained the judgment they did on the basis that the defendant and his mother had breached their obligation to use best reasonable endeavours to obtain registration of the planned subdivision. Part of the judgment amount obviously was for the amount secured by the mortgage. That amount with interest is now approximately $800,000. The balance of the judgment is unsecured. 6According to the defendant, the property is subject to a number of other encumbrances. They are, first, an unregistered mortgage to the Managing Partner of HWL Ebsworth which secures the payment of legal fees owing to that firm in respect of these proceedings; second, an unregistered mortgage to Kevin McInerney securing an amount of approximately $53,600 said to be owing under a facility letter dated 18 June 2009; and third, an unregistered mortgage to the defendant's brother and his wife which is said to have been granted on or about 2 July 1997. That mortgage is said to secure the repayment of a principal sum of $75,000, although the defendant says that with interest that amount has increased to approximately $321,000. 7There is a question concerning the validity of the mortgage to the defendant's brother and his wife. The mortgage is undated and, perhaps more significantly, it does not on its face identify the mortgaged property. There is also a question whether the claim that is the subject of the security is statute-barred. 8In exercise of their rights as mortgagee, the plaintiffs have taken steps to sell the property. They have served a notice under s 57(2) of the Real Property Act 1900 (NSW), commenced proceedings for possession and appointed an agent to sell the property. In the meantime, the defendant has taken steps to sell the property to his brother although no contract for sale has yet been signed or exchanged. The proposed sale price is $1.6 million. 9Special conditions 44 and 45 of the proposed contract of sale provide: 44. The vendor and purchaser agree that the part of the deposit referred to in clause 37.1(a), being $80,000.00, shall be paid by way of a credit towards the amount due under the mortgage entered into between the vendor and Heide-Marie Foster (as mortgagors) and the purchaser and Elizabeth Jane Foster (as mortgagees) which secures the principal sum of $75,000.00 lent by the mortgagees to the mortgagors and interest on that sum payable in accordance with the terms of the mortgage. 45. Repayment of the sum secured by the mortgage referred to in clause 44 (less credit referred to in that clause) will be made at the time of completion on the sale. 10The result of these clauses, according to the plaintiffs, is that if the sale proceeds an amount of approximately $1,280,000 will be available for distribution among other creditors, including them. 11The plaintiffs say that the proposed sale is at an under value. In support of that assertion they rely on a valuation by Mr James Sharpe who concludes that the property has a value of $2.3 million. 12That valuation is disputed by the defendant. He relies on a valuation prepared by JD Valuers which concludes that the value of the property is $1,350,000. That valuation was obtained for stamp duty purposes. However, in a subsequent report Mr Codina, the person responsible for preparing the valuation, confirms that the sum of $1,350,000 represented his opinion of the market value of the property. Mr Codina takes issue with Mr Sharpe's report in a number of respects. 13In addition, the defendant gives evidence that the property has been placed on the market through an agent, but the agent has only received one offer which was for $900,000 and that offer was later withdrawn. 14It is not possible to determine the question of value in an interlocutory hearing. All that can be said on the basis of the information before the court is that there is a serious question to be tried that the property is being been sold to the defendant's brother at an under value. 15Although the general rule is that once final orders have been made the proceedings cannot be reopened by the court, the court still has power to make additional orders for the enforcement of its own judgment. Section 106 of the Civil Procedure Act 2005 (NSW) (the CPA), provides that a judgment debt may be enforced by means of a writ for the levy of property, a garnishee order or a charging order. Section 103 of the CPA states that the procedure for enforcing a judgment or order is to be prescribed by rules of court. That is done by Part 39 of the Uniform Civil Procedure Rules 2005 (NSW) which sets out in detail the procedure for issuing writs of execution, writs against land, writs against goods, garnishee orders and charging orders. In addition, UCPR r 40.2 allows the appointment of a receiver of the income of the person bound by the judgment or the making of a sequestration order against such a person. Finally, UCPR r 25.14(4) makes it clear that the court can grant a freezing order against a judgment debtor if there is a danger that the judgment would be wholly or partly unsatisfied because, among other reasons, the assets of the judgment debtor are disposed of, dealt with or diminished in value. 16Finally, the Court has an inherent equitable jurisdiction to enforce judgments, which is often referred to as "equitable execution". As Bryson J explained in DM & BP Wiskich Pty Ltd v Joseph Saadi (Supreme Court of NSW, Bryson J, 16 February 1996, unreported) at pp 4-5: Before the Judicature reforms equitable remedies were from time to time given to enable judgments to be enforced in circumstances where the remedies available under the common law were inadequate. In the complex and technical history of the law relating to execution, a number of valuable interests could not be the subject of execution under common law process. Many of the difficulties were overcome by legislation ... However equitable execution continues to be possible, and while quite uncommon, from time to time orders are made appropriating funds in Court or otherwise under the control of the Court to the satisfaction of judgments without the intervention of any writ for levy of property or other formal execution process. 