La Trobe Capital [2009] NSWSC 1118

LEGISLATION CITED : Trustee Act 1925 Uniform Civil Procedure Rules 2005

PARTIES : Plaintiff: La Trobe Capital & Mortgage Corporation Limited ACN 007 932 363

COUNSEL : Plaintiff: Mr. Ross (Self-Represented) Defendant: No Appearance

SOLICITORS : Plaintiff: Mr. Ross (Self-Represented) Defendant: No Appearance

• 6 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST

3889/09 LA TROBE CAPITAL JUDGMENT 1 HIS HONOUR: La Trobe Capital and Mortgage Australia Ltd ("La Trobe"), the plaintiff in these proceedings, was the mortgagee of a property known as "Caawarie" in Orange Road Forbes New South Wales ("the subject property"). The mortgagor was Spurlet International Pty Limited ("Spurlet"). On 25 June 2009 La Trobe completed the sale of the subject property. La Trobe paid the net settlement proceeds of $12,709.82 into Court pursuant to Part 4 of the Trustee Act 1925 ("the Act") and specifically pursuant to the liberty provided for such payment under s 95 of the Act.

2 Before the court today is a motion dated 12 August 2009 brought by Union Fidelity Capital Funding Pty Limited ("Union Fidelity"), for the payment out of Court to it of the sum of $5,199.77. The issue for the Court is whether Union Fidelity has advanced sufficient evidence for that payment out to be made. I have reached the conclusion that Union Fidelity has not proved as yet that the sum should be paid to it. The material provided to the Court by Union Fidelity in support of its notice of motion commences with an affidavit of Anna Massie dated 28 July 2009. Ms Massie's affidavit is the affidavit originally filed on behalf of La Trobe to explain its payment into court. Anna Massie is the solicitor acting for La Trobe.

3 Union Fidelity also read two affidavits of Mr Bernard Hugh Ross, one dated 12 August 2009 and the second dated 7 October 2009. Union Fidelity also relied upon an ASIC search in relation to Spurlet. 4 The first issue in the case is the representation of Union Fidelity. Mr Ross sought leave to appear on behalf of Union Fidelity. Mr Ross has both a primary degree and a Masters degree in law. He is currently studying at the College of Law. He is not admitted to this court as a legal practitioner. Leave is required for his appearance on behalf of Union Fidelity. 5 Mr Ross told me that he was a director of Union Fidelity and that he had an authorisation from Union Fidelity to appear on its behalf generally, including today. There is no evidence before me that he is a director or that he has that authority. Nevertheless I gave him provisional leave to speak for the company to advance its interests today. Mr Ross gave evidence in addition to what is in his affidavit. It was appropriate that he go into the witness box and give sworn evidence, rather than merely speak from the bar table, so that he could provide proper material to complete Union Fidelity's case. It emerged from his evidence that Union Fidelity's application is deficient in a number of ways. 6 Once moneys are paid into court under Part 4 of the Act by s 98 of the Act, those moneys become subject to the Uniform Civil Procedure Rules 2005 of the Court. The applicable provisions of the rules of the Court rr 55.8, 55.9, 55.10, and most relevantly, r 55.11 which provides that: "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."

7 It is pursuant to r 55.11(2) that Union Fidelity now makes this application by notice of motion. 8 There are three matters which any applicant in the position of Union Fidelity must establish in order to justify an order for taking money out of court, which has been paid into Court under Part 4 of the Act. The first is to identify the person who is the registered proprietor of the property which has been sold. The registered proprietor is usually the person who is primarily entitled to any funds paid into court, which are usually the funds in excess of the moneys available to La Trobe as mortgagee after the exercise of its power of sale. It is fundamental that the registered proprietor be identified from the best evidence available, so that the court can be sure that the registered proprietor has been given appropriate notice of the application and can come if necessary and contest it. On the limited evidence that has been presented to me, it appears that the registered proprietor, and the only ultimate beneficiary of funds in court competing with Union Fidelity, is the company, Spurlet. However, without the certificate of title or any other similar reliable evidence the court does not have any compelling basis to conclude that Spurlet is indeed the company that is entitled to the funds in court.

9 Steps have been taken by Mr Ross, on behalf of Union Fidelity, to effect service of this application at the offices of Spurlet. Postal notice has been given to one of its directors. The surprising thing is that Spurlet has not sought to appear before the Court. This does seem odd. If there are no other competing claims apart from Union Fidelity (which is not seeking the whole of the money in Court), the balance should be paid to Spurlet. If Spurlet is the true party with a genuine entitlement to the balance of the funds in Court it has not bothered to attend to press its interests, let alone contest the claim made by Union Fidelity.

