Solicitors:
Andrew R Ford Lawyers (Applicant)
Dentons Australia (Plaintiff)
Rankin Ellison Lawyers (First Defendant)
File Number(s): 2019/163114
[2]
Judgment
HIS HONOUR: Justin Barker ("the applicant") comes before me as Duty Judge seeking orders pursuant to rr 6.24 and 6.27 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") that he be joined to the proceedings between National Australia Bank ("the plaintiff"), Howard John Barker ("the first defendant") and Jennifer Elizabeth James ("the second defendant").
[3]
Background
The first and second defendants are the registered proprietors of an apartment at Tamarama ("the Tamarama property"). The applicant on the present motion is the only child of the defendants and has occupied the property since 19 February 2018.
The plaintiff pleads that on or about 9 June 2004, it advanced a loan in the amount of $233,000 to the defendants, secured by a first registered mortgage over the Tamarama property ("the mortgage agreement"). It further pleads that the defendants have defaulted on the loan and seeks possession of the property and judgment for the balance of the outstanding debt. The first defendant does not oppose those orders and the second defendant, who is an undischarged bankrupt, has not yet filed a notice of appearance.
In 2009, the second defendant brought proceedings against the first defendant seeking orders in relation to the Tamarama property and another property owned by the defendants in Darlinghurst ("the first Darlinghurst property"). The application was considered by Tamberlin AJ in James v Barker [2009] NSWSC 725. The history of property ownership and encumbrances that emerged in that case, so far as are relevant as background to this application, are as follows.
In July 1979, the second defendant purchased a property located in Tamarama, NSW ("the Tamarama property"). At some point thereafter, she and the second defendant commenced a relationship. In 1990, the first defendant transferred a one-half interest in the Tamarama property to the second defendant. They became the registered owners as joint tenants and the second defendant became jointly liable for an existing mortgage on that property. In 1994, the defendants purchased the first Darlinghurst property, partly financed by a mortgage over the Tamarama property. In 1999, the defendants refinanced the mortgage on the Tamarama property for a further $50,000, bringing the total incumbrance over the property at that time to $97,000. In the same year, the second defendant purchased a property in her own name, adjoining the first Darlinghurst property ("the second Darlinghurst property"). In 2003 and again in 2004, the defendants refinanced the mortgage on the Tamarama property with the plaintiff.
The issues for determination by Tamberlin AJ were whether the defendants had entered into an agreement about the Tamarama and first Darlinghurst property and, if so, the terms of that agreement. Tamberlin AJ found that the parties had entered into an agreement, making the following orders:
"(1) Declare that a binding agreement was entered into by the [the second defendant] and [the first defendant] on the 22nd of February 1999 on the following terms:
a. [The first Darlinghurst property] would be sold.
b. [The Tamarama property] would not be sold.
c. [The Tamarama property] would pass to the survivor of [the second defendant] and [the first defendant] and thereafter to [the applicant].
d. [The Tamarama property] was to be refinanced in an amount in the order of $50,000 of which [the second defendant] was to receive $15,000 and [the first defendant] was to receive $15,000.
e. The balance of the $50,000 refinanced amount would be paid to restore and repair the properties at [the first Darlinghurst property] and [the Tamarama property], respectively.
f. [The second defendant] would assume responsibility for the mortgage at the property at [the Tamarama property].
g. From the proceeds of the sale of [the Darlinghurst property] [the first defendant] would pay one year of school fees for [the applicant].
h. After the payment of the school fees [the second defendant] and [the first defendant] would divide the net proceeds of the sale of [the Darlinghurst property], equally.
(2) Order that [the first defendant] by himself, his servants or agents or otherwise be restrained from:
a. Taking any steps to sever the joint tenancy in the property at [the Tamarama property].
b. Taking any steps to sell or dispose of his interest in the property at [the Tamarama property].
c. Mortgaging or otherwise dealing with his interest in the property at [the Tamarama property]."
On 16 December 2016, the applicant registered a caveat on the title of the Tamarama property, which described the applicant's interest in the property as an "equitable/ beneficial interest in the land" based on "an entitlement to the remainder of the property after the life estates of the registered proprietors in accordance with orders made on 11 August 2009".
On 29 November 2017, a sequestration order was made against the estate of the second defendant and a trustee in bankruptcy was appointed, being Shabnam Amirbeaggi ("the trustee"). She registered a caveat on the property on 19 February 2019.
