Murphy v Hilliard & Anor [2007] NSWSC 703 | Case summary

1 The Plaintiff applies by Notice of Motion pursuant to UCPR 28.2 and s.62(2) of the Civil Procedure Act 2005 (NSW) for an order that four claims for relief in his Further Amended Summons be heard and determined separately at a preliminary hearing. 2 The Second and Third Defendants, who are also the First Cross Claimants, apply by Notice of Motion for an order that seven issues or claims for relief be heard and determined separately at a preliminary hearing. The issues which the opposing parties wish to have separately determined are different. Each side opposes the separate hearing of the issues propounded by the other side. 3 The issues in the proceedings are complex factually and legally. Only the briefest summary is necessary for present purposes. The Plaintiff and the Second Defendant entered into an agreement for the development of land at Coogee as four residential units ("the Agreement"). The land was owned by the Second Defendant, and the Plaintiff was to purchase a certain interest in the land for $1,600,000. On the completion of the development, units 1 and 2 were to be owned by the Second Defendant and her daughter, who is the Third Defendant and also a Cross Claimant, and units 3 and 4 were to be sold, the profits being divided between the parties in specified proportions. 4 The builder engaged in the development was a company controlled by the Plaintiff. The parties borrowed a substantial sum from Westpac Bank to finance the development. That loan was secured by a mortgage over the subject land. The purchase price of $1,600,000 which the Plaintiff was to pay the Second Defendant for the acquisition of an interest in the land was left outstanding as a loan secured by mortgage to the Second Defendant of the Plaintiff's interest in the land. In the Agreement this loan to the Plaintiff is identified as the "Murphy Loan". 5 The Second and Third Defendants have now taken occupation of units 1 and 2. The Plaintiff has attempted to sell units 3 and 4. A contract for the sale of unit 3 has been entered into but the Second and Third Defendants say that the sale is at an undervalue and the Second Defendant has refused to consent to the sale as mortgagee under the Murphy Loan. 6 The Plaintiff commenced proceedings seeking declarations and orders, the effect of which is to compel the Second Defendant to give her consent to the sale of unit 3 and to restrain the Third Defendant from obstructing that sale. 7 The Second and Third Defendants defended that claim and, by Further Amended Cross Claim, the Second Defendant alleged that the Plaintiff was in default of his mortgage to her of his interest in the land. She claimed an order for possession of units 3 and 4. 8 The Plaintiff contends that he is not in default under the mortgage to the Second Defendant. He relies on a provision of clause 14 of the Agreement. Clause 14.1 provides that the Second Defendant is to pay the Plaintiff the "Construction Costs". Clause 14.3 provides that the Plaintiff "may at his option offset the Murphy Loan against his entitlement to the Construction Costs". This somewhat oblique provision is, at least arguably, capable of meaning that the Plaintiff is entitled to deduct from what he owes to the Second Defendant under the Murphy Loan what the Second Defendant owes to him pursuant to her obligation under clause 14.1 to pay him the Construction Costs. 9 The Plaintiff says that he has exercised the option conferred on him under clause 14.3 and that what he is owed by the Second Defendant in respect of Construction Costs under clause 14.1 equals or exceeds the amount which he owes to the Second Defendant under the Murphy Loan. He says that for this and other reasons, which I need not elaborate for present purposes, he is not in default under the mortgage securing the Murphy Loan so that the Second Defendant is not entitled to exercise her rights under her mortgage. The Second and Third Defendants in turn say that the Plaintiff is not entitled to set-off the Construction Costs against the Murphy Loan because the amount of such costs has not been determined. They say that there is a dispute about the amount of those costs and they rely upon Clause 14.4 of the Agreement, which provides: "If there is a dispute between the parties as to the value of the Construction Costs then:

(f) the fees of the Quantity Surveyor must be paid equally by each of the parties to this agreement." 10 However, the Second Defendant has resisted the Plaintiff's request to refer the dispute as to Construction Costs to the quantity surveyor in accordance with Clause 14.4 because she says that the meaning of "Construction Costs" as defined in the Agreement is uncertain and would require clarification by declaratory order of the Court, so that there is no purpose in referring the dispute under Clause 14.4 while it is unclear what the quantity surveyor has to decide. Accordingly, the Second Defendant has declined to engage in the quantification exercise prescribed by Clause 14.4 of the Agreement. 11 In the meantime, she says, the quantum of the Plaintiff's entitlement to Construction Costs being in dispute, and there being no presently effective means in the Agreement for determining that dispute, the Plaintiff is not entitled to any sum certain under clause 14.1 of the Agreement and has no sum certain which is capable of being set off against the Murphy Loan under clause 14.3. It follows, the Second Defendant says, that the Plaintiff is in default of his obligation to repay the Murphy Loan, and the Second Defendant is entitled to exercise her rights under the mortgage securing that loan. 12 To support her contention that the Plaintiff is presently not entitled to a set-off, the Second Defendant relies on an ex tempore interlocutory judgment of Gzell J in these proceedings: Murphy v Westpac Banking Corporation [2007] NSWSC 170. However, what his Honour said there was by way of dealing with a completely different kind of interlocutory application from the present, and I do not think that his Honour intended to say anything which would prejudge the issues in the case. 13 The Plaintiff has responded to the Second Defendant's contention by amending his Further Amended Summons to seek declarations as to the meaning of Construction Costs in the Agreement and by filing a Notice of Motion seeking a separate hearing of the issues so raised. The Defendants oppose such a separate hearing and have filed their own motion seeking a separate hearing of the issue as to whether the Plaintiff was in default under the mortgage securing the Murphy Loan and whether the Second Defendant should now have a writ of possession of units 3 and 4. 14 When the motions were called on, both parties urged that the matter was urgent and required an expedited hearing. The Second Defendant informed the Court that Westpac Bank was threatening to exercise its power of sale over the whole property under its first mortgage and would only hold its hand if the Second Defendant made some demonstrable progress in obtaining an order for possession. 15 The Plaintiff said that he was paying interest on the funds borrowed from Westpac when that liability could be discharged or reduced if units 3 and 4 could be sold. 16 In discussion with Counsel, I proposed an interim solution which would remove from contention what seemed to be unnecessary issues and would allow the parties to have an expedited final hearing of all remaining issues as soon as possible. The parties indicated initial agreement with the broad outline of the suggestion but, after further discussion between themselves, they were unable to agree on its implementation. 17 I then proceeded to hear the Notices of Motion for the trial of separate questions. That issue depends not on the urgency of the commercial considerations advanced by the parties, but upon whether a trial of separate questions is likely to result either in the early resolution of the proceedings or a real saving of expense and inconvenience to the parties in the conduct of the litigation: see, generally Love v Mirror Newspapers Ltd [1980] 2 NSWLR 112. 18 The Court proceeds on the basis that in the usual course all issues should be tried at the same time. Common experience teaches that attempts to segregate issues for separate trial very frequently lead to a multiplicity of issues which increase rather than minimise expense and delay in the litigation. The caution, indeed the reluctance, with which the Court treats applications for trial of separate issues is well expressed in the following often quoted passage of the judgment of Kirby and Callinan JJ in Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at paragraph 168: "The appeal should be allowed. However, we should not leave this case without making four comments. Both Mason and Fitzgerald were critical of the course of limiting the issues to be tried that the primary judge adopted. In Perre v Apand Pty Ltd attention was drawn to difficulties that can be caused when that course is adopted. In light of the experience in this case, what was there said should be restated with emphasis. The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real. Common experience demonstrates that savings in time and expense are often illusory, particularly when the parties have, as here, had the necessity of making full preparation and the factual matters relevant to one issue are relevant to others, and they all overlap." 19 In the course of submissions, Mr Collins QC, who appears with Mr Cullen of Counsel for the Plaintiff, seemed to abandon the Plaintiff's motion for separate trial, probably recognising that the arguments which he was advancing in opposition to the Defendants' application for a separate trial applied to his own application as well. Mr Collins' final position was that there should be a trial of all issues. 20 I have considered carefully the written submissions of Mr Inatey SC, who appears with Mr Knoll for the Defendants, as supplemented by his oral submissions. However, I am not persuaded that I should accede to the defendants' motion. My reasons briefly are as follows. 21 I do not think it is realistic to suggest that the Second Defendant's claim to possession can be determined without consideration of the Plaintiff's claim that he is not in default of his mortgage because he is entitled to offset against what is owing under that mortgage an amount equal to or greater than the amount owed to him by the Second Defendant in respect of Construction Costs. Consideration of that defence to possession will very possibly entail a construction of the definition of Construction Costs in the Agreement and, as well, a quantification of those costs in order to ascertain what is the amount to which the Plaintiff is entitled. 22 Not only will the Court have to deal with the construction and quantification issues, but it will also have to deal with a contention, pleaded in paragraph 37 of the Second and Third Defendants' Cross Claim and referred to in paragraph 25 of Mr Inatey's submissions, that the right to set-off against the Murphy Loan which the Plaintiff asserts should be denied on equitable grounds, which include an allegation that amendments to the original Agreement between the parties were procured by the Plaintiff's misleading statements to the Second Defendant. 23 It is clear that there are many disputed issues of fact as well as complex issues of law which may arise in determining the Second Defendant's claim for possession. Many of these issues are common to, or overlap with, the issues which will arise in the other claims for relief advanced by both sides in the proceedings. 24 The Court should order a separate trial under UCPR 28.2 only when the benefits in the conduct of the litigation are clear. I am far from satisfied in the present case that there will be any saving of time and expense if the Second Defendant's claim for possession is separately tried. On the contrary, it seems likely that if a separate trial is ordered, issues will be proliferated and needless expense incurred, particularly if appeals from preliminary decisions are taken. 25 For these reasons, I dismiss both the Plaintiff's and the Second and Third Defendants' Notices of Motion for separate trials. I will hear the parties as to costs. 26 Both parties have succeeded in opposing each others' motions, consequently both have failed. It seems to me that this is a case in which it is appropriate to order that costs of both motions be reserved.

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Murphy v Hilliard & Anor

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