Solicitors:
R Hanna (Applicant on Notice of Motion filed 11 October 2022)
File Number(s): 2022/78411
[2]
EX TEMPORE JUDGMENT (REVISED)
The application before the Court is an application for payment out by Chrissie Group Pty Ltd (claimant) pursuant to r 55.11 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) for an amount of $671,805.94 (funds), plus any accumulated interest.
On 18 March 2022, by summons, The Trust Company (PTAL) Limited (The Trust Company) paid the funds into Court. The funds are the surplus proceeds of the sale of four properties located at Liverpool Street, Enfield, being respectively four lots in a deposited plan (properties).
Stephanie Jin, solicitor, in the employ of Summer Lawyers (solicitors for The Trust Company) swore an affidavit on 16 March 2022. That affidavit together with the exhibit to that affidavit (SJ-1) was read in the proceedings. The affidavit details aspects of the sale of the properties by The Trust Company and payment of surplus funds into Court, which I will refer to below.
The affidavit of Ms Jin identified five potential claimants to the surplus funds, being the claimant, Senworth Capital Pty Ltd (Senworth), Fifteen Investments Pty Ltd (Fifteen), Remagen Capital Pty Ltd (Remagen) and iLend Capital Pty Ltd (iLend).
Consequent upon the payment in, by Notice of Motion filed on 11 October 2022 the claimant sought an order for payment out of the funds, including any accrued interest. The Notice of Motion filed by the claimant names Senworth, Fifteen, Remagen, iLend and Enfield Developments Pty Ltd ATF Enfield Development Trust (EDT) as the respondents.
The affidavit of Mr Hanna sworn 10 October 2022 sets out the background to the application.
On or about 13 August 2020, the claimant as vendor entered into a contract for sale with EDT as purchaser for one of the properties for a sum of $1,584,000.
On or about the same date, Joumana Akkari (Ms Akkari) as vendor entered into a contract for sale with EDT as purchaser for the other three properties for a sum of $1.62 million.
The claimant and Ms Akkari are related in that the sole shareholder and director of the claimant is Maroun Akkari, the husband of Ms Akkari.
On or about 9 October 2020, EDT entered into a loan agreement with The Trust Company. That loan was secured by a registered mortgage over the properties. Mr Hanna is instructed that, notwithstanding the money obtained from The Trust Company under the loan, EDT required additional funds to complete the contract for the acquisition of the properties. Accordingly, EDT sought a loan in the nature of vendor finance from the claimant.
On or about 30 October 2020, the claimant as lender entered into a vendor finance agreement with EDT as borrower. A copy of the loan agreement is in evidence. The loan agreement makes certain provisions for borrowings which are set out in the affidavit of Mr Hanna: CB 38[13]-[14].
Further, on or about 30 October 2020, EDT as mortgagor and the claimant as mortgagee entered into a mortgage over the properties.
The mortgage was not registered. However, the claimant secured its interest arising from the loan agreement and mortgage by a caveat lodged over the properties.
The caveat claims an interest in the properties arising pursuant to the loan agreement and the mortgage, albeit that the mortgage is unregistered.
On or about 22 October 2021, The Trust Company issued notices of default and demand, including a notice under s 57(2)(b) of the Real Property Act 1900 (NSW) (RPA).
On or about 23 October 2021, The Trust Company obtained possession of the properties.
The affidavit of Mr Hanna includes references to title searches for the four lots. The claimant's caveat is listed in each title search immediately after the identification of the registered mortgage of The Trust Company. The title search for the four lots discloses that four further caveats were lodged by the respondents after the claimant's caveat.
The interest claimed in the caveat by the claimant is said to have arisen by reference to the documents executed on or around 30 October 2020 (see [11]-[12] above).
The interest of Senworth is said to have arisen on 7 December 2020 by reference to a form of mortgage.
The interest of Fifteen is said to have arisen on 4 March 2021 by reason of an unregistered mortgage.
The interest of Remagen is said to have arisen by an equitable mortgage entered into on 21 April 2021.
The interest of iLend is said to have arisen no earlier than 24 November 2021.