As at 4 March 2019, the defendants were in default of the mortgage agreement, having not made payments when they were due. On 5 March 2019, the plaintiff issued a notice of default to the defendants. The defendants did not rectify this default.
On 15 March 2019, the trustee commenced proceedings in the Federal Circuit Court seeking 20 substantive orders and 19 interim orders in respect of the second defendant's property, being declarations as to ownership, certain trust moneys and appointment of a trustee for the sale of the property. The applicant is the fifth respondent in these proceedings. The other parties include the defendants to this notice of motion (the first and second respondents), the plaintiff (the third respondent) and the Registrar General of New South Wales (the fourth respondent).
On 24 May 2019, the plaintiff filed a statement of claim against the defendants claiming, inter alia, possession of the property and judgment against the first defendant in the amount of $284,536.60, being the amount of the debt under the mortgage agreement. The plaintiff confirmed at the hearing of this matter that the second defendant was not joined as a subject of this claim because of her status as an undischarged bankrupt and that it has received no correspondence from her or on her behalf.
On 29 May 2019, the first defendant filed an appearance in the proceedings. To date he has not filed a defence, although via correspondence from his solicitor to the plaintiff on 5 April 2019, he had conveyed his consent to the sale of the Tamarama property. In submissions in these proceedings, he has adhered to this position.
On 11 June 2019, the applicant filed the present notice of motion seeking to be joined to the proceedings. The applicant has tendered a draft defence ("the draft defence") and cross-claim ("the draft cross-claim") to the statement of claim, to be filed if his application succeeds.
[4]
Relevant legislative provisions
The Court has jurisdiction to join parties pursuant to rr 6.24 and 6.27 of the UCPR, which relevantly provide the following:
"6.24 Court may join party if joinder proper or necessary
(1) If the court considers that a person ought to have been joined as a party, or is a person whose joinder as a party is necessary to the determination of all matters in dispute in any proceedings, the court may order that the person be joined as a party.
(2) Without limiting subrule (1), in proceedings for the possession of land, the court may order that a person (not being a party to the proceedings) who is in possession of the whole or any part of the land (whether in person or by a tenant) be added as a defendant.
…
6.27 Joinder on application of third party
A person who is not a party may apply to the court to be joined as a party, either as a plaintiff or defendant."
[5]
Applicant's submissions
The applicant submits that the primary test for joinder under r 6.24 is whether a party's rights are affected by the orders sought in the proceedings, relying on the following passages from Black J in In the matter of Beechworth Land Estates Pty Ltd (in liquidation) and Griffith Estates Pty Ltd (in liquidation) [2018] NSWSC 1703:
"27 The first part of this rule is directed to the joinder of a proper party to the proceeding, that is a person who might have been joined as a party, and the second to a 'necessary' party to the proceeding, although those concepts overlap. The scope of a corresponding rule was considered in News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410; 139 ALR 193; 21 ACSR 635, where the Full Court of the Federal Court pointed to the intention to avoid, where reasonably practicable, a multiplicity of proceedings and observed that '[a]n order which directly affects a third person's rights against or liabilities to a party should not be made unless that person is also joined as a party'. The Full Court observed that the relevant test:
'… involves matters of degree, and ultimately judgment, having regard to the practical realities of the case, and the nature and value of the rights and liabilities of the third party which might be directly affected. The requirement that a third party's rights against, or liability to, any party to the proceedings be directly affected is an important qualification that recognises that many orders of a court are likely to affect other people to a greater or lesser extent ... The requirement of a direct effect on rights or liabilities differentiates the case where a person ought to be joined, from other cases where the effect of the order on non-parties can be characterised as only indirect or consequential.'
28 In John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 at [131]-[132], the High Court referred to the decision of the Full Court of the Federal Court in News Ltd v Australian Rugby Football League Ltd above and applied a test of direct effect on the legal rights of another person, in that case the interests of a person claiming an interest in the land which would be deprived of its rights if indefeasible proprietary rights were created in favour of a party to the litigation without it being heard. In Metcash Ltd v Jardim (No 2) [2010] NSWSC 1042 at [7], Ball J summarised the relevant principle as being that a person 'ought to be joined as a party if its legal rights are directly affected by the orders sought but not otherwise'. I adopted the same approach in Re Raejoe Pty Limited (rec and mgr apptd) (admins apptd) as trustee for The Coe Family Trust [2012] NSWSC 1457, on which I have drawn for the summary of the principles that appears above."
In his draft cross-claim, the applicant pleads that, by reason of the agreement that was the subject of Tamberlin AJ's orders, he has "a vested equitable remainder interest in the [Tamarama] Property", and that the defendants hold that interest as a constructive trust for the applicant. In his written submissions, the applicant conceded that "whether this is a constructive trust or tracing remedy is a vexed question" and thus far has not found authority that supports his proposition that Tamberlin AJ's orders give rise to a constructive trust.
The applicant also submitted in writing that, consequent to Tamberlin AJ's orders, he has a vested contingent remainder interest in the property, although conceding in his oral submissions that "clarifying what those orders mean in a legal sense is quite difficult". He submits that his interest, however described, would be extinguished if the plaintiff is granted the orders sought, thereby satisfying the test for joinder.
The applicant foreshadows that if he is successful in this application, he will then apply to transfer these proceedings to the Federal Court, to be joined with the trustee's application.
The applicant's draft defence advances two grounds. The first is that the amount that the plaintiff claims is owed under the mortgage agreement does not accurately reflect the outstanding loan moneys plus interest, but rather "is in whole or in part comprised of debts not owing under the agreement." These debts are particularised as including "enforcement costs arising from proceedings involving the Plaintiff and Second Defendant in respect of proceedings unrelated to the agreement", with further particulars to follow discovery.
The second ground contends that the plaintiff's solicitor holds funds from the sale of the second Darlinghurst property, which occurred in December 2012, "on express trust for the purpose of satisfying the outstanding debts of the Second Defendant to the Plaintiff including the debt claimed by the Plaintiff in this proceeding and to preclude the Plaintiff from relying upon the mortgage". The terms of this trust are particularised as being set out in "written communications between the Plaintiff and the Second Defendant in late December 2012", with further particulars to follow discovery. The applicant states in his draft defence that the plaintiff is estopped from relying on the mortgage and claiming possession until those funds have been applied to the debt.
In his oral submissions, the applicant conceded that, without the benefit of discovery, he could not produce evidence of either ground. The basis of the first ground is that:
"[The second defendant] has had so many fights with so many people, including the bank, I believe, in Queensland, and we have asked for particulars and what the debt is comprised of and we don't know. So I can't take it further than that."
In relation to the second ground, the applicant stated that it was based on a pleading in the Federal Circuit Court proceedings. An aspect of property in respect of which the trustee in her application sought a declaration of her vested interest and accordingly an order for payment to her, was: "[the second defendant's] interest in the net proceeds of sale of [the first Darlinghurst property]" which she stated was in the sum of $256,834.53 with interest, held in the plaintiff's solicitors' trust account. The applicant's contention in his oral submissions is that these funds were unavailable to the trustee as they were held on a specific purpose trust, but was unable to point to any evidence, including communications as proposed to be pleaded, in support of this proposition.
The applicant's proposed cross-claim seeks declarations that that defendants hold this property on a constructive trust for the applicant and that he is entitled to any "surplus proceeds of sale after payment of all amounts duly owing to [the plaintiff]", as well as an order to that effect.
[6]
Plaintiff's submissions
The plaintiff submits that as its security over the Tamarama property arises from the registered mortgage, its interest prevails over the applicant's unregistered equitable interest pursuant to s 42 of the Real Property Act 1900 (NSW). The plaintiff noted that neither the applicant nor the defendants dispute that the defendants have defaulted on their payments and that it gives rise to a power of sale of the property by the plaintiff. The plaintiff submitted that there is no capacity for an order made pursuant to their statement of claim to affect the applicant's liability to the plaintiff, since he has none and any rights of the applicant are not affected directly, only indirectly. Accordingly, the applicant fails according to the test articulated by Black J. The applicant's rights are protected by the proceedings in the Federal Circuit Court, such that the plaintiff could not disburse any surplus funds from the sale of the Tamarama property without an agreement between all the interested parties which includes the applicant, an order of the Federal Circuit Court or by interpleader relief in this Court.
In relation to the proceeds from the sale of the second Darlinghurst property, the plaintiff noted that this is effectively the subject of proceedings in the Federal Circuit Court and, even if they was applied to the mortgage debt arising from the Tamarama property, it would reduce the mortgage debt (to around $30,000) rather than extinguish it, which still entitles the plaintiff to sell the property.
