1 HIS HONOUR: This is a motion seeking various orders, but the only part of it before me is an application to compel the receivers of two companies (the third and fourth defendants) to pay over the surplus held by them after the sale of the first defendant's real property to the plaintiff.
2 The motion was heard by me on 8 December 2003. Mr LJ Aitken of counsel appeared for the plaintiff and Mr IE Davidson of counsel appeared for the receivers. The matter was stood over until 12 December 2003 for further submissions in writing. The plaintiff defaulted in its obligations in this respect and the matter was further adjourned until 18 December 2003.
3 I am indebted to both counsel for their very helpful written submissions.
4 On 18 December, I heard short argument. I took the view that I should not make any order on the notice of motion. I made certain directions with respect to the final hearing. Mr Davidson sought costs of the motion. I said I would give my formal decision and reasons today. I am now fulfilling that obligation.
5 The background to the dispute is that the plaintiff issued a summons on 19 November 2003 seeking a declaration that it was entitled to surplus funds held by the third and fourth defendants after the sale of two hotels owned by the first and second defendants. A statement of claim was filed on 26 November 2003 fleshing out those claims.
6 The statement of claim says that on or about 24 December 2001, Suncorp Metway Limited (Suncorp) advance the $5,193,000 to the second defendant and took a mortgage over the first and second defendants' hotels as well as taking a company charge.
7 It then says that a company called Surpion Pty Ltd advanced the first and second defendants one million dollars which was paid by Surpion to Suncorp. Surpion took a security which it later assigned at law to the plaintiff.
8 The statement of claim then alleges that there are other claimants to security over the properties, but that all are invalid or do not have priority over the security of the plaintiff.
9 It is common ground that Suncorp appointed the third and fourth defendants as receivers to manage and sell the hotels which, in due course, they did.
10 The plaintiff then alleges that the receivers charged excessive fees and paid over excessive legal expenses in connection with the realisation of the hotels which should not diminish the pool of money available to meet the plaintiff's security.
11 The solicitor for the receivers has filed an affidavit which deposes that for about six months, the receiver operated "two large pubs", that the accounts are complicated and that he is on notice from the plaintiff that there will be many challenges. An estimate of ten days is anticipated for the accounts to be settled.
12 It is common ground that in the course of the receivership, the receivers spent a very large sum of money on their own costs. The plaintiff says that much of this was in connection with an abortive attempt to resist an action for specific performance of a contract to acquire one of the hotels the subject of the receivership. The receivers deny this allegation.
13 It is clear, however, that the receivers' accounts will be contested by the plaintiff. This is clear from the present statement of claim and motions in these proceedings. The plaintiff also seeks to challenge the amount of the receivers' remuneration when an application is made under s 425 of the Corporations Act 2001. It seeks to cover any challenge to standing by taking an assignment from the liquidators of the first two defendants.
14 The receivers have also had notice of other claims against them arising out of the receivership in particular a claim for $280,000 connected with the sale of one of the hotels.
15 The plaintiff says that Suncorp has now been paid in full except for about $20,000. The receivers deny this. The plaintiff says that the receivers had a surplus. They have already paid over part of the proceeds of the realisation to the plaintiff. The receivers still hold about $300,000. It appears that the plaintiff may well be entitled to that balance subject to payment of the receiver's costs and expenses.
16 The authorities seem to be to the effect that where the creditor is almost completely paid and its receiver holds sufficient to pay over the balance, the court should treat the creditor as having been fully paid; see Rottenberg v Monjack [1993] BCLC 374, 382.
17 The plaintiff claims to be subrogated to that creditor by virtue of its paying part of its secured debt of $1,000,000. The receivers deny that claim.
18 The evidence shows that the Suncorp Company Charge defined "Moneys Secured" as including "(d) fees and expenses including legal expenses… by the Bank in connection with… enforcement or attempted enforcement of, or … the exercise of any Power under this Company Charge.
19 The Company Charge also contained power for the Bank to appoint receivers. Clause 18.2 provides that, "Any Receiver appointed by the Bank is an agent of the mortgagor and the mortgagor is solely responsible for anything done or not done by the receiver and for the Receiver's remuneration."