10 In those circumstances the Court requires that Union Fidelity must strictly prove who has the entitlement to the balance of the funds in Court. There is a heavy burden placed on a party seeking payment of money out of court under section 98 of the Act and Part 55 rule 11 of the rules. It is necessary for that party to prove that all potential claimants to the funds which are sought to be dealt with by the Court have been properly notified. Otherwise there is a risk of incorrect payments being made. In respect of Spurlet, that proof has not yet taken place. 11 The second matter that needs to be proved by a claimant in the position of Union Fidelity, is that it is not merely an unsecured creditor of Spurlet who, prima-facie, is entitled to the fund, but that Union Fidelity has an equitable interest in the very fund which is in court. On this aspect the application is also deficient. The fund in court would still prima-facie be payable to Spurlet, if all that Union Fidelity has is an unsecured claim against that company. 12 Mr Ross has pointed out in his affidavit 12 August 2009 that there is evidence that a default judgment on a liquidated claim was obtained in the Local Court of New South Wales in the sum of $4750.73 and that there is accumulated interest on that judgment in the sum of 5,199.77. 13 There are several deficiencies in this evidence. It is not evident from Mr Ross's affidavit that this default judgment was obtained against Spurlet. That could only be cured by obtaining the default judgment itself. That is not available and has not been tendered into evidence as yet. 14 Also no evidence has been put before the court to show that the sum, which is the subject of the Local Court judgment, is secured over the property that was sold pursuant to La Trobe's exercise of power of sale as mortgagee. Mr Ross said in evidence that Union Fidelity is the broker who brought Spurlet to La Trobe, who then lent money to Spurlet. He says that Union Fidelity thereby earned a brokerage and settlement fee, the subject of the local court claim. Mr Ross also says that there is some security interest provided for in the brokerage agreement. The brokerage agreement has not been tendered. It is not evident what the security interest is, and over what property it may be maintained, and whether it is an interest that gives Union Fidelity a clear entitlement to the funds in court. The evidence is defective on this matter as well. 15 Thirdly, it is necessary for an applicant in the position of Union Fidelity to prove who the other potential claimants are against the fund in court and to have those persons notified of its claim. Those persons may consent to Union Fidelity's claim. Union Fidelity may prove that those persons do not have valid claims. In the absence of a certificate of title, or any evidence better than the evidence advanced here, it is not possible to know who those persons are, and whether proper notice has been given to them. 16 Mr Ross's affidavit says that he made enquiries of La Trobe about who the competing claimants would be, and that he was given some information on which he acted. On an uncontested application for the payment out of funds under Part 4 of the Act the Court is not readily able to rely upon hearsay evidence about the issue of competing claimants just from La Trobe's lawyers, given through Mr Ross. The evidence about who the other potentially competing claimants might be, needs to be given with greater precision than by hearsay of this character. The starting point in making a list of competing claimants may well be the certificate of title. More detailed enquiries may result from that. 17 For all those reasons Union Fidelity's claim today fails. The question arises as to what should happen next. I can either dismiss the notice of motion or I can allow it to be adjourned to permit Mr Ross to try and rectify the defects that this judgment reveals. 18 In the circumstances and because of the puzzling non-appearance of Spurlet I will direct that Union Fidelity give further notice of these proceedings to Spurlet as well as filing any evidence that it wishes to rely upon to make up for the gaps identified in its evidence. Rather than send the matter back to the Registrar's list, as I am already familiar with the proceedings, it is more efficient that I continue to hear them.

19 Therefore the directions that I make are the following: 1. Union Fidelity is directed to serve at the registered office of Spurlet International Pty Ltd the notice of motion the evidence including all the additional evidence to be read and relied upon in these proceedings, together with a copy of this judgment and to do so by Friday 23 October 2009.

2. I further direct that the same material described in direction (1) be served by registered post upon the sole director of Spurlet International Pty Ltd, Mr Bilaun Keomoumgkhoun at 22 Tichborne Drive Quakers Hill New South Wales 2763 by Friday 23 October 2009.

3. I further direct that the service provided for in directions 1 and 2 be accompanied by a letter clearly pointing out that these proceedings are adjourned for further hearing to Friday 30 October 2009 at 10 am before me and drawing attention to this judgment.

4. I further direct that Union Fidelity file any supplementary evidence that Union Fidelity proposes to have read on this application, in light of the reasons that I have given in this judgment. This material can be delivered to my associate.

5. I adjourn the proceedings for hearing to 30 October 2009.

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