[7]
First defendant's submissions
The first defendant submits, through his counsel, that he is "virtually impecunious and lives in a modest rental accommodation at the moment", that he cannot make any contribution to the debt owing to the plaintiff and that he is concerned about "defray[ing] the cake" by delaying the sale of the Tamarama property through these proceedings, due to accruing interest.
The first defendant disputes the applicant's claim that he has a vested contingent remainder interest in the Tamarama property, submitting that under Tamberlin AJ's orders, it would not have vested until the death of the defendants. Further, he argues that Tamberlin AJ's orders were, at their highest, a declaration of a private agreement reached between two individuals which could be varied by consent. He joins in the plaintiff's submission that a registered legal interest will always take priority over an unregistered equitable interest pursuant to s 42 of the Real Property Act.
[8]
Consideration
The terms of r 6.24 allow the Court a discretion to join a party if it considers a party ought to have been joined, or that joinder is necessary to the determination of all matters in dispute in the proceedings. Subrule (2) expressly recognises that, "without limiting subrule (1)", in proceedings for possession of land, a tenant of that land who is a non-party may be added as a defendant. The applicant is a tenant of the Tamarama property.
In John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 at [131], the High Court affirmed that where a court is invited to make, or proposes to make, orders directly affecting the rights or liabilities of a non-party, the non-party is a necessary party and ought to be joined. It is therefore appropriate to consider the nature of the right alleged by the applicant and whether that right would be directly affected by the orders proposed by the plaintiff.
Tamberlin AJ's orders contemplated that both defendants would stay on the title of the Tamarama property as joint tenants, there would remain a mortgage on it, albeit of a lesser amount, and the second defendant would "assume responsibility" for it in orders (1)(d) and (f). Implicit in those terms, it seems to me, is a contemplation of the contingency that if, for whatever reason, the borrowers on the mortgage default and the mortgagor asserts its right to possession and sale, the property cannot be passed to the applicant, although he may well have a right to the defendant's interest in the balance of the property sale proceeds, after the debt is discharged. Whether he does or not, and the nature of that right, is irrelevant for the purposes of this application and squarely arises in the Federal Circuit Court proceedings.
The applicant's remainder interest arising from Tamberlin AJ's orders is subject to the plaintiff's registered mortgage pursuant to s 42 of the Real Property Act. It follows that the registered mortgage must prevail over the applicant's unregistered equitable interest to the extent of any inconsistency.
It is not apparent how the applicant could resist the plaintiff's right to take possession of the property to satisfy the debt arising from the defendants' default under the agreement on the basis of his equitable interest. While the applicant may have some rights as against the defendants if the Tamarama property is sold, this has no bearing on the dispute between the plaintiff and the defendants. This remains the case regardless of when the interests were created; as such, it is inconsequential whether the mortgage pre-dated or post-dated Tamberlin AJ's orders.
There is no evidence before the Court to substantiate the bases of the applicant's proposed defence and cross-claim. Evidentiary issues aside, there are significant issues with the applicant's arguments. In relation to the first ground of the defence, namely, that the plaintiff holds the money from the sale of the second Darlinghurst property on trust for the purpose of paying the debt owed under the mortgage agreement, it is not apparent how reducing the debt would have any consequence on the applicant's interest in the property. The default would remain and the plaintiff would still be entitled to exercise its power of sale. In any event, the correspondence between the plaintiffs and the defendants which the applicant alleges gives rise to this trust over the sale proceeds is not before the Court.
In relation to the second ground, namely, that the debt alleged to be owing under the mortgage agreement is inaccurate, this does not create an interest in favour of the applicant which would take priority over the plaintiff's registered mortgage.
The cross-claim similarly lacks merit. It is not apparent how the orders made by Tamberlin AJ would mean that the surplus proceeds of sale would be held on trust for the applicant. In any event, any beneficial interest held by the applicant would be subject to the legal interest of the plaintiff as registered mortgagee.
Accordingly, I do not consider that the applicant ought to be joined to the proceedings or that it is necessary for the determination of the matters in dispute between the plaintiff and the defendants in those proceedings for the applicant to be joined. Therefore, I decline to exercise the discretion to do so pursuant to rr 6.24 and 6.27 of the UCPR.
[9]
Orders
I make the following orders:
(1) The notice of motion filed 11 June 2019 is dismissed.
(2) The applicant is to pay the plaintiff's and first defendant's costs.
[10]
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Decision last updated: 08 August 2019