After The Trust Company entered into possession of the properties, it sold them for a combined sum of $3.25 million. That sum exceeded the amount then owing to The Trust Company by the amount of the funds.
The claimant asserts that EDT was in default under the loan agreement. Mr Hanna's affidavit makes reference to this, and, in particular, cl 5.1 of the loan agreement and the definition of "repayment date".
The amount of the loan repayable by EDT on 9 November 2020, being a date ten days after the date of the loan agreement, was a sum of approximately $781,628. EDT did not repay the loan by that date or subsequently.
Under cl 12 of the loan agreement, and by reference to the definition of "default", interest on the amount of the loan became payable from after 9 November 2020 at the rate of 10% per month.
The claimant asserts priority to the funds on the following basis. The argument is succinctly detailed in the affidavit of Mr Hanna. The argument is as follows:
1. the amount owed by EDT to the claimant under the loan agreement exceeds the amount of the surplus funds, even ignoring the amount of interest accruing after 9 November 2020;
2. the amount owed by EDT to the claimant under the loan agreement was secured by the mortgage over the properties (albeit unregistered);
3. the claimant protected its interest in the properties by lodgement of the caveat;
4. the claimant's caveat was registered against each of the lots comprising the properties before the caveats of the respondents were lodged; and
5. as to the respondents' interests, those interests arose in the manner and at the dates described above.
Although EDT was the owner of the properties prior to the sale, by reason of the loan agreements and securities entered into above, the position is that the interest of the claimant takes priority over the interest of EDT.
Mr Hanna caused the respondents to be served with notice of the application.
His affidavit sworn 18 November 2022 satisfies me that each of the respondents and EDT was appropriately served.
Mr Hanna submits that the claimant is required on the payment out application to establish a number of matters, including as follows:
1. the identity of the person who is primarily entitled to any funds paid into Court and the basis of the entitlement;
2. whether that person has a beneficial interest in the funds and is not merely an unsecured creditor;
3. whether there are any potential claimants to the funds and their identity, and that those persons have been notified; and
4. the claimant's priority over other claimants to the funds.
Mr Hanna cited Kathleen Lanphier v Westpac Banking Corporation [2015] NSWSC 292 at [6] per Slattery J as authority for those propositions.
In In the matter of Elegant Swan Pty Ltd (in liquidation) (controllers appointed) [2022] NSWSC 1451 (Elegant Swan), I addressed the principles as to payment into Court, including payment in by mortgagees, and the principles as to payment out.
In respect of payment in, I stated at [62]-[65]:
Principles as to payment into Court
62. Payment into Court may be permitted pursuant to particular legislation, rules of Court and pursuant to the Court's inherent powers: JKB Holdings Pty Limited v de la Vega [2013] NSWSC 501 at [11]-[12].
63. Procedurally the UCPR contains a number of provisions relating to payment into Court.
64. There are general payment in provisions pursuant to Pt 41 UCPR.
65. There are other particular provisions which enable payment in by stakeholders (Pt 43 UCPR), trustees and other specified persons holding funds: Pt 55 UCPR.
In relation to payment in by a mortgagee, I stated at [74]-[80]:
Payment in by mortgagees
74. A mortgagee has available a number of provisions under which payment in may be made.
75. A "stakeholder" can pay a disputed amount of money into Court which then enlivens a procedure for giving notice to competing claimants requiring them to litigate their claims or be barred from doing so: Residential Housing Corporation v Esber (2011) 80 NSWLR 69; [2011] NSWCA 25 (Residential Housing Corp v Esber) at [113] per Campbell JA, Macfarlan JA agreeing at [194].
76. A "stakeholder" is relevantly a person (other than the Sheriff) who is under a liability in respect of a debt or other personal property: r 43.1 UCPR.
77. A mortgagee who has sale proceeds in its hands, after payment of its own secured debt, is a "stakeholder" within this definition both by reason of its statutory obligations under s 58(3) Real Property Act 1900 (NSW) and by reason of its fiduciary obligations: Residential Housing Corp v Esber at [110].
78. There is an alternative provision for payment of funds into Court by a mortgagee provided for pursuant to Part 4 Trustee Act. It is this alternative which was adopted by the plaintiffs in this case.