17This inherent jurisdiction includes a power to appoint a receiver. As Waddell J said in Corporate Affairs Commission v Smithson [1984] 3 NSWLR 547 at 552: [R]eceivers may be appointed ... under the inherent jurisdiction, for the purpose of equitable execution where the appointment may be made to enable a judgment creditor to obtain payment out of property which cannot be reached by legal execution. 18It is unclear whether the inherent power to appoint a receiver should be seen as being embodied in s 67 of the Supreme Court Act 1970 (NSW) or whether s 67 should be seen as conferring an additional power. That section provides: The Court may, at any stage of proceedings, on terms, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do. 19In DM and BP Wiskich, Bryson J appears to have regarded the power to appoint a receiver for the purposes of equitable execution as being governed by s 67: at p 5. However, in my opinion, s 67 should be seen as conferring a separate power. The wording of s 67 suggests that it is concerned with the interim preservation of the subject matter of the litigation pending a final resolution of the proceedings, not with the appointment of a receiver as a final order to give effect to a judgment that has been delivered. A Court should only grant equitable execution where the legal remedies available are inadequate. 20In my opinion, it is not appropriate to appoint a receiver in this case. I say that for two reasons. 21First, I do not think that the legal remedies available to the plaintiffs are inadequate. In this case, the plaintiffs are able to exercise their powers as first registered mortgagees to sell the property, provided the property is not sold by the defendant. The plaintiffs can be protected against that possibility by a freezing order. In my opinion, this is an appropriate case in which to grant a freezing order. There is some evidence that the defendant proposes to sell the property to his brother at an under value. More significantly, it appears that the defendant proposes to sell the property on terms which will mean that the defendant's brother will be paid ahead of unsecured creditors, including the plaintiff, in circumstances where there is a serious question whether the defendant's brother and his wife have an enforceable mortgage, and, if they do, the amount secured by that mortgage. 22Secondly, in my opinion, if the plaintiffs wish to prevent the sale of the property to the defendant's brother they should be required to give an undertaking as to damages so as to protect the defendant in the event that the property is ultimately sold for a lower figure than the one that will be realised if the sale to the defendant's brother proceeds. 23I have considered whether the undertaking as to damages should take a special form to make the precise circumstances in which it should operate clear. However, I have concluded that there are too many possible outcomes which depend on the amount for which the property is sold and whether the mortgage to the defendant's brother and his wife is valid and, if so, the amount secured by that mortgage to try to cater for all possibilities. The preferable course then is to require the plaintiffs to give the usual undertaking as to damages. 24In my opinion, the plaintiffs should not have an indefinite period of time in which to sell the property. The defendant should be permitted to sell the property if the plaintiffs cannot do so within a reasonable time. 25There is a dispute between the parties on what a reasonable time would be. The plaintiffs seek until December 2012. In support of that contention I was provided with an affidavit of Mr Barnes explaining the basis for the time sought by the plaintiffs. In essence, that affidavit says that it would be better if the property were sold with vacant possession, that an eight week marketing programme should be established and that the best time to sell the property would be in Spring. The affidavit also points out that proceedings have been commenced for the issue of a writ of possession and that once the writ is issued, which is likely to occur at the end of this month, execution will take approximately a further six weeks. 26Mr Schneider, who appeared for the defendant, pointed out that the plaintiffs had already listed the property for sale through an agent and the agent's website indicates that a proposed auction date for the property is 25 August 2012. Even assuming that auction does not go ahead, Mr Schneider points out that an amount of six weeks had been allowed in relation to the original proposed sale of the property. Mr Schneider also points out that the defendant has a willing and able purchaser, namely, his brother, and that that purchaser should not be delayed indefinitely. 27I accept the plaintiffs' evidence that it would be preferable if the property were sold with vacant possession and that an effective marketing campaign is only likely to be capable of starting once vacant possession has been granted. In addition, having regard to the nature of the property, I think some additional time needs to be given to permit the property to be marketed effectively. Having regard to those matters, I do not think the time sought by the plaintiffs is unreasonable. 28Mr Schneider also submitted that it would be appropriate for the court to require the plaintiffs to provide security in respect of their undertaking as to damages. In my opinion, security is not necessary in this case. The plaintiffs have a first registered mortgage over the property to the value of approximately $800,000. That mortgage in effect represents effective security available to the defendant. In my opinion, no additional security is necessary. 29In those circumstances, upon the plaintiffs giving the usual undertaking as to damages, I make the following order: