Koovousis v Tony, trustee in bankruptcy of the Estate of Vrkic

Judgment 1The subject of these proceedings is land at Rodd Point, a suburb of Sydney. 2The registered proprietor of the land is now bankrupt. His trustee in bankruptcy is the first defendant. 3Before the registered proprietor became a bankrupt he entered a contract to sell the land to the plaintiffs. 4The plaintiffs, as purchasers, seek an order for specific performance of the contract and ancillary relief or, in the alternative, a declaration that they are entitled to a return of the deposit they paid under the contract, presently held by a real estate agent as stakeholder. 5They have joined in the proceedings parties who, as mortgagees or otherwise, claim a security interest in the land. 6Those parties oppose any grant of relief to the plaintiffs, other than an order for the return of the plaintiffs' deposit. The third and fourth defendants have provided letters of support in favour of an application made by the fifth defendant for summary disposal of the proceedings. 7In its own right, the fifth defendant holds a second registered mortgage over the land. Since the commencement of the proceedings it has also acquired, by assignment, the first registered mortgage granted to the party originally designated as the second defendant. 8On 20 December 2013 the Court made an order (under r6.32(2) of the Uniform Civil Procedure Rules 2005 NSW) that has the effect that the fifth defendant, having been substituted for the second defendant, is a party to the proceedings in two capacities: as both the first and second registered mortgagee. 9The third and fourth defendants have caveats lodged against the title to the land, protecting interests subordinate to those of the first mortgage. They also consented to registration of the second mortgage. 10The principal proceedings (in which the plaintiffs seek an order for specific performance) are presently being case managed in the expedition list with a view to allocation of an expedited final hearing early in the new court term. 11In the meantime, with the leave of the expedition judge, the fifth defendant has applied, by a notice of motion filed on 5 December 2013, for an order (under UCPR r 13.4) that the proceedings be summarily dismissed. 12As argued on the motion, its application extends to an application, not simply that the claims for relief made against it be dismissed, but that the proceedings as a whole be dismissed, saving only the plaintiffs' claim for the return of their deposit. 13The first defendant has taken no active part in the hearing of the fifth defendant's motion. However, when pressed for an express statement of his attitude to the proceedings, he made a formal statement of his position to the following effect: (a)Having regard to the encumbrances affecting the property, the first defendant (as trustee in bankruptcy of the registered proprietor) is of the view that there is no equity in the property that could be realised for the benefit of the bankrupt estate he represents. (b)He has no objection to the proceedings being dismissed in their entirety. (c)He has no objection to the deposit paid by the plaintiffs under the contract with the bankrupt being refunded to the plaintiffs. (d)He has no objection to the proceedings being dismissed as against the fifth defendant. (e)His only concern is the risk that the bankrupt estate of which he is trustee may become burdened with costs. (f)To mitigate that risk, he proposes to file a submitting appearance. 14Such rights, if any, as the plaintiffs may have, vis-a-vis the land which is the subject matter of the proceedings, are essentially personal rights, in contract, against the registered proprietor of the land (now bankrupt) which the plaintiffs seek, with the aid of equity, to enforce by an order for specific performance. 15The plaintiffs neither have, nor contend that they have, a cause of action or an equity enforceable against the defendants other than the first defendant, the trustee in bankruptcy of the vendor to them. 16Such, if any, rights as they may have are against, or enforceable only through, the first defendant. 17The plaintiffs' rights, vis-a-vis the land, can rise no higher than such, if any, rights the registered proprietor/vendor/mortgagor (in whose shoes the first defendant stands as his trustee in bankruptcy) has against the fifth defendant as the proprietor of the first and second registered mortgages: Elnic Holdings Pty Ltd v New Wave Development (NSW) Pty Ltd [2005] NSWSC 1226 at [22]. 18No contention is advanced by any party to these proceedings to the effect that the mortgages to which the fifth defendant is entitled are, or that one or the other of them is, invalid. Everybody accepts the validity of the mortgages. 19Nor is there any suggestion that, if the land is sold at the contract price sought to be enforced by the plaintiffs as purchasers, the bankrupt registered proprietor has sufficient equity in that land to satisfy the mortgage debts owed, now, to the fifth defendant. A sale of the land at the contract price will leave the fifth defendant with a shortfall. 20The fifth defendant accepts that, in exceptional circumstances, the Court has a discretionary jurisdiction, in equity, to make an order for a judicial sale of land over the objection of the mortgagee of land registered under the Real Property Act 1900 NSW: New Beach Apartments Pty Ltd v Epic Hotels Pty Ltd [2007] NSWSC 474; 14BPR 26,317 at [16]-[25] and [27], following Yarrangah v National Australia Bank Ltd [1999] NSWSC 97;9BPR 17,061 at [22]-[23] and [29]-[30]. That jurisdiction is enlivened when conduct of a mortgagee, in prospective enforcement of its rights under a mortgage, would operate inequitably to the prejudice of the mortgagor. 21The first defendant does not contend, and neither do the plaintiffs, that enforcement by the fifth defendant of its rights as a mortgagee would operate inequitably to the prejudice of the mortgagor, the vendor to the plaintiffs. 22To the extent that the Court has jurisdiction, upon a proper exercise of discretion, to order a judicial sale over the objection of a registered mortgagee, there is no factual basis upon which that jurisdiction can be exercised in these proceedings against the fifth defendant at the suit of the first defendant or, still less, the plaintiffs. 23On the hearing of the fifth defendant's motion for summary disposal orders the plaintiffs pointed to no facts said, particularly, to enliven the jurisdiction. They contented themselves with submissions to the effect that the existence of the Court's discretion is enough to justify an order for dismissal of the motion, leaving an exercise of the Court's discretionary jurisdiction to a final hearing in light of all the circumstances then established by the evidence. 24Absent a clear factual foundation for an exercise of that discretion, or at least a serious question of fact to be tried, I am not prepared to act on that basis. To do so would be to push the precautionary principle commonly identified with General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129-130 too far, and to ignore the imperatives of case management philosophy embodied in the Civil Procedure Act 2005 NSW, Part 6. 25It is sufficient, for present purposes, to note s 56(1) of the Act, the leading provision of Part 6. It declares that "[the] overriding purpose (of the Act) and the rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceeding." 26The plaintiffs seek, as purchasers, to acquire the land at a cost to the fifth defendant, against which they have no cause of action and no entitlement in equity. The Court will not ordinarily make an order for a judicial sale on an application by a mortgagor (still less, a purchaser from a mortgagor) where there is a negative equity and mortgagee actively wishes to enforce its security: Chettenham and Gloucester PLC v Krausz [1997] 1 WLR 1558 at 1567E-F and 1567H-1568A. 27The fifth defendant, relying on its powers as mortgagee, seeks to enter into possession of the land and (bearing in mind the current state of affair of the building on the land) to effect improvements designed to maximise the prospect of recovery of moneys due under its mortgages. 28The plaintiffs have advanced no sound basis for the fifth defendant, by the pendency of these proceedings, to be kept out of a due exercise of those, or other, powers it may have as mortgagee. 29I propose, accordingly, to grant the fifth defendant's summary disposal application. 30Upon consideration of what order, or orders, should be made in disposition of the motion attention turns to the Civil Procedure Act, s 90(1) and the Uniform Civil Procedure Rules, r 36.1. In slightly different terms, those legislative provisions empower the Court, and by implication at least require it, to give such judgment, make such order, as the nature of a case may require, whether or not a claim for relief extending to that judgment or order is included in any originating process or notice of motion. 31In the context of the attitude adopted by the other defendants, the dynamics of conveyancing law, and the fact that the fifth defendant is a mortgagee with priority, at least as first mortgagee, over all other interests represented in the proceedings (and with due allowance for case management principles), a decision to grant the fifth defendant's motion suggests that: (a)all claims for relief made in the summons, other than the plaintiffs' claim for return of the deposit, should be dismissed; (b)the plaintiffs, having declined the first defendant's invitation to obtain an order for return of their deposit forthwith, should be left to consider whether, in light of dismissal of the balance of the summons, they should take up the first defendant's proposal for return of their deposit or apply for an amendment of the summons to include a claim for compensation against the first defendant pursuant to s 68 of the Supreme Court Act NSW 1970 (a Lord Cairns' Act provision); and (c)declarations should be made establishing, expressly, the fifth defendant's priority as a first ranking mortgagee. 32The plaintiffs have had an opportunity, on the hearing of the fifth defendant's motion, to make submissions about whether the Court can, and should, grant such relief on the motion. They have not advanced any submissions against the granting of such relief, contenting themselves with their general submission that everything should be left to a final hearing. 33If, as I intend, orders and declarations are made along the lines set out, I propose to remove the proceedings from the expedition list and to have them listed (or so much of them as subsists) before the registrar. That listing will provide a focal point for the plaintiff and the first defendant to consider whether the proceedings can be resolved in their entirety and, if not, what can be done with them. 34A grant of the relief proposed will clear the way for the fifth defendant to re-agitate a claim for possession made by it in related, common law proceedings (number 2013/00326339). In those proceedings it obtained, on 10 September 2013, an order for possession pursuant to which a writ of possession was issued. On 4 December 2013 the occupier of the land (Gilia Penna) obtained a stay of execution which, on a later occasion a short time thereafter, ripened into an order, on terms, for a stay "until further order" predicated upon an assumption that the further enforcement of the fifth defendant's order for possession might be re-agitated after the determination of the current claims for relief against the fifth defendant in these, equity proceedings. 35Upon orders and declarations being made in the equity proceedings, in disposition of the fifth defendant's motion, it will be necessary for the fifth defendant to make an application (on notice to the occupier) for an order for the discharge or variation of the stay granted in the common law proceedings if it is to obtain possession of the land. The occupier is not a party to the present proceedings and has not been heard in them. 36In the current, equity proceedings I make the following orders and declarations: (1)Declare that such, if any, rights as the plaintiffs may have against the first defendant are subject to the entitlement of the fifth defendant to enforce its rights, as mortgagee under registered mortgage AG288789 (the subject of registered transfer AI163135 in favour of the fifth defendant) and registered mortgage AH459066. (2)Declare that the fifth defendant is entitled, as mortgagee, to possession of the land contained in folio identifier 100/7510 for the purpose of enforcement of its powers (including a power of sale) as mortgagee. (3)Order that the claims for relief made in paras 1-4 (inclusive) and 6-8 (inclusive) of the summons filed on 29 October 2013 be dismissed. (4)Order that the balance of the summons (namely, para 5 and any question of costs as between the plaintiffs and the first defendant) be stood over to the list of the registrar on 7 February 2014 at 9 am. (5)Order that the provisional listing of the proceedings before Stevenson J in the expedition list on 7 February 2014 (pursuant to orders made by Pembroke J on 20 December 2013) be vacated. (6)Order that the plaintiffs pay the costs of the proceedings of the fifth defendant and (to the extent that the fifth defendant has been substituted, by court order, to rights of the second defendant) the second defendant. (7)Direct that the solicitor for the defendants notify all other parties of these orders, in writing, no later than 24 January 2014.