79. The provisions under Pt 43 enable the Court to give relief (r 43.2 UCPR) in relation to disputed property which relevantly means any debt or other personal property in respect of which a stakeholder is being sued, or is expects to be sued in proceedings by two or more persons in proceedings before the Court property: r 43.1 UCPR
80. In contrast to the provisions under Pt 43 UCPR, the Pt 55 UCPR provisions dealing with payment in do not require the payee prove that it is being sued or expects to be sued: Residential Housing Corp v Esber at [116].
In relation to payment out, I noted:
Principles as to payment out
99. Once the funds have been paid into Court, they may only be paid out pursuant to directions of the Court. The application for directions is made by filing a Notice of Motion in the instituted proceedings: r 55.11 UCPR.
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103. Much of the Court's focus in relation to payment out applications is, as indicated by the above criteria, fixed upon establishing whether the claimants have a beneficial interest in the fund or some other interest such as an unsecured creditor and that the various claimants or persons who claim to be interested in or might have a claim to be interested in the fund have been identified and appropriately served with the application: Slieman at [8] - [10].
104. It has been said that the Court requires strict proof as to who has the entitlement to the funds and that it should be identified by the best evidence available, there being a heavy burden placed on a party seeking payment out: Slieman at [8] - [10].
The law in relation to payment into Court by a registered mortgagee and payment out in respect of unregistered mortgage interests is addressed by Campbell JA at length in Residential Housing Corporation v Esber (2011) 80 NSWLR 69; [2011] NSWCA 25 (Esber).
Campbell JA, following detailed analysis of the provisions of s 58 RPA and analysing but distinguishing similar provisions to s 58(3) in other States, determined that s 58(3) does not authorise the payment out of subsequent unregistered mortgages: Esber at [99], Macfarlan JA agreeing at [194].
Sackville AJA refrained from deciding (1) whether s 58(3) RPA applies to a non-selling mortgagee, and (2) whether the order of priority set out in the sub-section is intended to cover the position of a subsequent unregistered mortgagee: Esber at [204].
Nonetheless, a mortgagee who holds surplus proceeds of the sale of mortgaged property is under a fiduciary obligation to account to all subsequent interest holders, including unregistered mortgagees: Esber at [143], [167]-[169].
That is because equitable principles operating to modify the operation of s 58(3) RPA prevent it being used to produce inequitable results: Esber at [71], [143].
Following the notification of other parties, the respondents to the motion signed a form of consent orders.
The consent orders that had been signed are contained at Tab 6 of the Court Book (at 173-174). A copy of the consent orders was attached to an email dated 6 December 2022 from Mr Hanna to my chambers, which consent orders had been signed by:
1. Senworth as first respondent by its solicitor Victor Asoyo;
2. Fifteen as second respondent by its solicitor Thomas Russell;
3. Remagen as third respondent signed by its sole director Simon Raftery (Mr Raftery);
4. iLend as fourth respondent by its solicitor Stephanie Hajje; and
5. EDT by its sole director Anna Wakim.
The signing of the consent orders provides comfort to the Court that the respondents to the application have not only been properly notified of the application, but consent to the order sought by the claimant.
Nonetheless, despite the consent, the Court regards applications for payment out as important matters to be addressed, as I noted in Elegant Swan: at [99]-[104].
The signing of the consent orders by the solicitors for a number of the respondents is an important matter binding those respondents.
As I have noted above, two of the respondents have not signed the orders by solicitors. Remagen Capital has signed by its sole director Mr Raftery. EDT has signed by its sole director Anna Wakim.
On 7 December 2022, I caused my associate to email Mr Hanna and the other representatives to address an issue regarding the capacity of the directors to bind the companies.
At least in proceedings in the Supreme Court there are particular provisions which address who on behalf of a company may commence or carry on proceedings in a Court.
In Vasil v Boland [2022] NSWSC 1534, I stated the following:
14. There are particular provisions which address who on behalf of a company may commence and carry-on proceedings in a court.
15. The provisions of rr 7.1 and 7.2 UCPR address how a company within the meaning of the Corporations Act 2001 (Cth) may "commence" and "carry on" proceedings in the Supreme Court.