20 Mr Davidson says that whether Suncorp has been fully paid or not, because of the need for further expenditure by the receivers which they are entitled to make under the document of charge under which grounded their appointment, the plaintiff could not be said to be subrogated at the present time to Suncorp's rights. He relies on the decision of the Court of Appeal in Austin v Royal (1999) 47 NSWLR 27, especially [11].
21 The validity of this submission depends on whether the moneys secured by the charge include the receivers' costs and expenses.
22 Ordinarily, what are called the mortgagee's internal costs of administering the mortgage do not fall within phrases like "costs, fees and expenses"; see Fisher & Lightwood on Mortgages, Australian edition (Butterworths, Sydney, 1995) [40.26]. However, the result in any particular case will depend on the construction of the particular mortgage documents in their factual matrix: Sandtara Pty Ltd v Australian European Finance Corp Ltd (1990) 20 NSWLR 82, 90.
23 There are reported cases where receivers' remuneration and expenses have been held to fall within the phrase; see eg Re Wallis (1890) 25 QBD 176, 182; Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 and Rottenberg v Monjack (supra).
24 I do not consider that I should venture into the construction of the mortgage or company charge on this application. Questions of fact may also be involved in calculating whether all or some part (or no part) of what the receivers claim come within the phrase. There is also the question which has not been explored on this motion as to whether clause 18.2 operates to remove the receivers' remuneration from the phrase, notwithstanding that it might otherwise have fallen within it.
25 Thus, for present purposes, I will merely apply the general rule.
26 Thus, Mr Davidson's submissions on this point do not absolve me from considering what is the nature of the plaintiff's right.
27 Mr Aitken relies on my decision in Tolhurst v Crickett Pty Ltd (2001) 10 BPR 19,087 where I said at 19,088 [8]:
"The law is that if A pays in whole or in part a mortgage owed by B to C, then the usual construction of that scenario is that A did not intend to discharge the mortgage, but to have the appropriate interest transferred or held on trust for him"
28 I adhere to that proposition which is well supported by the Privy Council's decision in Ghana Commercial Bank v Chandiram [1960] AC 732 and see Fisher & Lightwood [14.6].
29 However, where only part of the debt is paid, all this means is that the original creditor has the obligation of transferring the mortgage if it has otherwise been paid in full. There might be cases where there can be a legal assignment of the debt if the payer's is the only amount still owing by the mortgagor.
30 As part of a debt cannot be assigned at law, the usual procedure will be for there to be an equitable assignment which may well mean that the original creditor has to lend its name to the recovery proceedings.
31 In equity, the original creditor is a necessary party to the recovery proceedings.
32 In the present case, Suncorp has never been joined as a party.
33 The upshot is that the plaintiff has no right at law and that it has not properly invoked any equitable right because its suit is defective for want of parties.
34 Mr Aitken says that the proceedings should not be allowed to be disposed of on such a technicality.
35 There are three answers to this submission. First, the observance of what Mr Aitken calls "technicalities" is important in our law in this area. Secondly, the present case is a very technical matter. Thirdly, I am not disposing of the case, I am merely declining to give relief on the motion and letting the case proceed to final hearing.
36 However, even if I put aside "technicalities", the result of the motion is the same.
37 The receivers claim to be entitled to retain the balance pending passing of their accounts and also as security for any action that might be brought against them arising out of the receivership.
38 Mr Aitken submits that the legal position is a simple one, namely in what circumstances is an agent, in the absence of specific contractual entitlement, permitted to retain part of the proceeds of a recovery which he is employed to make against his employer. He says that the receivers are not entitled to retain any sum at all for those purposes out of what he claims are the plaintiff's monies.
39 If Mr Aitken is correct, the plaintiff's claim is really one at law for money had and received. Actions at law result in verdict and judgment after a final hearing. It is usually quite inappropriate to make some interim order for payment by interlocutory motion.
40 During the oral argument, Mr Aitken acknowledged the force of what I have stated in the preceding paragraph. He thus mounted an alternative case that his client was entitled to an account in equity and an interim order for payment.
41 I have little doubt that, one way or another, the plaintiff may have standing to ask for an account even if only because of the assignment of rights it has obtained from the liquidator of the first and second defendants. However, just what is the basis of its standing to seek an account is a vital issue.
42 If the plaintiff's standing is as a second mortgagee, then it is in the same plight as a mortgagor.