16. The concept of a company "carrying on" proceedings appears to cover a circumstance in which the company is named as a defendant in the proceedings.
17. That appears evident from the provisions of r 7.2(1) UCPR in that the expressions "commences" or "carries on" are connected to a requirement that a director or authorised officer must file an authority to act with "the originating process, notice of appearance or defence, as the case may be".
18. A director or authorised officer who files a notice of appearance or defence is not commencing proceedings. The provisions only make sense if such a director or authorised officer who files a notice of appearance or defence is carrying on proceedings.
19. Clearly that is how the provisions have been construed: see for example May v Christodoulou (2011) 80 NSWLR 462; [2011] NSWCA 75 at [6], a case in which a director of a defendant company, though not having strictly complied with r 7.2(1) UCPR, represented it in District Court proceedings involving a building dispute.
20. The proper construction of the provisions of r 7.1(2)(a) UCPR is that a director is entitled to conduct or defend proceedings on behalf of the company as of right, subject only to compliance with the procedural requirements in the rules: May v Christodoulou at [6], [95].
21. The procedural requirements as noted above require that in the case of a director of a defendant company that there be an affidavit as to his or her authority to act in that capacity together with a copy of the instrument evidencing that authority: r 7.2(1).
22. The content of the affidavit in the case of a director of a company within the meaning of the Corporations Act is set out in r 7.2(2) UCPR.
On 7 December 2022, Anna Wakim swore an affidavit which, as is evident from its terms, sought to address the substance of the provisions in r 7.2(2) UCPR.
I am satisfied that as a matter of substance, in light of that affidavit, Ms Wakim is able to bind EDT, or more particularly to the extent that it is necessary having regard to the fact that EDT is a respondent to the proceedings, that she is able to represent the company in that way.
Initially, during the application Mr Hanna indicated that Mr Raftery had not, despite some attempts by Mr Hanna to see whether he would, provided such an affidavit.
There is evidence in the proceedings by means of a company search annexed to Mr Hanna's affidavit sworn 18 November 2022 which demonstrates that Mr Raftery is the sole director and secretary of Remagen: CB 153-154.
Further, the exhibit to Mr Hanna's affidavit, being RH-1, contains an email from Mr Raftery dated 1 July 2022 to Stanley Yee which makes reference to the caveats and the claim. The email appears at CB 114. The email, in its concluding parts, describes Mr Raftery as Managing Director of Remagen. In the circumstances of the matter, I am satisfied that Mr Raftery is able to adequately bind Remagen.
After I had heard the application and I had delivered reasons for judgment ex tempore, when I was in the process of formulating orders, Mr Hanna made me aware that an affidavit of Mr Raftery had been provided to him.
The affidavit was emailed to my associate and printed. Mr Hanna sought leave to reopen the application to read the affidavit. I gave leave to him to reopen and to read the affidavit.
The affidavit of Mr Raftery is sworn/affirmed on 7 December 2022. It asserts that he is the sole director of Remagen and authorised to make the affidavit on behalf of Remagen. It confirms that he signed the consent orders on 5 December 2022 and annexes a copy of that.
The affidavit in substance is an attempt to comply with the provisions of r 7.2(2) UCPR and I am satisfied that it does. The affidavit provides additional comfort to the Court that Remagen, by an appropriately authorised officer, consents to the orders sought by the claimant in the proceedings.
I am comfortably satisfied that the matters which the claimant is required to establish have been made out on the materials.
That includes reference to the identity of the person who is primarily entitled to the funds paid into Court and the basis of the entitlement, persons having a beneficial interest in the funds, whether there are other claimants and their identity, notification to the other claimants, and, importantly, the claimant's priority over the other claimants.
In these circumstances it seems to me that the claimant is entitled to the relief that it seeks.
The orders of the Court will be as follows:
1. Order that the monies paid into Court by the Plaintiff in the sum of $671,805.94 and any accrued interest, be paid to Chrissie Group Pty Ltd, the Claimant.
2. Order that there be no order as to costs.
3. Order that the Notice of Motion be otherwise dismissed.
4. Order that the proceedings be otherwise dismissed.
[3]
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Decision last updated: 14 December 2022